Congressional Research Service Report: 'SBA Pre-Disaster Mitigation Loan Pilot Program – Considerations for Congress & Policy Options'
For nearly a century,
As described in this report, mitigation measures primarily take place during the recovery phase of a disaster. Currently, only damaged businesses in declared disaster areas are eligible for disaster loans. Businesses seeking mitigation assistance before a disaster strikes, however, must look to other sources for the assistance.
Although the federal government has traditionally favored a post-disaster approach to mitigation, there are indications suggesting congressional interest in pre-disaster mitigation has increased in recent years, partly as a result of recent and recurring large-scale disasters, including hurricanes Katrina, Harvey, Irma, Maria, and Michael. This is evidenced by enactment of the Disaster Recovery Reform Act of 2018 (DRRA, Division D of P.L. 115-254), which made substantial reforms to pre-disaster mitigation. The renewed focus on pre-disaster mitigation has also led to discussions about reauthorizing the SBA PDM pilot program.
This report describes the underlying rationale for post-disaster and pre-disaster mitigation and provides an overview of the SBA PDM loan pilot program, including its past performance and potential reasons why so few businesses participated in the pilot program. These potential reasons include (1) the fact that the pilot program was tied to
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Contents:
Rationale for Post-Disaster vs. Pre-Disaster Mitigation ... 3
* Post-Disaster Mitigation ... 3
* Pre-Disaster Mitigation ... 3
SBA Pre-Disaster Mitigation Loan Pilot Program ... 4
* SBA PDM Pilot Program Performance ... 5
* Challenges to the Success of the SBA PDM Pilot Program ... 5
- Limited Time Frame ... 5
- Limited Number of Eligible Applicants ... 6
- Outreach and Notifications ... 8
Considerations for
* Reauthorizing the SBA PDM Pilot Program ... 8
* Restructuring Existing Business Physical Disaster Loans ... 9
* Assistance with Continuity and Disaster Response Plans ... 9
* Pre-Disaster Mitigation Loans for Homeowners ... 10
* Pre-Disaster Mitigation Loans for Infectious Disease Outbreaks ... 10
Concluding Observations ... 10
Figures:
Figure 1. FEMA Pre-Disaster Mitigation Funding and Post-Disaster Mitigation Funding ... 2
Figure 2. Project Impact Communities ... 7
Appendixes:
Appendix. Project Impact and SBA PDM Pilot Loan Program Information ... 12
Contacts:
Author Information ... 15
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Since the
SBA business disaster loans fall into two categories: (1) Economic Injury Disaster Loans (EIDL), and (2) business physical disaster loans.
EIDLs provide up to
Business physical disaster loans provide up to
An important aspect of the SBA Disaster Loan Program is that a business must already be damaged and be located in a federally declared disaster area to apply a portion of its disaster loan toward mitigation measures. As will be discussed in this report,
Providing mitigation assistance to businesses after a disaster is arguably consistent with the mitigation policies of other federal programs. For example, the
Figure 1. FEMA Pre-Disaster Mitigation Funding and Post-Disaster Mitigation Funding
Figure omitted.
Funding for pre-disaster mitigation, however, may increase with the enactment of the Disaster Recovery Reform Act of 2018 (DRRA, Division D of P.L. 115-254)./3
Section 1234 of DRRA authorized the
This 6% "set aside" is the aggregate amount funded by the following sections of the Stafford Act:
* 403 (essential assistance);
* 406 (repair, restoration, and replacement of damaged facilities);
* 407 (debris removal);
* 408 (federal assistance to individuals and households);
* 410 (unemployment assistance);
* 416 (crisis counseling assistance and training); and
* 428 (public assistance program alternative procedures).
Although post-disaster and pre-disaster mitigation are not mutually exclusive, there are reasons why one may be favored over the other. The following section provides the underlying rationale for the two approaches to mitigation.
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Rationale for Post-Disaster vs. Pre-Disaster
Mitigation
Over the years, scholars, researchers, and policymakers have debated whether mitigation is more effective before or after an incident. The following sections list the rationales for each approach.
Post-Disaster Mitigation
The underlying rationales for providing post-disaster mitigation include
* incidents such as floods and hurricanes are known to recur in the same areas. Post-disaster mitigation targets those areas to protect them from future disasters;
* post-disaster mitigation helps ensure that the opportunity to take mitigation measures to reduce the loss of life and property from disasters is not lost during the reconstruction process following a disaster;
* the recovery phase of an incident may be the most ideal time to introduce new structural changes because damaged structures are already in the process of being replaced and rebuilt;
* post-disaster mitigation can be used to support a "build back better" approach to avoid or reduce future disaster damages;
* providing mitigation funding after an incident is programmatically easier to administer because the grants are concomitant with a federally declared incident. In contrast, pre-disaster projects have generally been awarded on a competitive basis-each application must be scrutinized and prioritized over other applications; and
* policymakers may find it difficult to justify or defend expenditures for incidents that may not occur for long periods of time (or never occur). This may be particularly true during periods of heightened concern over the federal budget.
Pre-Disaster Mitigation
Others may argue that mitigation is more effective when implemented before rather than after an incident. The rationales for pre-disaster mitigation include
* post-disaster mitigation may fail to address vulnerable areas that have not had a major disaster declaration; and
* studies indicate that mitigation can significantly reduce recovery costs. For example, a study published by the
Those savings, however, cannot be calculated until there are subsequent disasters.
SBA Pre-Disaster Mitigation Loan Pilot Program
Based on findings similar to the one issued by the
Section 1(a) of P.L. 106-24 authorized the SBA during fiscal years 2000 through 2004, to establish a Pre-Disaster mitigation program to make such loans (either directly or in cooperation with banks or other lending institutions through agreements to participate on an immediate or deferred (guaranteed) basis), as the Administrator may determine to be necessary or appropriate, to enable small businesses to use mitigation techniques in support of a formal mitigation program established by the
The SBA PDM pilot program was developed in support of "Project Impact," a new
Similarly, SBA PDM loans were intended to lessen or prevent future damages to businesses. According to the House report on H.R. 818 (the companion bill to S. 388, which became P.L. 106-24)
The cost of disaster assistance has risen over the past several years due to increases in construction and other costs. By implementing a program to help small businesses use techniques that would lessen damage in the event of natural disasters the possibility exists to save millions of dollars in potential losses./9
The report also stated that
the Administrator of the
She also discussed
Section 1(c) of P.L. 106-24 required the SBA Administrator to submit a report to
* the areas served under the pilot program;
* the number and dollar value of loans made under the pilot program;
* the estimated savings to the federal government resulting from the pilot program; and
other relevant information as the Administrator determines to be appropriate for evaluating the pilot program.
Since its expiration at the end of FY2006, many Members have discussed the possibility of reauthorizing the PDM pilot program.
SBA PDM Pilot Program Performance
According to SBA, four loans were approved during the SBA PDM pilot program, with a total gross approval amount of
As mentioned previously, Section 1(c) of P.L. 106-24 required the SBA Administrator to submit a report to
The following sections describe the possible reasons for the lack of participation in the SBA PDM pilot program.
Challenges to the Success of the SBA PDM Pilot Program
The limited number of businesses that participated in the SBA PDM pilot program may be attributable to its alignment with
Limited Time Frame
The SBA PDM pilot loan program was created in conjunction with
According to SBA, the PDM program rules were effective as of
However, communities could not apply to be accepted as a pre-disaster mitigation eligible community because
Project Impact's implementation was further delayed "pending appropriations in the FY2002 Departments of
On
The sequence of events described above shortened the timeframe for applying for PDM loans. A CRS search of the
Limited Number of Eligible Applicants
The Project Impact requirement significantly reduced the number of businesses eligible for the SBA PDM pilot program. The SBA PDM pilot program was intended to complement Project Impact by participating in the "whole of community approach" to disaster mitigation; SBA PDM loan eligibility was contingent on whether the business was located in a Project Impact community. The Project Impact requirement may have unintentionally limited the number of businesses eligible for PDM disaster loans. As demonstrated in Figure 2, few communities participated in the Project Impact program. There may have been businesses in "non-Project Impact" areas that wanted SBA PDM loans but were ineligible because of the Project Impact requirement.
Figure 2. Project Impact Communities
Figure omitted.
Further limiting participation, businesses that were in Project Impact communities but not in a Special
Finally, though the SBA PDM loan pilot program continued until FY2006, Project Impact was replaced by the Pre-Disaster Mitigation (PDM) program in FY2002. According to then-FEMA Director
I want to take the "concept" of Project Impact and fold it in to the program of mitigation.
Project Impact is not mitigation. It is an initiative to get "consumer buy-in." In many communities it became the catch-phrase to get local leaders together to look at ways to do mitigation./20
The PDM program does not designate participating communities. Rather, state and local governments submit mitigation planning and project applications to
Eligibility requirements for the SBA PDM loan pilot program were not changed to reflect the new FEMA PDM program. It is unclear what effect this may have had on the SBA PDM loan pilot program.
Outreach and Notifications
As mentioned previously, SBA published notices in the
* * *
Considerations for
First, implementation delays and eligibility restrictions, such as the ones described above, may not be an issue if
Second, if the SBA PDM pilot program were to be reauthorized, one option available to address outreach would be to require SBA to spend a portion of the PDM loan appropriation money on outreach, including advertising to educate businesses on the importance of mitigation to protect their investment from being damaged or destroyed by a disaster, and to help businesses become aware that PDM loans are available. Additionally, SBA could be required to provide information to
Further, as mentioned previously, Section 1(c) of P.L. 106-24 required the SBA Administrator to submit a report to
* the areas served under the pilot program;
* the number and dollar value of loans made under the pilot program;
* the estimated savings to the federal government resulting from the pilot program; and
* other relevant information as the Administrator determines to be appropriate for evaluating the pilot program.
If
According to one congressional scholar, "the criticisms and suggestions carried in the reports accompanying each bill are expected to influence the subsequent behavior of the agency. Committee reports are not the law, but it is expected that they be regarded almost as seriously."/24
Restructuring Existing Business Physical Disaster Loans
As mentioned previously, the limits on post-disaster mitigation loans are the lesser of either the measure or 20% of the verified loss. If
Assistance with Continuity and Disaster Response Plans
Research indicates that many businesses do not have contingency or disaster recovery plans. For example, a survey of Certified Public Accounting (CPA) firms located on
The Ready Business Program is designed to help businesses plan and prepare for disasters by providing businesses various online toolkits that can help them identify their risks and develop a plan to address those risks./26
The SBA provides a range of resources to help businesses develop plans to protect employees, reduce the financial impact of a disaster, and reopen the business more quickly./27
Pre-Disaster Mitigation Loans for Homeowners
In addition to disaster loans for businesses, SBA also provides disaster loans to homeowners. In fact, roughly 80% of SBA disaster assistance goes to individuals and households rather than businesses. Homeowners located in a declared disaster area (and in contiguous counties) may apply to SBA for loans up to
According to regulations 20% "of the verified loss (not including refinancing or malfeasance), before deduction of compensation from other sources, up to a maximum of
Homeowners seeking mitigation assistance before a disaster strikes, however, must look to other sources for the assistance.
In addition to mitigation measures, such as retrofitting structures, contouring land, and relocating utilities, Section 4 of the Recovery Improvements for Small Entities After Disaster Act of 2015 (RISE Act, P.L. 115-88) allows homeowners to use a portion of their physical damage disaster loans for the construction of safe rooms or similar storm shelters designed to protect property and occupants from tornadoes or other natural disasters. Some homeowners may wish to build a safe room or storm shelter before a disaster. If that is the case, they may be interested in a pre-disaster mitigation loan to fund its construction. Homeowners may also be interested in other pre-disaster mitigation measures. The SBA PDM pilot program, however, only provided pre-disaster loans to businesses. If reauthorized,
Pre-Disaster Mitigation Loans for Infectious Disease Outbreaks
As described earlier in this report, eligible mitigation measures for SBA disaster loans can be used to fund eligible mitigation activities, which are structural in nature and include activities such as grading or contouring land, relocating or elevating utilities or mechanical equipment, and building retaining walls. In light of the COVID-19 pandemic, some businesses may be interested in making investments to protect their employees and clients against the threat of infectious disease outbreaks. To meet this potential demand,
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Concluding Observations
For nearly a century,
Finally,
Businesses may be more receptive to pre-disaster mitigation loans as a result of the large-scale disasters that have occurred since 2005. Prior to Hurricane Katrina, the salience of disaster issues generally, and mitigation specifically, may have been on the periphery of business concerns.
While there were some large-scale disasters, the scope of those disasters tended to be regional rather than national. Furthermore, the focus of emergency management during that time was arguably more oriented toward terrorism concerns resulting from the 9/11 attacks. Consequently, the need to mitigate against future disasters may have been just one concern coequal with other, competing concerns. The policy environment may have changed as a result of hurricanes Katrina, Harvey, Irma, Maria, and Michael. These disasters, in addition to increasing concerns about the impact of climate change on the frequency and severity of disasters, may make businesses more amenable to the idea of pre-disaster mitigation loans to protect their investment from future disasters.
* * *
Footnotes:
1 For more information on the
2 42 U.S.C. Sec.Sec.5721 et seq. For more information on the two programs, see
3 For more information on the pre-disaster mitigation funding available following the enactment of the Disaster Recovery Reform Act of 2018 (DRRA), see CRS Report R45819, The Disaster Recovery Reform Act of 2018 (DRRA): A Summary of Selected Statutory Provisions, coordinated by
4 For more information on the
5
6 H.Rept. 106-33, p. 2.
7 P.L. 83-163, as amended; 15 U.S.C. Sec.Sec.
8 See the Appendix of this report for more information on Project Impact.
9 H.Rept. 106-33, p. 2.
10 Ibid.
11 Section 1(b) of P.L. 106-24 authorized appropriations of
12 P.L. 108-447, the Consolidated Appropriations Act, 2005.
13 Based on an email correspondence with the
14 Ibid.
15
16
17 Ibid.
18 Ibid.
19
20
21
22 P.L. 106-390, the Disaster Mitigation Act of 2000, provided statutory authorization for Project Impact's successor program, the Pre-Disaster Mitigation program. The PDM program can be located in Section 203 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act. In FY2020, the PDM program will be using a new program name: Building Resilient Communities and Infrastructure (BRIC).
23 For more information on appropriations report language see CRS Report R44124, Appropriations Report Language: Overview of Development, Components, and Issues for
24
25
26
27
28 13 C.F.R. Sec.123.105(4).
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REPORT and FIGURES: https://crsreports.congress.gov/product/pdf/R/R46118
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