House Small Business Committee Issues Report on Superstorm Sandy Relief, Disaster Loan Program Improvement Act
Excerpts of the report follow:
PURPOSE AND
The purpose of H.R. 208, the 'Superstorm Sandy Relief and Disaster Loan Program Improvement Act of 2015' is to amend the Small Business Act so that those affected by Superstorm Sandy (which made landfall in
BACKGROUND AND NEED FOR LEGISLATION
On
[Footnote 1: http://www.nhc.noaa.gov/archive/2012/al18/al182012.update.10300002.shtml?.]
[Footnote 2: http://www.weather.gov/okx/HurricaneSandy.]
Damage caused by Hurricane Sandy included `damage to hundreds of thousands of homes, forced tens of thousands of survivors into shelters and caused billions of dollars in damage to vital infrastructure systems....' 3 [Footnote] Unemployment claims resulting from the temporary or permanent closure of businesses in
[Footnote 3: https://www.fema.gov/sandy-recovery-office. In addition, 73 people lost their lives in the storm. Id.]
[Footnote 4:
[Footnote 5: Id. at 17.]
In response to the devastating damage, the President declared a major disaster pursuant to Sec. 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5170(a) (Stafford Act). 6 [Footnote] Included in the disaster declarations was the entire state of
[Footnote 6: The declaration of a major disaster simply means that state and local governments do not have the resources needed to respond in an adequate manner. 42 U.S.C. Sec. 5170(a).]
[Footnote 7: https://www.fema.gov/disasters/grid/year/2012?field<disaster<type<term<tid<1=All. Each state requests the President to declare a major disaster under the Stafford Act. Thus, there were 11 separate disaster declarations issued by the President as a result of Hurricane Sandy.]
Declaration of a major disaster under the Stafford Act allows the SBA to offer loans to homeowners and businesses. 15 U.S.C. Sec. 636(b). 8 [Footnote] There are two types of such loans: (1) physical disaster loans that enable reconstruction of residential and commercial property (of small businesses) for damages not covered by insurance; id. at Sec. 636(b)(1); and (2) economic injury disaster loans for small businesses who suffered, not physical damage, but monetary harm as a result of diminution of commerce in the disaster area. Id. at 636(b)(2). Time limits for filing applications are not established in statute or SBA regulations but are set out in a non-binding document. 9 [Footnote] SBA, Standard Operating Procedure 50 30 6, at 18 (effective date
[Footnote 8: E.g., SBA, New Jersey Disaster Number NJ-0900033, Notice, 77 Fed. Reg. 67,858 (
[Footnote 9: The analysis of the non-binding nature of the standard operating procedures is beyond the scope of this Committee report. For a more detailed explication showing that the standard operating procedures are regulations issued in violation of SBA rules (and thus non-binding on the public), see Letter from the Hon.
[Footnote 10: The standard operating procedure can be found at https://www.sba.gov/content/disaster-assistance-program-posted-11-07.]
In 2008,
Despite the changes made by
[Footnote 11: GAO, Additional Steps Needed to Help Ensure More Timely Disaster Assistance 11, 15 (2014) (GAO-0914-09760) [hereinafter `GAO Sandy Study']. The GAO study was limited to disaster loan applications filed by small businesses and did not examine the processing of disaster loans from homeowners. An additional 73,000 loans were filed by homeowners seeking disaster assistance. Id. at 16 n. 23.]
[Footnote 12: Id. at 16.]
[Footnote 13: Id. at 18.]
[Footnote 14: https://www.sba.gov/content/sba-simplifies-online-disaster-loan-application.]
[Footnote 15: GAO Sandy Study, supra note 11, at 16, n. 23.]
The SBA exacerbated by the problem by handling all disaster loans on a first-in, first-out basis. 16
[Footnote] Thus, business owners could find significant delays in the queues for obtaining needed assistance.
[Footnote 16: Id. at 25.]
Despite a congressional mandate to ensure sufficient backups in computer systems, GAO found that the disaster credit management system suffered from `hardware crashes and periods of system latency (periods of slowness and freezing).' 17 [Footnote] Naturally, this caused further delays in the processing of applications. It also contributed significantly to the inability of the SBA to receive applications in a timely manner especially given the short time frames for the filing of physical disaster loans.
[Footnote 17: Id. at 26.]
Nor did the SBA have sufficiently trained personnel to review applications, despite Congressional directives to have such personnel. GAO found that additional staff were hired (rather than relying on a cadre of already trained personnel as directed by
[Footnote 18: Id. at 26-27.]
Ultimately,
H.R. 208, as amended, is a corrective to those who were suffered twice. It will hopefully ensure that the SBA is fully capable of responding to the next catastrophic disaster. More importantly, as
HEARINGS
The Committee did not hold any hearings on H.R. 208. Given the devastating report issued by GAO, the Committee believed that following regular order of having a hearing on the legislation only would further delay the provision of needed assistance to those who have suffered too long from the effects of Hurricane Sandy.
COMMITTEE CONSIDERATION
Amendment Number One, filed by
COMMITTEE VOTES
Clause 3(b) of rule XIII of the Rules of the
AMENDMENT TO H.R. 208
OFFERED BY MS. VELAZQUEZ OF
Page 1, beginning on line 4, insert `and Disaster Loan Program Improvement' after `Relief'.
Page 3, strike line 1 and all that follows through page 4, line 4.
Page 2, insert after line 23 the following:
Section 7(d) of the Small Business Act (15 U.S.C. 636(d)) is amended by adding at the end the following:
`(8) DISASTER LOANS FOR SUPERSTORM SANDY-
`(A) IN GENERAL- Notwithstanding any other provision of law, and subject to the same requirements and procedures that are used to make loans pursuant to subsection (b), a small business concern, homeowner, or renter that was located within an area and during the time period with respect to which a major disaster was declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5170) by reason of Superstorm Sandy may apply to the Administrator--
`(i) for a loan to repair, rehabilitate, or replace property damaged or destroyed by reason of Superstorm Sandy; or
`(ii) if such a small business concern has suffered substantial economic injury by reason of Superstorm Sandy, for a loan to assist such a small business concern.
`(B) TIMING- The Administrator shall select loan recipients and make available loans for a period of not less than 1 year after the date on which the Administrator carries out this authority.'.
Page 4, after line 4, insert the following:
Section 7(b)(1)(A) of the Small Business Act (15 U.S.C. 636(b)(1)(A)) is amended by striking `mitigating measures' and all that follows through `modifying structures' and inserting the following: `mitigating measures, including--
`(i) construction of retaining walls and sea walls;
`(ii) grading and contouring land; and
`(iii) relocating utilities and modifying structures, including construction of a safe room or similar storm shelter designed to protect property and occupants from tornadoes or other natural disasters'.
Section 7(b) of the Small Business Act (15 U.S.C. 636(b)) is amended by adding at the end the following:
`(10) COLLATERAL REQUIREMENTS FOR SMALL BUSINESSES- In the case of a loan made pursuant to this subsection in an amount not greater than
`(A) other collateral exists, including assets related to the operation of a business; and
`(B) such an option does not delay the Administrator's processing of disaster applications for a disaster.'.
Section 7(b) of the Small Business Act (15 U.S.C. 636(b)), as amended by this Act, is further amended by adding at the end the following:
`(12) INCREASING TRANSPARENCY IN LOAN APPROVALS- The Administrator shall establish and implement clear, written policies and procedures for analyzing the ability of a loan applicant to repay a loan made under this subsection.'.
Section 7(b) of the Small Business Act (15 U.S.C. 636(b)), as amended by this Act, is further amended by adding at the end the following:
`(13) ENSURING ACCOUNTABILITY IN LOAN APPROVALS- The Administrator shall establish requirements for the approval of economic injury disaster loan assistance made available pursuant to paragraph (2), which shall include the review of applicant eligibility and shall require that all supporting documentation is submitted prior to loan approval. The Administrator shall require that personnel involved in the approval of such loans be trained on such procedures.'.
Section 7(b) of the Small Business Act (15 U.S.C. 636(b)), as amended by this Act, is further amended by adding at the end the following:
`(14) REPORTING ON DISASTER PERFORMANCE MEASURES- The Administrator shall report the average processing time for all other disaster loan applications, including disaggregated data on disaster loan applications that were declined by the Administration's automated disaster processing system and applications in which the Administrator performed loss verification. For each disaster described in paragraph (2), the Administrator shall report such average processing times on its website and to the
The Administrator of the
(a) Initial Report- The Administrator of the
(b) Required Consultation With Depository Institutions and Credit Unions- The Administrator shall require the Associate Administrator for the
(c) Report on Consultation- Not later than 6 months after date of enactment of this Act, the Administrator shall report to
Amend the title so as to read: `A bill to improve the disaster assistance programs of the
SECTION-BY-SECTION ANALYSIS OF H.R. 208 AS AMENDED
Section 1. Short title
This section designates the bill as the `Superstorm Sandy Relief and Disaster Loan Program Improvement Act of 2015.'
Section 2. Findings
Section 2 sets forth the findings that necessitate the legislation which is further explicated in the section of this report addressing the background and need for the legislation. The findings reveal that the SBA was overwhelmed by the number of applications and did not have adequate systems, training, or personnel in place to ensure that homeowners and small businesses would be able to submit loan applications, much less get them processed in a timely manner.
Section 3. Revised disaster deadline
The amendment adopted by the Committee modifies section 3 of H.R. 208 by establishing that the SBA shall be reopen the application process for disaster loans to those who were located in an area for which the President, pursuant to Sec. 401 of the Stafford Act, declared a major disaster. Permissible loans in this context would include physical disaster loans and economic injury disaster loans. To the extent that the SBA's notices on the Hurricane Sandy disaster included authorizing economic injury disaster loans for small businesses outside of the specific areas included in the Presidential disaster declarations, the Committee expects that such loans should still be available under 3 of H.R. 208. It would not include immediate disaster assistance authorized by 37 of the Small Business Act, 15 U.S.C. 657(i).
The Committee believes that simply reopening the application deadline under Sec. 7(b) of the Small Business Act is the most appropriate manner to alleviate the problems faced by those who sought disaster assistance from the SBA as a result of Hurricane Sandy. The only reason that
While the Committee is taking action due to the opacity of the agency's `regulatory requirements,' the approach in the amendment adopted by the Committee specifically avoids any mandate the Administrator implement the section through notice and comment rulemaking in compliance with the agency's own rules. That would simply delay the ability of those adversely affected from obtaining assistance under the same standards that all other homeowners and small businesses obtain disaster loans from the SBA.
Section 4. Use of physical damage disaster loans to construct safe rooms
The SBA is authorized to issue physical disaster loans for 120 percent of the value of property destroyed but not covered by insurance. The additional 20 percent may be used to modify structures to reduce damage from a subsequent disaster. 15 U.S.C. Sec. 636(b)(1)(A). The SBA interprets this provision to prevent the use of additional proceeds for the construction of safe rooms even though the provision specifically authorizes that proceeds may be used for `mitigating measures, including but not limited to . . . modifying structures. . . .' Id. Although the SBA's interpretation of the existing language in the Small Business Act is patently incorrect (since a safe room is a mitigating measure and the statutory language sets forth examples not a comprehensive list), the agency, after discussion with the Committee remains adamantine in its interpretation of the statute.
Therefore, the amendment adopted by the Committee adds a new Sec. 4 (based on legislation introduced by
Section 5. Collateral requirements for small business concerns
Disaster loans are not grants, but rather loans.
The amendment adopted by the Committee adds a new paragraph (10) to Sec. 7(b) of the Small Business Act. The new paragraph prohibits the Administrator from requiring that personal residence be used as collateral for loans of less than
Section 6. Reducing delays on closing and disbursement of loans
Disaster loans require a significant amount of material from the applicants. The SBA permits homeowners and businesses to file applications without all necessary documentation with the expectation that such documentation may be submitted at a later date. In many cases, this makes abundant sense as the applicant may not have access to the material required by the SBA due to the disaster, including access to buildings where such information is stored. However, the SBA does not inform the applicants that later provision of such needed documentation may delay disbursements even though some applicants could have submitted all of the information at the time they applied for disaster assistance. Section 6 of the amendment adopted by the Committee would add a new requirement that the SBA inform applicants that they may (and if such information is available should) file all necessary documentation at the time of application or the processing and disbursement of the loan may be delayed.
Section 7. Increasing transparency in loan approvals
GAO found that many of the new individuals assigned to reviewing applications from those affected by Hurricane Sandy were ill-equipped to properly analyze the ability of an applicant to repay the loan. Furthermore, the SBA's standard operating procedures do not provide clear or transparent standards by which the ability to repay is measured. This means that two similarly situated applicants may be treated differently--an outcome that has been prohibited in government decisionmaking since the enactment of the Administrative Procedure Act in 1946. See Morton v. Ruiz,
This section of the amendment by the Committee would address this situation by adding a new provision to Sec. 7(b) of the Small Business Act that requires the Administrator to establish and implement clear written policies and procedures for analyzing the ability to repay. The Committee rejected the alternative of requiring such standards be promulgated after notice and comment rulemaking only because it would further delay the approval and disbursement of loans to recipients of loans affected by Hurricane Sandy. Of course, once the deadline established by the SBA pursuant to 3 of H.R. 208 lapses, the Committee would urge the agency to publish the standards for codification in the Code of Federal Regulations. This will ensure that future applicants, SBA personnel, and any private contractors for catastrophic disasters will apply and utilize the same standards on the ability of applicants to repay.
Section 8. Safeguarding taxpayers' interests
As already noted, the standards utilized by the SBA in making disaster loan decisions are anything but clear. This problem also extends to the standards used to make determinations on whether to issue an economic injury disaster loan, including whether the applicant was eligible, i.e., a small business.
The amendment adopted by the Committee adds a new Sec. 8 to H.R. 208 to address this problem. It requires that economic injury disaster loan applicants file all necessary paperwork prior to approval thereby ensuring that the agency will have all necessary information to determine eligibility, including whether the business is small or suffered damages as a result of the natural disaster. Given that GAO found new SBA personnel were not properly trained, the amendment adopted by the Committee also mandates that the SBA train personnel on these new procedures for determining eligibility of economic injury disaster loans. Finally, the Committee expects that these new procedures will be instituted to address the new applications filed pursuant to 3 of H.R. 208 and the Committee does not expect that the implementation of the procedures in 8 of the amended bill should slow the processing of disaster assistance to those affected by Hurricane Sandy.
Section 9. Disaster performance measures
The SBA currently reports on its disaster loan processing times. However, that information is not sufficiently disaggregated to help either applicants or
Section 10. Disaster plan improvements
One significant finding made by the GAO was that the SBA was unprepared for the volume of applications it received after Hurricane Sandy. Furthermore, the GAO found that the SBA's disaster response plan has not been modified to address the problem of unanticipated application volume after a disaster. GAO Sandy Study, supra note 11, at 15. The Committee finds that highly problematic (although given the fact that the SBA's SOP on disaster loans was written in 2011 not entirely surprising). Therefore, Sec. 10 of the amendment adopted by the Committee requires that the SBA update its disaster response plan to specify how the agency will address a disaster where it can be expected to receive a large volume of applications in both written form and electronically. The Committee would expect that it may include additional standards for the retention of private processors of disaster loans for catastrophic disasters.
Section 11. Report to
GAO found that the SBA had not implemented a number of changes in the disaster loan program in 2008 (again a result unsurprising to the Committee). Id. at 39. Therefore, the amendment adopted by the Committee includes a new Sec. 11 to H.R. 208 that requires the Administrator to report on the progress made in promulgating rules for those loan programs. That progress also entails consultation with financial institutions, including credit unions, about their ability, capacity and interest to offer the loan products specified in 11(a). The Committee views these discussions as vital, since the programs are designed to rely on private institutions making loans that the SBA guarantees.
Given the fact that the agency has not, after seven years, bothered to promulgate rules for two out of the three programs, the Committee believes that the SBA should conduct such rulemaking forthwith so these programs will be available in the SBA's disaster response arsenal. Once established, the Committee also expects the agency to modify its disaster response plan and update its standard operating procedures.
CONGRESSIONAL BUDGET JUSTIFICATION
The cost estimate prepared by the Director of the
UNFUNDED MANDATES
H.R. 208 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act, Pub. L. No. 104-4, and would impose no costs on state, local or tribal governments.
NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY AND TAX EXPENDITURES
In compliance with clause 3(c)(2) of rule XIII of the Rules of the House, the Committee opines that H.R. 208 will not establish any new budget or entitlement authority or create any tax expenditures.
The legislation, by reopening the disaster loan application period (a deadline established by what is effectively an agency guidance document), will utilize the funds in the disaster loan account that are available until expended. The Committee believes that the disaster loan account currently has sufficient funds to address the remaining Hurricane Sandy applicants that would apply pursuant to Sec. 3 of H.R. 208 without diminishing the ability of the agency to respond to new disasters.
OVERSIGHT FINDINGS
In accordance with clause 2(b)(1) of rule X of the Rules of the House, the oversight findings and recommendations of the
STATEMENT OF CONSTITUTIONAL AUTHORITY
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
CONGRESSIONAL ACCOUNTABILITY ACT
H.R. 208 does not relate to the terms and conditions of employment or access to public services or accommodations within the meaning of Sec. 102(b)(3) of Pub. L. No. 104-1.
FEDERAL ADVISORY COMMITTEE ACT STATEMENT
H.R. 208 does not establish or authorize the establishment of any new advisory committees as that term is defined in the Federal Advisory Committee Act, 5 U.S.C. App. 2.
STATEMENT OF NO EARMARKS
Pursuant to clause 9 of rule XXI, H.R. 208 does not contain any congressional earmarks, limited tax benefits or limited tariff benefits as defined in subsections (d), (e) or (f) of clause 9 of rule XXI of the Rules of the House.
STATEMENT OF DUPLICATION OF FEDERAL PROGRAMS
Pursuant to clause 3(c) of the rule XIII of the Rules of the House, no provision of H.R. 208 establishes or reauthorizes a program of the federal government known to be duplicative of another federal program, a program that was included in any report from the United States Government Accountability Office pursuant to Sec. 21 of Pub. L. No. 111-139, or a program related to a program identified in the most recent catalog of federal domestic assistance.
DISCLOSURE OF DIRECTED RULE MAKINGS
Pursuant to clause 3(c) of rule XIII of the Rules of the House, H.R. 208 does not direct any rulemaking.
PERFORMANCE GOALS AND OBJECTIVES
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House, the Committee establishes the following performance-related goals and objectives for this legislation:
H.R. 208 amends the Small Business Act to allow new applications for disaster loans to businesses, homeowners, and renters affected by Hurricane Sandy. H.R. 208 also makes changes in SBA management to ensure that the SBA has the ability to respond in a comprehensive manner to new disasters.
CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In compliance with clause 3(e) of rule XIII of the Rules of the
ADDITIONAL VIEWS
BACKGROUND
The SBA's Disaster Assistance program was implemented for the purpose of providing timely financial assistance in the form of low interest loans and working capital for businesses and homeowners devastated by a disaster.
The problems and deficiencies in the SBA's Disaster Loan program were well exposed following Superstorm Sandy. The agency's shortcomings were highlighted in three separate reports by Small Business Committee Democrats, the
In 2013, the Small Business Committee Democrats released a report drawing attention to the significant backlog of loan applications and long delays in SBA's loan processing center following Superstorm Sandy. The report found that homeowners waited on average 30 days for loan approval while small businesses experienced delays of nearly 46 days, a three-fold increase over previous processing times following other hurricanes. This was after SBA was heavily criticized for its slow response following Hurricane Katrina and its commitment to improve processing time to less than 21 days.
In 2014, the
Because of the methodology SBA used to compute processing time for disaster loan applications, the reported performance did not accurately communicate to eligible applicants and oversight officials how long it was likely to take for most applicants to receive a disaster loan. The OIG also found that processing time performance standards were generally not attainable beyond certain application volume levels.
GAO released its report on Hurricane Sandy in
GAO also found that the SBA has not implemented the guaranteed disaster loan programs
The full text of the report is found at: http://thomas.loc.gov/cgi-bin/cpquery/39?cp114:temp/~cp114z9jDI&sid=cp114z9jDI&item=39&sel=TOCLIST&l_f=151&l_file=list/cp114ch.lst&l_b=101&l_file=list/cp114ch.lst&report=hr186.114&hd_count=50&&&l_t=365&&&
-1233212
Advisor News
Annuity News
Health/Employee Benefits News
Life Insurance News