Statements on Introduced Bills and Joint Resolutions

Floor Speech

By:  Mary Landrieu
Date: Feb. 28, 2013
Location: Washington, DC

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Ms. LANDRIEU. Mr. President, I come to the floor today to speak on an issue that is of great importance to my home State of Louisiana: Federal disaster assistance. As you know, along the Gulf Coast, we keep an eye trained on the Gulf of Mexico during hurricane season. This is following the devastating one-two punch of Hurricanes Katrina and Rita of 2005 as well as Hurricanes Gustav and Ike in 2008. Unfortunately, our region also has had to deal with the economic and environmental damage from the Deepwater Horizon disaster in 2010 and more recently Hurricane Isaac. For this reason, as Chair of the Senate Committee on Small Business and Entrepreneurship ensuring Federal disaster programs are effective and responsive to disaster victims is one of my top priorities. While the Gulf Coast is prone to hurricanes, other parts of the country are no strangers to disaster. For example, the Midwest has tornadoes, California experiences earthquakes and wildfires, and the Northeast sees crippling snowstorms. So no part of our country is spared from disasters--disasters which can and will strike at any moment. This certainly hit home when the northeast was struck by Hurricane Sandy in October of last year. With this in mind, we must ensure that the Federal government is better prepared and has the tools necessary to respond quickly, effectively following a disaster.

In order to give the U.S. Small Business Administration, SBA, better tools to respond after a future disaster, I am proud that to file the Small Business Disaster Reform Act of 2013. I want to thank my colleague Senator THAD COCHRAN for cosponsoring the bill and for helping me to make improvements. I am also appreciative that Senator KIRSTEN GILLIBRAND and Senator MARK PRYOR also have cosponsored the legislation. This bill will make two important improvements to SBA's disaster assistance programs for businesses. The first provision builds off of SBA disaster reforms enacted in 2008 and ensures that SBA is responsive to the needs of small businesses seeking smaller amounts of disaster assistance. These are the businesses that are burdened the most by liens on their primary personal residential homes when they could conceivably provide sufficient business assets as collateral for the loan. The second provision in the bill also authorizes the SBA Administrator to allow out-of-state Small Business Development Centers, SBDCs, to provide assistance in to small businesses located in Presidentially-declared disaster areas. This provision removes a limitation that, for disasters such as Hurricane Katrina or Hurricane Sandy, would allow experienced SBDC counselors to come in to a disaster area while local SBDCs are being stood back up following a catastrophic disaster. Lastly, to ensure that out-of-state SBDCs are not left paying out of pocket for assisting in these disaster areas, there also is legislative language in Section 4 encouraging the SBA to ensure it reimburses SBDCs for these disaster-related expenses provided they were legitimate and there are funds available to do so.

In particular, Section 2 of the bill that I am filing today would clarify that, for SBA disaster business loans less than $200,000 that SBA is required to utilize assets other than the primary residence if those assets are available to use as collateral towards the loan. The bill is very clear though that these assets should be of equal or greater value than the amount of the loan. Also, to ensure that this is a targeted improvement, the bill also includes additional language that this bill in no way requires SBA to reduce the amount or quality of collateral it seeks on these types of loans. I want to especially thank my former Ranking Member Olympia Snowe for working with me to improve upon previous legislation on this particular issue. The provision that I am re-introducing, as part of this disaster legislation, is a direct result of discussions with both her and other stakeholders late last year. I believe that this bill is better because of improvements that came out of these productive discussions.

I note that this provision is similar to Section 204 of S. 2731, the Small Business Administration Disaster Recovery and Reform Act of 2009 that Senator BILL NELSON and I introduced during the 111th Congress. A similar provision also passed the House of Representatives twice that Congress. H.R. 3854, which included a modified collateral requirement under Section 801, passed the House on October 29, 2009 by a vote of 389-32. The provision also passed the House again on November 6, 2009 by a voice vote as Section 2 of H.R. 3743. During the 112th Congress, this provision passed the Senate on December 28, 2012 by a vote of 62-32 as part of H.R. 1, the Senate-passed Disaster Relief Appropriations Act. However, it was not included in H.R. 152, the House-passed Disaster Relief Appropriations Act that subsequently was enacted into law. Despite the setback earlier this year, I remind my colleagues that this provision has a history of bipartisan Congressional support and has previously passed both chambers of Congress.

Section 2 addresses a key issue that is serving as a roadblock to business owners interested in applying for smaller SBA disaster loans. After the multiple disasters that hit the Gulf Coast, my staff has consistently heard from business owners, discouraged from applying for SBA disaster loans. When we have inquired further on the main reasons behind this hesitation, the top concern related to SBA requiring business owners to put up their personal home as collateral for smaller SBA disaster loans for their business. This requirement is understandable for large loans between $750,000 and $2 million. However, business owners complained about this requirement being instituted for loans of $200,000 or less. I can understand their frustration. Business owners, in many cases who have just lost everything, are applying to SBA for a $150,000 loan for their business. SBA then responds by asking them to put up their $400,000 personal home as collateral when the business may have sufficient business assets available to collateralize the loan. While I also understand the need for SBA to secure the loans, make the program cost effective, and minimize risk to the taxpayer, SBA has at its disposal multiple ways to secure loans.

Furthermore, SBA has repeatedly said publicly and in testimony before my committee that it will not decline a borrower for a lack of collateral. According to a July 14, 2010 correspondence between SBA and my office, the agency notes that ``SBA is an aggressive lender and its credit thresholds are well below traditional bank standards ..... SBA does not decline loans for insufficient collateral.'' SBA's current practice of making loans is based upon an individual/business demonstrating the ability to repay and income. The agency declines borrowers for an inability to repay the loan. In regards to collateral, SBA follows traditional lending practices that seek the ``best available collateral.'' Collateral is required for physical loans over $14,000 and Economic Injury Disaster Loans, EIDL, loans over $5,000. SBA takes real estate as collateral when it is available, but as I stated, the agency will not decline a loan for lack of collateral. Instead it requires borrowers to pledge what is available. However, in practice, SBA is requiring borrowers to put up a personal residence worth $300,000 or $400,000 for a business loan of $200,000 or less when there are other assets available for SBA.

This provision does not substantively change SBA's current lending practices and it will not have a significant cost. I believe that this legislation would not trigger direct spending nor would it have a significant impact on the subsidy rate for SBA disaster loans. Currently for every $1 loaned out, it costs approximately 10 cents on the dollar. Most importantly, this bill will greatly improve the SBA disaster loan programs for businesses ahead of future disasters. If a business comes to the SBA for a loan of less than $200,000 to make immediate repairs or secure working capital, they can be assured that they will not have to put up their personal home if SBA determines that the business has other assets to go towards the loan. However, if businesses seek larger loans than $200,000 or if their business assets are not suitable collateral, then the current requirements will still apply. This ensures that very small businesses and businesses seeking smaller amounts of recovery loans are able to secure these loans without significant burdens on their personal property. For the business owners we have spoken to, this provides some badly needed clarity to one of the Federal government's primary tools for responding to disasters.

To be clear though, while I do not want to see SBA tie up too much of a business' collateral, I also believe that if a business is willing and able to put up business assets towards its disaster loan, SBA should consider that first before attempting to bring in personal residences. It is unreasonable for SBA to ask business owners operating in very different business environments post-disaster to jeopardize not just their business but also their home. Loans of $200,000 or less are also the loans most likely to be repaid by the business so personal homes should be collateral of last resort in instances where a business can demonstrate the ability to repay the loan and that it has other assets.

As previously mentioned, there are also safeguards in the provision that ensures that this provision will not reduce the quality of collateral required by SBA for these disaster loans nor will it reduce the quality of the SBA's general collateral requirements. These changes will assist the SBA in cutting down on waste, fraud and abuse of these legislative reforms. In order to further assist the SBA, I believe it is important to clarify what types of business assets we understand they should review. For example, I understand that SBA's current lending practices consider the following business assets as suitable collateral: commercial real estate; machinery and equipment; business inventory; and furniture and fixtures.

Section 3 of this bill removes an unnecessary prohibition in the Small Business Act that currently prohibits SBDCs from other states to help out in areas impacted by disasters. In particular, this provision authorizes the SBA Administrator to allow out-of-state SBDCs to provide assistance in to small businesses located in Presidentially-declared disaster areas. This is because, as you may know, SBDCs are considered to be the backbone of the SBA's Office of Entrepreneurial Development efforts, and are the largest of the agency's OED programs. SBDCs are the university based resource partners that provide counseling and training needs for more than 600,000 business clients annually. From 2007 to 2008, the counseling and technical assistance services they offered lead to the creation of 58,501 new jobs, at a cost of $3,462 per job. Additionally, they estimate that their counseling services helped to save 88,889 jobs. These centers are even more critical following natural or manmade disasters. That is because SBDCs help impacted businesses in navigating Federal disaster programs, insurance programs, and in creating new business plans following a disaster. For that reason, we must ensure that there is continuity to have SBDC counselors on the ground in disaster areas.

For example, right after Hurricane Katrina our SBDCs in Louisiana were severely limited in what they could do because of the widespread damage to homes and facilities utilized by their counselors. On the other hand, their counterparts at the Florida SBDCs had a wealth of disaster expertise and were willing to assist but were prohibited from providing assistance to small businesses outside their geographic area. In 2012, we experienced similar challenges following Hurricane Sandy but SBDCs in Louisiana, Florida or elsewhere were prohibited from helping their counterparts in the Northeast even if they wanted to help recovery in New York or New Jersey and doing so would not impact their operations back home. For smaller scale disasters, local SBDCs will respond to disasters in their own areas. However, for large scale, catastrophic disasters, this provision could make a significant difference for impacted small businesses.

In fact, on December 13, 2012, my committee received excellent testimony from Jim King, Chair of the Association of Small Business Development Centers, ASBDCs, and State Director of New York State Small Business Development Center. Mr. King outlined the symbiotic relationship between different SBDC state chapters and how they currently assist each other after disasters. He specifically noted that, ``I was also privileged to have the opportunity to work with the SBDC in Louisiana following Hurricane Katrina in 2005 and visited New Orleans as one of five State Directors invited to share thoughts with my counterpart there, Mary Lynn Wilkerson, to evolve a strategy for recovery. I should note that Mary Lynn has returned the favor many times over since Hurricane Sandy devastated our area, with materials, information and support, which has been greatly appreciated.'' He also later noted that ``Starting almost immediately after the disaster, staff in other states and programs began reaching out with offers of assistance and words or experiences of support ..... The experiences gained from disasters in Florida, Texas, Colorado, Louisiana and many other places reinforce the value of the SBDC network in meeting the needs of small business in times of disaster.'' I believe that these current relationships will be further strengthened by enacting this legislation. C.E. ``Tee'' Rowe, President/CEO of ASBDC noted this in his February 10, 2013 letter to my office, noting that, ``Allowing SBDCs to share resources across state lines or other boundaries for the purposes of disaster recovery is a common sense proposal, little different from utilities sharing linemen.'' At the same time, however, I encourage SBDC chapters across the country to establish more of these partnerships pre-disaster so that their SBDC counterparts can be there post-disaster. SBDC chapters that are, unfortunately, battle hardened from multiple disasters should not be the only chapters that bear fruit from these partnerships with their counterparts.

Furthermore, I note that Section 3 of the bill has previously been passed out of committee and has been approved by the full Senate during past sessions of Congress. So this provision has a strong record of bipartisan support. During the 110th Congress, this provision was approved unanimously by the Small Business and Entrepreneurship Committee on May 7, 2007 as Section 104 of S. 163, the ``Small Business Disaster Response and Loan Improvements Act of 2007.'' S. 163 was subsequently passed by the full Senate by unanimous consent on August 3, 2007. Unfortunately, this provision was not enacted into law before the adjournment of the 110th Congress. In the 111th Congress, this provision was again approved unanimously by the Small Business and Entrepreneurship Committee on July 2, 2009 as Section 607 of S. 1229, the ``Entrepreneurial Development Act of 2009'' but was not enacted into law before the adjournment of that Congress. Lastly, during the 112th Congress, the provision received 57 strong bipartisan votes on July 12, 2012 as Section 433 of Senate Amendment 2521 to S. 2237, the ``Small Business Jobs and Tax Relief Act of 2012.'' My Republican colleagues Senators Snowe, COLLINS, VITTER, Scott Brown, and HELLER all voted in support of the amendment. Although it was not ultimately enacted into law, the provision was subsequently included in separate pieces of legislation introduced by Senator Olympia Snowe and myself. This provision was included as Section 433 of S. 3442, the ``SUCCESS Act of 2012'' that I introduced on July 25, 2012 as well as Section 433 of S. 3572, the ``Restoring Tax and Regulatory Certainty to Small Business Act of 2012'' that Senator Snowe introduced on September 9, 2012.

Lastly, Section 4 is a new provision that I worked with my colleague Senator COCHRAN to include in the legislation. This section addresses past instances where SBDCs were not sufficiently reimbursed post-disaster by the SBA for disaster-related expenses. Section 3 provides clear Congressional intent that, in authorizing the SBA to allow out-of-state SBDCs to assist in disaster areas outside their geographic location, the agency must also ensure that out-of-state SBDCs are not left paying out of pocket for assisting in these disaster areas. If the SBA approves for these SBDCs to deploy staff or resources to a disaster area, the agency must in turn ensure that it reimburses SBDCs for these expenses provided they were legitimate and there are funds available to do so. I thank Senator COCHRAN for bringing this to my attention on behalf of his local SBDCs, and look forward to working closely with him to enact this provision into law.

In closing, I believe that these commonsense disaster reforms will greatly benefit businesses impacted by future disasters. First, the major proposals in this legislation are neither new nor untested. Next, this approach has already received support from the following groups from across the country: the Association of Small Business Development Centers, the International Economic Development Council, the Southwest Louisiana Economic Development Alliance, the St. Tammany Economic Development Foundation, the Northeast Louisiana Economic Partnership, and the Bay Area Houston Economic Partnership. With that in mind, the Senate should not make the perfect the enemy of the good. If we can make these reforms today and help one business impacted by a disaster tomorrow, we will have done what our constituents sent us here to do: make good laws.

Mr. President, I ask unanimous consent that the text of the bill and letters of support be printed in the RECORD.

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