[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]




                               before the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION


                              HEARING HELD
                           NOVEMBER 30, 2011


            Small Business Committee Document Number 112-046
              Available via the GPO Website: www.fdsys.gov


72-209                    WASHINGTON : 2011
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                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York
                       ROBERT SCHILLING, Illinois

               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                        JANICE HAHN, California
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director

                            C O N T E N T S


                           OPENING STATEMENTS

Bartlett, Hon. Roscoe G..........................................     1
Velazquez, Nydia.................................................     2


Mr. James Rivera, Associate Administrator, Office of Disaster 
  Assistance, United States Small Business Administration, 
  Washington, DC.................................................     3
Mr. William Shear, Director, Financial Markets and Community 
  Investment, United States Government Accountability Office, 
  Washington, DC.................................................     5


Prepared Statements:
    Mr. James Rivera, Associate Administrator, Office of Disaster 
      Assistance, United States Small Business Administration, 
      Washington, DC.............................................    26
    Mr. William Shear, Director, Financial Markets and Community 
      Investment, United States Government Accountability Office, 
      Washington, DC.............................................    29
Questions for the Record:
Answers for the Record:
Additional Materials for the Record:
    Agility Recovery Statement for the Record....................    41


                      WEDNESDAY, NOVEMBER 30, 2011

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1 p.m., in room 
2360, Rayburn House Office Building, Hon. Roscoe G. Bartlett 
(Member of the Committee) presiding.
    Present: Representatives Bartlett, Mulvaney, Tipton, West, 
Barletta, Schilling, Velazquez, Chu, Cicilline, Richmond, and 
    Mr. Bartlett. Good afternoon. In the absence of the 
chairman, it is my privilege to call this meeting to order.
    After disaster strikes, victims want to know that they will 
have the financial resources to recover. Immediate disaster 
assistance is led by State governments, along with assistance 
from the Federal Emergency Management Agency, or FEMA. However, 
long-term recovery is the responsibility of the Small Business 
Administration. Disaster assistance offered by the SBA helps 
homeowners, renters, businesses, and nonprofit organizations by 
offering long-term recovery loans.
    When working properly, SBA programs help people rebuild 
their homes and businesses after they have been destroyed. SBA 
loans also help businesses that suffer economic losses 
resulting from a community struggling to get back on its feet.
    What victims do not need is endless paperwork, 
misinformation, and delays. It is essential that SBA maintain 
the capacity to get money quickly into the hands of people who 
need the funds to rebuild. By properly planning and continually 
reassessing how it offers assistance, SBA can be better 
prepared to respond in times of emergency. Our role is to 
oversee SBA's implementation of statutory changes to the 
disaster loan program and to ensure that it is meeting the 
needs of disaster victims.
    I find it troubling that in 2009, almost 4 years after 
Hurricane Katrina, GAO reported that they were not comfortable 
that SBA could meet the challenges of another disaster on the 
scale of Katrina. Today GAO continues to report that laws 
passed in 2008 are not fully implemented. While I appreciate 
the progress that has been made, SBA needs to make disaster 
recovery a higher priority. There are too many people relying 
on SBA for assistance to rebuild their homes and their 
businesses for us not to get this right.
    With that, I look forward to receiving an update on SBA's 
implementation of statutory changes and how those changes have 
helped SBA respond to recent disasters. I am also interested in 
hearing what else can be done to make sure SBA is prepared to 
respond to any disaster we might face in the future.
    I would now like to yield to my good friend and ranking 
member, Ms. Velazquez, for her opening remarks.
    Ms. Velazquez. Thank you, Mr. Chairman, thank you for 
yielding. With so much of the national attention focused today 
on the holiday season, it is easy for Americans to lose sight 
of the risks posed by Mother Nature, but the reality is that 
natural disasters can occur in times and places where they are 
least expected. From fires in Texas to an earthquake in 
Virginia and a hurricane in the Northeast, the events of the 
past summer have shown the need for disaster readiness in every 
part of the country.
    Today we will examine whether the SBA's disaster assistance 
program is prepared to meet this challenge and whether reforms 
enacted in the 110th Congress have been fully implemented by 
the agency.
    Since the agency's creation in 1953, the SBA has performed 
its disaster assistance mission. Today the SBA's disaster loans 
are the primary form of Federal assistance for the repair and 
rebuilding of private sector losses and are not limited to 
small businesses. SBA loans help homeowners rebuild their homes 
and can help every disaster victim replace damaged personal 
possessions. SBA loans can even help businesses cover the 
economic losses they experience as a result of a disaster.
    For those of us who have been on the committee for some 
time know that SBA also has a history of struggles with its 
disaster assistance programs. Nowhere was this more apparent 
than under the disaster loan program which faced significant 
challenges following Hurricane Katrina. At the time we asked 
GAO to take a look at the program and evaluate the agency's 
response to the hurricane. The resulting reports led to the 
passage of the Disaster Response and Loan Improvements Act. 
That law laid the foundation for important reforms to the 
disaster assistance program. It fixed the shortcomings 
uncovered by Katrina and gave the agency new tools to better 
leverage its resources and coordinate with the private sector.
    In 2009, a full year after the passage of the Disaster 
Response and Loan Improvements Act, the committee held hearings 
to evaluate the agency's progress in making reforms. At that 
time the SBA had yet to fully implement 13 out of 26 provisions 
contained in the act. In the 2 years since then, some progress 
has been made toward full compliance with the law, but as we 
will hear today, a great deal of work remains to be done.
    In addition to obstacles in effective disaster planning, 
SBA has struggled to meet deadlines on critical reports. 
Additionally, the agency has chosen to implement new bridge 
loan initiatives on a trial basis, even pilot programs that 
were not called for, and perhaps most notably, the agency has 
made very little progress in implementing its private disaster 
assistance program. It is important that these issues be 
resolved. Should another major disaster strike, it will be 
critical that the agency have a framework in place to deliver 
bridge assistance and private loans to victims.
    In examining the current state of the disaster assistance 
program, it is clear that there is still significant work to be 
done. And the stakes could not be higher. It is estimated that 
between 40 and 60 percent of businesses fail to recover from a 
natural disaster. This is why it is so important that the 
agency get it right. Our economy is counting on small firms to 
drive growth and create jobs. We simply cannot afford to lose 
these engines of growth. In making sure they are able to do 
that, we need an SBA that can step up to the plate and meet its 
mission to deliver disaster assistance where it is needed most.
    I would like to thank both Mr. Rivera and Mr. Shear for 
being here for this discussion, and I know we all look forward 
to hearing what they have to say. Thank you, Mr. Chairman.
    Mr. Bartlett. Thank you very much. Our first witness is 
James Rivera, Associate Administrator of the Office of Disaster 
Assistance at the Small Business Administration. In this role 
Mr. Rivera is responsible for all aspects of the SBA disaster 
loan-making programs. During this time Mr. Rivera has worked at 
modernizing the disaster relief applications process, including 
the implementation of the electronic loan application. Mr. 
Rivera, welcome to our committee, and we look forward to your 

                     ACCOUNTABILITY OFFICE

                   STATEMENT OF JAMES RIVERA

    Mr. Rivera. Good afternoon, Congressman Bartlett, Ranking 
Member Velazquez, and Chairman Graves, and the distinguished 
members of the committee. Thank you for inviting me to discuss 
SBA's disaster assistance programs.
    SBA's Office of Disaster Assistance provides financial 
assistance in the form of low-interest loans. Earlier last week 
SBA reached a milestone in providing more than $50 billion in 
disaster loans. We are proud to help homeowners and businesses 
get back on their feet after a disaster.
    Although SBA is not a first responder agency, we are on the 
ground immediately following a disaster. SBA's primary focus is 
providing low-interest, long-term loans as part of the recovery 
efforts in coordination with other government partners at the 
Federal, State, and local levels. Additionally, SBA offers 
economic injury disaster loans to small businesses, small 
agricultural cooperatives, and most private nonprofit 
organizations who have suffered economic injury caused by a 
disaster. These loans provide working capital to a business or 
organization until normal operations can resume following a 
    Since the 2005 Gulf Coast hurricanes, SBA has made dramatic 
improvements in our operation, and we see a great deal of 
success because of that. SBA is now better prepared to process 
loans faster, provide a better quality of service, and be more 
helpful to disaster survivors. To ensure overall preparedness, 
the disaster program has increased the number of work stations 
from 366 to 1,750 in our Fort Worth, Texas, operation, and we 
have added a surge center in Sacramento, California, with 350 
additional work stations, our core staff of 850 regardless of 
activity, and we have a pool of over 2,000 disaster reservists 
who we can draw from.
    During Hurricane Irene and Tropical Storm Lee we peaked at 
1,750 staff. On top of this, we have increased the disaster 
credit management systems capacity from 800 to 10,000 
concurrent users. Throughout the year we have invested in staff 
to increase their skills, streamlined the loan process, 
improved technology, reduced contracting costs, and implemented 
a new staffing strategy for ODA.
    Under the newly implemented staffing strategy we were able 
to increase staff, train and deploy an additional 900 employees 
within 3 weeks in many of your congressional districts during 
the response to Hurricane Irene and Tropical Storm Lee. From a 
loan processing perspective, we are currently exceeding our 
processing goals by approving or declining loan application 
requests within 8 days for homeowners and 10 days for business 
owners during fiscal year 2011. Our goal is 14 days for 
homeowners and 18 days for businesses. In response to Irene and 
Lee, SBA is processing loan applications in less than 10 days 
on average.
    To put this in perspective, the average processing time 
during the Gulf Coast hurricanes was 74 days for disaster home 
loans and 66 days for disaster business loans. Additionally, in 
August of 2008, SBA introduced an electronic loan application 
which allows disaster survivors to apply for assistance online.
    SBA has also revamped the post-approval process and 
improved processes and tools for loan closing and funding 
disbursements. To ensure coordination and collaboration across 
the board, SBA also works closely with our sister agencies. For 
instance, SBA and FEMA have consistently worked together in 
order to effectively provide assistance to disaster survivors, 
including implementing internal agency agreements for continual 
electronic data exchange.
    Since the beginning of Hurricane Irene and Tropical Storm 
Lee, SBA has approved more than $355 million in disaster loans 
to help more than 9,200 homeowners, renters, businesses and 
nonprofit organizations recover and rebuild from the 
devastation caused by Irene and Lee.
    Additionally, SBA has responded to the needs of residences 
and business owners by deploying 600 SBA disaster staff workers 
and field inspectors to staff 163 disaster recovery centers 
located throughout the East Coast to assess damage to homes and 
businesses in 12 States and Puerto Rico. At these centers SBA 
representatives are providing one-on-one service to disaster 
survivors and have personally met with more than 16,000 
disaster survivors to answer questions, explain SBA's disaster 
program, help complete loan applications, and close disaster 
loans. In addition, homeowners and businesses can call our 
disaster call center in Buffalo, New York, which has handled 
over 61,000 calls relating to Hurricane Irene and Tropical 
Storm Lee.
    In closing, we appreciate the opportunity to share with the 
committee the role SBA plays in the small business disaster 
recovery efforts, and we believe that the reforms we have 
instituted and the new tools Congress has provided to us will 
allow us to effectively and efficiently respond to the needs of 
our Nation's citizens. I look forward to further describing 
these efforts and answering your questions. Thank you.
    [The statement of Mr. Rivera follows on page 26.]
    Mr. Bartlett. Thank you very much. Our second witness is 
Bill Shear, who is Director of the Financial Markets and 
Community Investment team at the U.S. Government Accountability 
Office. Mr. Shear is a frequent guest before this committee, 
providing testimony on a broad range of SBA oversight issues. 
Mr. Shear, welcome back to the committee, and we look forward 
to your testimony.


    Mr. Shear. Mr. Chairman, Ranking Member Velazquez, and 
members of the committee, it is really a pleasure to be here 
today to discuss our work on reforms made to the Small Business 
Administration's disaster loan program. After the 2005 Gulf 
Coast hurricanes, many deficiencies were exposed in the program 
and demonstrated the need for reform. Since then SBA has taken 
several steps to reform its program, which includes creating an 
online loan application and increasing the capacity of its 
disaster credit management system.
    In June 2008, Congress enacted the Small Business Disaster 
Response and Loan Improvement Act, which places new 
requirements on SBA to ensure that it is prepared for future 
catastrophic disasters. We first reported to this committee in 
July 2009 on SBA's actions to address the act's requirements, 
and in our report we made five recommendations to SBA to 
facilitate progress in meeting and complying with these 
requirements and improve the disaster loan program. My 
statement today provides updated information on SBA's actions.
    SBA has continued to make progress in addressing provisions 
of the act, although continued attention to certain provisions 
will be important for sustained progress. SBA has met 
requirements for 16 of 26 provisions of the act and partially 
addressed six. Four provisions do not require any action at 
this time.
    For example, in terms of progress made, SBA updated its 
disaster recovery plan annually, most recently in June 2011. 
SBA also has taken steps to address the act's requirements for 
region-specific marketing and outreach. The agency has begun a 
dialogue with the State directors of small business development 
centers in the Gulf Coast about disseminating disaster planning 
information in the five most hurricane-prone States before the 
hurricane season.
    Additionally, SBA officials told us that the agency has 
issued some public service announcements in disaster-prone 
areas. SBA has issued annual reports to Congress on disaster 
assistance in 2009, 2010, and 2011, as required by the act.
    As we have reported in the past, the biggest challenges SBA 
appears to have experienced in its attempt to fully address the 
act's requirements involve making extensive changes to current 
programs or implementing new programs. In particular, SBA still 
plans to implement pilots before finalizing regulations for two 
programs that would involve private lenders making short-term 
loans to applicants awaiting assistance.
    With respect to recommendations we made in our 2009 report, 
SBA has taken steps to implement three of the five 
recommendations. These three recommendations address fulfilling 
the act's region-specific marketing and outreach requirements; 
completing its annual report to Congress; and issuing an 
updated disaster recovery plan. Beginning 12 days ago, on 
November 18th, SBA has been providing us information responsive 
to these recommendations, and we have continued to receive 
information since my written statement was completed and 
provided for this hearing.
    Our final two recommendations were for the agency to, 
first, develop an implementation plan and report to Congress on 
its progress in addressing all of the act's requirements; and, 
second, to develop and implement a formal process to identify 
problems in the disaster loan application process and make 
improvements for future applicants. Here SBA officials and we 
have agreed to continue a dialogue on actions that could lead 
to improvements in the disaster loan program.
    Mr. Chairman, Ranking Member Velazquez, and members of the 
committee, it is really a pleasure to be here, and I look 
forward to your questions.
    [The statement of Mr. Shear follows on page 29.]
    Mr. Bartlett. Thank you very much, both of you, for your 
testimony. As is usually my practice when I chair a committee, 
I reserve my questions until the end, hoping that they will 
have been asked by my colleagues, so I yield now to our ranking 
member, Ms. Velazquez.
    Ms. Velazquez. Thank you. Mr. Shear, given everything that 
you have reviewed in your past reports, are you today, are you 
comfortable that the SBA is prepared for another disaster on 
the scale of Hurricane Katrina or a major earthquake on the 
West Coast?
    Mr. Shear. Two years ago when I was here before this 
committee, you asked that question, and my answer at that time, 
I think, was more negative than the answer you will hear from 
me today, but let me divide it into three pieces.
    First, I say it is relative. I think SBA is better prepared 
than it has ever been to deal with any disaster, including one 
of the scale of Katrina. I think they have made improvements in 
their program.
    The second part of this is that when we looked at the 2008 
floods, again at your request for this committee, even though 
those were on a much smaller scale, we did see that the 
responsiveness of the agency to those disasters was much 
greater than we had seen in the past, so, again, it is 
consistent with improvements in the program.
    The third part of this is what causes me to say we are 
still uncertain, so I will say I hope SBA is prepared for 
another Katrina. But the third part of this, which is part of 
what was passed in the act, which is to perform simulation 
exercises, and the simulation exercises and the after-action 
reports were not completed at the time we reported to you 2 
years ago. We have had interactions with SBA since then, but we 
still have not seen the results of those simulation exercises, 
and given that you haven't had another Katrina since then, the 
results of those exercises, at least in principle, should allow 
SBA to address your question and to really give a good answer 
because that is the part of the evidence that is missing for 
    Ms. Velazquez. So what are the reasons given to you since 
you finalized your report for not doing the exercise of the 
    Mr. Shear. I think the agency has done simulation 
exercises. We have never actually explicitly asked for the 
results of them because we haven't had ongoing audits of those 
programs. We are certainly--we would be glad to look at them 
either at the initiative of SBA or this committee, we would be 
glad to look at them and to have discussions about what is 
ready for public consumption and things of that nature, but we 
haven't explicitly asked for them because we haven't had an 
ongoing audit where the results were necessary for us to 
complete our work.
    Ms. Velazquez. Okay. SBA, Mr. Shear, failed to make use of 
its authority to defer or refinance loans for businesses 
affected by Hurricane Katrina, Rita, or Wilma. My question to 
you is, if they had, do you believe that the Gulf Coast region 
would have recovered more quickly?
    Mr. Shear. I can't answer the question explicitly and 
directly, but these are the things I would point to. SBA 
disaster loans have certain requirements, certain underwriting 
requirements, collateral requirements, and one of our 
experiences from our work we have done in the Gulf Coast over 
the years is that there was felt a need such as in Louisiana to 
have State-run programs. So I would say that to fill part of 
the void there were State loan programs and grant programs that 
were run to try to address the needs that SBA could not 
address, and then there were community development block grant 
funds provided by HUD that were used to support some of that 
State activity.
    So it is clear that the SBA disaster loans did not fulfill 
what was considered necessary for the recovery of the Gulf 
Coast, but given that those State programs are there, I don't 
know how much extra would have resulted from an additional 
Federal program. So, again, something more than SBA disaster 
loans seem to be needed, but to some degree it was addressed by 
the State-run programs.
    Ms. Velazquez. In your testimony you noted difficulties 
that the SBA has had in making its annual report to Congress in 
a timely fashion as is required by the statute. What is causing 
the agency to repeatedly miss these deadlines? Is it a lack of 
staff or a failure to prioritize?
    Mr. Shear. I want to put that in relation to our experience 
with open recommendations. We are not quite sure whether it is 
due to communication problems within the agency in terms of the 
liaison function, the congressional relations function or more 
substantively with the program functions. So those are things 
that, based on personal experience, I can point to, but it does 
seem like there is a lack of prioritization in terms of saying 
what is necessary and what is required and make sure that we 
are--that the agency is meeting those requirements.
    Ms. Velazquez. Okay, thank you. Mr. Rivera, with the 
economic recovery still at an early stage, the effects of a 
natural disaster can be especially challenging. Section 12068 
of the Disaster Response and Loan Improvements Act gave victims 
of the most severe disaster the option of longer payment 
deferrals. With many people still struggling, will your agency 
make use of this authority?
    Mr. Rivera. Congresswoman Velazquez, we currently have the 
authority to grant deferments, and we do on a case-by-case 
    Ms. Velazquez. So you have done it?
    Mr. Rivera. Yes, ma'am. A good example is the BP oil spill. 
We provided many deferments to existing SBA homeowners and 
businesses in the impacted area.
    Ms. Velazquez. Okay. I have more questions, so in the 
second round I will be making those questions. Thank you.
    Mr. Bartlett. Thank you. Mr. Schilling.
    Mr. Schilling. Thank you, Chairman. Welcome, fellows. I 
guess I will start out with Mr. Rivera. The SBA covers losses 
not covered by insurance, and how closely does the SBA work 
with insurance companies to make sure the costs are allocated 
    Mr. Rivera. Congressman Schilling, what we actually do is 
we send out a field inspector, and the field inspector goes to 
the property and they come up with an estimate of what it is 
going to cost to repair or replace the damaged property. We 
encourage disaster survivors to go ahead and apply first and 
not wait for an insurance recovery. That way we can go ahead 
and get the funds and the rebuilding process through quicker, 
and then we can work with the insurance companies once the 
settlement is made. The difference between when we do an 
inspection and when an insurance company does an inspection is 
we do it based on fair market value, where most insurance 
companies will take a depreciated value approach, so there is a 
gap, and usually that is what our loan entails.
    Mr. Schilling. Oh, very good. And then also disaster 
victims still report that there are numerous paperwork burdens 
between, related to the IRS paperwork. How closely do you guys 
work to improve that gap?
    Mr. Rivera. Yes, sir, that is something that we also hear. 
We have worked closely with the Internal Revenue Service. We 
actually have a one-page form, not to get technical here, but 
it is called an IRS Form 8821. What it does is once a disaster 
survivor signs that one-page form, it enables us to go directly 
to the Internal Revenue Service, and we get copies of their tax 
transcripts, certain items, so we have streamlined that 
process. Where in the old days we used to ask for, you know, 3 
years of Federal tax returns, paper copies, bring that in, we 
currently have that as part of our streamlined process where 
they fill out that one page, they sign it, and we can provide 
that to the Internal Revenue Service, and they can provide us 
with copies of their tax transcripts.
    Mr. Schilling. Very good, that is streamlining. Awesome.
    Mr. Rivera. Thank you.
    Mr. Schilling. Mr. Shear, just a couple questions. Has the 
SBA developed a system to make improvements based on customer 
services, you know, from surveys that you might be getting 
    Mr. Shear. SBA has taken--they have some good tools, they 
have taken some actions in that there is an annual survey of 
customers where they receive information. Mr. Rivera and others 
state that when they are out in the field, they do listen to 
people. What we are looking for is more of a formal process. 
Whether it is the resource partners like the small business 
development centers and others involved in the process, when we 
conduct our audit work, we hear of certain pain points. Some of 
them have to do with the topic you just brought up, having to 
do particularly with the business loans, but we think that it 
would be useful for the agency to have more of a formal process 
to try to deal with these pain points, whether it comes from 
the annual survey or whether it comes from other sources, and 
to have a formal process to act on it.
    Mr. Schilling. Very good. And then lastly, since most 
disaster victims first must apply for FEMA assistance, are the 
applications you feel falling through the cracks when being 
transferred between the two agencies or is that something we 
have got a pretty good grip on also?
    Mr. Shear. You are asking me? Okay. We saw that this 
process was very badly broken after Hurricane Katrina, and that 
was the one time we looked really in depth at that process, and 
part of the problem was when FEMA referred to SBA that SBA took 
so much time to reach a decision, and especially if it was a 
declined decision, it was hurting the recipient or the victim. 
It was harming them by not getting a rejection to be able to go 
back to FEMA. So that process was broken. We have not looked at 
that process since our work following Hurricane Katrina.
    Mr. Schilling. So would you say that since Katrina have we 
had any disasters that would really help us test the system out 
to see how tuned up it is?
    Mr. Shear. We have, and this, I will refer to my answer to 
Ranking Member Velazquez that we have some windows, including 
the report we did for this committee when we looked at the 2008 
disasters. It gives a window as far as how responsive is SBA, 
how are things working, coming up with certain recommendations 
having to do with loan application process and things of that 
nature. So we have a certain window, but we do not quite see 
the extent of a disaster anywhere of the magnitude of Katrina. 
But we have seen, for example, looking at the act that there 
have been certain regulations for working with FEMA, so we 
haven't gone out and tested those regulations, but we do 
observe that there is regulations in place to address that 
    Mr. Schilling. Okay, very good. I yield back my time. Thank 
    Mr. Bartlett. Thank you. Mr. Owens.
    Mr. Owens. Thank you, Mr. Chairman. I have a couple of 
questions on the interest rate calculation. You indicate in 
your testimony or maybe in the report that interest rates are 
determined based upon the availability of credit from other 
sources. Can you describe for me exactly how that formula 
works? Either one who would like to take a stab at it.
    Mr. Rivera. Sure, I will take that one. The interest rate 
calculation, it is a credit elsewhere test is what we do. It is 
a very simplified test. Basically it looks at the available 
cash flow and the available assets of an individual or of a 
business, so in I would say 90--85, 90 percent of the time the 
individuals get the lower rate. In the case of Hurricane Irene 
and Tropical Storm Lee, that is 
2\1/2\ percent for homeowners and 4 percent for businesses, and 
the credit elsewhere rate is 5 percent for homeowners and 6 
percent for businesses.
    Mr. Owens. Is that in any way tied to, if you will, the 
cost of funds to the government for these loans?
    Mr. Rivera. The substantive calculation does have a 
connection with the, you know, the credit elsewhere 
determination or actually the number of loans that are made.
    Mr. Owens. Really what I am asking is the--currently 
borrowing rates for the government are 1 percent or less in 
general, and I am asking whether or not the interest rate 
calculation is based upon the cost of funds to the government.
    Mr. Rivera. Right. The interest rate calculation is 
statutorily, I mean it is a formula that we follow, and it is 
basically, the home rate is based on treasuries, and the 
business rate is based basically like the 7(a) loan, it is 
based on prime plus the spread that we get on a 7(a) loan.
    Mr. Owens. All right, thanks. The other issue that the 
testimony and report raised was the issue of collateralization 
of these loans. How do you make that determination if someone's 
home has essentially been destroyed or their business has been 
destroyed? What is the collateral that they can offer or is 
that collateralization determined based upon the anticipated 
    Mr. Rivera. In collateral, it is a real simple calculation, 
I mean, it is a real simple approach. Basically what we do is 
we take the best available collateral. So if you have a home 
that has been damaged, and let's say you had, and it is worth 
$100,000 and we make--you know, you have a $50,000 mortgage and 
we make $100,000 worth of repairs, we will take a second lien 
position. The homeowner will be upside down, but that is why we 
enable, you know, the loan to be for 30 years, but we don't 
have to be in a first lien position, we don't have any loan-to-
value collateral, I mean loan-to-value ratios. We take whatever 
is best available from the applicant.
    Mr. Owens. So, in effect, you could have a piece of 
property that currently has a fair market value of $25,000 had 
a cost of $100,000, and you would give a loan based upon the 
    Mr. Rivera. We would give a loan based on what it costs to 
repair or replace the damage, and then we would attach a lien 
on the amount of that loan, whether it is $50,000 or $200,000.
    Mr. Owens. Okay. Good. Thank you. I yield back.
    Mr. Rivera. Thank you.
    Mr. Bartlett. Thank you. Mr. Tipton.
    Mr. Tipton. Thank you, Mr. Chairman and Ranking Member. Mr. 
Shear, Mr. Rivera, thanks for being here. Mr. Shear, could you 
maybe give me a little more background. I apologize if I missed 
it. The GAO report came out with 26 items that they had listed. 
You were alluding to five that you had been working on, but I 
believe there were another six provisions that they had 
suggested, and one of immediate interest to me right now is 
establishing immediate disaster assistance program for getting 
dollars back to small businesses. Can you tell me how that is 
    Mr. Shear. Our understanding on that program was when we 
were before this committee in the past that SBA wanted to pilot 
that program, and we are very sympathetic with pilots when you 
don't quite understand how a program is going to work and what 
the risks are of a particular program. As of the information we 
have just gotten for this hearing, the regulations are in 
place, but the pilot hasn't occurred yet, and I think that is 
related to its operation by the Office of Capital Access at 
SBA, and they have been quite busy, our understanding is, with 
the Recovery Act provisions. So that pilot has not occurred as 
of yet, and it seems these other private loan programs are to 
some degree--those not being implemented are to some degree 
related to the pilot on the immediate disaster assistance loans 
not being used yet. That is our understanding of it.
    Mr. Tipton. It is a work in progress. Mr. Rivera, disaster 
loans are made directly to, by the SBA, not through the network 
of lending partners, and I would just like to get your 
thoughts. Do you think that is a good idea, bad idea?
    Mr. Rivera. Well, we have been doing it this way since 
1953, and we feel we have the capacity and the ability to 
provide this service to the disaster victims. We cut out having 
to go through, you know, a guaranteed loan, for example, like 
on the 7(a) side, so we deal directly with the disaster victims 
because it is a unique situation. It is not a working capital 
loan, it is not an expansion loan, it is usually debt on top of 
debt, and so we have established this relationship, and we feel 
like we are prepared, and we feel like we can do it 
    Mr. Tipton. Okay. You know where you get a little bit of 
crossover, I would like to just maybe have your thoughts on it 
between SBA loans, some of the private loans particularly, and 
disaster relief. Dodd-Frank has obviously helped free some of 
the credit markets that are out there. Are you seeing some real 
impacts when we are talking about seeing recovery and response 
after a disaster?
    Mr. Rivera. We have seen a weakness in the economy in 2008 
and 2009, no doubt about that. But we continue to, you know, 
provide assistance to the individuals based on, you know, their 
available cash flow from that perspective and inadequate 
credit. We are the most aggressive lender in town, we will make 
the loans that the lenders won't make. From the perspective of 
a lender providing the service, if there is a lender out there 
that is providing bridge loans, we will definitely look at 
taking out that bridge loan. So I mean, we work with some 
lenders across the country that have that bandwidth.
    Mr. Tipton. Is it your thought, since you first have to 
apply to FEMA and then ultimately to the SBA, is there a way to 
be able to bridge that or is that creating more problems?
    Mr. Rivera. Well, it is actually a seamless process. The 
reason we want disaster survivors to apply first with FEMA is 
that we want them to be available for all types of resources 
that are available on behalf of the Federal Government. There 
is crisis counseling, there is medical, dental, funeral, there 
is all kinds of available immediate assistance that is 
available to help them with minimal repairs to their home, you 
know, from that perspective. So once they go through that, 
there is a minimum income test, and if they are below that 
threshold, the individual disaster survivor, they stay with 
FEMA and they move over to the grant program.
    Mr. Tipton. Where you say that is seamless, I guess what I 
am curious about is just some of the time frame.
    Mr. Rivera. So somebody will register with FEMA today, you 
will call the 1-800 FEMA phone number, and you will register 
today with FEMA, they will take some preliminary information, 
and then they will turn around and they will send us the 
referral that same day. Our computers are linked up. That is 
something that we have done since KRW. We have a computer 
matching agreement where we get several dumps throughout the 
day, if I can use a computer term, where they actually provide 
us this information.
    Once we get this information, we mail out an application, 
and we are looking at ways of being a little bit more 
proactive. For example, we can call them, you know, these are 
some of the process improvements we are currently looking at, 
as far as like maybe giving them a call and saying, you know, 
you just registered with FEMA, we are with SBA and we provide 
the loan program, and you need to provide an application with 
us, and then we go through that process. Once we actually get 
the application back, we are processing in 10 days. 
Unfortunately, you know, Katrina wasn't our best day from a 
disaster perspective. We were doing, you know, 60 to 70 days 
just to decline or approve a loan. What we have done is we have 
reengineered that process where we don't take an applicant 
through the entire process. We can tell pretty much upfront who 
is an obvious decline, and we go and refer those individuals 
back to FEMA.
    Mr. Tipton. Thank you, sir.
    Mr. Rivera. Thank you.
    Mr. Tipton. Yield back, Mr. Chairman.
    Mr. Bartlett. Thank you. Ms. Chu.
    Ms. Chu. Thank you. Mr. Rivera, I was in New Orleans at the 
beginning of November at a hearing pertaining to the BP oil 
spill. There were many Asian-American, particularly Vietnamese 
fisherman there, and they shared many of their stories about 
the aftermath. Of course, they have had a hard time getting 
back on their feet, and they did not seem to know much about 
SBA disaster loans and were unclear about whether or not they 
could still apply for it.
    As you may know, the literacy rate in the community is very 
low, as well as their understanding of English for many of the 
fishermen. How do you ensure that small businesses like this 
are aware of your loan program and that they can actually 
understand the language on it as well?
    Mr. Rivera. Thank you, Congresswoman Chu. We actually work 
closely with FEMA on presidential declarations. I know the BP 
oil spill, from an administration's perspective, we did an SBA 
declaration based on the Governor's certification that there 
were five businesses which sustained substantial economic 
injury, but in the case of the BP oil spill, we actually went 
into communities, and if we found a pocket, for example, if 
there was a Vietnamese language or whatever the language was, 
we often have the skill set within our existing staff, and if 
we don't, we will pick up an interpreter there locally that can 
help us communicate. We have--usually an interview takes 
anywhere from 5 to 10 minutes, explaining the program with the 
disaster victim or face to face, but if it takes us an hour, if 
it takes us longer than that, we have the time and we spend the 
time to get that application back with the information that we 
need and to communicate that. We also do town hall meetings, 
and we will also meet with the local small business development 
centers, the resource partners on the ground, who in the BP oil 
spill were very instrumental in helping us with businesses that 
may not have had the financial aptitude to be able to provide 
us with the information, so we had an SBDC partner right next 
to us, and they were able to help us with, okay, this is what 
we mean when we want a financial statement, this is what we 
need from a balance sheet, this is what we need from an income 
statement, and they were able to really help us provide that, 
bridge the communication gap from that perspective.
    Ms. Chu. And if they were monolingual in another language 
or primarily spoke some other language, what happened there?
    Mr. Rivera. We also have the ability, we have a service, a 
national call line service where when those individuals talk 
with our call agents up in Buffalo, New York, at the call 
center or at our processing center in Fort Worth where we have 
a call service where we can actually have an interpreter walk 
us through or explain, you know, interpreter--from disaster 
survivor to interpreter to us, and we are very sensitive to the 
language requirements in different parts of the country, but we 
go in, and from a FEMA perspective, they also assist us because 
they will go in with community relations group, and they will 
hit the different pockets, and they will go door to door, and 
we usually assist them there, too.
    Ms. Chu. Do you have translated documents?
    Mr. Rivera. No, ma'am. What we do is our forms are 
currently in English and Spanish, but in the event that a 
local, you know, there is the Vietnamese community, they will 
also assist us in translating the documents for us, so we don't 
have--because the dialects change. I mean, I am from Texas, I 
am a Mexican American, my Spanish is different than, you know, 
somebody from New York or the dialects are different from, you 
know, across the different parts of the country, so we rely on 
the local community to help us with the translation services, 
and they are usually pretty receptive to providing that help to 
    Ms. Chu. Do you know how many fishermen applied for the 
economic injury disaster loans?
    Mr. Rivera. I don't have that information with me in my 
book here, but I will be glad to get that information back to 
    Ms. Chu. Yeah, I would like to know what that is, and I 
would also like to know, many of the fishermen on the Gulf 
operate on a cash basis, and they lost documents during 
Hurricane Katrina, and some then lost whole livelihoods based 
on the oil spill, and they might not have the documentation 
required for typical loans. What kind of flexibility do you 
have there?
    Mr. Rivera. And if I can go back, we approved about $41 
million in bridge loans for the BP oil spill, and obviously, 
you know, the Gulf Coast claims facility was the facility that 
was in place to help BP, and I think they provided like $5 or 
$6 billion worth of service. But how do we deal with 
individuals? We deal with a lot of businesses, and we in the 
old days, we used to require individuals to bring in copies of 
their tax returns, and as I mentioned earlier, what we do now 
is we actually have them sign an IRS Form 8821, and we can get 
copies of their tax transcripts. Being a Federal agency, we 
give them credit for whatever they report to the Federal 
Government, and then that kind of allays any issues as far as, 
you know, being a cash business or whatever type of business 
they are. Whatever they report to the Federal Government, to 
the IRS is what we give them credit for.
    Ms. Chu. And that would be adequate for the loan then?
    Mr. Rivera. Yes, ma'am, that is what we use for repayment 
ability or for part of our repayment analysis.
    Ms. Chu. Thank you. I yield back.
    Mr. Rivera. Thank you.
    Mr. Bartlett. Thank you. Mr. Barletta.
    Mr. Barletta. Thank you, Mr. Chair. Mr. Shear, after the 
combination of Hurricane Irene and Tropical Storm Lee hit 
northeastern Pennsylvania, my district experienced the worst 
flooding in its history, and they are still dealing with it as 
we speak. I just came back with Chairman John Mica who came to 
see the damages, Speaker John Boehner was there as well, and 
many of the businesses in our area are making decisions of 
whether or not they even want to go back in business again. I 
traveled throughout the district and talked to many of the 
business owners, and I told them what the United States will do 
through the Small Business Administration is if you can get 
credit elsewhere, we will provide you with a 6 percent loan. I 
could tell you the reception was not very warm when I told them 
this is the help we have to offer, especially when a business 
is trying to decide whether or not they are even going to stay 
in business again.
    The United States gave Pakistan for flood disaster relief 
$215 million in the last 2 years. The interest rate that we 
charged the flood disaster victims in Pakistan was 0, with no 
payback. Do you believe a 6 percent loan is meeting the needs 
of disaster victims here in the United States?
    Mr. Shear. I don't have a basis to answer your question. I 
have to rule out not knowing what our assistance to Pakistan 
was. I will make the----
    Mr. Barletta. Well, how about just the 6 percent loan?
    Mr. Shear. Just the 6 percent loan, I will make the 
observation that SBA is part of our recovery framework, so 
there are other Federal programs involved, as I alluded to in 
work in the Gulf Coast, so I can't comment on it directly. I 
would say there it is a question for the Congress. At GAO, we 
don't make value judgments when we evaluate programs as far as 
how much assistance should be provided and at what cost, so the 
question really is----
    Mr. Barletta. How is the interest rate determined?
    Mr. Shear. The interest rate, and Mr. Rivera can speak to 
the interest rate much better than I can, the credit elsewhere 
requirement I think is intended to make it a lower cost program 
than it would be, and the 6 percent interest rate makes it a 
lower cost program than if a lower interest rate were offered. 
So it is--there are certainly trade-offs there, and but except 
for observing that, we don't have audit work that would let me 
respond directly.
    The one thing that I will say that does relate to our audit 
work is that, and it gets to these pain points that many times 
the victims of disasters feel is that SBA is saying apply to us 
and apply to us, and it is good that SBA is out there and 
reaching out in these disaster recovery centers and the like, 
but it is important to know what the pain points are and to 
make sure that SBA is being very transparent about what is 
being offered and not offered, so that gets to our audit work.
    Mr. Barletta. See I am very concerned, especially with 
unemployment over 9 percent, and we are trying to create jobs 
and keep jobs here in America, and when a disaster strikes, and 
I have said this here in this committee before, and I am going 
to say it again, when disaster strikes, America is the first 
country to come to the aid of other countries around the world, 
and I am very proud of that, I am very proud of that fact, but 
when you see disasters strike the people in your neighborhood 
and your friends and relatives and you know that we are 
sometimes doing more for people we don't even know, sometimes 
countries that don't even like us than we are for Americans, I 
just believe that we should take care of Americans first.
    I am hoping to change the way America deals with disasters. 
I am introducing a bill that would give a 1 percent loan for 30 
years. It would cover the administrative costs, but let's get 
Americans back up on their feet again, and hopefully they will 
stay in business and create those jobs that we are trying to do 
here every day.
    Mr. Shear. I think you raise a very good point, and I hope 
you just understand that we are a fact-based agency and we can 
only comment, I can only comment based on the facts from the 
audit which we have conducted.
    Mr. Barletta. I am not upset with you, Mr. Shear, I am just 
frustrated after spending so much time with these people and 
seeing how hard they have worked and knowing that we can do 
more for Americans, and I hope I will find many colleagues here 
that will agree with me. Thank you.
    Mr. Shear. Thank you.
    Mr. Bartlett. Thank you. Mr. West.
    Mr. West. Thank you, Mr. Chairman, and our ranking member, 
and gentlemen, good to see you today.
    Mr. Shear, a question. I saw back in 2009 that GAO did a 
report, and they had some provisions that had to be worked out, 
I think it was about 14 of the 26. Have we gone back and 
recertified to make sure that those provisions, as far as this 
program, have been worked out and been rectified?
    Mr. Shear. Well, in the statement submitted for today, we 
have 16 of the 26 provisions have been addressed by SBA. There 
are five provisions still left. I hope I am remembering the 
number right. It is, and partially addressed six of them. So 
there are still six provisions that have not been fully 
    Mr. West. So is there a plan to make sure we can close that 
out? Because one of the things, we just come out of hurricane 
season down in our neck of the woods, and so I would want to 
hope that we can rectify these things before we go into the 
next hurricane season.
    Mr. Shear. Just over the last couple of weeks we have had 
some interactions with Mr. Rivera and his team, and we think 
that SBA is getting close on some of the provisions, and the 
ones that seem to be, remain the biggest challenges have to do 
with loan programs involving private lenders.
    Mr. West. Okay. Mr. Rivera, Hurricane Wilma, pretty 
important to us down there, and that was the last major storm 
that we had in the southeast Florida area. Do you have any 
information that we could get later from you as far as what 
were the relief that you gave to small businesses as a result 
of Hurricane Wilma, and maybe we can go back and track and see 
how those businesses are doing today?
    Mr. Rivera. Oh, absolutely, we can get you that 
    Mr. West. Okay, I appreciate it. The other thing, you know, 
being from military, I saw that a major disaster response plan 
is to conduct a disaster simulation exercise at least once 
every 2 years. Can you kind of give us an idea of what that 
simulation exercise is like, and have you kept on par doing it 
every 2 years, and what did you learn from it?
    Mr. Rivera. Yes, Congressman. We actually do more than one 
every 2 years. We partner with FEMA, and they have a national 
level exercise every year. But, for example, as a requirement 
of the farm bill we do a biennial exercise. There is a peer of 
mine, his name is Steve Smith, he is with the Office of 
Disaster Planning. He actually creates the simulations. So if 
we go back to 2008, at the time FEMA had done the Chesapeake 
Bay hurricane, it was a mock hurricane that came through the 
National Capital Area here. We simulated the exact same type of 
disaster. So the test goes like this, you know, it is a 1-day 
exercise, but in the morning what we will do is we will look at 
the track of the hurricane, the impact, and we have, for 
example, we have models, FEMA has these models that tell us the 
number of businesses, the number of units, structures impacted 
in the path of disaster. Then we go through a scalability model 
internally where we know pretty precisely how many field 
inspectors we need, how many customer service reps we need on 
the ground, how many loan officers we need, how many case 
managers we need, so we go through that whole process. We bring 
in all my staff, my senior management staff from all my 
centers, and then the office of field operations brings in the 
district directors and regional administrators from the 
impacted area, and then we have the administrator, the deputy 
administrator, and the senior team that is there who has dealt 
with this.
    For example, for Hurricane Irene and Tropical Storm Lee, we 
were watching both of these storms, and actually we had 
Tropical Storm Marie that also hit Puerto Rico. We are actually 
watching these storms days before they come out. That is one 
nice thing about a hurricane, it gives you plenty of warning 
time. So we were positioning, prepositioning, calling up 
reservists, and we were going through that whole process. So 
the simulation is a kind of a scope from that perspective. So 
what happens after this is that there is, they call it a hot 
wash. I am not sure why they use that term.
    Mr. West. Yes, I know what a hot wash is.
    Mr. Rivera. So we had a hot wash, and they actually 
explained you could do this better, you could do that better. 
We have actually had several of these simulations. I am not 
sure why. I was a little bit surprised that a lot of these 
requirements have not been closed out because we thought we had 
closed out all but three, but we are committed to work with GAO 
and Mr. Shear on getting these finally resolved because in our 
mind we have really actually gone through the process, but the 
simulation, it is a good exercise. It tests us, and there is 
independence between the Office of Disaster Planning and the 
Office of Disaster Assistance.
    Mr. West. Last question. Did you find out, you know, when I 
talk about my colleague Congressman Barletta, did things work 
smoothly in rectifying a lot of the situations that he had in 
his area?
    Mr. Rivera. Well, we actually had an early-on conversation 
with Congressman Barletta. He was gracious enough to let us 
know where the pockets of businesses that we could possibly set 
up a business recovery center, so we were early into the 
conversation with him, and we set up a couple of business 
recovery centers in the disaster impacted area, you know, and 
FEMA helps us with disaster, the Governor's office in the 
States help us with disaster recovery centers between the 
State, FEMA, and SBA, but we also, when we have situations like 
we had in Congressman Barletta's backyard, where there is 
businesses, there is a pocket of businesses that we can help, 
so we set up a couple of business recovery centers to try to 
see what we could do from that perspective.
    Mr. West. Thank you very much. I yield back, Mr. Chairman.
    Mr. Bartlett. Thank you. Mr. Richmond.
    Mr. Richmond. Thank you, Mr. Chairman; thank you, Ranking 
    Mr. Rivera, I am a member from, born and raised and live in 
New Orleans, and I don't have to tell you about the Katrina 
experience, but I say that to say that I have seen the agency 
probably at its worst, and I see it now at a different place, 
and I would just urge you to be as candid and honest with us as 
possible to tell us what you need to get up to full compliance 
with where you need to be with our 2008 act, but we need to 
make sure that we have a functioning SBA after tragedies, and 
to that extent I can follow up on Mr. West's question about 
your reserves. Do you think you have an adequate workforce, and 
I won't use Katrina because that may be a little overwhelming, 
but let's use Rita or Gustav or Ike. Do you think you have an 
adequate workforce if those were to happen next hurricane 
season, that you could ramp up and be there?
    Mr. Rivera. Congressman, we are prepared. There is no doubt 
about it in my mind. When you look back at Katrina and you look 
at today, there is several key differences that we have. One is 
I mentioned the infrastructure. You know, we only had 366 seats 
for individuals to process loans. Now we have 2,100. We only 
had, we could only get people on our staff on our computer only 
800 at a time. Now we can get 10,000 people on the system at a 
time, and we didn't have a reserve force. We had 866 employees 
when Katrina hit, so we had to go out and we had to hire all of 
this, these employees, local hires, schedule As. It was a very 
ad hoc approach. Now we have an ODA staffing strategy that 
actually has 850 core employees, and we have 2,000 reservists 
that we have that we can call on, and they are ready, they are 
readily available within 24, 48 hours.
    The Hurricanes Gustav and Ike, we processed about 100,000 
applications, a little bit short of 100,000 applications, and 
we approved about a billion dollars worth of loan activity. I 
need to go back and double check, but my recollection from 2008 
is we had about 2,500 employees. We weren't as efficient back 
then as we are today with all the process improvements, so we 
feel that we have a very comfortable bandwidth from 0 to 3,000 
employees; as we go in to surge and surge-plus week, we have 
the capability of pulling in contracts, talking to private 
lenders, and working through that process. So we feel that, as 
Mr. Shear said earlier, we are as prepared as we have ever 
been, from an agency perspective.
    Mr. Richmond. The other question, in looking at going all 
the way back really to Andrew and when Katrina first happened 
they said it would be a 10-year recovery period, which I truly 
now know that it is a true 10-year recovery period, but for 
those small business programs that have time periods in which 
people or businesses can participate in them, do you think it 
would be wise to give the administration discretion that when 
we have a federally declared disaster that that time period is 
tolled or frozen?
    For example, let's consider the 8(a) program where in 
Louisiana those businesses were shut down for 2 years. They 
lose those 2 years in the 8(a) program, and they still graduate 
out on schedule. Do you think it would be wise to give the 
Administrator the ability in any federally declared disaster 
where recovery is over a certain number of years to extend a 
person's length of participation in the program?
    Mr. Rivera. In reference to the 8(a) program, Congressman?
    Mr. Richmond. Yes, or any other program that there is a 
specific time period.
    Mr. Rivera. I would have to go back and have a discussion 
with the associate administrators over those different 
divisions. I mean, as you know, I have been with the disaster 
program for 22 years, so I wouldn't feel comfortable making a 
statement on behalf of, you know, of the 8(a) program as far as 
the certification process.
    Mr. Richmond. Okay. Let's shift to BP, the Deep Water 
Horizon oil spill. How are things going with the loan process 
for the fishermen and the oystermen down there as they still 
wait on the claims center to process claims, which is slow if 
not, just not moving at all?
    Mr. Rivera. The BP oil spill we provided, I recall, about 
$40, $41 million in disaster assistance. It was bridge loans 
for economic injury disaster loans. So the application period 
is a little bit longer. We were actually on the ground helping 
disaster, businesses actually fill out BP or Gulf Coast claims 
facility applications. Our declaration period for applying for 
assistance is closed, but we still get reports from BP, and I 
will be glad to, you know, put you in touch with somebody with 
the Gulf Coast claims facility.
    Mr. Richmond. Well, I am in touch with them all the time, 
and in closing, Mr. Chairman, I would just advocate that the 
claims center is not working as it is designed, and that 
facility and that process is really on BP because it is a 
private actor, and they are doing it, but I think we have a 
role as government to make sure that we are still there with 
the process for people to borrow money from the SBA, waiting 
for those BP claims because here is what is happening in 
reality: The interim payments are so slow that they don't get 
them at all, and then BP comes or the claims center comes, and 
they offer them little or nothing for a final claim, but they 
will offer the final claim without offering any interim, so 
people are so desperate right now that they are taking really 
pennies on the dollar in terms of their final claim, and I just 
think that if they had the ability to rely on an SBA to back 
them up in the meantime while they are waiting on it, then they 
wouldn't be at such an unfair playing field to take those 
claims. I mean, we had a field hearing down there, and people 
who were owed $150- and $200,000 were settling for $5,000 
simply because they had bills they had to pay right then and 
    So if we could look at opening that up and creating some 
program that would offer them the ability to stay on their feet 
awaiting the Gulf claims center and the BP process, that would 
be very, very helpful, and I think it would change the lives of 
a lot of the fishermen in that entire Gulf Coast area.
    Thank you, Mr. Chairman, and I will yield back.
    Mr. Bartlett. Thank you. Mr. Mulvaney.
    Mr. Mulvaney. Thank you, Mr. Chairman. Mr. Rivera, I 
believe--down here, sir. I believe I may be unique on this 
committee, at least I hope that I am because it is not 
something I would wish on anybody, but I have actually 
participated in the disaster assistance relief program. I 
showed up at work about 6 months after I had started my own 
business one morning to find my office furniture floating in 
the front yard. We had been through a flood, and I was able to 
get a disaster relief loan from the SBA, and my experience was 
actually quite good. It was extraordinarily helpful. That was 
one of the reasons I was interested in participating in this 
committee when I got here was because it was a pretty good 
experience for me, but as I was going over preparing for this 
hearing, I tried to remember how I found out about the program, 
and it occurred to me that I found out through my insurance 
agent, and one of the things Ms. Chu and I in her district, on 
our subcommittee, one of the things we heard when we were out 
in California was the lack of information about SBA programs. 
Few people knew what the SBA had to offer. If it hadn't been 
for that particularly astute insurance agent that I had, I 
probably never would have found out about the program.
    So tell me, sir, what it is that you all are doing 
generally, what are you doing specifically, how are you making 
information about disaster relief programs and assistance 
available to the public?
    Mr. Rivera. Thank you, Congressman. We have taken a very 
aggressive marketing and outreach program. I mean, internally, 
you know, within the SBA, SBA has the opportunity, we have an 
online disaster tool kit for all the SBA employees, so when a 
disaster strikes, we make sure that all of our employees in the 
district offices, in the centers know what they need to do. We 
have also provided media training for all regional 
administrators, district directors, public information 
officers. Externally, though, what we have done is we have 
worked with the National League of Cities on emergency 
training, we actually partnered in 40-plus courses across the 
country for a crisis leadership for local officials, and we 
have actually set up some really awesome partnerships. For 
example, we have agility recovery solutions, we have had 15 
monthly webinars over the last 15 months, that provides an 
educational tool for small businesses, preparemybusiness.org is 
the web site. We have also partnered with the American Red 
Cross and started talking about their ready rating system to 
homeowners and to businesses, and we also partner with FEMA and 
provide the, you know, the information as far as what SBA does.
    Branding is a challenge. I mean, there is no doubt about 
it. When we get into a disaster area, we actually go and we 
meet with the State officials, the local officials, the 
congressional delegation, and we try to get as much information 
out as we possibly can. We do public service PSAs in all the 
disaster-impacted areas. So we continue to send public 
information officers into the different areas and try to get 
the word out as best we can.
    Mr. Mulvaney. Tell me about these partnerships because one 
of the things that one of the subcommittees of this committee 
deal with, the one that I chair, deals a lot with outsourcing 
versus in-sourcing, opportunities that the government has to 
outsource things. You mentioned the webinars, you mentioned the 
web site, my understanding that is a partnership with a private 
    Mr. Rivera. Yes, Agility Recovery Solutions is a small 
    Mr. Mulvaney. Tell me how that is working out, how you 
measure success. Do you consider it to be a success? What are 
the metrics? How many visits are you getting? Do you get the 
impression that it is actually having an impact?
    Mr. Rivera. I really do think we are having a pretty 
significant impact. On the monthly webinars, I did one not too 
long ago, the title is a little bit interesting, my mom was 
really excited about it. It was about the Ten Commandments of 
disaster preparedness, I am not sure how we came up with the 
Ten Commandments, but anyway, we had about 800 people that 
actually got on the webinar and participated in the webinar, so 
it is 800 more businesses, I hope, that hear about SBA, and 
that is a big challenge that we have been discussing with GAO 
and Bill Shear over the years is how do we get, you know, how 
do we get as much information out as we possibly can. You know, 
I go to a lot of lending conferences, I go to a lot of, you 
know, different types of conferences. Most individuals really 
don't want to hear about disaster until they have had one, and 
they really get it once they are in a disaster, what do I need 
to do now. And that is why the ready rating system and the 
Agility Recovery Solutions, those are just fabulous partners 
because they are talking about what you need to do to prepare. 
You may still have that disaster, but if you have the ability 
to be prepared, it makes that disaster process, you can go back 
to your muscle memory and figure out this is what I need to do 
instead of being in panic stage and not being able to help 
yourself through the disaster.
    Mr. Mulvaney. Well, I am going to commend your group, the 
administration, because we have actually done a good bit of 
work in South Carolina, the local office has reached out to me. 
We have toured my district to put on presentations on how to 
not only start your small business, but after you have started 
it, what you need to do, and actually I have a list of things 
that you can do or you should do when things are pretty good 
because the time to prepare for a disaster obviously is not the 
day after that you experience one.
    So to the extent sometimes it is no fun to come down and 
testify before these committees, I want to thank you for what 
you folks are doing in this particular area, and with that I 
yield back. Thank you, Mr. Chairman.
    Mr. Bartlett. Thank you very much. Before we go to our 
second round, let me make a little comment and ask a question. 
Mr. Barletta mentioned the funds that we vote to give to other 
countries or to send to other countries for flood relief; for 
instance, some disaster relief. Are those loans, do we expect 
to get that money back?
    Mr. Rivera. Congressman, I am not familiar with this 
foreign loan program. I apologize. I mean, I can go get some 
due diligence done and provide information for the record, but 
I really have no knowledge of this foreign loan program.
    Mr. Bartlett. I am not sure these are loans. I suspect that 
they are grants, that they are simply given to them, and I want 
to identify myself with Mr. Barletta's observation that charity 
ought to begin at home. It frequently doesn't, does it?
    Several years ago we had a major drought in the district I 
am honored to represent, it is a largely agricultural district, 
and there was a near total crop failure, and the Department of 
Agriculture came by and said, gee, we want to help, and so they 
had some low interest loans that they wanted to give to my 
farmers, and one of the farmers got up, he says, you know, I am 
now standing on my tiptoes in a sea of debt about 6 feet deep 
with my nose barely above water, and you want to add another 2 
feet to that sea of debt, I am just going to drown. What he 
needed, of course, was not another loan, but he needed a grant, 
he needed some help to see him through this crisis. Do we have 
that kind of a program available to those for whom a low-
interest loan just can't make it?
    Mr. Rivera. In reference to a disaster?
    Mr. Bartlett. Yes, disaster relief.
    Mr. Rivera. Well, in reference to farmers also?
    Mr. Bartlett. No, with reference to anybody, any small 
business. Farmers are one type of small business, of course.
    Mr. Rivera. You know, a loan isn't always the right option 
for some individuals, some homeowners and some businesses. We 
are providing debt on top of debt in many cases, and, you know, 
we just don't want to burden somebody if they can't repay a 
loan. We just don't--you know, if they don't have reasonable 
repayment ability and adequate credit, we are just not going to 
go that extra step from that perspective because what it does 
is it just puts them closer to bankruptcy, and that is not our 
objective here. We are just trying to help businesses that can 
qualify for loans and try to make them recover from that 
    In the case of businesses, we refer them to the resource 
partners, and a local SBDC may be able to work out and figure 
out if there is a way that you can assist this business, help 
them with their local lender, and maybe they can restructure 
their debt, and there is a lot of non-disaster type situations 
that an SBDC and our resource partners can help these type of 
small businesses.
    Mr. Bartlett. I am not a big government advocate, but at 
least to some extent with the taxes that we pay, small 
businesses, I think, have a right to see, to view some of those 
taxes as a kind of an insurance premium payment, and, you know 
what we do in insurance, of course, is to spread the risk, each 
person pays a little, not everybody will have a disaster, but 
those that do can then be recompensed for it. Don't you think 
that our small businesses, at least to some extent, could use 
some of the taxes they pay as a kind of an insurance premium 
that when it is really tough and they are going under, if they 
don't get some direct help, not just a low interest loan, if 
you are simply burying them deeper in a sea of debt, that is 
not going to be helpful, is it?
    Mr. Rivera. Congressman, that is a great question. From the 
perspective of, you know, the disaster loan program, that is 
what I feel comfortable responding to----
    Mr. Bartlett. Because you are disaster loans, you are not 
in disaster grants, okay. But this is a legitimate question I 
think that we need to consider, and I am not an advocate of big 
    Mr. Mulvaney indicated that he learned about your existence 
from his church I think he said. Do you partner with FEMA and 
other agencies so that when there is a disaster--you know, 
there are many small businesses out there that don't even know 
that you exist because they have gone out on their own, they 
haven't had a loan from Small Business and don't even know you 
exist until they have a disaster, and do you show up with a 
desk along with desks of other representatives of the 
government to let them know that you are there?
    Mr. Rivera. Well, we are collocated with FEMA at all of the 
joint information centers, the disaster recovery centers. So 
anywhere FEMA is at on the ground, we are actually at on the 
ground also. Like I mentioned earlier with Congressman 
Barletta, he identified some pockets of businesses, and we set 
up a business recovery center that was SBA-only, and it 
provided some resource partners like SBDCs and stuff.
    Mr. Bartlett. So if I am a small business and I have a 
disaster and FEMA shows up, either to their right or their left 
I am going to see your desk so I know you are there?
    Mr. Rivera. Yes, sir, we are always there with FEMA.
    Mr. Bartlett. Thank you very much. Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman. Mr. Rivera, can you 
tell the committee what will be the timetable for full 
implementation of all the 26 provisions contained in the act?
    Mr. Rivera. Congresswoman Velazquez, we feel that we have 
completed 23 of the 26, and we will continue to work towards 
working with Mr. Shear and GAO. The remaining three loan 
programs, the IDAP, the Immediate Disaster Assistance, the 
$25,000 loan program, the bridge loan program, we are working 
right now with the Office of Capital Access. We have 
promulgated regs, we have actual loan authority.
    Ms. Velazquez. When do you think you will be ready?
    Mr. Rivera. We will continue to work with the Office of 
Capital Access, and I know that that is one of their priorities 
as we move forward, so hopefully in the near future.
    Ms. Velazquez. So next year? We are not going to be 
conducting an oversight and you are not going to give me the 
same answer?
    Mr. Rivera. If we have a hearing next year, hopefully we 
will have this program implemented. All we need to do is go out 
and do the pilot with the 7(a) lenders, and we are basically in 
place from that perspective, so we are pretty close.
    Ms. Velazquez. Two years ago, Mr. Rivera, Administrator 
Mills appeared before the committee and clearly stated her 
commitment to improve the agency's disaster readiness, and I am 
concerned that for fiscal year, this fiscal year your agency 
has proposed cutting, reducing the personnel of the disaster 
loan program by 150 full-time employees, and so my question to 
you is, this, based on the assessment that your agency had in 
the budget submission, says that we will reduce to 3 weeks the 
application, the processing of some of the applications. Study 
has shown that when a disaster strikes, if the small business 
do not get, doesn't get help, assistance, disaster assistance 
within the 3, 4 weeks probably that business will close. So 
aren't you concerned that this is going to impact the readiness 
of the program?
    Mr. Rivera. Well, Congresswoman Velazquez, the fiscal year 
2012 budget did go from as comparison to the fiscal year 2011 
budget, the fiscal year 2012 budget proposal does go from a 
thousand full time equivalents to 850, yes, ma'am. We feel that 
that is now our core, and we feel with the core and the surge 
and the staffing strategy we have in place, we feel comfortable 
that we can do this. We don't keep staff if we don't need them, 
so if we don't have disaster activity, we go down to----
    Ms. Velazquez. That is the problem. We don't know when the 
next Katrina is going to strike.
    Mr. Rivera. Yes, ma'am, you are absolutely correct, and 
what we have with the staffing strategy is we have the surge 
and surge-plus approach where we have these individuals that 
actually have signed up with us and are ready to show up in 24 
to 48 hours, and these are the 2,000 employees that we have in 
the surge pool.
    Ms. Velazquez. Mr. Shear, in your prior reports on this 
program you have stressed that disaster preparation depends on 
the agency's ability to identify and balance risks against 
available agency resources. So how do you balance this out in 
terms of the reduction of 150; will that compromise the 
agency's ability to identify and balance risk?
    Mr. Shear. I can't answer the question on the 150 exactly, 
but one of the things I have said to this committee before is 
that many times I am here before this committee and we are 
talking about programs other than disaster assistance, and we 
are saying, well, programs are fragmented, we are looking to 
get rid of redundancies or programs that don't leverage each 
other effectively, but disaster assistance is a different 
business, so I will just repeat the points from before. You 
want some redundancy in the system, and the thing that if I 
were Mr. Rivera or this committee, or I will just say as a 
public citizen, that would cause me to lose sleep at night is 
that once, whether it is a 9/11 or Katrina, and that is way in 
the past, do people forget so much that you don't have the 
reserves in place, that they are available. So it is a huge 
problem, how do you balance those, because there is a cost of 
having reserves in place, but disaster recovery you have to 
have some concept of risk management. These simulation 
exercises are part of establishing that framework, and you have 
to be responsive to the risks that are out there, and we hope 
that that is occurring.
    Ms. Velazquez. Mr. Rivera, how should this committee and 
the American public judge your agency's success in responding 
to a major disaster? Should we look at the percentage of loans 
disbursed, the number of dollars loaned, customer satisfaction 
surveys or something else?
    Mr. Rivera. Congresswoman, I think you hit on all the 
factors that we look at. I mean, for example, the American--we 
do the independent survey with the American Customer 
Satisfaction Index. Out of a score of 100 we actually scored 80 
percent. It is an independent survey, we have no control, we 
contract that survey out. We also believe that we are prepared. 
We believe we have a good workforce in place, they are well 
trained, we continue to work on process improvements, try to 
make ourselves as efficient as possible and continue to 
collaborate and work closely with FEMA and other Federal 
agencies, HUD, and just go, Internal Revenue Service, and just 
continue to try to be as proactive as we possibly can.
    Ms. Velazquez. Well, I am glad to hear that this committee 
got it right when we passed the legislation in 2008, but now we 
need full implementation of those provisions. Thank you, Mr. 
    Mr. Bartlett. Thank you. Mr. Richmond.
    Mr. Richmond. Thank you, Mr. Chairman, again. A quick 
question. How much do you think it costs you all to service, 
let's say, an SBA loan from Katrina-Rita in a percentage point?
    Mr. Rivera. I would have to get back with you. I don't know 
that exact dollar. I know that we spend on average about $160 
to $200 million a year for the disaster, loan making and 
disaster loan servicing perspective, but the actual cost, the 
unit cost I would have to get back with you for the record.
    Mr. Richmond. Because I guess I am interested in all of the 
loans that were done after Hurricane Rita and Katrina, and to 
that extent, Gustav and Ike also, that the interest rate with 
an SBA loan is above what it costs you to service that loan, 
and part of the question becomes what is the rationale for the 
difference, where does the money go, does it go in the future 
program, in future loans? But to the extent that it can help, 
it could help people in terms of reducing their interest 
payment, it would just serve wonders to people in those 
devastated areas if we could give them some relief on those 
interest rates above what it costs us to service them. We ought 
not make a profit, and we ought not let government grow on the 
backs of people who just went through a disaster. So I would be 
interested in what it is costing to service them, what is the 
average percentage rate, and what that means in the terms of 
real dollars.
    Mr. Rivera. Yes, sir, we will get back with you for the 
    Mr. Richmond. And, Mr. Chairman, that is it. I would like 
to thank Mr. Shear and Mr. Rivera for coming today and thank 
the SBA for what they do, and my district has been a constant 
beneficiary of their work. We don't want to be, but it just so 
happens that if it is not one thing it is another, and thank 
you for what you do.
    Mr. Bartlett. Thank you very much. In its annual report on 
top management challenges, the SBA's Inspector General report 
said improper payments in the disaster program were 
underestimated by close to $1.4 billion. How much of this was 
in your area and what is being done to address this problem?
    Mr. Rivera. Congressman, the improper payments process that 
we had, the audit that we had with the Office of Inspector 
General, we took a very proactive approach and have 
reengineered how we do the process. Under the old process, the 
director in the Texas office had control of the improper 
payments and the calculation. Currently we have my director up 
in headquarters who is in charge of loan programs that actually 
goes through that process, so it is completely reengineered, 
and we continue to work on the improper payments and continue 
to reduce that percentage.
    Mr. Bartlett. So after the next disaster, the Inspector 
General will not be able to make a report like this; is that 
    Mr. Rivera. Well, that is always our goal.
    Mr. Bartlett. Thank you. Okay, as I anticipated, my 
colleagues have done a good job of asking the questions. When 
we look at the record, we may decide that there are other 
questions that we need to ask one or both of you so that we 
have a complete record for the future, and we hope that you can 
respond for the record if we ask those questions.
    I would like to end by thanking both of our witnesses for 
appearing today. Providing assistance in the aftermath of a 
disaster is a fundamental mission and something that we have 
the responsibility to get right. While SBA has improved the 
process for many disaster victims, we need to make sure that 
these improvements continue and that we are prepared for any 
disaster that might come our way. This committee will continue 
to monitor SBA's performance to make sure that we are helping 
our neighbors when they need it most.
    With that, I ask unanimous consent that members have 5 
legislative days to submit statements and supporting materials 
for the record. Without objection, so ordered. The subcommittee 
now stands in adjournment.
    [Whereupon, the subcommittee was adjourned at 2:26 p.m.]