Hurricanes Katrina and Rita
Federally Funded Programs Have Helped to Address the Needs of Gulf Coast Small Businesses, but Agency Data on Subcontracting Are Incomplete Gao ID: GAO-10-723 July 29, 2010Hurricanes Katrina and Rita wreaked havoc on small businesses in the Gulf Coast, and much federal assistance has been provided to help these businesses. GAO was asked to describe (1) the amount of assistance provided to Gulf Coast small businesses through the Small Business Administration's (SBA) disaster and Gulf Opportunity (GO) loans, state-administered business assistance programs funded by the Department of Housing and Urban Development's (HUD) Community Development Block Grants (CDBG), and the Economic Development Administration's (EDA) Revolving Loan Fund (RLF) program; (2) the extent to which Gulf Coast small businesses received federal contract funds; and (3) the current state of and improvements in the region's economy. GAO analyzed data on SBA and EDA loans and states' use of supplemental CDBG appropriations, data on prime and subcontracts awarded for hurricane recovery activities, and economic indicators both before and after the hurricanes.
Several federal programs provided assistance to Gulf Coast small businesses after the 2005 hurricanes; however, despite this assistance, some small businesses still face recovery challenges. Of the programs we reviewed, SBA provided the greatest amount of assistance to small businesses. SBA approved about $1.4 billion in loans through its Disaster Loan and GO Loan programs to assist with the repair or replacement of damaged property and to address economic losses suffered after the hurricanes. In addition, Louisiana expended about $179 million and Mississippi targeted $3 million in CDBG disaster relief funds for small business assistance grant, loan, and other programs to further assist businesses that in some or all cases, may not have been eligible for SBA loans. EDA did not receive supplemental appropriations after the hurricanes, but Gulf Coast small businesses did receive about $36 million in loans from EDA's RLF grantees, which provide gap financing to small businesses to start or expand their business. Even with federal assistance, however, some small business owners with whom GAO met have encountered recovery challenges. For example, a few of these small business owners told GAO that they had problems applying for SBA loans because the hurricanes destroyed needed financial records. Other owners face higher expenses, especially the cost of commercial insurance and added debt from these loan programs, which has made recovering difficult. Gulf Coast small businesses received almost $2.9 billion in federal contracts awarded in response to the hurricanes. The Federal Acquisition Regulation requires that agency contracting officials monitor prime contractors' performance under subcontracting plans. However, the U.S. Army Corps of Engineers (Corps) and the rest of the Department of Defense (DOD)--two of four agencies that awarded the most in federal contracts for hurricane recovery--could not demonstrate that they were consistently monitoring subcontracting accomplishment data for 13 of the 43 construction contracts for which subcontracting plans were required. Without such monitoring, the Corps and the rest of DOD are limited in their ability to determine the extent to which contractors are following their subcontracting plans. Indicators--including population estimates, number of small businesses, unemployment rates, and housing prices--suggest that the hurricanes' effects on local economies varied across the Gulf Coast. From 2005 to 2006, some heavily damaged areas experienced steep declines in population and number of small businesses, while less-damaged areas experienced steady increases in these indicators. Since that time, the population and number of small businesses in heavily damaged areas have increased, but they both still remain below prehurricane levels. House prices have shown some steady increases from 2005 to 2008 in heavily damaged metropolitan areas. The impact of the recent oil spill in the Gulf of Mexico on small businesses is uncertain. GAO recommends that the Secretary of Defense should take steps to ensure that contracting officials with the Corps and other DOD departments consistently comply with requirements to monitor the extent to which contractors are meeting subcontracting plan goals. DOD did not concur with the implication that its contracting personnel do not enforce requirements.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: William B. Shear Team: Government Accountability Office: Financial Markets and Community Investment Phone: (202) 512-4325GAO-10-723, Hurricanes Katrina and Rita: Federally Funded Programs Have Helped to Address the Needs of Gulf Coast Small Businesses, but Agency Data on Subcontracting Are Incomplete
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Report to the Committee on Small Business and Entrepreneurship, U.S.
Senate:
United States Government Accountability Office:
GAO:
July 2010:
Hurricanes Katrina And Rita:
Federally Funded Programs Have Helped to Address the Needs of Gulf
Coast Small Businesses, but Agency Data on Subcontracting Are
Incomplete:
GAO-10-723:
GAO Highlights:
Highlights of GAO-10-723, a report to the Committee on Small Business
and Entrepreneurship, U.S. Senate.
Why GAO Did This Study:
Hurricanes Katrina and Rita wreaked havoc on small businesses in the
Gulf Coast, and much federal assistance has been provided to help
these businesses. GAO was asked to describe (1) the amount of
assistance provided to Gulf Coast small businesses through the Small
Business Administration‘s (SBA) disaster and Gulf Opportunity (GO)
loans, state-administered business assistance programs funded by the
Department of Housing and Urban Development‘s (HUD) Community
Development Block Grants (CDBG), and the Economic Development
Administration‘s (EDA) Revolving Loan Fund (RLF) program; (2) the
extent to which Gulf Coast small businesses received federal contract
funds; and (3) the current state of and improvements in the region‘s
economy. GAO analyzed data on SBA and EDA loans and states‘ use of
supplemental CDBG appropriations, data on prime and subcontracts
awarded for hurricane recovery activities, and economic indicators
both before and after the hurricanes.
What GAO Found:
Several federal programs provided assistance to Gulf Coast small
businesses after the 2005 hurricanes; however, despite this
assistance, some small businesses still face recovery challenges. Of
the programs we reviewed, SBA provided the greatest amount of
assistance to small businesses. SBA approved about $1.4 billion in
loans through its Disaster Loan and GO Loan programs to assist with
the repair or replacement of damaged property and to address economic
losses suffered after the hurricanes. In addition, Louisiana expended
about $179 million and Mississippi targeted $3 million in CDBG
disaster relief funds for small business assistance grant, loan, and
other programs to further assist businesses that in some or all cases,
may not have been eligible for SBA loans. EDA did not receive
supplemental appropriations after the hurricanes, but Gulf Coast small
businesses did receive about $36 million in loans from EDA‘s RLF
grantees, which provide gap financing to small businesses to start or
expand their business. Even with federal assistance, however, some
small business owners with whom GAO met have encountered recovery
challenges. For example, a few of these small business owners told GAO
that they had problems applying for SBA loans because the hurricanes
destroyed needed financial records. Other owners face higher expenses,
especially the cost of commercial insurance and added debt from these
loan programs, which has made recovering difficult.
Gulf Coast small businesses received almost $2.9 billion in federal
contracts awarded in response to the hurricanes. The Federal
Acquisition Regulation requires that agency contracting officials
monitor prime contractors‘ performance under subcontracting plans.
However, the U.S. Army Corps of Engineers (Corps) and the rest of the
Department of Defense (DOD)-”two of four agencies that awarded the
most in federal contracts for hurricane recovery-”could not
demonstrate that they were consistently monitoring subcontracting
accomplishment data for 13 of the 43 construction contracts for which
subcontracting plans were required. Without such monitoring, the Corps
and the rest of DOD are limited in their ability to determine the
extent to which contractors are following their subcontracting plans.
Indicators”-including population estimates, number of small
businesses, unemployment rates, and housing prices”-suggest that the
hurricanes‘ effects on local economies varied across the Gulf Coast.
From 2005 to 2006, some heavily damaged areas experienced steep
declines in population and number of small businesses, while less-
damaged areas experienced steady increases in these indicators. Since
that time, the population and number of small businesses in heavily
damaged areas have increased, but they both still remain below
prehurricane levels. House prices have shown some steady increases
from 2005 to 2008 in heavily damaged metropolitan areas. The impact of
the recent oil spill in the Gulf of Mexico on small businesses is
uncertain.
What GAO Recommends:
GAO recommends that the Secretary of Defense should take steps to
ensure that contracting officials with the Corps and other DOD
departments consistently comply with requirements to monitor the
extent to which contractors are meeting subcontracting plan goals. DOD
did not concur with the implication that its contracting personnel do
not enforce requirements.
View [hyperlink, http://www.gao.gov/products/GAO-10-723] or key
components. For more information, contact William Shear at (202) 512-
8678 or shearw@gao.gov.
[End of section]
Contents:
Letter:
Background:
Federally Funded Programs Have Helped to Address Different Needs of
Small Businesses, but Some Small Businesses Still Face Challenges, and
the Performance of Federally Funded Loans Has Varied:
Gulf Coast Small Businesses Directly Received Billions of Federal
Contracting Dollars, but Reporting of Subcontracting Dollars Awarded
Remains Incomplete:
Economic Conditions Have Varied Across the Gulf Coast Region Following
Hurricanes Katrina and Rita and Appear to Be Related in Part to the
Level of Damage Sustained in Different Areas:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Summary of Selected Reports from Research Organizations
Studying the Economic Recovery of the Gulf Coast Region Following
Hurricanes Katrina and Rita:
Appendix III: Comments from the Department of Defense:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Characteristics of SBA's Business Disaster Loans:
Table 2: Amount of CDBG Disaster Relief Funds Provided for Hurricanes
Katrina and Rita, by Selected States:
Table 3: SBA Disaster Loans Approved for Businesses, Hurricanes
Katrina and Rita, Fiscal Years 2005-2009:
Table 4: SBA Disaster Loans Approved for Small Businesses in Gulf
Coast States, Hurricanes Katrina and Rita, Fiscal Years 2005-2009:
Table 5: Number and Amount of Approved GO Loans for Small Businesses
in Gulf Coast States, Fiscal Years 2005-2009:
Table 6: Total Amount of RLF and Private Investment, by Selected
States:
Table 7: Status of Subcontracting Accomplishment Information for
Hurricanes Katrina-and Rita-Related Construction Contracts Having
Subcontracting Plans:
Table 8: Population and Businesses with 50 or Fewer Employees by
Selected States, 2004-2008:
Table 9: Travel Expenditures and Travel-Generated Employment, 2004-
2008:
Table 10: SBA Statistics on Economic Assistance Provided Following the
Deepwater Horizon Oil Spill:
Figures:
Figure 1: Additional Funding Provided to Louisiana's RLF Grantees for
Disaster Recovery Purposes:
Figure 2: Total Amount of Federal Contract Dollars Provided for
Hurricanes Katrina-and Rita-Related Recovery Efforts, Fiscal Years
2005-2009:
Figure 3: Contract Dollars Awarded Directly to Gulf Coast Small
Businesses and Businesses of All Sizes in States Primarily Affected by
Hurricanes Katrina and Rita, Fiscal Years 2005-2009:
Figure 4: Contract Dollars Awarded Directly to Various Types of Small
Businesses for Hurricanes Katrina-and Rita-Related Recovery Efforts,
Fiscal Years 2005-2009:
Figure 5: Changes in Population, Louisiana and Mississippi, 2004-2008:
Figure 6: Changes in Number of Small Businesses, Louisiana and
Mississippi, 2004-2007:
Figure 7: Unemployment Rates by Selected States, 2005-2009:
Figure 8: Housing Price Index by MSA, 2005-2009:
Figure 9: Federal Fishery Closure Boundaries as of July 13, 2010:
Figure 10: U.S. Commercial Landings of Finfish and Shellfish, 2008:
Figure 11: Counties/Parishes Included in SBA Economic Injury Disaster
Declaration for the Deepwater Horizon Oil Spill:
Abbreviations:
CDBG: Community Development Block Grant:
Corps: U.S. Army Corps of Engineers:
DCMS: Disaster Credit Management System:
DHS: Department of Homeland Security:
DOD: Department of Defense:
EDA: Economic Development Administration:
eSRS: Electronic Subcontracting Reporting System:
FAR: Federal Acquisition Regulation:
FPDS-NG: Federal Procurement Data System--Next Generation:
GO: Gulf Opportunity Pilot Loan Program:
GSA: General Services Administration:
HUBZone: Historically Underutilized Business Zone:
HUD: Department of Housing and Urban Development:
LAS: Loan Accounting System:
MSA: Metropolitan Statistical Area:
NOAA: National Oceanic and Atmospheric Administration:
RLF: Revolving Loan Fund:
SBA: Small Business Administration:
SBDC: Small Business Development Center:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
July 29, 2010:
The Honorable Mary L. Landrieu:
Chair:
The Honorable Olympia J. Snowe:
Ranking Member:
Committee on Small Business and Entrepreneurship:
United States Senate:
Within a 2-month period in 2005, Hurricanes Katrina and Rita struck
the Gulf Coast, causing billions of dollars in damage and displacing
millions of individuals. Louisiana and Mississippi were the two states
most affected, but these hurricanes also caused damage in Alabama,
Florida, and Texas. The size and scope of the devastation presented
the nation with unprecedented recovery and rebuilding challenges.
Small businesses in the region were adversely impacted by the
hurricanes and faced many barriers to recovery. Some businesses were
completely destroyed, while many others suffered an almost complete
loss of inventory, equipment, and records. Additionally, many business
owners who employed local residents lost employees when they fled the
hurricanes, and businesses that did reopen after the hurricanes faced
a smaller customer base because of reduced population levels. The
federal government has provided billions of dollars in the form of
grants, loans, and contracts to assist in the recovery of the region
and its economy. A portion of these funds has been utilized to assist
small businesses in rebuilding and reestablishing themselves in a
changed marketplace.
Nearly 5 years have passed since the hurricanes, and small businesses
in the area are still recovering from the damages they suffered. As
part of this committee's efforts to monitor small business recovery in
the Gulf Coast, you asked us to provide information on assistance
small businesses in the Gulf Coast received from programs administered
by the Small Business Administration (SBA), Department of Housing and
Urban Development (HUD), and Economic Development Administration
(EDA); on federal contract funds received by small businesses; and on
the small business economy in the Gulf Coast region. More
specifically, this report describes (1) the amount of assistance small
businesses in the Gulf Coast received through SBA's Disaster and Gulf
Opportunity (GO) Pilot Loan programs, state-administered business
assistance programs funded by HUD's Community Development Block Grants
(CDBG), and EDA's Revolving Loan Fund (RLF) Program; the benefits and
challenges experienced by participants in these programs; and the
performance of loans extended to small businesses using assistance
from these programs; (2) the extent to which Gulf Coast small
businesses received federal contract funds for recovery efforts; and
(3) the current state of and improvements in the region's economy,
with a focus on the small business economy.
Our work focused on small business recovery efforts in four states
impacted by Hurricanes Katrina or Rita: Alabama, Louisiana,
Mississippi, and Texas. To address our first objective, we obtained
data extracts from SBA's Disaster Credit Management System (DCMS) and
Loan Accounting System and computed descriptive statistics on the
number, dollar amount, and performance of disaster and GO loans
provided to small businesses, and we interviewed SBA officials
knowledgeable about these data. We also performed various tests of the
information in the data extracts we obtained to ensure the
completeness of the data and concluded that SBA's data were
sufficiently reliable for the purposes of our report. To describe the
amount of assistance Gulf Coast small businesses received through
state-administered business assistance programs that utilized CDBG
disaster relief funds, we reviewed Federal Register notices and
interviewed officials from HUD to obtain information on CDBG disaster
recovery supplemental appropriations Congress enacted following
Hurricanes Katrina and Rita. We also obtained information from state
agencies in Alabama, Louisiana, Mississippi, and Texas and interviewed
state officials regarding their use of these funds to assist small
businesses in recovering from the hurricanes. We determined that
information provided by the states was sufficiently reliable for the
purposes of our report. To describe the amount of assistance small
businesses received through EDA's RLF Program, we analyzed semiannual
reports on loans made by EDA's RLF grantees in the four states within
the scope of our review and interviewed EDA officials who oversee RLF
grantees in these states. These data are self-reported by RLF
grantees; therefore, in this report we attribute these findings to the
RLF grantees. Furthermore, we contacted selected RLF grantees in the
areas most impacted by the hurricanes to determine the extent to which
loans that they made following the hurricanes were utilized by small
businesses for hurricane recovery efforts. We also interviewed
officials at Small Business Development Centers (SBDC) and chambers of
commerce in areas heavily impacted by the hurricanes in each state to
discuss the assistance each provided to small businesses after the
hurricanes. Finally, to obtain the perspectives of small business
owners regarding the benefits and challenges they experienced in
participating in these programs, we conducted focus groups of small
business owners in New Orleans, Louisiana, and Gulfport, Mississippi.
To address our second objective, we obtained data from the Federal
Procurement Data System-Next Generation (FPDS-NG), the governmentwide
database of contracting activity, to determine the extent to which
federal agencies contracted directly with small businesses in Gulf
Coast states. Using FPDS-NG data, we identified the top four agencies
that awarded the greatest amount of Katrina-and Rita-related contract
dollars between fiscal years 2005 and 2009. These agencies were the
U.S. Army Corps of Engineers (Corps); Department of Homeland Security
(DHS); Department of Defense, excluding the Corps (DOD); and the
General Services Administration (GSA).[Footnote 1] Although we could
not independently verify the reliability of these data, we reviewed
system documentation, conducted electronic data testing for
inconsistency errors and completeness, and compared it with supporting
documentation when available. On the basis of these efforts, we
determined the data on the amount of federal contract dollars received
directly for Hurricanes Katrina and Rita recovery efforts to be
sufficiently reliable for the purposes of this report.[Footnote 2] We
also identified all Corps, DHS, DOD, and GSA construction-related
contracts awarded between fiscal years 2005 and 2009 for Katrina-and
Rita-related recovery efforts that, according to FPDS-NG, had a
subcontracting plan.[Footnote 3] For contracts that had subcontracting
plans, we asked the agencies for documentation of prime contractors'
subcontracting award reports in the Electronic Subcontracting
Reporting System (eSRS), a governmentwide database for capturing this
information, or for copies of the paper subcontracting accomplishment
reports. These plans include information on, among other things, goals
for the use of small businesses, expressed as a percentage of the
total planned subcontracting dollars.[Footnote 4] In addition, we
interviewed officials from each of the four agencies to gather
additional information relating to subcontracting award reports.
To address our third objective, we identified the counties most
impacted by the hurricanes in each of the four states and also
identified various economic indicators that provide a proxy for the
state of the small business economy. These indicators include the
population, unemployment rate, number of small business
establishments, and housing price index. We collected and analyzed
data for each indicator, including population estimates from 2000 to
2008, unemployment rates from 2000 to 2009, number of small business
establishments from 2000 to 2007, and housing price index estimates
from 2000 to 2009. We used these data to identify trends more likely
associated with the hurricanes than other economic events within the
areas most heavily impacted. In doing so, we also analyzed and
compared trends at the state level with trends in the counties most
heavily impacted by the hurricanes, where comparable data were
available. We determined that the economic indicator data we used were
of sufficient reliability for the purposes of our report. To describe
the potential impact of the recent Gulf Coast oil spill on the small
business economy in the Gulf Coast region, we obtained and analyzed
information on the size of the fishing and travel industries; new SBA
economic injury disaster loans approved as a result of the oil spill;
as well as existing SBA disaster loans in declared areas and the
number of deferments SBA has granted on those loans. In addition, we
met with Gulf Coast small business owners impacted by the oil spill.
We also interviewed organizations assisting these small businesses and
organizations studying the economic impacts of the oil spill. Finally,
we reviewed assessments by other organizations regarding the
posthurricane economic recovery in the Gulf Coast region. Appendix II
contains a summary of these organizations' findings.
We conducted this performance audit from September 2009 to July 2010
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. See appendix I
for more detailed information on the scope and methodology of this
report.
Background:
SBA Disaster Assistance:
The Robert T. Stafford Disaster Relief and Emergency Assistance Act of
1974 (Stafford Act) sets forth requirements for the federal response
to presidentially declared disasters.[Footnote 5] A presidential
disaster declaration puts into motion long-term federal recovery
programs, including SBA's Disaster Loan Program. While SBA is known
primarily for its financial support of small businesses, the agency
also plays a critical role in assisting the victims of natural and
other declared disasters. SBA's Disaster Loan Program is the primary
federal program for funding long-range recovery for private-sector,
nonfarm disaster victims and is the only form of SBA assistance not
limited to small businesses. For an SBA disaster loan to be approved,
a disaster victim must demonstrate an ability to repay the loan and
must provide collateral for loans over a certain value.[Footnote 6]
The Small Business Act authorizes SBA to make available the following
two types of disaster loans to small businesses:[Footnote 7]
* Physical disaster loans: These loans are for permanent rebuilding
and replacement of uninsured or underinsured disaster-damaged
property. They are available to homeowners, renters, businesses of all
sizes, and nonprofit organizations. These loans are intended to repair
or replace the disaster victims' damaged property to its predisaster
condition. Almost any business concern or charitable or other
nonprofit entity whose property is damaged in a declared disaster area
is eligible to apply for a physical disaster loan; however, small
businesses in agriculture-related industries--also known as
agricultural enterprises--are not eligible.[Footnote 8]
* Economic injury disaster loans: These loans provide small businesses
that are not able to obtain credit elsewhere with necessary working
capital until normal operations resume after a disaster declaration.
[Footnote 9] They cover operating expenses the business could have
paid had the disaster not occurred. The Small Business Act restricts
economic injury disaster loans to small businesses. Agricultural
enterprises are also not eligible for economic injury disaster loans.
[Footnote 10]
Table 1 provides a description of the characteristics of each of these
loans.
Table 1: Characteristics of SBA's Business Disaster Loans:
Type of loan: Physical disaster loans;
Funds use: Repair or replace disaster-damaged property owned by the
business, including real estate, inventories, supplies, machinery, and
equipment;
Eligibility: Businesses of all sizes and private, nonprofit
organizations such as charities, churches, and private universities;
Lending limit[A]: $2 million aggregate for the repair or replacement
of real estate, inventories, machinery, equipment, and all other
physical losses;
Interest rate[B]: Varies, but generally for those who cannot obtain
credit elsewhere, interest is capped at 4 percent;
for those who can obtain credit elsewhere, interest is capped at 4.5
and 6 percent, respectively, for nonprofits and businesses;
Loan term: Up to 30 years if no credit available elsewhere. For
businesses with credit available elsewhere, maximum loan term is 3
years.
Type of loan: Economic injury disaster loans;
Funds use: Working capital loans to help meet ordinary and necessary
financial obligations that cannot be met as a direct result of the
disaster;
Eligibility: Small businesses, small agricultural cooperatives, and
most private, nonprofit organizations of all sizes;
Lending limit[A]: $2 million aggregate for alleviating economic injury
caused by the disaster;
Interest rate[B]: Capped at 4 percent;
Loan term: Not more than 30 years.
Source: GAO analysis of SBA documents.
[A] The $2 million limit for business loans applies to the combination
of physical and economic injury loans, and it applies to all disaster
loans to a business and its affiliates for each disaster.
[B] Interest rates are periodically adjusted and vary for each
disaster.
[End of table]
SBA procedures generally require small businesses to submit an
application for a physical disaster loan no later than 60 days
following the disaster declaration and no later than 9 months after
this date for an economic injury disaster loan.[Footnote 11] SBA may
authorize an extension of the filing period.[Footnote 12] SBA
procedures also generally require small businesses to arrange for and
obtain all loan funds within 6 months from the date of the loan
authorization and agreement.
Due to the overwhelming need for moderate-sized small business loans
in severely distressed Gulf Coast communities following Hurricanes
Katrina and Rita, SBA implemented the GO Loan Pilot in November 2005
specifically to encourage lenders to lend in these communities and to
assist small businesses that could not obtain credit elsewhere with
working capital and other general-purpose business loans.[Footnote 13]
The pilot program was originally intended to last less than 1 year;
however, because of the continuing and substantial needs of small
businesses in the area, SBA has extended the program until September
30, 2010. As part of the program, SBA may provide an 85 percent
guaranty to qualified lending partners, such as banks, that agree to
make expedited loans available under SBA's 7(a) Loan Program of up to
$150,000 to small businesses located in communities affected by the
disasters.[Footnote 14] Small businesses apply directly to qualified
lenders under the program, who evaluate their creditworthiness and
determine whether they require an SBA guaranty to make the loan. SBA
agrees to make a decision on whether to apply a guaranty to a loan
within 24 hours. While SBA prescribes the maximum interest rate
lenders can charge, the lender and borrower negotiate the actual rate.
Lenders can charge a maximum interest rate of 6.5 percentage points
over the prime rate for loans of $50,000 or less and a maximum rate of
4.5 percentage points over the prime rate for loans over $50,000.
HUD's CDBG Disaster Recovery:
HUD's CDBG Program, created in 1974, is the most widely available
source of federal assistance to state and local governments for
neighborhood revitalization, housing rehabilitation activities, and
economic development.[Footnote 15] Eligible activities include housing
assistance, historic preservation, real property acquisitions,
mitigation, demolition, and economic development. Because of the
funding mechanism that the CDBG Program already has in place to
provide federal funds to states and localities, the program is widely
viewed as a convenient tool for disbursing large amounts of federal
funds to address emergency situations. Over the past two decades, CDBG
has repeatedly been adapted as a vehicle to respond to federal
disasters, such as floods, hurricanes, and terrorist attacks. When the
CDBG Program is used to provide disaster relief funds, many of the
statutory and regulatory provisions governing the use of CDBG funds
may be waived or modified, thereby providing states with even greater
flexibility and discretion.
Following Hurricanes Katrina and Rita, Congress enacted three
supplemental appropriations between December 2005 and November 2007,
under which a total of $19.5 billion was made available in CDBG
disaster relief funds to Alabama, Louisiana, Mississippi, and Texas.
[Footnote 16] Louisiana received the largest amount of these funds--
$13.4 billion (69 percent)--and Mississippi received about $5.5
billion (about 28 percent).[Footnote 17] Alabama and Texas received a
combined $599 million--about 3 percent of the total. (See table 2.)
Table 2: Amount of CDBG Disaster Relief Funds Provided for Hurricanes
Katrina and Rita, by Selected States:
1st supplemental CDBG appropriation:
Alabama: $74,388,000;
Louisiana: $6,210,000,000;
Mississippi: $5,058,185,000;
Texas: $74,523,000;
Total: $11,417,096,000.
2nd supplemental CDBG appropriation:
Alabama: $21,225,574;
Louisiana: $4,200,000,000;
Mississippi: $423,036,059;
Texas: $428,671,849;
Total: v5,072,933,482.
3rd supplemental CDBG appropriation:
Alabama: 0;
Louisiana: $3,000,000,000;
Mississippi: 0;
Texas: 0;
Total: $3,000,000,000.
Total:
Alabama: $95,613,574;
Louisiana: $13,410,000,000;
Mississippi: $5,481,221,059;
Texas: $503,194,849;
Total: $19,490,029,482.
Percentage of total:
Alabama: 0.5%;
Louisiana: 68.8%;
Mississippi: 28.1%;
Texas: 2.6%.
Sources: GAO analysis of Federal Register notices, including 71 Fed.
Reg. 7666 (Feb. 13, 2006); 71 Fed. Reg. 63337 (Oct. 30, 2006); 72 Fed.
Reg. 70472 (Dec. 11, 2007); and 73 Fed. Reg. 46312 (Aug. 8, 2008).
Note: The third appropriation, an allocation of $3 billion to the
State of Louisiana, was solely for the purpose of covering costs
associated with the state's Road Home Program.
[End of table]
Once HUD allocated CDBG disaster relief funds to the affected states,
state-level development agencies were responsible for the
administration and management of the funds. States are traditionally
afforded broad discretion regarding how they decide to allocate CDBG
funds to specific projects and programs. In the aftermath of the
hurricanes, Congress provided additional flexibility to the states in
their use of CDBG disaster relief funds. For example, lawmakers
permitted HUD to waive certain regulations and statutes that would
otherwise have been applicable, including, among other things, income
targeting provisions and public service expenditure caps.[Footnote 18]
Specifically, HUD was allowed to waive the threshold outlined in
statute that 70 percent of total funds must be allocated to activities
that primarily benefit low-and moderate-income persons.[Footnote 19]
Instead, only 50 percent of the total funds had to be targeted on this
basis, unless the Secretary of HUD found a compelling need to waive
the targeting provision altogether. Specific language in the
supplemental appropriations acts required states to develop and submit
action plans to HUD detailing the proposed use of all funds. Upon
submission, HUD reviewed the action plans for acceptance. These action
plans served as state proposals for how states would use their share
of CDBG disaster relief funds and included descriptions of eligibility
criteria and how the funds would be used to address both urgent needs
and long-term recovery and infrastructure restoration. For example,
states can use CDBG disaster relief funds to help businesses retain or
create jobs in disaster-impacted areas as an eligible economic
development activity.
Following Hurricanes Katrina and Rita, Louisiana and Mississippi
implemented small business assistance programs using CDBG disaster
relief funds. Louisiana implemented the following three programs:
* Bridge Loan Program: This program provided temporary working capital
loans to businesses located in specified areas affected by the
hurricanes. The loans generally had 6-month terms, but extensions were
granted to some borrowers. They also contained an interest-free period
of 180 days under certain circumstances. No new loans were originated
after March 2006, as the state implemented the Business Recovery Grant
and Loan Program.
* Business Recovery Grant and Loan Program: This program, launched in
January 2007, targets assistance to small firms that are deemed to
have a chance to survive, contribute to the economy, and maintain and
create jobs. Small businesses receive low-cost loans on flexible
terms, small grants to reimburse businesses for tangible losses, and
technical assistance. Program eligibility has changed over time. For
example, when the program was originally structured, only businesses
with fewer than 25 employees were eligible; however, according to
state officials, the need for these grants and loans was too great,
and they increased the employee limit to businesses with fewer than
100 employees. Additionally, state officials told us that they changed
the eligibility requirements to allow start-up companies to
participate in the program. They explained that this change was made
to ensure that entrepreneurial opportunities were encouraged in the
state. Small businesses may use grant and loan funds for business
operating costs, such as leases; insurance; or debt payment on new
equipment, utilities, or inventory. When the program was initially
implemented, the interest rate for loans was 0 percent for the term of
the loan. Since then, the interest rate has been revised and is 0
percent for the first 2 years of the loan and 4 percent for the
remainder of the loan term. Loan terms range from 5 to 7 years.
* Technical Assistance Program: Louisiana developed this program to
help small businesses adjust to the posthurricane business
environment. Through the program, small businesses, including
nonprofits, that have been adversely impacted by the hurricanes can
receive technical assistance in areas such as business management,
strategic planning, accounting, insurance, marketing, and legal
matters. Additionally, entrepreneurs or individuals seeking to start a
new firm in the impacted area are eligible for the program. State
officials told us that the program was designed to complement the
Business Recovery Grant and Loan Program, and that it provides
assistance to small businesses that received grants or loans to help
ensure that the funds are utilized effectively by small businesses.
In 2009, Mississippi implemented one program specifically for small
businesses, the Hancock County Job Generation Fund Program, with CDBG
disaster relief funds. The program grew out of a grassroots effort by
the Hancock County Chamber of Commerce to address the extraordinary
needs of small businesses in Hancock County that sustained the most
powerful forces of Hurricane Katrina and suffered unprecedented
destruction. The program offers loans at a 2 percent interest rate to
small businesses that were located in Hancock County 6 months prior to
Hurricane Katrina and are committed to remaining there for at least 5
years. Unlike SBA disaster loans or loans made through Louisiana's
Business Recovery Grant and Loan Program, loans made through the Job
Generation Fund Program can be converted into forgivable loans if the
loan recipient meets certain requirements. For example, a small
business owner who purchases and rehabilitates a building in the
county to meet current area building codes (if necessary) and
maintains business operations in that building for a minimum of 5
years is eligible for a portion of the loan to be forgivable.
EDA Disaster Assistance:
EDA was established in 1965 within the Department of Commerce to
generate jobs, help retain existing jobs, and stimulate industrial and
commercial growth in economically distressed areas of the United
States.[Footnote 20] According to EDA, its statutory mandate, as
applied to postdisaster assistance, is to help formulate and implement
economic recovery strategies to restore, replace, and expand economic
activity in disaster-impacted regions and prioritize projects that
will diversify the economic base and lead to a stronger, more globally
competitive and disaster-resilient regional economy. In the past,
Congress enacted supplemental appropriations for EDA to use in
response to natural disasters. For example, following Hurricane Andrew
in 1992, Congress appropriated approximately $75 million to EDA under
the Supplemental Appropriations, Transfers, and Rescissions Act, 1992.
[Footnote 21] In addition, EDA received an initial supplemental
appropriation of $100 million for use in regions covered by a major
disaster declaration under the Stafford Act, as a result of recent
natural disasters, under the Military Construction, Veterans' Affairs,
and Related Agencies Appropriations Act, 2008[Footnote 22]. Congress
enacted a second supplemental appropriation for EDA in the amount of
$400 million as part of the Consolidated Security, Disaster
Assistance, and Continuing Appropriations Act, 200[Footnote 23]9.:
EDA did not receive a supplemental appropriation for postdisaster
recovery assistance following Hurricanes Katrina and Rita. However,
the agency used its existing programs, including the RLF Program, to
assist with small business recovery efforts in the Gulf Coast region.
Under the RLF Program, EDA awards grants on a competitive basis to
eligible applicants to establish revolving loan funds. RLF grantees
provide loans to small businesses or businesses that cannot otherwise
borrow capital from private lending institutions.[Footnote 24] When
making loans, RLF grantees must partner with private lending
institutions to leverage additional capital for borrowers.[Footnote
25] Consistent with EDA's mission to attract private capital
investment, RLF grantees generate additional investments for small
businesses and entrepreneurial ventures to diversify the regional
economy. As borrowers repay loans, RLF grantees use a portion of the
interest earned to pay administrative expenses and add the remaining
principal and interest repayments to the fund's capital base to make
additional loans. Following the hurricanes, EDA recapitalized four of
its RLF grantees in Louisiana for a total of $2 million to make loans
to businesses affected by the disasters[Footnote 26].
Contracting by Federal Agencies Following Disasters:
In addition to the federal assistance programs that we have previously
discussed, many federal agencies carry out emergency response
activities through contracts with private businesses, including those
for debris removal, reconstruction, and the provision of supplies.
Federal agencies' contracts with private businesses, whether made in
the normal course of agency operations or specifically related to a
natural disaster declaration, in most cases, are subject to certain
goals to increase participation by various types of small businesses.
The Small Business Act requires that the President set a
governmentwide goal each fiscal year for small business participation
for the total value of all prime contracts awarded directly by an
agency.[Footnote 27] Additionally, the Small Business Act sets annual
prime contract dollar goals for participation by five specific types
of small businesses: small businesses, small disadvantaged businesses,
businesses owned by women, businesses owned by service-disabled
veterans, and businesses located in historically underutilized
business zones (HUBZone).[Footnote 28] The Stafford Act also requires
federal agencies to give contracting preferences, to the extent
feasible and practicable, to organizations, firms, and individuals
residing in or doing business primarily in the area affected by a
major disaster or emergency.[Footnote 29]
The Federal Acquisition Regulation (FAR) implements many federal
procurement statutes and provides executive agencies with uniform
policies and procedures for acquisition. For example, the FAR
generally requires that executive agencies report information about
procurements directly to FPDS-NG, a governmentwide contracting
database that collects, processes, and disseminates official
statistical data on all federal contracting activities that are
greater than the micro-purchase threshold (generally $3,000).[Footnote
30] This system automatically obtains from other systems or online
resources additional information that is important to the procurement,
such as the contractor's location.
The FAR also requires agencies to measure small business participation
in their acquisition programs. A small business may participate via
prime contracts--which are contracts awarded directly by a federal
agency--or through subcontracts.[Footnote 31] Any business receiving a
contract directly from a federal executive agency for more than the
simplified acquisition threshold[Footnote 32] must agree in the
contract that small businesses will be given the "maximum practicable
opportunity" to participate in the contract "consistent with its
efficient performance."[Footnote 33] Additionally, for acquisitions
(or modifications to contracts) that (1) are individually expected to
exceed $550,000 ($1 million for construction contracts) and (2) have
subcontracting possibilities, the solicitation shall require the
apparently successful offeror in a negotiated acquisition to negotiate
a subcontracting plan that is acceptable to the contracting officer,
and each invitation for bid shall require the bidder selected for
award to submit a subcontracting plan to be eligible for award.
[Footnote 34] The subcontracting plan must include certain
information, such as a description of the types of work the prime
contractor believes it is likely to award to subcontractors, as well
as goals, expressed as a percentage of total planned subcontracting
dollars, for the use of small businesses.[Footnote 35] Generally,
contracts that offer subcontracting possibilities and are expected to
exceed the monetary thresholds that we have previously mentioned are
to include certain clauses.[Footnote 36] These clauses require that
for contracts that have individual subcontracting plans, prime
contractors generally must semiannually and at project completion
report on their progress toward reaching the goals in their
subcontracting plans. Generally, contractors that have individual
subcontracting plans are required to report on their subcontracting
goals and accomplishments twice a year to the federal government
through eSRS, which is a governmentwide database for capturing this
information. Furthermore, the agencies' administrative contracting
officers are responsible for monitoring the prime contractors'
activities and evaluating and documenting contractor performance under
any subcontracting plan included in the contract. The contracting
officer is tasked with acknowledging receipt of the reports submitted
to eSRS.[Footnote 37]
Federally Funded Programs Have Helped to Address Different Needs of
Small Businesses, but Some Small Businesses Still Face Challenges, and
the Performance of Federally Funded Loans Has Varied:
Federal funds were used for a number of different small business
assistance programs following Hurricanes Katrina and Rita. While the
SBA Disaster Loan Program is the primary federal program for funding
long-range recovery for the private sector, two states--Louisiana and
Mississippi--also developed small business assistance programs using
CDBG disaster relief funds that Congress provided in response to the
hurricanes. Additionally, although EDA did not receive supplemental
disaster appropriations, the agency provided funds to Gulf Coast small
businesses for new business start-ups and business expansion through
its Revolving Loan Fund Program. However, despite the assistance
provided, some small businesses have struggled with recovering from
the hurricanes, and loan performance has varied for the various
federally funded loan programs.
SBA Provided Gulf Coast Small Businesses with Assistance to Repair
Disaster-Damaged Property and Address Economic Losses:
SBA provided about $1.4 billion in loans to Gulf Coast businesses of
all sizes following Hurricanes Katrina and Rita through its Disaster
Loan and GO Loan programs to assist with the repair or replacement of
disaster-damaged property, mitigate economic losses that small
businesses incurred as a result of the hurricanes, and provide working
capital loans to businesses in severely distressed areas. The Disaster
Loan Program accounted for about $1.2 billion of the $1.4 billion SBA
provided in loans to Gulf Coast businesses. As table 3 shows, SBA
approved over 13,400 disaster loans for businesses of all sizes
affected by the hurricanes from fiscal years 2005 through 2009, and
more than 10,700 of these loans were identified as having assisted
small businesses (economic injury disaster loans, and physical and
economic injury disaster loans). Also, an unidentifiable number of
small businesses received physical disaster loans. SBA approved about
96 percent of these loans in fiscal year 2006.
Table 3: SBA Disaster Loans Approved for Businesses, Hurricanes
Katrina and Rita, Fiscal Years 2005-2009:
Dollars in millions:
Disaster loan type: Physical[A];
All businesses: Number: 2,743;
All businesses: Amount: $347.5;
Small businesses: Number: [B];
Small businesses: Amount: [B].
Disaster loan type: Economic injury;
All businesses: Number: 2,491;
All businesses: Amount: $147.9;
Small businesses: Number: 2,491;
Small businesses: Amount: $147.9.
Disaster loan type: Physical and economic injury[C];
All businesses: Number: 8,219;
All businesses: Amount: $747.7;
Small businesses: Number: 8,219;
Small businesses: Amount: $747.7.
Disaster loan type: Total[D];
All businesses: Number: 13,453;
All businesses: Amount: $1,243.1;
Small businesses: Number: 10,710;
Small businesses: Amount: $895.6.
Source: GAO analysis of SBA data.
[A] Businesses of all sizes are eligible for physical disaster loans,
but SBA does not maintain data in DCMS on business size for these
types of loans.
[B] Data are unavailable.
[C] This category refers to loans that include both a physical and
economic injury disaster loan component. Borrowers receiving both of
these loans were identified as small businesses because only small
businesses are eligible for economic injury loans.
[D] Totals for small businesses may exceed the totals shown because we
could not determine the amount and number of physical disaster loans
approved specifically for small businesses. These totals exclude 5,921
approved disaster loans, valued at about $686 million, that were later
canceled. According to SBA operating procedures, reasons for
cancellations include, among others, the verbal or written request of
the borrower, the borrower failing to complete and return all loan
closing documents by the deadline, and the borrower not satisfying all
terms and conditions of the loan agreement.
[End of table]
As table 4 shows, approved SBA disaster loans identified as going to
small businesses totaled over $578 million for small businesses in
Louisiana and more than $197 million for small businesses in
Mississippi.
Table 4: SBA Disaster Loans Approved for Small Businesses in Gulf
Coast States, Hurricanes Katrina and Rita, Fiscal Years 2005-2009:
Dollars in millions:
Disaster loan type: Physical[A];
Alabama: Number: [B];
Alabama: Amount: [B];
Louisiana: Number: [B];
Louisiana: Amount: [B];
Mississippi: Number: [B];
Mississippi: Amount: [B];
Texas: Number: [B];
Texas: Amount: [B].
Disaster loan type: Economic injury;
Alabama: Number: 94;
Alabama: Amount: $7.4;
Louisiana: Number: 1,718;
Louisiana: Amount: $103.0;
Mississippi: Number: 382;
Mississippi: Amount: $20.1;
Texas: Number: 297;
Texas: Amount: $17.4.
Disaster loan type: Physical/Economic injury[C];
Alabama: Number: 229;
Alabama: Amount: $32.4;
Louisiana: Number: 5,237;
Louisiana: Amount: $475.5;
Mississippi: Number: 1,980;
Mississippi: Amount: $177.2;
Texas: Number: 773;
Texas: Amount: $62.7.
Disaster loan type: Total[D];
Alabama: Number: 323;
Alabama: Amount: $39.8;
Louisiana: Number: 6,955;
Louisiana: Amount: $578.5;
Mississippi: Number: 2,362;
Mississippi: Amount: $197.3;
Texas: Number: 1,070;
Texas: Amount: $80.1.
Source: GAO analysis of SBA data.
[A] Businesses of all sizes are eligible for physical disaster loans,
but SBA does not maintain data in DCMS on business size for these
types of loans.
[B] Data are unavailable.
[C] This category refers to loans that include both a physical and
economic injury disaster loan component. Borrowers receiving both of
these loans were identified as small businesses because only small
businesses are eligible for economic injury loans.
[D] Totals for small businesses may exceed the totals shown in this
table because we could not determine the amount and number of physical
disaster loans approved specifically for small businesses.
[End of table]
In focus groups that we conducted, several small business owners told
us about the benefits associated with receiving SBA disaster loans.
For example, one small business owner who operates three grocery
stores in New Orleans that sustained severe wind and water damage in
Hurricane Katrina noted that the SBA physical and economic injury
loans she received gave her a little flexibility in paying her vendors
because the vendors were more confident knowing that federal funds
were involved and were willing to wait on payments until she received
the loan funds. Another small business owner, who operates a Mardi
Gras supply store in New Orleans, lost over $1 million in inventory as
a result of Hurricane Katrina. She also received both an SBA physical
loan and an economic injury loan and said that when she received the
loan funds, she was able to pay off her bank line of credit, which
prior to receiving the funds, she had not been able to do in 3 years.
Another small business owner in New Orleans explained that the SBA
physical disaster loan she received allowed her to purchase equipment,
and that without the loan her business would be closed today. She
added that the loan also made her more aware of the resources that are
provided through the local SBDC. Finally, a New Orleans small business
owner who operates an automobile service center explained that her
center was flooded by 10 feet of water when the levees broke, which
destroyed all of the equipment. She said that the SBA physical and
economic injury loans she received were the only way she was able to
get the business restarted.
SBA also approved about 1,600 GO loans for small businesses in the
Gulf Coast states, totaling about $116 million from fiscal years 2005
through 2009 (table 5).
Table 5: Number and Amount of Approved GO Loans for Small Businesses
in Gulf Coast States, Fiscal Years 2005-2009:
State: Alabama;
Approved GO loans: Number: 85;
Approved GO loans: Amount: $4.7 million.
State: Louisiana;
Approved GO loans: Number: 598;
Approved GO loans: Amount: $54.7 million.
State: Mississippi;
Approved GO loans: Number: 802;
Approved GO loans: Amount: $49.8 million.
State: Texas;
Approved GO loans: Number: 88;
Approved GO loans: Amount: $6.9 million.
State: Total[A];
Approved GO loans: Number: 1,573;
Approved GO loans: Amount: $116.1 million.
Source: GAO analysis of SBA data.
[A] These totals exclude 221 approved GO loans, valued at $17.6
million that were later canceled. According to SBA operating
procedures, reasons for cancellations include, among others, the
lender or the applicant indicating that the applicant does not intend
to utilize the proceeds or there has been an adverse change.
[End of table]
SBA awarded Mississippi small businesses the greatest number of these
loans, but Louisiana small businesses received the greatest amount of
funds. According to officials from three local SBA district offices,
the GO Loan Program has been popular with lenders and has helped with
recovery efforts, as well as offsetting some of the effects of the
tightening of the credit markets. Additionally, one local SBDC
director stated that he believes the GO Loan Program should be
considered a best practice in helping small businesses recover from
disasters. Others with whom we spoke also expressed positive views of
the program, including lender support for the program and the
stability the program helped provide to the region.
Louisiana and Mississippi Used CDBG Disaster Relief Funds to Implement
State-Run Programs to Further Assist Gulf Coast Small Businesses:
As of December 31, 2009, Louisiana had used about $179 million in CDBG
disaster relief funds for three programs to specifically assist small
business recovery efforts. Mississippi had developed one program
specifically to assist small businesses to which it targeted $3
million in CDBG disaster relief funds; however, as of April 2010, the
state was in the process of developing program details and no funds
had been spent. The three programs that Louisiana developed are
discussed in the following text.
* Bridge Loan Program: Louisiana used about $5.7 million in CDBG
disaster relief funds to provide about 800 small businesses with
temporary working capital loans.[Footnote 38] State officials told us
that money was not disbursed for this program after March 2006, and
that remaining funds were transferred to the Business Recovery Grant
and Loan Program.
* Business Recovery Grant and Loan Program: As of December 31, 2009,
Louisiana had used about $164 million in CDBG disaster relief funds
and provided over 4,500 Louisiana small businesses grant and loan
assistance.[Footnote 39] Under this program, the state has assisted
small businesses that applied for conventional or SBA loans but either
had not received them or still needed additional assistance.
Additionally, state program officials told us that the program helped
to provide assistance to certain businesses that were not eligible for
SBA disaster loans. For example, a state official explained that some
fishermen's boats were completely destroyed during the hurricanes, and
that the fishermen did not have the collateral needed to obtain SBA
disaster loans. However, because collateral was not needed for this
program, these fishermen were eligible. In fact, over 25 percent of
the small businesses that are participating in this program is in the
fishing industry.
* Technical Assistance Program: As of December 31, 2009, Louisiana had
used almost $8.9 million in CDBG disaster relief funds to assist about
3,800 small businesses with adjusting to the posthurricane business
environment. Over 2,200 of these small businesses were entrepreneurs
or start-up companies looking to open businesses in the areas impacted
by the hurricanes.
During focus groups that we conducted, Louisiana small business owners
also told us about the benefits associated with assistance provided
through these programs. For example, one small business owner who
operates two retail shoe and accessory stores located in New Orleans
explained that her participation in the Business Recovery Grant and
Loan Program allowed her to pay down lines of credit that had higher
interest rates. Another small business owner who owns a tourist-
related gift shop in New Orleans explained that as a result of her
small business recovery loan, she was able to purchase merchandise in
time for the National Football League Super Bowl in 2010, which helped
to boost her sales. She stated that without the $80,000 loan she
received from the program, she would not have been able to stay in
business. Another small business owner who operates a bridal shop
stated that the assistance she received from the Business Recovery
Grant and Loan Program allowed her, among other things, to pay 3
months of operating expenses and reduce the debt owed to some of her
manufacturers, which allowed her to buy new product. Finally, one
small business owner who prior to Hurricane Katrina was a self-
employed consultant to minority business owners stated that the
Technical Assistance Program had been extremely helpful. She explained
that many small businesses had utilized this program, and that for
many of her previous non-English-speaking clients, the program
provided the only technical assistance they received after the
hurricanes.
According to SBA data we reviewed, the agency determined that 76 small
businesses approved for loans under Louisiana's Business Recovery
Grant and Loan Program received duplicate benefits under SBA's
Disaster Loan Program. The Stafford Act prohibits disaster victims
from receiving duplicate federal benefits for the same loss.[Footnote
40] SBA and the State of Louisiana developed a process to identify
approved Business Recovery Grant and Loan Program applicants who might
receive duplicate benefits. A senior-level Louisiana state official
told us that having an SBA disaster loan did not necessarily
disqualify a small business from the state's program; rather, the
state looked specifically at how the business intended to use the
funds and compared that with how the small business used the SBA loan
funds. If the intended use of the funds was not the same, then a small
business could still receive assistance under both programs. The 76
small businesses determined to have received duplicate benefits for
the same loss were required to pay off or pay down their SBA disaster
loans with the funds they received under the Business Recovery Grant
and Loan Program. These businesses returned about $1.3 million to SBA.
As of April 2010, 42 small businesses located in Hancock County,
Mississippi, were approved for loans under the Hancock County Job
Generation Fund Program. The state targeted $3 million in CDBG
disaster relief funds for this program. However, according to a
program official, no loans had been closed because they were working
with HUD on remaining program compliance issues. State officials told
us that the towns in Hancock County are based around a small business
community, and that the bulk of the businesses were located in
Hurricane Katrina's surge area; therefore, there has been a need to
provide additional working capital to these businesses until
infrastructure repair in the area is complete. During focus groups
that we conducted, one Mississippi small business owner who owns a
brewery stated that he expects that the funds for which he has been
approved will allow him to hire four or five additional employees. He
added that he believes that the program is well focused and has the
potential for doing a lot of good for the county.
Alabama, Louisiana, and Mississippi also utilized CDBG disaster relief
funds for other efforts that benefited small businesses following the
hurricanes. For example, while Alabama did not develop programs
specifically for small business recovery, state officials noted that
small businesses did benefit from the contracts that the state issued
for the infrastructure programs funded with CDBG disaster relief funds
because the state utilized mostly small and local businesses for such
projects. In addition, a senior-level HUD official told us that
Louisiana utilized $200 million to subsidize state energy rates, which
prevented a large rate increase after the hurricanes and benefited all
state residents, including small business owners. Furthermore,
Mississippi state officials told us that they used $30 million in CDBG
disaster relief funds to subsidize the state's commercial insurance
wind pool between fiscal years 2007 and 2008, which directly benefited
small businesses. According to state officials, this subsidy lowered
insurance premiums for small businesses, which in turn had increased
significantly following the hurricanes. Additionally, state officials
noted that the state's use of CDBG disaster relief funds to repair
bridges, roads, and other public infrastructure was critical for small
business recovery because this work allowed people to move back to the
coastal area, which in turn helped small businesses rebuild their
customer base.
EDA RLF Grantees Have Provided Gulf Coast Small Businesses with Loans
to Start New Businesses or Expand Existing Businesses:
EDA RLF grantees made approximately $36 million in below-market-rate
loans to Gulf Coast small businesses following the hurricanes,
primarily for new business start-ups, existing business expansion, and
job retention. According to RLF grantee reports we reviewed, these
investments generated approximately $196 million in private
investment. Table 6 shows the amount EDA invested across the four
states in the Gulf Coast region, as well as the total amount of
private investments.
Table 6: Total Amount of RLF and Private Investment, by Selected
States:
Financing, by source: RLF investment;
Alabama: $5,845,752;
Louisiana: $8,933,500;
Mississippi[A]: $10,529,867;
Texas: $11,086,482;
Total: $36,395,601.
Financing, by source: Private investment;
Alabama: 62,635,470;
Louisiana: 11,016,627;
Mississippi[A]: 49,235,276;
Texas: 73,222,743;
Total: 196,110,116.
Financing, by source: Total;
Alabama: $68,481,222;
Louisiana: $19,950,127;
Mississippi[A]: $59,765,143;
Texas: $84,309,225;
Total: $232,505,717.
Source: GAO analysis of EDA's RLF grantee data.
Note: The totals only include investments closed after September 1,
2005.
[A] One RLF grantee's semiannual report was missing data on the amount
of financing provided by the RLF; therefore, the total amount of RLF
Investment listed for Mississippi may be understated.
[End of table]
As we have previously noted, EDA awarded $2 million in program funds
to recapitalize--or provide additional funding to--four RLF grantees
in Louisiana specifically to assist small businesses impacted by the
hurricanes (see figure 1).
Figure 1: Additional Funding Provided to Louisiana's RLF Grantees for
Disaster Recovery Purposes:
[Refer to PDF for image: illustrated map]
Acadiana Regional Development District - $600,000;
Jefferson Parish Economic Development Commission - $500,000;
New Orleans Regional Loan Corporation - $600,000;
South Central Planning and Development Commission - $300,000.
Sources: GAO analysis of EDA data; MapInfo (map).
[End of figure]
For example, the New Orleans Regional Loan Corporation, an RLF
grantee, received $600,000 in additional program funds and made loans
to seven small business owners for disaster recovery purposes. One
small business owner who operated a restaurant received a loan of
$75,000 to help cover uninsured expenses, including new equipment and
clean-up costs. In addition, an operator of a service station that
sustained flood damage received a loan of $250,000 to purchase new
gasoline pumps. Another RLF grantee, the Jefferson Parish Economic
Development Commission, received $500,000 in additional program funds;
officials told us that they made loans to three small business owners
impacted by the hurricanes, including a $340,000 loan to a printing
company to purchase new equipment. Finally, the Acadiana Regional
Development District used their recapitalization amount of $600,000 to
make loans to 14 small businesses.
Although EDA did not recapitalize RLF grantees in Alabama,
Mississippi, and Texas, RLF grantees in heavily impacted areas of
these states told us that they provided other forms of assistance to
small businesses for disaster recovery efforts. For example, in
Gulfport, Mississippi, an RLF grantee official reported they offered
borrowers 2-month loan payment deferments. Similarly, in Beaumont,
Texas, an RLF grantee offered 3-month payment deferrals after the
hurricanes, but loan borrowers' accounts continued to accrue interest,
and principal was not waived.
Despite Federal Assistance, Small Business Owners Reported Several
Challenges to Recovery Efforts:
Despite the assistance that federal and state-run programs have
provided to small businesses, some small business owners in focus
groups that we conducted and others with whom we spoke cited
challenges with participating in some of these programs, particularly
the SBA Disaster Loan Program.
* Timeliness of assistance received: Several small businesses
commented that they did not receive assistance in a timely manner,
particularly under SBA's Disaster Loan Program. One Mississippi small
business owner of a storage facility told us it took him 9 months to
receive funding from his SBA physical and economic injury disaster
loans, during which he had to operate off of $50,000 of his savings
and take outside employment to support himself. A wholesale trade
small business owner in New Orleans told us that she applied for an
SBA disaster loan in the middle of September 2005, received approval
in August 2006, and received the final portion of the loan in December
2007. She added that during that period, she invested all income into
the business and paid herself a minimum salary. Additionally, SBDC
representatives and representatives of local chambers of commerce with
whom we spoke stated that the length of time it took to receive SBA
Disaster Loans caused difficulties for small businesses trying to
sustain in the immediate aftermath of the hurricanes.
In July 2006, we reported that SBA faced an unprecedented demand for
disaster loans while also confronting a significant backlog of
applications; as a result, hundreds of thousands of loans were not
disbursed in a timely way.[Footnote 41] We also concluded that SBA had
not fully planned for the implementation of its new disaster loan
processing system--DCMS--which restricted the number of staff that
could access the system and process the large volume of applications.
Since then, SBA has taken several steps to reform its Disaster Loan
Program, including creating an online loan application, increasing the
capacity of DCMS, and developing a Disaster Recovery Plan.[Footnote 42]
* Application process and requirements: Two Mississippi small business
owners with whom we spoke discussed that they had difficult
experiences in applying for SBA disaster loans. They both stated that
they had problems with the SBA adjustment process, and that the damage
to both of their properties was severely undervalued. Both also said
that they had to work with several different SBA case managers
throughout the application process, which contributed to their
difficult experience because the new case manager was not familiar
with actions that had previously occurred on their applications.
Another small business owner in New Orleans explained that he needed a
lot of financial records to apply for a SBA disaster loan, which
presented problems. He said that all of his records sat in over 7 feet
of water for 12 weeks and were completely destroyed. Local SBDC
officials and officials from chambers of commerce also told us that in
some instances, small business owners found the application process so
complicated that they decided not to complete it, and that, in some
cases, the business owners did not have the proper educational
background to complete the application.
Local SBDC officials and officials from state and federal development
agencies explained that some small business owners faced difficulty in
meeting some of the loan program underwriting requirements for
collateral. For example, some small businesses affected by Hurricanes
Katrina and Rita were completely destroyed, and all that remained
after the storm was the concrete slab on which their business had been
located; many of these business owners also lost their homes. In these
instances, some small business owners were unable to meet the
collateral requirements for loans.
In addition to the program-related challenges previously listed, many
small business owners told us in focus groups that we conducted and
others with whom we met reported more general challenges that have
hindered small business recovery efforts, including an increased debt
load; difficulties in receiving commercial insurance payouts, reduced
insurance availability, and increased insurance costs; and difficulty
in accessing capital.
* Increased debt load: Several small business owners with whom we
spoke stated that the federal assistance loans have increased their
debt burden and are creating significant challenges for recovery. For
example, one New Orleans small business owner explained that the
business she operates has five times the level of debt it had before
Hurricane Katrina. She stated that although her sales are back to pre-
Katrina levels, because of the added debt, the company needs higher
sales now to remain as profitable as it was prior to the hurricane.
Another small business owner who operates two retail stores that were
destroyed during Hurricane Katrina explained that his business was
debt free prior to the hurricane. He now has an SBA physical disaster
loan, GO loan, and a loan from the Louisiana Business Recovery Grant
and Loan Program. His current employee level is significantly lower
than the pre-Katrina level, and because of the large amount of debt he
is carrying, he told us that he is unable to hire any additional
employees. Others with whom we spoke also discussed the difficulties
being faced by small business owners because of the debt resulting
from federal assistance loans. For example, a local planning and
development district official stated that many small business owners
were afraid to expand because they did not want to take on the
additional debt needed to do so. A representative from a local chamber
of commerce also told us that the heavy debt affects small businesses'
access to capital and businesses' viability.
* Commercial insurance: Small business owners and other local
officials told us that many small business owners faced difficulties
in receiving insurance payouts for damages suffered, and that this
situation has stymied recovery efforts by stalling businesses from
reopening. One small business owner in New Orleans told us that he has
been in court proceedings with his insurance company for over 3 years
working to settle claims. He explained that had he received insurance
payouts earlier, he would have been able to reopen his business sooner
and create jobs to help stimulate the local economy. Additionally, a
restaurant owner in New Orleans told us that it took 16 months to
receive a payout from his insurance company, and that he had to hire
an attorney and sue the insurance company to get the payout. Another
small business owner stated that although her business was well
insured, she did not receive payment until November 2009.
Several small business owners in Louisiana and Mississippi also stated
that the cost to insure their businesses has significantly increased
since the storms. Two small business owners told us that their
commercial insurance rates at least doubled after the hurricanes. A
small business owner in Mississippi who operates a retail store out of
her home stated that her insurance costs (for her home and business)
increased by 400 percent after Hurricane Katrina, and that the
building being insured was significantly smaller than the one she
owned prior to the hurricane. She explained that the cost of insurance
was so high that it was difficult to make a profit without
significantly raising prices. Another business owner stated that the
wind and hail insurance on her wholesale trade company for durable
goods increased from about $2,600 to $14,000 a year. Additionally, a
local chamber of commerce official told us that increased insurance
premiums remain a major reason why some small businesses have not been
able to reopen, and a local planning and development district official
told us that some small businesses in the area had closed because the
increased cost of insurance had made it unaffordable to stay in
business.
Some small business owners also mentioned that the availability of
insurance was significantly reduced after the hurricanes. For example,
one small business owner who operates three grocery stores in New
Orleans told us that there were certain types of insurance that she
can no longer purchase, such as spoilage and excess flood coverage.
Another New Orleans small business owner told us that since the
hurricanes, there were very few insurance companies from which to
choose to purchase insurance policies. Additionally, local SBA
district office officials, a local chamber of commerce official, and a
local business research foundation told us that the availability of
insurance had significantly decreased, particularly for businesses
located in coastal areas.
* Difficulty in accessing capital: SBA district and branch office
officials and officials from several local chambers of commerce also
mentioned that small business owners have had difficulty in accessing
capital for business loans due to the current economic environment.
Some stated that lenders' reluctance to provide small business capital
was prohibiting recovery efforts, and that the elimination of credit
lines for small businesses has had a dramatic impact on business
growth. Additionally, a local SBDC Director told us that accessing
additional capital had proven even more difficult for small business
owners with SBA disaster loans.
Performance of Federal and State-Run Business-Assistance Loans Varied:
Overall, we found that the performance of the loans small businesses
received for the various federal assistance programs we reviewed
varied. For example, about 70 percent of the 10,710 disaster loans
that the agency approved for small businesses in the Gulf Coast region
was current, and about 15 percent was paid in full.[Footnote 43] In
addition, the default rate for disaster loans made to small businesses
was 9.4 percent, and 2.8 percent of loans was either past due or
delinquent. For GO loans, about 54 percent of the 1,573 loans SBA
approved for small businesses was current, and about 17 percent was
paid in full.[Footnote 44] The default rate for GO loans was 6
percent, and about 13.4 percent was in delinquent status.[Footnote 45]
Loans provided to small businesses through the Louisiana Business
Recovery Grant and Loan Program experienced a default rate of about
4.1 percent and a delinquency rate of about 8.5 percent as of fiscal
year 2009.[Footnote 46] Finally, 1 of the 27 loans made by RLF
grantees in Louisiana using additional program funds targeted for
disaster recovery was delinquent and 3 had defaulted. In summary, the
percentages of loans categorized as in default or delinquent were
about 12 percent for SBA disaster loans, 19 percent for SBA GO loans,
about 12 percent for Louisiana small business loans, and about 15
percent for the small number of EDA RLF loans made specifically for
disaster recovery purposes. Differences in the characteristics of the
various loan programs we reviewed--such as year of origination,
interest rates, loan terms, types of small business served, and the
use of loan funds--are among the variables that could have an impact
on loan performance.
Gulf Coast Small Businesses Directly Received Billions of Federal
Contracting Dollars, but Reporting of Subcontracting Dollars Awarded
Remains Incomplete:
Gulf Coast small businesses directly received almost $2.9 billion in
total federal contract funds awarded for Hurricanes Katrina- and Rita-
related recovery projects between fiscal years 2005 and 2009. However,
we found that the Corps and DOD could not demonstrate that they were
consistently monitoring subcontracting accomplishment information as
required for 13 of the 43 construction contracts awarded directly to
large businesses for Katrina-and Rita-related recovery efforts during
that time. Without monitoring, the Corps and DOD are limited in their
ability to determine the extent to which their prime contractors are
following their subcontracting plans.
Federal Agencies Awarded a Significant Amount of Contract Dollars
Directly to Small Businesses in Gulf Coast and Other States:
Federal agencies directly awarded a total of $20.5 billion nationwide
in contracts between August 2005 and September 2009 for recovery
efforts related to Hurricanes Katrina and Rita. Of this $20.5 billion,
small businesses located in Gulf Coast states received almost $2.9
billion (13.9 percent), and small businesses in the rest of the United
States received about $2.7 billion (see figure 2).
Figure 2: Total Amount of Federal Contract Dollars Provided for
Hurricanes Katrina-and Rita-Related Recovery Efforts, Fiscal Years
2005-2009:
[Refer to PDF for image: pie-chart]
Other than small businesses, nationwide: 72.8%; $14,922,271,312;
Gulf Coast small businesses: 13.9%; $2,846,965,438;
Small businesses in all other states: 13.3%; $2,716,407,168.
Total: $20,485,643,918.
Source: GAO analysis of FPDS-NG data.
Note: The dollars reported in this figure are obligations. The data
are as of January 15, 2010.
[End of figure]
Among the four Gulf Coast states in our review, Louisiana small
businesses directly received the greatest amount of federal contract
funds, about $1.5 billion. However, Alabama small businesses saw the
largest proportion (49 percent) of total prime contract dollars
awarded within a particular state (see figure 3).
Figure 3: Contract Dollars Awarded Directly to Gulf Coast Small
Businesses and Businesses of All Sizes in States Primarily Affected by
Hurricanes Katrina and Rita, Fiscal Years 2005-2009:
[Refer to PDF for image: 4 pie-charts]
State: Alabama;
Funding received by all businesses: $667,591,965;
Funding received by small businesses: $325,400,606 (49%).
State: Louisiana;
Funding received by all businesses: $3,328,086,305;
Funding received by small businesses: $1,475,586,488 (44%).
State: Mississippi;
Funding received by all businesses: $2,044,137,390;
Funding received by small businesses: $644,103,596 (32%).
State: Texas;
Funding received by all businesses: $1,451,942,251;
Funding received by small businesses: $401,874,748 (28%).
Source: GAO analysis of FPDS-NG data.
Note: The dollars reported in this figure are obligations. The data
are as of January 15, 2010.
[End of figure]
The amount of federal contract funds directly awarded to specific
types of small businesses for Hurricanes Katrina-and Rita-related
recovery efforts varied (see figure 4).
* Small disadvantaged businesses: Of the almost $2.9 billion in
contracting dollars that went directly to small businesses in the Gulf
Coast, about $839.5 million (almost 30 percent) was awarded to small
disadvantaged businesses. Louisiana small disadvantaged businesses
received the greatest amount of the prime contract funds awarded to
disadvantaged businesses in Gulf Coast states (over $456 million).
* HUBZones: Gulf Coast small businesses located in HUBZones directly
received a total of about $598 million in federal contract funds (21
percent of federal contract funds directly awarded to Gulf Coast small
businesses). Of the contract funds directly awarded to small
businesses in HUBZones, Louisiana small businesses received the
greatest amount (over $335 million).
* Women-owned small businesses: About $382 million in federal contract
funds were directly awarded to women-owned small businesses in the
Gulf Coast (about 13 percent of all federal contract funds directly
awarded to Gulf Coast small businesses for Katrina-and Rita-related
recovery efforts). Women-owned small businesses in Louisiana were
directly awarded the greatest amount of the federal contracts
(approximately $184 million).
* Veteran-owned small businesses: Gulf Coast small businesses owned by
veterans were directly awarded about $289 million in federal contract
funds (about 10 percent of all the Katrina-and Rita-related federal
contracts directly awarded to Gulf Coast small businesses). Veteran-
owned Louisiana small businesses were directly awarded about $205
million of the $289 million, the most in the Gulf Coast states.
Contracting dollars awarded directly to businesses can be counted in
more than one category, so the dollars awarded to various types of
small businesses are not mutually exclusive.
Figure 4: Contract Dollars Awarded Directly to Various Types of Small
Businesses for Hurricanes Katrina-and Rita-Related Recovery Efforts,
Fiscal Years 2005-2009:
[Refer to PDF for image: illustrated table]
Dollars in millions:
Total awarded to small businesses:
Alabama: $325.4;
Louisiana: $1,475.6;
Mississippi: $644.1;
Texas: $401.9;
Total (Gulf Coast): $2,847.0.
Dollars and percentages of small business totals awarded to different
types of small businesses:
Disadvantaged:
Alabama: $78.9 (24%);
Louisiana: $456.3 (31%);
Mississippi: $209.4 (33%);
Texas: $94.8 (24%)
Total (Gulf Coast): $839.5 (29%).
HUBZone:
Alabama: $78.9 (24%);
Louisiana: $335.0 (23%);
Mississippi: $147.0 (23%);
Texas: $36.9 (9%);
Total (Gulf Coast): $597.9 (21%).
Women-owned:
Alabama: $36.0 (11%);
Louisiana: $184.4 (12%);
Mississippi: $120.4 (19%);
Texas: $41.4 (10%);
Total (Gulf Coast): $382.2 (13%).
Veteran-owned:
Alabama: $9.1 (3%).
Louisiana: $204.9 (14%);
Mississippi: $46.1 (7%);
Texas: $28.5 (7%).
Total (Gulf Coast): $288.6 (10%).
Source: GAO analysis of FPDS-NG data.
Note: Percentages cannot be totaled across columns because under SBA
guidelines, contracting dollars awarded to businesses can be counted
in more than one category. For example, a small disadvantaged business
owned by a woman can be counted as both disadvantaged and women-owned.
The dollars reported in this figure are obligations. The data are as
of January 15, 2010.
[End of figure]
Corps of Engineers and DOD Could Not Demonstrate Consistent Monitoring
of Subcontracting Information for Selected Contracts:
The Corps and DOD could not demonstrate that they were consistently
monitoring subcontracting accomplishment information as required. As
we have previously discussed, subcontracting plans are generally
required for construction contracts (or modifications to contracts)
that are expected to exceed $1 million and that have subcontracting
possibilities. The FAR states that subcontracting plans must include
assurances that prime contractors will report on their progress toward
reaching their subcontracting goals.[Footnote 47] Generally, contracts
that offer subcontracting possibilities and are expected to exceed the
monetary thresholds above are to include certain clauses. In general,
these clauses require contractors to submit these reports semiannually
and at project completion. The Corps and DOD use these reports to
monitor contractor performance under subcontracting plans.
We reviewed the 57 construction contracts that the Corps, DHS, DOD,
and GSA awarded directly to large businesses between fiscal years 2005
and 2009, and that were listed in FPDS-NG as having subcontracting
plans. The Corps awarded 29 of these contracts but was unable to
provide subcontracting accomplishment report information for 11
contracts. DOD awarded 14 of the contracts and was unable to provide
subcontracting accomplishment information for 2 contracts (see table
7). Without these reports, either in eSRS or paper form, contracting
officials lack a key tool used to monitor contractors' performance
under subcontracting plans.
Table 7: Status of Subcontracting Accomplishment Information for
Hurricanes Katrina-and Rita-Related Construction Contracts Having
Subcontracting Plans:
Agency: DHS;
Number of construction contracts listed in FPDS-NG as having
subcontracting plans: 5;
Number of construction contracts for which agencies were unable to
demonstrate compliance with requirements for monitoring subcontracting
accomplishment information: 0;
Percentage unable to demonstrate compliance: 0%.
Agency: GSA;
Number of construction contracts listed in FPDS-NG as having
subcontracting plans: 9;
Number of construction contracts for which agencies were unable to
demonstrate compliance with requirements for monitoring subcontracting
accomplishment information: 0;
Percentage unable to demonstrate compliance: 0%.
Agency: DOD;
Number of construction contracts listed in FPDS-NG as having
subcontracting plans: 14;
Number of construction contracts for which agencies were unable to
demonstrate compliance with requirements for monitoring subcontracting
accomplishment information: 2;
Percentage unable to demonstrate compliance: 14%.
Agency: Corps;
Number of construction contracts listed in FPDS-NG as having
subcontracting plans: 29;
Number of construction contracts for which agencies were unable to
demonstrate compliance with requirements for monitoring subcontracting
accomplishment information: 11;
Percentage unable to demonstrate compliance: 38%.
Agency: Total;
Number of construction contracts listed in FPDS-NG as having
subcontracting plans: 57;
Number of construction contracts for which agencies were unable to
demonstrate compliance with requirements for monitoring subcontracting
accomplishment information: 13;
Percentage unable to demonstrate compliance: 23%.
Source: GAO analysis of agency contracting data.
Note: Two additional construction contracts were listed in FPDS-NG as
having subcontracting plans; however, these contracts were miscoded
and did not require subcontracting plans and, thus, were eliminated
from the universe of contracts we reviewed. Additionally, two
contracts were eliminated from the universe of contracts we reviewed
because Corps officials told us that they did not contain
subcontracting plans because limited or no subcontracting
possibilities existed for those contracts.
[End of table]
As of 2005, all contractors with subcontracting reporting requirements
related to contracts with civilian agencies were generally required to
submit, with some exceptions, summary subcontract reports into eSRS, a
Web-based govermentwide subcontracting system that allows contractors
to submit and agency officials to review subcontracting accomplishment
reports electronically rather than using paper forms. DOD implemented
eSRS incrementally and, as of 2009, began primarily relying on eSRS
for subcontract reporting.[Footnote 48] The development of eSRS was
intended to create more visibility and transparency into the process
of gathering information on federal subcontracting accomplishments.
In addition to requirements for contractors to submit subcontracting
accomplishment information, the FAR requires that agency contracting
officers review subcontracting plans for adequacy and take action to
enforce the terms of the contract if notified that the contractor is
failing to meet its commitments under their subcontracting plan.
[Footnote 49] Agency administrative contracting officials are required
to provide information to the contracting officer on the extent to
which the contractor is meeting subcontracting plan goals and to
notify the contracting officer if the contractor is failing to comply
in good faith with the subcontracting plan.[Footnote 50] In
determining whether a contractor failed to make a good-faith effort to
comply with its subcontracting plan, a contracting officer must look
to the totality of the contractor's actions, consistent with the
information and assurances provided in its plan. When considered in
the context of the contractor's total effort in accordance with its
plan, failure to submit contracting accomplishment reports may be
considered an indicator of a failure to make a good-faith effort.
[Footnote 51] These requirements were in place prior to the 2005
hurricanes and have continued in the eSRS environment. New
requirements were added to the FAR in April 2008 that additionally
require that contracting officers acknowledge receipt of or reject the
subcontracting accomplishment reports submitted by contractors in
eSRS.[Footnote 52] In addition, GSA, DOD, and the Corps have agency
guidance that spells out the contract administration duties necessary
to monitor contractor compliance with subcontracting plan reporting
requirements. Without subcontracting accomplishment information,
contracting officials at the Corps and DOD lack a key tool used to
monitor contractor performance under subcontracting plans. In the
absence of these reports, the Corps and DOD could not demonstrate that
they were consistently monitoring contractor performance under the
plans.
As we have previously noted, the Corps did not provide subcontracting
accomplishment report information for 11 of these contracts and was
unable to provide a reason for why subcontracting information was
unavailable for these contracts. DOD did not provide us with
subcontracting information on 2 of the 14 construction contracts that
we reviewed, and DOD officials told us that after searching retained
records, it could not find any paper or electronic subcontracting
accomplishment reports. Without monitoring, the Corps and DOD are
limited in their ability to determine the extent to which their prime
contractors are following their subcontracting plans.
Economic Conditions Have Varied Across the Gulf Coast Region Following
Hurricanes Katrina and Rita and Appear to Be Related in Part to the
Level of Damage Sustained in Different Areas:
Indicators of economic conditions in the Gulf Coast--including
population estimates, the number of small businesses, unemployment
rates, and housing prices--suggest that the effects of Hurricanes
Katrina and Rita on local economies have varied across the region.
[Footnote 53] Some areas experienced decreases in the number of small
businesses and population and increases in unemployment after the
hurricanes. While some areas experienced economic decline immediately
after the storms, the whole Gulf Coast region eventually began to
experience economic growth (as measured by these four indicators)
until the national economy went into a recession in late 2007. The
impact on small businesses from the April 20, 2010, explosion of the
Deepwater Horizon oil rig is still uncertain.
The Gulf Coast Region Experienced Shifts in Population Levels and
Number of Small Businesses:
Louisiana and Mississippi, the two states most affected by Hurricanes
Katrina and Rita, experienced varying shifts in population and number
of small businesses at the state level. For example, in Mississippi,
the population decreased 1 year after the hurricanes (see table 8).
However, by 2007, the statewide population increased to more than 2.9
million, higher than pre-Katrina levels. In Louisiana, the population
declined by more than 250,000 in the year following the hurricanes;
the statewide population has since increased but has not achieved
prehurricane levels. Additionally, in Louisiana and Mississippi, the
total number of small business establishments declined in the year
following the hurricanes but exceeded prehurricane levels by 2007. For
example, in Louisiana, the total number of small businesses with 50 or
fewer employees decreased from about 97,200 in 2005 to over 96,100 in
2006 (about 1 percent) but then increased to about 98,900 in 2007.
Unlike Louisiana and Mississippi, Alabama and Texas experienced steady
statewide growth in population and the number of small businesses
following the hurricanes.
Table 8: Population and Businesses with 50 or Fewer Employees by
Selected States, 2004-2008:
Population:
State: Alabama;
2004: 4,506,574;
2005: 4,537,299;
2006: 4,587,564;
2007: 4,626,595;
2008: 4,661,900.
State: Louisiana;
2004: 4,487,830;
2005: 4,495,627;
2006: 4,243,634;
2007: 4,373,310;
2008: 4,410,796.
State: Mississippi;
2004: 2,884,596;
2005: 2,898,209;
2006: 2,896,713;
2007: 2,921,030;
2008: 4,938,618.
State: Texas;
2004: 22,424,884;
2005: 22,811,128;
2006: 23,367,534;
2007: 23,843,432;
2008: 24,326,974.
Number of businesses with 50 or fewer employees:
State: Alabama;
2004: 95,267;
2005: 96,364;
2006: 97,671;
2007: 99,830;
2008: [A].
State: Louisiana;
2004: 97,390;
2005: 97,173;
2006: 96,143;
2007: 98,905;
2008: [A].
State: Mississippi;
2004: 57,578;
2005: 57,606;
2006: 57,491;
2007: 58,886;
2008: [A].
State: Texas;
2004: 463,092;
2005: 469,224;
2006: 479,035;
2007: 490,718;
2008: [A].
Source: U.S. Census Bureau.
[A] Data are unavailable.
[End of table]
At the county and parish level, population shifts remained uneven
among the affected areas within states in the Gulf Coast.[Footnote 54]
Specifically, between 2005 and 2006, counties more heavily impacted by
the hurricanes experienced sharp decreases in population and in the
number of small businesses, while adjacent counties with less damage
experienced steady growth (see figures 5 and 6).
Figure 5: Changes in Population, Louisiana and Mississippi, 2004-2008:
[Refer to PDF for image: 2 illustrated maps]
2005-2006:
State: Louisiana:
Parish: Calcasieu;
Population: Decreased 25 percent or less.
Parish: Jefferson;
Population: Decreased 25 percent or less.
Parish: Orleans;
Population: Decreased more than 50 percent.
Parish: Plaquemines;
Population: Decreased 25 percent or less.
Parish: St. Bernard;
Population: Decreased more than 50 percent.
Parish: St. Charles;
Population: Increased 5 percent or less.
Parish: St. John the Baptist;
Population: Increased 5 percent or less.
Parish: St. Tammany;
Population: Increased 5 percent or less.
State: Mississippi:
County: Hancock;
Population: Decreased 25 percent or less.
County: Harrison;
Population: Decreased 25 percent or less.
County: Jackson;
Population: Decreased 25 percent or less.
County: Stone;
Population: Increased 5 percent or less.
2004-2008:
State: Louisiana:
Parish: Calcasieu;
Population: Increased 5 percent or less.
Parish: Jefferson;
Population: Decreased 25 percent or less.
Parish: Orleans;
Population: Decreased 26 to 50 percent.
Parish: Plaquemines;
Population: Decreased 26 to 50 percent.
Parish: St. Bernard;
Population: Decreased 26 to 50 percent.
Parish: St. Charles;
Population: Increased 5 percent or less.
Parish: St. John the Baptist;
Population: Increased 5 percent or less.
Parish: St. Tammany;
Population: Increased more than 5 percent.
State: Mississippi:
County: Hancock;
Population: Decreased 25 percent or less.
County: Harrison;
Population: Decreased 25 percent or less.
County: Jackson;
Population: Decreased 25 percent or less.
County: Stone;
Population: Increased more than 5 percent.
Sources: GAO analysis of U.S. Census Bureau data; MapInfo (map).
[End of figure]
Figure 6: Changes in Number of Small Businesses, Louisiana and
Mississippi, 2004-2007:
[Refer to PDF for image: 2 illustrated maps]
2005-2006:
State: Louisiana:
Parish: Calcasieu;
Number of small businesses: Decreased 10 percent or less.
Parish: Jefferson;
Number of small businesses: Decreased 10 percent or less.
Parish: Orleans;
Number of small businesses: Decreased 11 to 20 percent.
Parish: Plaquemines;
Number of small businesses: Decreased 10 percent or less.
Parish: St. Bernard;
Number of small businesses: Decreased more than 20 percent.
Parish: St. Charles;
Number of small businesses: Increased 10 percent or less.
Parish: St. John the Baptist;
Number of small businesses: Increased 10 percent or less.
Parish: St. Tammany;
Number of small businesses: Increased 10 percent or less.
State: Mississippi:
County: Hancock;
Number of small businesses: Decreased 11 to 20 percent.
County: Harrison;
Number of small businesses: Decreased 10 percent or less.
County: Jackson;
Number of small businesses: Decreased 10 percent or less.
County: Stone;
Number of small businesses: Increased 10 percent or less.
2004-2007:
Parish: Calcasieu;
Number of small businesses: Increased more than 10 percent.
Parish: Jefferson;
Number of small businesses: Decreased 10 percent or less.
Parish: Orleans;
Number of small businesses: Decreased more than 20 percent.
Parish: Plaquemines;
Number of small businesses: Decreased 10 percent or less.
Parish: St. Bernard;
Number of small businesses: Decreased more than 20 percent.
Parish: St. Charles;
Number of small businesses: Increased more than 10 percent.
Parish: St. John the Baptist;
Number of small businesses: Increased more than 10 percent.
Parish: St. Tammany;
Number of small businesses: Increased more than 10 percent.
State: Mississippi:
County: Hancock;
Number of small businesses: Decreased 10 percent or less.
County: Harrison;
Number of small businesses: Decreased 10 percent or less.
County: Jackson;
Number of small businesses: Increased 10 percent or less.
County: Stone;
Number of small businesses: Increased 10 percent or less.
Sources: GAO analysis of U.S. Census Bureau data; MapInfo (map).
[End of figure]
* In St. Bernard and Orleans Parishes in Louisiana--two of the most
heavily damaged parishes--from 2005 to 2006 the populations decreased
by approximately 79 percent and approximately 54 percent,
respectively, and the numbers of small businesses declined by 40
percent and 18 percent, respectively. As of 2008, the populations in
St. Bernard and Orleans Parishes had increased slightly but were still
42 percent and 32 percent below pre-Katrina population levels,
respectively. Conversely, between 2005 and 2006, St. Charles and St.
John the Baptist Parishes in Louisiana--parishes that were less
damaged by the hurricanes--increased in population by 3 percent and 5
percent, respectively, and the numbers of small businesses also
increased by 4 percent and 6 percent, respectively.
* In Hancock County, Mississippi--where the eye of Hurricane Katrina
made landfall--the population declined by 16 percent, and the number
of small businesses declined by 14 percent from 2005 to 2006.
Concurrently, the population in Stone County, Mississippi, which is
located just north of Hancock County, increased by approximately 5
percent, while the number of small businesses increased less than 1
percent.
* In Mobile County, Alabama, and Harris County, Texas--two counties
that sustained less damage as a result of the hurricanes--the
populations increased by about 1 percent and about 3 percent,
respectively, and the numbers of small businesses increased by less
than 1 percent and about 2 percent, respectively, from 2005 to 2006.
At the focus groups we conducted, small business owners in New
Orleans, Louisiana, and Gulfport, Mississippi, told us that
populations and tourist levels were lower than what they were prior to
Hurricane Katrina, resulting in a smaller customer base that has had a
negative impact on new small businesses relocating to the areas. For
example, a small business owner of a brewery in Gulfport, Mississippi,
told us that prior to Hurricanes Katrina and Rita, 80 percent of his
customer base stemmed from the Mississippi Gulf Coast. However, after
the hurricanes, he lost most of his customer base and has had to
develop a new business strategy focusing on out-of-state sales to
remain operational. Additionally, a small business owner who owns a
restaurant located in the French Quarter in New Orleans told us that
the lower levels of tourists since the hurricanes have caused him to
find innovative ways to market the restaurant to expand the customer
base. Others with whom we spoke, including SBA officials and
representatives of local chambers of commerce, believed that the lower
population levels have created recovery challenges for small
businesses operating in these areas. For example, officials from one
local SBA district office said that small businesses in the coastal
counties along the Gulf Coast region still face tough economic
conditions because of the extended period after the hurricanes during
which businesses operated with a significantly reduced customer base.
Increases in Unemployment in Some States May Be Correlated with
Changes in the Labor Market Immediately Following the Hurricanes,
While More Recent Increases Could Be Associated with Broader National
Economic Conditions:
Although unemployment rates in Louisiana and Mississippi increased
immediately following Hurricanes Katrina and Rita, it appears that the
impact of the hurricanes on unemployment rates was temporary.[Footnote
55] For example, unemployment rates at the state level in Louisiana
and Mississippi increased in the 2 months following the hurricanes
from 5 percent to 11 percent and from 7 percent to 9 percent,
respectively; however, by January 2006, the unemployment rates in both
states returned to about the pre-Katrina levels.[Footnote 56] In
comparison, between August 2005 and January 2006, the unemployment
rate in Alabama declined slightly and remained about the same in
Texas. Between January 2008 and December 2009, unemployment rates in
all four states generally increased, which state officials attributed
to current economic conditions in the nation more broadly (see figure
7).
Figure 7: Unemployment Rates by Selected States, 2005-2009:
[Refer to PDF for image: multiple line graph]
Year: 2005;
January:
Alabama: 4.7%;
Texas: 6%;
Mississippi: 7.6%;
Louisiana: 6%;
February:
Alabama: 4.7%;
Texas: 5.2%;
Mississippi: 7.2%;
Louisiana: 5.9%;
March:
Alabama: 3.9%;
Texas: 4.9%;
Mississippi: 7%;
Louisiana: 5.5%;
April:
Alabama: 3.2%;
Texas: 4.4%;
Mississippi: 6.6%;
Louisiana: 5.2%;
May:
Alabama: 3.3%;
Texas: 4.8%;
Mississippi: 7.3%;
Louisiana: 5.2%;
June:
Alabama: 4.3%;
Texas: 6%;
Mississippi: 8%;
Louisiana: 5.6%;
July:
Alabama: 4.1%;
Texas: 5.5%;
Mississippi: 7.4%;
Louisiana: 5.5%;
August:
Alabama: 4%;
Texas: 5.2%;
Mississippi: 7.1%;
Louisiana: 5.3%;
September:
Alabama: 3.7%;
Texas: 11%;
Mississippi: 9.6%;
Louisiana: 5.3%;
October:
Alabama: 3.6%;
Texas: 10.6%;
Mississippi: 8.9%;
Louisiana: 5%;
November:
Alabama: 3.3%;
Texas: 10.9%;
Mississippi: 8.7%;
Louisiana: 5.2%;
December:
Alabama: 3.3%;
Texas: 5.8%;
Mississippi: 7.9%;
Louisiana: 4.9%.
Year: 2006;
January:
Alabama: 3.8%;
Texas: 5.1%;
Mississippi: 7.9%;
Louisiana: 5.3%;
February:
Alabama: 3.8%;
Texas: 4%;
Mississippi: 7.4%;
Louisiana: 5.3%;
March:
Alabama: 3.3%;
Texas: 3.8%;
Mississippi: 6.4%;
Louisiana: 5%;
April:
Alabama: 2.9%;
Texas: 3.3%;
Mississippi: 6.2%;
Louisiana: 4.9%;
May:
Alabama: 3%;
Texas: 3.6%;
Mississippi: 6.6%;
Louisiana: 4.9%;
June:
Alabama: 4%;
Texas: 4.7%;
Mississippi: 7.4%;
Louisiana: 5.5%;
July:
Alabama: 4.1%;
Texas: 3.8%;
Mississippi: 7.7%;
Louisiana: 5.4%;
August:
Alabama: 3.9%;
Texas: 4%;
Mississippi: 6.7%;
Louisiana: 5.1%;
September:
Alabama: 3.4%;
Texas: 3.8%;
Mississippi: 6.2%;
Louisiana: 4.7%;
October:
Alabama: 3.2%;
Texas: 3.7%;
Mississippi: 6%;
Louisiana: 4.4%;
November:
Alabama: 3.2%;
Texas: 3.7%;
Mississippi: 6.2%;
Louisiana: 4.5%;
December:
Alabama: 3.3%;
Texas: 3.6%;
Mississippi: 6.3%;
Louisiana: 4.1%.
Year: 2007;
January:
Alabama: 3.7%;
Texas: 4.4%;
Mississippi: 6.9%;
Louisiana: 4.8%;
February:
Alabama: 3.6%;
Texas: 3.5%;
Mississippi: 6.7%;
Louisiana: 4.7%;
March:
Alabama: 3.2%;
Texas: 3.5%;
Mississippi: 6.3%;
Louisiana: 4.2%;
April:
Alabama: 2.7%;
Texas: 3.3%;
Mississippi: 5.9%;
Louisiana: 4%;
May:
Alabama: 2.9%;
Texas: 3.7%;
Mississippi: 6%;
Louisiana: 4%;
June:
Alabama: 3.8%;
Texas: 4.6%;
Mississippi: 6.9%;
Louisiana: 4.7%;
July:
Alabama: 3.9%;
Texas: 4.2%;
Mississippi: 7%;
Louisiana: 4.8%;
August:
Alabama: 3.9%;
Texas: 4%;
Mississippi: 6%;
Louisiana: 4.4%;
September:
Alabama: 3.5%;
Texas: 3.7%;
Mississippi: 6%;
Louisiana: 4.4%;
October:
Alabama: 3.3%;
Texas: 3.2%;
Mississippi: 5.8%;
Louisiana: 4.1%;
November:
Alabama: 3.5%;
Texas: 3.3%;
Mississippi: 5.5%;
Louisiana: 4.2%;
December:
Alabama: 3.8%;
Texas: 3.6%;
Mississippi: 6.1%;
Louisiana: 4.3%.
Year: 2008;
January:
Alabama: 4.3%;
Texas: 4.4%;
Mississippi: 6.5%;
Louisiana: 4.7%;
February:
Alabama: 4.3%;
Texas: 3.4%;
Mississippi: 5.9%;
Louisiana: 4.4%;
March:
Alabama: 4.2%;
Texas: 3.8%;
Mississippi: 6.1%;
Louisiana: 4.3%;
April:
Alabama: 3.6%;
Texas: 3.2v
Mississippi: 5.6%;
Louisiana: 4%;
May:
Alabama: 4.3%;
Texas: 3.7%;
Mississippi: 6.9%;
Louisiana: 4.5%;
June:
Alabama: 5.3%;
Texas: 5.1%;
Mississippi: 7.7%;
Louisiana: 5.1%;
July:
Alabama: 5.5%;
Texas: 4.8%;
Mississippi: 8%;
Louisiana: 5.3%;
August:
Alabama: 5.6%;
Texas: 5.2%;
Mississippi: 7.4%;
Louisiana: 5.3%;
September:
Alabama: 5.4%;
Texas: 5.5%;
Mississippi: 7.1%;
Louisiana: 5.1%;
October:
Alabama: 5.6%;
Texas: 5.3%;
Mississippi: 6.9%;
Louisiana: 5.2%;
November:
Alabama: 5.9%;
Texas: 5.1%;
Mississippi: 6.7%;
Louisiana: 5.4%;
December:
Alabama: 6.5%;
Texas: 5.6%;
Mississippi: 7.7%;
Louisiana: 5.7%.
Year: 2009;
January:
Alabama: 8.2%;
Texas: 5.7%;
Mississippi: 9.3%;
Louisiana: 6.8%;
February:
Alabama: 8.8%;
Texas: 5.5%;
Mississippi: 9.3%;
Louisiana: 6.6%;
March:
Alabama: 9%;
Texas: 5.6%;
Mississippi: 9.4%;
Louisiana: 6.7%;
April:
Alabama: 8.4%;
Texas: 5.6%;
Mississippi: 8.6%;
Louisiana: 6.4%;
May:
Alabama: 9.3%;
Texas: 6.3%;
Mississippi: 9.7%;
Louisiana: 6.9%;
June:
Alabama: 10.6%;
Texas: 7.7%;
Mississippi: 9.9%;
Louisiana: 8%;
July:
Alabama: 10.6%;
Texas: 7.8%;
Mississippi: 10.5%;
Louisiana: 8.2%;
August:
Alabama: 10.7%;
Texas: 8.1%;
Mississippi: 9.7%;
Louisiana: 8.1%;
September:
Alabama: 10.6%;
Texas: 7.4%;
Mississippi: 8.9%;
Louisiana: 8.2%;
October:
Alabama: 10.7%;
Texas: 7.1%;
Mississippi: 9.5%;
Louisiana: 8.1%;
November:
Alabama: 10.2%;
Texas: 6.4%;
Mississippi: 9.1%;
Louisiana: 7.9%;
December:
Alabama: 10.6%;
Texas: 7.2%;
Mississippi: 10.3%;
Louisiana: 8%.
Source: GAO analysis of U.S. Bureau of Labor Statistics data.
[End of figure]
Additionally, as we have previously discussed, residents relocated out
of some states, such as Louisiana and Mississippi, as a result of the
hurricanes. This population migration decreased the size of labor
force, which may have increased the unemployment rate even as the
number of unemployed persons did not change. Therefore, the increase
in the unemployment rate could have been the result of a decrease in
the labor force, an increase in the number of unemployed persons, or
both.
Housing Prices in Selected Heavily Damaged Areas Have Shown Some
Steady Increases:
From 2005 to 2008, the Federal Housing Finance Agency's housing price
index--a nationally recognized housing price index--increased in four
metropolitan statistical areas (MSA) heavily damaged by the
hurricanes.[Footnote 57] Since the housing price index is a broad
measure of the movement of single-family house prices, the increase
suggests that average housing prices increased across the areas
immediately following the hurricanes. Housing prices are generally
determined by the supply and demand of housing units. To the extent
that the hurricanes' effect on the stock of housing units and
population varied among counties and parishes within the MSAs, housing
prices could also behave differently (see figure 8).
Figure 8: Housing Price Index by MSA, 2005-2009:
[Refer to PDF for image: multiple line graph]
Year: 2005;
1st quarter:
Mobile, Alabama: 139.94;
Gulfport Biloxi, Mississippi: 161.92;
Beaumont-Port Arthur, Texas: 144.84;
New Orleans-Metairie, Louisiana: 171.43;
2nd quarter:
Mobile, Alabama: 141.47;
Gulfport Biloxi, Mississippi: 167.21;
Beaumont-Port Arthur, Texas: 148.84;
New Orleans-Metairie, Louisiana: 175.43;
3rd quarter:
Mobile, Alabama: 143;
Gulfport Biloxi, Mississippi: 170.8;
Beaumont-Port Arthur, Texas: 153.97;
New Orleans-Metairie, Louisiana: 179.55;
4th quarter:
Mobile, Alabama: 146.32;
Gulfport Biloxi, Mississippi: 184.64;
Beaumont-Port Arthur, Texas: 158.06;
New Orleans-Metairie, Louisiana: 187.49.
Year: 2006;
1st quarter:
Mobile, Alabama: 150.65;
Gulfport Biloxi, Mississippi: 188.52;
Beaumont-Port Arthur, Texas: 164.52;
New Orleans-Metairie, Louisiana: 194.55;
2nd quarter:
Mobile, Alabama: 152.65;
Gulfport Biloxi, Mississippi: 198.37;
Beaumont-Port Arthur, Texas: 170.85;
New Orleans-Metairie, Louisiana: 200.11;
3rd quarter:
Mobile, Alabama: 155.41;
Gulfport Biloxi, Mississippi: 204.39;
Beaumont-Port Arthur, Texas: 178.33;
New Orleans-Metairie, Louisiana: 204.45;
4th quarter:
Mobile, Alabama: 160.97;
Gulfport Biloxi, Mississippi: 209.25;
Beaumont-Port Arthur, Texas: 182.01;
New Orleans-Metairie, Louisiana: 207.7.
Year: 2007;
1st quarter:
Mobile, Alabama: 162.64;
Gulfport Biloxi, Mississippi: 218.96;
Beaumont-Port Arthur, Texas: 183.76;
New Orleans-Metairie, Louisiana: 209.95;
2nd quarter:
Mobile, Alabama: 167.55;
Gulfport Biloxi, Mississippi: 216.25;
Beaumont-Port Arthur, Texas: 188.6;
New Orleans-Metairie, Louisiana: 208.49;
3rd quarter:
Mobile, Alabama: 168.93;
Gulfport Biloxi, Mississippi: 214.31;
Beaumont-Port Arthur, Texas: 189.53;
New Orleans-Metairie, Louisiana: 208.78;
4th quarter:
Mobile, Alabama: 170.4;
Gulfport Biloxi, Mississippi: 220.06;
Beaumont-Port Arthur, Texas: 191.49;
New Orleans-Metairie, Louisiana: 207.65;
Year: 2008;
1st quarter:
Mobile, Alabama: 172.23;
Gulfport Biloxi, Mississippi: 220.88;
Beaumont-Port Arthur, Texas: 193.07;
New Orleans-Metairie, Louisiana: 208.1;
2nd quarter:
Mobile, Alabama: 175.25;
Gulfport Biloxi, Mississippi: 217.98;
Beaumont-Port Arthur, Texas: 192.98;
New Orleans-Metairie, Louisiana: 206.78;
3rd quarter:
Mobile, Alabama: 172.21;
Gulfport Biloxi, Mississippi: 207.48;
Beaumont-Port Arthur, Texas: 191.63;
New Orleans-Metairie, Louisiana: 203.64;
4th quarter:
Mobile, Alabama: 174.52;
Gulfport Biloxi, Mississippi: 206.68;
Beaumont-Port Arthur, Texas: 191.73;
New Orleans-Metairie, Louisiana: 205.63;
Year: 2009;
1st quarter:
Mobile, Alabama: 174.88;
Gulfport Biloxi, Mississippi: 210.48;
Beaumont-Port Arthur, Texas: 194.93;
New Orleans-Metairie, Louisiana: 206.72;
2nd quarter:
Mobile, Alabama: 176.72;
Gulfport Biloxi, Mississippi: 206.91;
Beaumont-Port Arthur, Texas: 192.9;
New Orleans-Metairie, Louisiana: 204.99;
3rd quarter:
Mobile, Alabama: 177.28;
Gulfport Biloxi, Mississippi: 203.34;
Beaumont-Port Arthur, Texas: 190.49;
New Orleans-Metairie, Louisiana: 201.24;
4th quarter:
Mobile, Alabama: 176.35;
Gulfport Biloxi, Mississippi: 200.57;
Beaumont-Port Arthur, Texas: 187.14;
New Orleans-Metairie, Louisiana: 198.18.
Source: GAO analysis of Federal Housing Finance Agency‘s Quarterly
Housing Price Index.
[End of figure]
For example, in the New Orleans-Metairie-Kenner MSA in Louisiana, the
housing price index increased by approximately 22 percent between the
fourth quarters of 2004 and 2006. One local SBDC director who lost her
house as a result of Hurricane Katrina stated that these price
increases prohibited her from rebuilding in Orleans Parish because
property was too expensive immediately following the hurricane.
Therefore, she had to relocate to a neighboring parish. Similarly, the
price index increased by 31 percent during this time in the Gulfport-
Biloxi MSA in Mississippi. In the Mobile MSA in Alabama, housing
prices increased by approximately 24 percent between 2004 and 2006,
while the Beaumont-Port Arthur MSA in Texas experienced a smaller
increase of 13 percent during this time. Since 2007, housing prices
varied in the four areas affected by the hurricanes and have started
to decrease in some metropolitan areas, such as Gulfport-Biloxi,
Mississippi, and New Orleans-Metairie-Kenner, Louisiana. However, the
decrease in housing prices may be due to factors affecting the
national housing market, such as the overall decline in housing
prices. The housing price index data are limited in that they only
show the average housing prices at the MSA level, which may not
reflect the housing prices in the smaller constituent counties and
parishes within them. As a result, averaging the housing prices across
the counties within an MSA could obscure the varying movement of
housing prices in counties and parishes within the MSAs.
Impact of Deepwater Horizon Oil Spill on Gulf Coast Economy Is
Uncertain:
Representatives of state and local organizations and organizations
that assist small businesses, as well as small business owners with
whom we met, expressed uncertainty regarding the impact on the small
business economy that will result from the recent oil spill in the
Gulf of Mexico. On April 20, 2010, the Deepwater Horizon oil rig
exploded off the coast of Louisiana; the resulting oil spill has led
to the closure of waters to commercial and recreational fishing and
has threatened the shoreline across the Gulf Coast region. Two
industry sectors that have been and will likely continue to be heavily
impacted are commercial and recreational fishing and travel. As of
July 13, 2010, almost 84,000 square miles of federal waters in the
Gulf of Mexico, which represents about 35 percent of these waters,
were closed to commercial and recreational fishing as a result of the
oil spill (see figure 9).[Footnote 58]
Figure 9: Federal Fishery Closure Boundaries as of July 13, 2010:
[Refer to PDF for image: illustrated map]
The following are depicted on the map:
Fishery Closure Boundary as of 6pm Eastern Time, 13 July 2010:
DWH/BP Incident Location;
Closure points;
Closure Area;
Federal Water Boundary.
Source: NOAA.
[End of figure]
Alabama, Florida, Louisiana, and Mississippi have also closed state
waters to commercial and recreational fishing as a result of the oil
spill. For example, about 4,300 square miles of state waters in
Louisiana were closed to commercial and recreational fishing as of
July 13, 2010. In Florida, approximately 23 miles of coastal state
waters offshore of Escambia County were closed to the harvest of
saltwater fish, crabs, and shrimp effective June 14, 2010.[Footnote 59]
According to the National Oceanic and Atmospheric Administration
(NOAA), in 2008 commercial fishermen in Alabama, Florida (West Coast),
Louisiana, and Mississippi harvested approximately 1.2 billion pounds
of finfish and shellfish that generated about $523 million in total
revenue, which represented 14.4 percent of the U.S. domestic landings
of finfish and shellfish (in pounds) and 11.9 percent of the domestic
landings revenue generated (see figure 10).[Footnote 60] Louisiana led
all four states in pounds harvested and revenue generated; nationally,
Louisiana was second in pounds harvested and fourth in revenue
generated. Additionally, Louisiana led all four states in landings of
shrimp, followed by Alabama, Florida (West Coast), and Mississippi.
Figure 10: U.S. Commercial Landings of Finfish and Shellfish, 2008:
[Refer to PDF for image: U.S. and Gulf Coast maps with 2 associated
pie-charts]
Fishing volume:
Louisiana: 916.0 million pounds;
Mississippi: 201.8 million pounds;
Alabama: 24.5 million pounds;
Florida (West Coast): 58.6 million pounds;
Total, Gulf states: 1.2 billion pounds;
Non-Gulf states: 7.1 billion pounds;
U.S. total: 8.3 billion pounds.
Fishing revenue:
Louisiana: $272.9 million;
Mississippi: $43.7 million;
Alabama: $44.2 million;
Florida (West Coast): $162.2 million;
Total, Gulf states: $523 million;
Non-Gulf states: $3.9 billion;
U.S. total: $4.4 billion.
Sources: GAO analysis of NOAA data; MapInfo (map).
[End of figure]
In addition to commercial fishing, recreational fishing is also a
significant activity in the Gulf Coast. According to NOAA, in 2008
nearly 3.2 million Gulf Coast residents participated in marine
recreational fishing. All participants, including visitors, took 25
million trips and caught nearly 194 million fish, representing almost
30 percent and about 42 percent of the national totals, respectively.
Over 67 percent of these trips were made in West Florida, followed by
18 percent in Louisiana, almost 7 percent in Alabama, and nearly 4
percent in Mississippi.
Travel is another key industry that has been and will likely continue
to be heavily impacted by the oil spill.[Footnote 61] According to the
U.S. Travel Association, in 2008 domestic and international travelers
spent more than $94 billion in travel expenditures in Alabama,
Florida, Louisiana, and Mississippi (see table 9). In addition, these
travel expenditures directly generated more than 1 million jobs in
these four states. Table 9 also shows that both Louisiana and
Mississippi experienced declines in travel expenditures and associated
employment in 2006, following Hurricanes Katrina and Rita. By 2008,
Louisiana was approaching its prehurricane level of travel
expenditures, and Mississippi had surpassed its prehurricane level,
yet neither state had returned to its 2004 level of travel-generated
employment.
Table 9: Travel Expenditures and Travel-Generated Employment, 2004-
2008:
Travel expenditures (domestic and international travelers) (dollars in
millions):
State: Alabama;
2004: $$6,051.2;
2005: $$6,639.2;
2006: $$6,998.6;
2007: $$7,405.2;
2008: $$7,723.5.
State: Florida;
2004: $61,118.0;
2005: $64,544.3;
2006: $66,165.6;
2007: $68,870.6;
2008: $70,521.6.
State: Louisiana;
2004: $9,964.8;
2005: $8,248.8;
2006: $6,718.1;
2007: $9,021.4;
2008: $9,642.7.
State: Mississippi;
2004: $5,755.2;
2005: $5,939.9;
2006: $5,633.3;
2007: $6,060.1;
2008: $6,329.3.
State: Total;
2004: $$82,889.1;
2005: $$85,372.2;
2006: $$85,515.6;
2007: $$91,357.3;
2008: $$94,217.1.
Travel-generated employment (numbers in thousands):
State: Alabama;
2004: 73.1;
2005: 75.6;
2006: 76.3;
2007: 77.7;
2008: 79.4.
State: Florida;
2004: 749.4;
2005: 742.6;
2006: 743.0;
2007: 759.5;
2008: 757.1.
State: Louisiana;
2004: 121.2;
2005: 111.1;
2006: 90.6;
2007: 104.3;
2008: 105.1.
State: Mississippi;
2004: 92.1;
2005: 89.0;
2006: 79.5;
2007: 85.0;
2008: 86.5.
State: Total;
2004: 1,035.8;
2005: 1,018.3;
2006: 989.3;
2007: 1,026.5;
2008: 1,028.1.
Source: U.S. Travel Association.
[End of table]
An October 2009 U.S. Travel Association report on the economic impact
of travel on Louisiana parishes also showed that in 2008 five parishes
(Caddo, East Baton Rouge, Jefferson, Lafayette, and Orleans) accounted
for about 67 percent (over $6 billion) of the travel expenditures
(domestic travelers only) and 71 percent (more than 72,000 persons) of
the travel-generated employment in the state.[Footnote 62] Orleans
Parish, which constitutes the City of New Orleans, generated about 37
percent (about $3.5 billion) of the state total for travel
expenditures in 2008 and 46 percent (roughly 47,000 persons) of travel-
generated employment.
Accommodation and food services constitute one component of the travel
industry. According to the U.S. Census Bureau, in 2007 there were
about 55,800 accommodation and food services establishments across the
four Gulf Coast states that employed about 1.2 million persons.
[Footnote 63] Of the about 55,800 accommodation and food services
establishments, about 14,200 (about 25 percent) were located in SBA's
current disaster declaration area for the oil spill in Alabama,
Florida, Louisiana, and Mississippi.[Footnote 64] These establishments
employed over 290,000 persons. In most of these counties and parishes,
the number of establishments and employees in 2007 exceeded pre-
Hurricanes Katrina and Rita levels. However, in Orleans Parish,
Louisiana, the number of accommodation and food services
establishments declined from about 1,250 in 2004 to about 960 in 2006
and then grew to about 1,050 in 2007. The number of persons employed
in the industry in the parish was about 37,000 in 2004 and
approximately 19,100 in 2006. While industry employment grew to about
24,200 in 2007, it still remained significantly below its prehurricane
level. In Harrison County, Mississippi, in 2004 there were about 450
accommodation and food services establishments, which dropped to about
350 in 2006 after the hurricanes and, as of 2007, remained at about
350. As of 2007, employment levels in Harrison County also had not
rebounded to prehurricane levels.
In response to the oil spill, SBA has offered economic injury
assistance to small businesses in counties and parishes in Alabama,
Florida, Louisiana, and Mississippi included in SBA's disaster
declarations (see figure 11).[Footnote 65]
Figure 11: Counties/Parishes Included in SBA Economic Injury Disaster
Declaration for the Deepwater Horizon Oil Spill:
[Refer to PDF for image: map of the Gulf Coast]
Depicted on the map are the following classifications of
Counties/Parishes included in SBA Economic Injury Disaster Declaration:
Declared disaster counties:
Primary;
Contiguous.
Sources: GAO analysis of SBA data; MapInfo (map).
Note: Contiguous counties or other political subdivisions are those
land areas that abut the land area of the declared disaster area
without geographic separation other than by a minor body of water, not
to exceed 1 mile between the land areas of such counties. 13 C.F.R. §
123.4.
[End of figure]
Those eligible for this assistance include small businesses engaged in
shrimping, crabbing, and oyster fishing in the waters closed as a
result of the spill;[Footnote 66] small businesses dependent on the
catching or sale of shrimp, crabs, and oysters; suppliers of fishing
gear and fuel; docks, boatyards, processors, wholesalers, shippers,
retailers, and other small businesses dependent on revenue from
fishing; recreational and sports fishing small businesses; and coastal
small businesses. In addition, small businesses in areas included in
the declaration that are currently repaying an existing SBA disaster
loan can request a deferment. Also, homeowners who have existing SBA
disaster home loans can request a deferment if their business or
employment has been impacted by the oil spill. As table 10 shows, SBA
had approved 181 economic injury disaster loans totaling $15.2 million
as of July 22, 2010.
Table 10: SBA Statistics on Economic Assistance Provided Following the
Deepwater Horizon Oil Spill:
Dollars in thousands:
State: Alabama;
Number of approved economic injury disaster loans: 29;
Amount of approved economic injury disaster loans: $2,957.2;
Number of SBA disaster loan deferments granted: 66;
Cumulative loan balance deferred: $12,663.5.
State: Florida;
Number of approved economic injury disaster loans: 33;
Amount of approved economic injury disaster loans: $3,567.1;
Number of SBA disaster loan deferments granted: 61;
Cumulative loan balance deferred: $8,810.6.
State: Louisiana;
Number of approved economic injury disaster loans: 105;
Amount of approved economic injury disaster loans: $7,386.4;
Number of SBA disaster loan deferments granted: 467;
Cumulative loan balance deferred: $50,413.0.
State: Mississippi;
Number of approved economic injury disaster loans: 14;
Amount of approved economic injury disaster loans: $1,354.1;
Number of SBA disaster loan deferments granted: 113;
Cumulative loan balance deferred: $14,981.3.
State: Total;
Number of approved economic injury disaster loans: 181;
Amount of approved economic injury disaster loans: $15,264.8;
Number of SBA disaster loan deferments granted: 707;
Cumulative loan balance deferred: $86,868.4.
Source: GAO analysis of SBA data.
Note: SBA data are as of July 22, 2010.
[End of table]
SBA also has granted deferments to 707 businesses and homeowners with
existing disaster loan balances totaling about $86.9 million.[Footnote
67] According to SBA officials, the agency tailors loan deferments on
the basis of the need of the borrower and can defer payments on loans
up to 12 months. However, interest on the loan continues to accrue
during the deferment period. Finally, SBA had opened about 30 business
recovery centers throughout the affected areas to provide information,
answer questions, and assist with the loan application process.
[Footnote 68]
A number of businesses in the areas impacted by the oil spill had
existing SBA disaster loans related to Hurricanes Katrina and Rita.
For example, more than 9,300 businesses in Alabama, Louisiana, and
Mississippi that were located in SBA's current disaster declaration
area for the oil spill had existing disaster loan balances totaling
about $918 million for damages or losses incurred following these
hurricanes.[Footnote 69] In addition, over 600 businesses in Alabama,
Florida, Louisiana, and Mississippi that were located in SBA's current
disaster declaration area for the oil spill had existing GO loan
balances totaling $38 million.[Footnote 70]
Small business owners with whom we met in Louisiana and Mississippi
also expressed uncertainty regarding the impact of the spill on their
businesses, including the following examples:
* In Louisiana, the owner of a charter boat business told us that he
began to experience cancellations of scheduled charters 1 week
following the oil spill; he subsequently canceled all scheduled
charters from May to September because of the uncertainty regarding
which areas of the Gulf Coast would be closed to recreational fishing
due to the oil. He added that May to July represents the busy season
for the charter boat business in the region. To mitigate the economic
losses he has incurred, he signed up for the Vessels of Opportunity
Program implemented by BP to provide local boat operators with an
opportunity to assist with response activities, including transporting
supplies, assisting wildlife rescue, and deploying containment and
sorbent booms. The owner indicated that the program provides him with
the opportunity to generate a comparable income while waters remain
closed to recreational fishing, but he expressed uncertainty about how
long the BP Vessels of Opportunity Program would use his services and
about when he might resume normal business operations.
* In Mississippi, the owner of a seafood restaurant told us that she
had already started to see the impacts of the oil spill on her
business. She explained that it was difficult to obtain fresh oysters,
and that the price of fresh shrimp had increased in recent months. She
noted that the restaurant was currently absorbing the increased costs
and not passing them on to its customers. She added there was a
negative perception regarding eating seafood from the Gulf Coast,
which also had negatively impacted her business. She further explained
that her restaurant currently operates out of a temporary location
because Hurricane Katrina had completely destroyed their former
coastal location, including infrastructure provided by local
government. She planned to start rebuilding at a new coastal site in
2010 now that the infrastructure has been restored along the coastal
areas, but she noted that the oil spill has added to the uncertainty
of returning the restaurant to a coastal site.
* In Louisiana, a co-owner of a family-owned oyster processing
business told us that the business had to completely shut down
operations in mid-June. She explained that the business purchased
oysters from commercial fishermen and oyster farmers and pasteurized
the oysters for sale to restaurants. She added that the business also
owned their oyster boats. She noted that the closure of waters off the
Gulf Coast to commercial fishing following the oil spill significantly
impacted the amount of oysters that their business could purchase. She
stated that the three oyster boats the business owned now participate
in the Vessels of Opportunity Program that we have previously
described, but she stated that her family-owned oyster processing
business had high fixed costs. She also expressed uncertainty about
the long-term viability of the business, which has been in her family
for four generations.
Representatives of state and local organizations and organizations
that assist small businesses also expressed uncertainty regarding the
impact on the small business economy that will result from the oil
spill. For example, significant uncertainty exists surrounding the
long-term environmental impact of the oil spill on the marine
environment in the Gulf of Mexico and how it will impact the fishing
industry. In addition, researchers at the Louisiana State University's
Agricultural Center stated that it is too early to provide estimates
of the economic losses expected to be incurred as a result of the oil
spill. They explained that numerous factors must be considered,
including, among others, the volume of the spill and duration of the
leak, the extent of the geographic spread, the intersection of
commercial and recreation fishing areas in relation to the spill, and
species-specific and season-specific variables related to reproduction
and harvest.
Additionally, much uncertainty exists regarding how businesses that
are indirectly impacted by the spill will be compensated for potential
losses. For example, in addition to commercial fishermen who are
directly impacted by the spill, there are many other fishing industry
participants--such as seafood processors; packing plants; and brokers,
as well as trucking and air freight companies--that all may be
impacted by the closure of commercial fishing waters. Other businesses
in the areas also could be adversely impacted by the oil spill because
they could experience a decline in revenue as a result of reduced
number of tourists (e.g., restaurants) or a decline in the need for
their services as a result of the oil spill (e.g., childcare
services). Small business owners and others with whom we met also
stated that uncertainty exists about which types of businesses will be
compensated through the Gulf Coast Claims Facility, which will draw on
a portion of the $20 billion escrow fund created by BP. While the
process and eligibility are being determined for claims, much
uncertainty exists for the small businesses that may be indirectly
impacted by the oil spill. For example, as publicly stated by the
Administrator of the Gulf Coast Claims Facility, there may be
questions concerning whether small businesses that experience a
decline in tourism revenues resulting from public perception of the
oil spill, but that have not actually experienced any physical damage,
are eligible for compensation through the Claims Facility. According
to SBA officials, small business eligibility for an economic injury
disaster loan as a result of the oil spill is established by a
physical presence in the declared disaster area (primary and
contiguous counties) and a connection between the oil spill and
reduction in working capital. SBA officials noted that both direct
impact and indirect impact could be eligible. For example, the direct
impact could be to a sport fishing charter operation that is unable to
book clients due to the fishing grounds being closed. In addition, an
indirect impact could be to the hotel/motel that has reduced occupancy
because charter fishing clients are not coming to the area and to
restaurants whose business is slow because charter fishing clients are
not eating out during their normal stays in the area. Restaurants may
also incur additional costs to purchase seafood that is being shipped
into the area as a result of local fishing grounds being closed
because of the oil spill. Therefore, eligibility requirements for
compensation from the Claims Facility and economic injury disaster
loans from SBA may differ, thus adding another element to the
uncertainties faced by small businesses, as well as federal and state
entities providing assistance to such businesses.
Conclusions:
Nearly 5 years after the hurricanes, many Gulf Coast small businesses
are still recovering, and federal programs have provided various
amounts of assistance. Despite the resources provided, many small
businesses in the Gulf Coast states still face barriers to recovery,
including increased operating expenses and a greater debt burden,
including the increased debt associated with disaster assistance
loans. In addition, economic conditions vary throughout the region.
For example, many of the heavily damaged areas saw substantial losses
in population and in the number of businesses after the hurricanes,
while less damaged areas saw an increase in the population and
business levels. The current national economy also has most likely had
an effect on small business recovery efforts, which can make the
rebuilding process for small businesses even more challenging.
In addition to assistance from federal programs, federal contracting
opportunities have provided a mechanism to assist with small business
recovery efforts. The FAR implements the Small Business Act
requirement that small businesses be given the opportunity to
participate in certain federal contract awards. Gulf Coast small
businesses were awarded almost $3 billion in prime contracts for
hurricane recovery efforts. However, the Army Corps of Engineers and
DOD could not demonstrate that they were consistently monitoring
subcontracting accomplishment information as required. In particular,
the Corps was unable to provide subcontracting accomplishment
information for 11 of their 29 construction contracts we reviewed.
Accomplishment reports are submitted by contractors and reviewed by
agency contracting officials to monitor contractor performance, and
they contain information on the extent to which small business
subcontracts have been awarded. Without subcontracting accomplishment
information, either in eSRS or paper form, contracting officials at
the Corps and DOD lack a key tool used to monitor contractors'
performance under subcontracting plans. Without a consistent process
for making sure that subcontracting accomplishment reports are
submitted, maintained, and reviewed, the Corps and DOD are limited in
their ability to determine whether contractors are following their
subcontracting plans.
Recommendation for Executive Action:
For contracts awarded by the Corps and other DOD departments, the
Secretary of Defense should take steps to ensure that contracting
officials consistently comply with requirements to monitor the extent
to which contractors are meeting subcontracting plan goals, including
requirements for contractors with subcontracting plans to submit
subcontracting accomplishment reports. Once these reports are
submitted, contracting officials should maintain and regularly review
them to determine whether contractors are following their
subcontracting plans. To ensure consistent compliance, DOD and the
Corps small business offices should monitor such actions by
contracting officials, as deemed appropriate.
Agency Comments and Our Evaluation:
On June 14, 2010, we provided a draft of this report to the Department
of Commerce, the Department of Defense, the Department of Homeland
Security, the Department of Housing and Urban Development, the General
Services Administration, and the Small Business Administration for
review and comment. We also provided relevant sections of this report
to state officials in Louisiana and Mississippi. DHS, HUD, and GSA did
not provide comments. Commerce and SBA provided us with technical
comments by e-mail, which we have incorporated into the report as
appropriate. DOD provided us with comments, which we have reprinted in
appendix III.
The Acting Director of the DOD Office of Small Business Programs
stated that DOD nonconcurred with the implication that DOD contracting
personnel do not enforce requirements. In our draft report, we
concluded that DOD was unable to demonstrate that it was monitoring
subcontracting accomplishment information because it was unable to
provide us with documentation of subcontracting accomplishment reports
for 26 of the 31 Corps contracts selected for our review. We
recommended in this report that at a minimum, contracting officials
should enforce requirements for contractors with subcontracting plans
to submit subcontracting accomplishment reports. We also stated in our
recommendation that once reports are submitted, contracting officials
should regularly review them to determine whether contractors are
complying with their subcontracting plan goals. DOD explained that the
31 construction contracts that GAO selected for review were awarded by
the U.S. Army Corps of Engineer's Galveston and New Orleans District
Contracting Offices. DOD further explained that the individual
responding to our original request for subcontracting information for
these 31 contracts indicated that subcontracting accomplishment
reports were not available in eSRS for 26 of the contract files. We
made our original request for this information in March 2010. However,
DOD noted in its comment letter that this individual did not consult
the contracting offices to obtain paper copies of these reports from
the contract files. In its comment letter, DOD also apologized for the
delay in providing this documentation to GAO. DOD added that following
a subsequent GAO request in May 2010 and investigation by the Corps
National Contracting Organization, the Corps identified that 24 of the
26 contract files contained a subcontracting plan and subcontracting
accomplishment report. DOD noted that 2 of the contracts did not
include a subcontracting plan because limited or no subcontracting
possibilities existed due to the exigent circumstances of Hurricane
Katrina. Based on the existence of this documentation, DOD concluded
that the Corps's Galveston and New Orleans Districts did monitor small
business subcontracting plans and accomplishments.
Shortly after we received DOD's comments on our draft report, the
official from DOD's Office of Small Business Programs responsible for
following up with us on matters in its comment letter provided GAO
with copies of the subcontracting accomplishment reports for 13 Corps
contracts. We made revisions in our report to acknowledge the receipt
of these additional subcontracting accomplishment reports. On July 22,
2010, we spoke with this official from DOD's Office of Small Business
Programs to discuss the 11 remaining accomplishment reports that we
had not received from the Corps. The official told us that the
accomplishment reports we received on July 19, 2010, represent the
full extent of what DOD and the Corps are able to provide to GAO. In
addition, DOD did not provide us with the subcontracting
accomplishment reports for the 2 contracts included in our review for
other DOD agencies and did not address these 2 contracts in its
written response. DOD's inability to provide us subcontracting
accomplishment reports for 13 of the 43 contracts included in our
review raises concerns with DOD's process to consistently collect,
maintain, and review such information. Therefore, we revised our
report to recommend that the Secretary of Defense should take steps to
ensure that contracting officials consistently comply with
requirements to monitor the extent to which contractors are meeting
subcontracting plan goals, including requirements for contractors with
subcontracting plans to submit subcontracting accomplishment reports.
Once these reports are submitted, contracting officials should
maintain and regularly review them to determine whether contractors
are following their subcontracting plans. To ensure consistent
compliance, DOD and the Corps small business offices should monitor
such actions by contracting officials, as deemed appropriate.
DOD also indicated in its written comments that eSRS was fully
implemented by the Corps in 2009. This system replaces paper contract
files for subcontracting accomplishment reports. DOD added that it
plans to conduct small business training regarding small business
subcontracting plans and evaluation of small business subcontracting
plans within the next several months. We believe that this training,
along with full implementation of eSRS by the Corps will assist the
Corps in ensuring that contracting officials are complying with
requirements to monitor subcontracting accomplishment information in
the future.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to interested congressional committees, the Secretary of the
Department of Commerce, the Secretary of the Department of Defense,
the Secretary of the Department of Housing and Urban Development, the
Secretary of the Department of Homeland Security, the Administrator of
the General Services Administration, the Administrator of the Small
Business Administration, and other interested parties. This report
will also be available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
Please contact me at (202) 512-8678 or shearw@gao.gov if you or
members of your staffs have any questions about this report. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. See appendix IV for key
contributors to this report.
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our objectives were to describe (1) the amount of assistance provided
to Gulf Coast small businesses as a result of Hurricanes Katrina and
Rita through the Small Business Administration's (SBA) Disaster and
Gulf Opportunity (GO) Pilot Loan programs, state-administered business
assistance programs funded by the Department of Housing and Urban
Development (HUD) Community Development Block Grants (CDBG), and the
Economic Development Administration's (EDA) Revolving Loan Fund (RLF)
Program; the benefits and challenges experienced by participants in
these programs; and the performance of loans extended to small
businesses using assistance from these programs; (2) the extent to
which Gulf Coast small businesses received federal contract funds for
recovery efforts; and (3) the current state of and improvements in the
region's economy since the hurricanes, with a focus on the small
business economy. Our work focused on small business recovery efforts
in four states impacted by Hurricanes Katrina or Rita: Alabama,
Louisiana, Mississippi, and Texas.[Footnote 71]
To address our first objective, we obtained and analyzed data extracts
from SBA's Disaster Credit Management System (DCMS) and Loan
Accounting System (LAS). The data contained in the DCMS data extract
were as of March 8, 2010, and the data in the LAS extract were as of
March 30, 2010. We used the data extracts to compute descriptive
statistics on the number and dollar amount of disaster loans and GO
loans SBA approved for businesses affected by the hurricanes. We could
not determine the total number and dollar amount of disaster loans
that SBA approved for small businesses because DCMS does not capture
this information for physical disaster loans, which businesses of all
sizes are eligible to receive. We also used the data extracts to
compute descriptive statistics on the performance of these loans,
including the percentages of loans paid in full, loans that were
current, loans that were delinquent, and loans that defaulted (which
we defined as loans that were either charged off or liquidated). We
assessed the reliability of the DCMS and LAS data by reviewing
information about the data, including recent GAO assessments,
interviewed SBA officials knowledgeable about these data, and also by
conducting various tests of the information in the data extracts to
ensure the completeness of the data. We concluded that SBA's data were
sufficiently reliable for the purposes of our report. To determine how
SBA identified duplicate benefits received by small businesses that
also participated in state-administered business assistance programs
funded by CDBG supplemental appropriations, we reviewed relevant SBA
Office of Inspector General reports, SBA's standard operating
procedures on duplication of benefits, statutory requirements, and
information provided by SBA and the states that administered business
assistance programs, and we interviewed SBA officials. Finally, we
interviewed key SBA officials--including officials in SBA's Office of
Disaster Assistance, Office of Disaster Planning, and Office of
Capital Access, as well as officials located in SBA's district and
branch offices in the Gulf Coast states--on the role that SBA played
in helping small businesses recover from the hurricanes.
To describe the amount of assistance that small businesses received
through state-administered business assistance programs funded by HUD
CDBG funds, we reviewed Federal Register notices and interviewed
officials from HUD to obtain information on the CDBG disaster recovery
supplemental appropriations Congress enacted following Hurricanes
Katrina and Rita. To determine how each state utilized these funds
among various hurricane recovery efforts, we interviewed officials
from state agencies in Alabama, Louisiana, Mississippi, and Texas
responsible for administering the funds. We also obtained information
on the amount of the funds allocated and expended on economic
development and other programs, including any programs that were
targeted for small businesses. To determine the reliability of the
data we obtained from states that implemented programs specifically
for small businesses, we interviewed knowledgeable state officials to
discuss the method by which the data were prepared, as well as the
steps the state agencies take to ensure the reliability of their own
data. We determined that information provided by the states was
sufficiently reliable for the purposes of our report.
To describe the amount of federal assistance small businesses received
through EDA's RLF Program, we interviewed officials at the agency's
Atlanta and Austin Regional Offices and obtained the most recent
semiannual reports that these offices had received from RLF grantees
located in Alabama, Louisiana, Mississippi, and Texas.[Footnote 72] We
used these reports to compute descriptive statistics on the amount of
loans RLF grantees made to small businesses and the amount of private
investment associated with these loans as reported by the RLF grantees
from September 1, 2005, to the date of the latest data available.
These data are self-reported by RLF grantees; therefore, we attribute
these findings to the RLF grantees. We also contacted officials from
four RLF grantees in Louisiana that received additional capital from
EDA following Hurricanes Katrina and Rita to obtain information on the
number of loans each RLF grantee made to small businesses specifically
for disaster recovery purposes, as well as the performance of these
loans. Finally, we interviewed RLF grantee officials in Beaumont,
Texas; Gulfport, Mississippi; and Mobile, Alabama, to discuss their
efforts to assist small businesses following the hurricanes.
To describe the benefits and challenges faced by small businesses
participating in the programs we reviewed, as well as overall recovery
challenges, we conducted two focus groups of small business owners in
New Orleans, Louisiana, and one focus group in Gulfport, Mississippi.
Participants for the focus groups held in New Orleans were recruited
by representatives of a local Small Business Development
Center.[Footnote 73] We recruited small business owners for the
Gulfport focus group using similar criteria, assisted by the
Mississippi SBA District Office and the Hancock County Chamber of
Commerce. In New Orleans, we met with 19 small business owners, and we
met with 4 small business owners in Gulfport. Nearly all of the small
business owners in each group had participated in one of the programs
included in our review, although this was not a requirement to
participate in the focus groups. The small business owners in each
group represented a variety of industries. We analyzed the content of
focus group transcripts to identify common themes for benefits and
challenges associated with hurricane recovery. While the information
from the focus groups is not generalizable to the entire Gulf Coast
small business population, it provides valuable context regarding
small business owners' perceptions about the benefits and challenges
they have experienced. Finally, we also interviewed officials from
local small business development centers and chambers of commerce in
areas heavily impacted by the hurricanes in each state to discuss
their roles and experiences in assisting small businesses with
recovery efforts.
To address our second objective, we obtained data from the Federal
Procurement Data System-Next Generation (FPDS-NG), the governmentwide
database of contracting activity, to determine the extent to which
federal agencies contracted directly with small businesses in Gulf
Coast states. Using FPDS-NG data, we identified the top four agencies
that awarded the greatest amount of Katrina-and Rita-related contracts
between October 1, 2004, and September 30, 2009. These agencies were
the U.S. Army Corps of Engineers (Corps); Department of Homeland
Security (DHS); Department of Defense, excluding the Corps (DOD); and
General Services Administration (GSA).[Footnote 74] We analyzed data
that were reported into FPDS-NG as of January 15, 2010. Although we
could not independently verify the reliability of these data, we
reviewed system documentation, conducted electronic data testing for
inconsistency errors and completeness, and compared it with supporting
documentation when available. On the basis of these efforts, we
determined the data on amounts received directly from federal
contracts to be sufficiently reliable for the purposes of this report.
We also identified all Corps, DHS, DOD, and GSA construction-related
contracts that, according to FPDS-NG, had a subcontracting plan. For
these contracts, we asked the agencies for documentation of prime
contractors' subcontracting award reports in the Electronic
Subcontracting Reporting System (eSRS), a governmentwide database for
capturing this information. For contracts that were awarded prior to
the agencies' implementation of eSRS, we asked for copies of the paper
contract file forms SF-294 or SF-295, which contain the same
information as that maintained in eSRS. In instances in which an
agency could not provide subcontracting accomplishment reporting
information, we contacted agency officials to obtain an explanation
for why the information was missing.
To address our third objective, we identified the counties and
parishes and metropolitan statistical areas most heavily damaged by
Hurricanes Katrina and Rita in each of the four states, using housing
unit damage estimates from HUD's Current Housing Unit Damage
Estimates: Hurricanes Katrina, Rita, and Wilma.[Footnote 75] We
assumed that the areas that suffered the most housing damage were,
most likely, the areas in which small businesses also suffered the
most damage. We identified various economic indicators that provide a
proxy for the state of the small business economy. These indicators
include population, unemployment, number of small business
establishments, and the housing price index. We analyzed the U.S.
Census Bureau's annual county-and state-level population estimates
from 2000 through 2008. In addition, we analyzed the Census Bureau's
annual County and State Business Patterns data from 2000 through 2007
and identified small businesses with 50 employees or fewer. We also
analyzed the Bureau of Labor Statistics' monthly local area
unemployment statistics by county and state from January 2000 through
December 2009. Finally, we analyzed the Federal Housing Finance
Agency's quarterly house price index based on sales prices and
appraisal data from the first quarter of 2000 through the fourth
quarter of 2009. We used these data to identify trends most likely
associated with the hurricanes, rather than other economic events,
within the areas most heavily damaged. We also analyzed and compared
trends at the state level with trends in the counties most heavily
damaged by the hurricanes, where comparable data were available. We
reviewed the relevant data sources to ensure the reliability of the
indicators and determined that the data were sufficiently reliable for
the purposes of this report. To describe the potential impact of the
recent Gulf Coast oil spill on the small business economy in the Gulf
Coast region, we obtained and analyzed information on the size of the
fishing and travel industries from the National Oceanic and
Atmospheric Administration and the U.S. Travel Association,
respectively. To identify the counties and parishes impacted by the
oil spill, we reviewed SBA's disaster declarations and identified all
primary and contiguous counties and parishes listed in the
declarations. As a result of the oil spill, SBA declared economic
injury disasters in Alabama, Florida, Louisiana, and Mississippi;
therefore, our analysis on the potential impact of the oil spill
involves only these four states. We also obtained data from SBA on new
economic injury disaster loans approved as a result of the oil spill,
as well as existing SBA disaster loans in declared areas and the
number of deferments SBA has granted on those loans. Additionally, we
met with small business owners in Venice, Louisiana, and Bay St.
Louis, Mississippi, to discuss the impact of the oil spill on their
businesses. Furthermore, we met with other organizations assisting
small businesses, including representatives of a local small business
development center in Louisiana and a local chamber of commerce in
Mississippi, to obtain their views and discuss the assistance they are
providing to small businesses. Finally, we met with representatives of
a local organization in Louisiana that is studying the economic
impacts of the oil spill on the Gulf Coast and with representatives of
the Louisiana State University Agriculture Center, which is studying
the long-term impact of the oil spill on the fishing industry. We also
reviewed assessments by other organizations regarding the
posthurricane economic recovery in the Gulf Coast region. Appendix II
contains a summary of these organizations' findings.
We conducted this performance audit from September 2009 through July
2010 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of section]
Appendix II: Summary of Selected Reports from Research Organizations
Studying the Economic Recovery of the Gulf Coast Region Following
Hurricanes Katrina and Rita:
Report title: A Report on the Impact of Hurricanes Katrina and Rita on
Louisiana Businesses: 2005Q2-2006Q4;
Agency/Organization: Louisiana State University, E.J. Ourso College of
Business, Division of Economic Development (2007);
Key findings:
* Immediately before the hurricanes, the entire state of Louisiana had
97,639 employers. After the hurricanes, the state initially lost 5,192
employers. By the fourth quarter of 2006, Louisiana had 892 fewer
employers (0.9 percent) than before the hurricanes, which represents a
significant recovery;
* From the second quarter of 2005 to the fourth quarter of 2006,
Louisiana had an overall business failure rate of 20.9 percent;
the Southeast and Southwest regions had failure rates of 28.3 percent
and 18.6 percent, respectively;
* Small businesses experienced the highest failure rates. During the
fourth quarter of 2006, 25.3 percent of employers in the state that
had 1 to 5 employees in the second quarter of 2005 failed, while only
16.3 percent of those with more than 50 employees failed during the
same period.
Report title: The Labor Market Impact of Hurricane Katrina: An
Overview;
Agency/Organization: Department of Labor, Bureau of Labor Statistics
(August 2006);
Key findings:
* Approximately 38 percent of business establishments in Louisiana and
Mississippi were within a 100-mile corridor of the path of Hurricane
Katrina's center;
* St. Bernard, Orleans, and Jefferson Parishes had the largest
declines in employment between September 2004 and September 2005--38
percent, 27 percent, and 24.5 percent, respectively;
* In Mississippi, employment in Jackson, Harrison, and Hancock
Counties declined by approximately 9 percent to 14 percent from
September 2004 to September 2005;
* The unemployment rate for Louisiana rose sharply after Hurricane
Katrina, from about 5 percent to 12.1 percent. The rate began falling
in December, and in June 2006, it was near its prehurricane level;
* The unemployment rate for Mississippi rose from about 6 percent to
10.4 percent after Hurricane Katrina but declined afterward. In June
2006, the unemployment rate was comparable to its prehurricane level.
Report title: Economic Development Architecture for New Orleans;
Agency/Organization: RAND Gulf States Policy Institute (2007);
Key findings:
* Report provides recommendations regarding the most effective
organizational and strategic approaches to revitalizing the city's
economy. Researchers noted that city officials should build its
economic development program in three phases: a design phase, an
organizational phase, and an implementation phase;
* One recommendation for the design phase included targeting the
city's economic development efforts at certain groups of industrial
clusters. One of these groups includes the city's small business
sector;
* The small business sector played a vital role in the city's pre-
Katrina economy, supplying about 40 percent of the city's jobs and
providing entrepreneurial opportunities for the city's residents,
especially its minority residents. However, this sector was devastated
by Katrina and will need assistance to get back on its feet. According
to the report, the focus should be on the principal problems that
small businesses are likely to face (e.g., technical assistance,
access to capital, and business incubators to try out new ideas). Each
of these issues is a significant institutional challenge.
Report title: Commercial Wind Insurance in the Gulf States;
Agency/Organization: RAND Gulf States Policy Institute (2007);
Key findings:
* Overall, researchers found that after the 2004 and 2005 hurricanes,
the cost of wind insurance spiked drastically and coverage became less
available in areas most prone to substantial wind risk;
* Of those interviewed for the study, it was widely believed that
compared with large firms, smaller firms faced more severe price
increases and had more difficulty in finding coverage following the
2005 hurricane season.
Report title: Recovery After Hurricane Katrina: Employment in the Gulf
Coast Area;
Agency/Organization: Department of Labor, Bureau of Labor Statistics
(May 2007);
Key findings:
* In the Gulf Coast, Hurricane Katrina caused the most extensive job
losses in two large parishes in Louisiana--Jefferson and Orleans--and
in one large county in Mississippi--Harrison;
* As of August 2006, the recovery of jobs had been the weakest in
Orleans Parish, where employment had recovered to only 63 percent of
its pre-Katrina level;
* Jefferson Parish rebounded more quickly and had experienced a much
stronger recovery. August 2006 employment had recovered to 91 percent
of the pre-Katrina level in Jefferson Parish and to 90 percent in
Harrison County.
Report title: The Gulf Coast: Economic Recovery Two Years after the
Hurricanes;
Agency/Organization: Department of Commerce, Economics and Statistics
Administration (December 2007);
Key findings:
* Two years after Hurricanes Katrina and Rita, federal aid continued
to flow to the Gulf Coast, and significant economic recovery in
Louisiana and Mississippi was evident. However, economic conditions in
the New Orleans, Louisiana, and Gulfport-Biloxi, Mississippi,
Metropolitan Statistical Areas (MSA) continued to lag behind;
* By 2006, the overall population (annual average) in Louisiana and
Mississippi had recovered to pre-Katrina levels, but levels in the New
Orleans and Gulfport-Biloxi MSAs had not;
* Two years after the hurricanes, unemployment rates had fallen to the
pre-Katrina levels in most areas of the Gulf Coast. The overall size
of the labor force had yet to recover, however, because many people
who left the region, especially from the New Orleans and Gulfport-
Biloxi MSAs, had not returned.
Report title: Post-Katrina Storm Disorder and Recovery in Mississippi
More Than 2 Years Later;
Agency/Organization: University of Southern Mississippi (2007);
Key findings:
* As of October 2007, across the Mississippi Gulf Coast, there were
very encouraging signs of recovery, including many repaired and new
homes, as well as new developments under way or planned. A number of
the destroyed schools had been reopened in repaired or temporary
facilities; at least two of the community libraries had been reopened;
most businesses that had reopened were doing well; and a number of
residents and small businesses had relocated further inland, spreading
yet further economic growth;
* Obtaining affordable property insurance remained a major barrier to
both homeowners and businesses. For example, rates for wind insurance
skyrocketed dramatically--about 90 percent for homeowners and about
200 percent for business owners.
Report title: Metropolitan Report: Economic Indicators for the New
Orleans Area;
Agency/Organization: University of New Orleans, Division of Business
and Economic Research (August 2008);
Key findings:
* Although job growth preceded the population return in the months
following Hurricane Katrina, both employment and population were about
87 percent of pre-Katrina levels at the time of the study (August
2008). Population and jobs had been recovering at similar rates;
* With Katrina, New Orleans lost about 30 years of population growth.
At the time of the study, the population was still recovering, but the
rate had slowed from the more rapid rate of return right after the
storm.
Report title: Recovering but not Recovered: Gulf Coast Businesses
Three Years Later;
Agency/Organization: Political and Economic Research Council (August
2008);
Key findings:
* Study is a survey of small businesses in the New Orleans and Biloxi-
Gulfport MSAs on the progress of recovery from the 2005 hurricanes.
This study is a follow-up to a survey conducted in 2007;
* As of August 2008, sales performance had improved or stayed constant
for the majority of small businesses since 2007 but had not yet
reached pre-Katrina levels;
* The key challenges to small business owners centered on the
fundamentals of labor, capital, and demand;
* The perceived magnitude of some challenges associated with small
business recovery had declined significantly. For example, small
business owners' satisfaction with the Small Business Administration
has increased since 2007;
* There remained disparities in business recovery according to the
ethnicity of owner or operator.
Report title: Mississippi Gulf Coast Regional Brief;
Agency/Organization: Gulf Coast Business Council (Second Quarter 2009);
Key findings:
* During the second quarter of 2009, the overall employment level for
the Mississippi Gulf Coast stabilized after falling in the last
quarter of 2008 and the beginning of the first quarter of 2009. In
aggregate, overall jobs located along the Gulf Coast were down 2
percent from June 2008 and 4 percent from June 2005;
* Sales tax diversions--the portion of the state sales tax rate that
cities receive--received by 6 of the 11 municipalities in the
Mississippi Gulf Coast region exceeded pre-Katrina levels. When
comparing the aggregate totals collected for all 11 cities on the
Mississippi Gulf Coast, total sales tax diversions for the second
quarter fell short of 2005 levels for the first time since the third
quarter of 2005.
Source: GAO analysis of the reports shown in this table.
[End of table]
[End of section]
Appendix III: Comments from the Department of Defense:
Office Of The Under Secretary Of Defense:
Acquisition, Technology And Logistics:
3000 Defense Pentagon:
Washington, DC 20301-3000:
July 16, 2010:
Mr. William B. Shear:
Director, Financial Markets and Community Investment:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. Shear:
This is the Department of Defense response to the GAO draft report,
GAO-10-723, "Hurricanes Katrina And Rita: Federally Funded Programs
Have Helped to Address Needs of Gulf Coast Small Businesses, but
Agency Data on Subcontracting Is Incomplete," dated June 14, 2010 (GAO
Code 250498). Detailed comments on the report recommendations are
enclosed.
Sincerely,
Signed by:
Linda B. Oliver, Acting Director:
DoD Office of Small Business Programs:
Enclosure: As stated:
[End of letter]
GAO Draft Report Dated June 14, 2010:
GAO-10-723 (GAO Code 250498):
"Hurricanes Katrina And Rita: Federally Funded Programs Have Helped To
Address Needs Of Gulf Coast Small Businesses, But Agency Data On
Subcontracting Is Incomplete"
Department Of Defense Comments To The GAO Recommendations:
Recommendation 1: For contracts awarded by the Army Corps of Engineers
and other DOD departments, the GAO recommends that the Secretary of
Defense take steps to ensure that contracting officials comply with
requirements to monitor the extent to which contractors are meeting
subcontracting plan goals. At a minimum, contracting officials should
enforce requirements for contractors with subcontracting plans to
submit subcontracting accomplishment reports. Once these reports are
submitted, contracting officials should regularly review them to
determine if contractors are complying with their subcontracting plan
goals.
DOD Response: Non-Concur with implication that DoD contracting
personnel do not enforce requirements. The U.S. Army Corps of
Engineers sample selected for review by the Government Accountability
Office (GAO) consisted of 31 construction contracts awarded by the
USACE New Orleans District and Galveston District Contracting Offices
to large business concerns during 2005 to 2009. The Federal
Procurement Data System -Next Generation (FPDS-NG) Contract Action
Reports for the 31 construction contracts selected were noted as
having subcontracting plans. GAO asked the U.S. Army Corps of
Engineers to provide documentation of the subcontracting plans. The
individual responding to the audit reviewed the Electronic
Subcontracting Reporting System (eSRS) and was unable to find
documentation of 26 of the 31 reports filed. Unfortunately, a
communication problem occurred and the Contracting Office was not
consulted for paper copies of the SF-294 or SF-295 from the contract
file.
The original request made by GAO for information/explanation did not
reach the New Orleans District Contracting Office or Galveston
District Contracting Office and the contract files were identified by
the individual responding to the audit as either not found or not
containing the subcontracting plan or SF-294 or SF-295. Upon further
request by GAO and investigation by the Headquarters, USACE National
Contracting Organization, the New Orleans and Galveston District
Contracting Offices were contacted and requested to locate the
contract files. USACE was able to provide information to GAO that
reflects the existence of the contract files. Further review by USACE
has identified that all but two of the contract files contain a paper
copy of the appropriate subcontracting plan and the SF-294 or SF-295.
The two contracts that did not include a subcontracting plan were
Contract Numbers W912P8-05-C-0055 and W912P8-05-C-0056 due to the fact
that limited or no subcontracting possibilities existed. Both
contracts were awarded during the immediate aftermath of Hurricane
Katrina. At the time of award of these contracts the Greater New
Orleans area was still evacuated and local governments prohibited re-
entrance into the city, most local small businesses were destroyed or
unable to return and reestablish themselves. There was great
destruction of personal and corporate property and no quarters existed
to billet or feed anyone from outside the local area. Telephone
service within the 504 and 985 area codes, Southeast Louisiana, were
out during the period making communications extremely difficult. With
this in mind, the Contracting Officer acknowledged the impossibility
of identifying and developing a subcontracting plan under such austere
conditions for these contracts of unusual and compelling urgency.
USACE began deploying eSRS in 2005, however, eSRS was not fully
implemented with the USACE National Contracting Organization until
2009. The New Orleans District and Galveston District had not deployed
eSRS during the period of 2005 through 2009 and relied on paper copies
of subcontracting documentation.
USACE apologizes for the miscommunication and delay in providing
documentation requested. In the future all requests for contract
documents will be fully coordinated between USACE Small Business and
National Contracting Organization. However, the New Orleans District
and Galveston District did in fact monitor small business
subcontracting plans and accomplishment. Two contracts did not have
subcontracting opportunities available due to the exigent
circumstances of Hurricane Katrina. Based on the fact of existing
support documentation, USACE did include subcontracting plan in its
contracts, did receive subcontracting plans under its contracts, and
did review the subcontracting plans. USACE respectfully non-concurs
with the draft audit findings. We stand ready to work with GAO to make
all documents available.
USACE will continue to monitor the implementation of eSRS throughout
its National Contracting Organization and the Associate Director,
Small Business Programs plans to conduct small business training
regarding small business subcontracting plans and evaluation of small
business subcontracting plans within the next several months.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
William B. Shear, (202) 512-8678, shearw@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Marshall Hamlett, Assistant
Director; Alexandra Martin-Arseneau; Aglae Cantave; William Chatlos;
Peter Del Toro; Swetha Doraiswamy; Stephanie Gaines; Christine Houle;
Julia Kennon; Terence Lam; Triana McNeil; John Mingus; Marc Molino;
Susan Offutt; Linda Rego; Jennifer Schwartz; Alyssa Weir; and William
Woods made key contributions to this report.
[End of section]
Footnotes:
[1] Throughout this report, unless otherwise noted, we use the acronym
DOD to refer to the Department of Defense, excluding the Corps. We are
reporting on the Corps and the rest of DOD separately because at least
three supplemental appropriations measures for DOD activities relating
to Hurricane Katrina relief specifically directed certain funds to the
Corps for its disaster relief activities. (Pub. L. No. 109-62, 119
Stat. 1990 (2005); Pub. L. No. 109-148, 119 Stat. 2680 (2005); and
Pub. L. No. 109-234, 120 Stat. 418 (2006).)
[2] FPDS-NG is the only governmentwide system for obtaining
information on how federal contract funds are being spent.
[3] When a prime contract includes a subcontracting plan, the agency
awarding the contract indicates this in FPDS-NG.
[4] These and other aspects of small business subcontracting plan
requirements are set forth at FAR Subpart 19.7.
[5] 42 U.S.C. §§ 5121-5207.
[6] In general, SBA will not require a borrower to pledge collateral
to secure a disaster home loan or a physical disaster business loan of
$10,000 or less, or an economic injury disaster loan of $5,000 or
less. 13 C.F.R. § 123.11.
[7] 15 U.S.C. § 636(b).
[8] An agricultural enterprise is a business primarily engaged in the
production of food and fiber, ranching and raising livestock,
aquaculture, and all other farming and agriculture-related industries.
13 C.F.R. § 123.201(a). Additional eligibility restrictions can be
found at 13 C.F.R. §§ 123.101, 123.201.
[9] Credit elsewhere is when SBA believes the business has the
availability of credit from nonfederal sources on reasonable terms and
conditions because of its cash flow and disposable assets. 13 C.F.R.
§§ 123.104, 123.300.
[10] Certain small nurseries affected by a drought designated by the
Secretary of Agriculture, small agricultural cooperatives, and
producer cooperatives are eligible for economic injury disaster loans.
13 C.F.R. § 123.300(c).
[11] SBA publishes notice of a disaster declaration in the Federal
Register, which generally includes the application deadline and the
location for filing a loan application. 13 C.F.R. § 123.3(b).
[12] Following Hurricanes Katrina and Rita, SBA extended the
application filing deadline for physical disaster loans and economic
injury disaster loans, which varied by disaster and state. For
example, in Louisiana, SBA extended the filing deadline for physical
disaster loans until April 10, 2006, and the deadline for economic
injury disaster loans until June 28, 2006.
[13] Eligibility for the GO Loan Pilot is limited to small businesses
located in, locating to, or relocating in the parishes/counties that
have been presidentially declared as disaster areas resulting from
Hurricanes Katrina or Rita, plus any parishes/counties contiguous to
those parishes/counties.
[14] The 7(a) Loan Program is intended to serve small business
borrowers who could not otherwise obtain credit under suitable terms
and conditions from the private sector without an SBA guaranty. With
the exception of loans pursuant to section 506 of the American
Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, 123 Stat.
115 (2009), under the program, SBA provides guaranties of up to 85
percent on loans up to $150,000 made by participating lenders.
[15] Activities funded with CDBG must address at least one of the
following three objectives: (1) principally benefit low-and moderate-
income persons, (2) aid in eliminating or preventing slums or blight,
or (3) meet principally urgent community development needs.
[16] Department of Defense, Emergency Supplemental Appropriations to
Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act,
2006, Pub. L. No. 109-148, 119 Stat. 2680, 2779-2780 (2005); Emergency
Supplemental Appropriations Act for Defense, the Global War on Terror,
and Hurricane Recovery, 2006, Pub. L. No. 109-234, 120 Stat. 418, 472
(2006); and Department of Defense Appropriations, Pub. L. No. 110-116,
121 Stat. 1295, 1343 (2007). HUD was responsible for allocating the
funds from the first two supplemental appropriations among the states
in accordance with legal requirements. A third supplemental
appropriation passed on November 13, 2007, and provided an additional
$3 billion exclusively for Louisiana. These supplemental
appropriations also included funds for Florida as a result of
Hurricanes Katrina and Wilma. However, Florida is outside the scope of
our review, therefore, those amounts are not included in our total.
[17] For more information on how Louisiana and Mississippi allocated
their CDBG disaster relief funds, see GAO, Gulf Coast Disaster
Recovery: Community Development Block Grant Program Guidance to States
Needs to Be Improved, [hyperlink,
http://www.gao.gov/products/GAO-09-541] (Washington, D.C.: June 19,
2009).
[18] Pub. L. No. 109-148, 119 Stat. at 2780; and Pub. L. No. 109-234,
120 Stat. at 472-73.
[19] 42 U.S.C. § 5304(b)(3).
[20] Public Works and Economic Development Act of 1965, as amended (42
U.S.C. § 3121 et seq.). Upon receipt of an application for investment
assistance, EDA measures project eligibility on the basis of (1) an
unemployment rate that is, for the most recent 24-month period for
which data are available, at least 1 percentage point higher than the
national average unemployment rate; (2) per capita income that is, for
the most recent period for which data are available, 80 percent or
less of the national average per capita income; or (3) a special need
circumstance, such as a natural disaster or military base closure, as
defined in 13 C.F.R. § 300.3.
[21] Pub. L. No. 102-368, 106 Stat. 1117 (1992).
[22] Pub. L. No. 110-252, 122 Stat. 2323 (2008).
[23] Pub. L. No. 110-329, 122 Stat. 3574 (2008).
[24] States, cities, or other political subdivisions of a state,
District Organizations, Indian Tribes, public or private nonprofit
organizations, and institutions of higher education may apply for RLF
grants. An application for an RLF grant must include or incorporate by
reference (if so-approved by EDA) a comprehensive economic development
strategy. In addition, grantees must manage RLFs in accordance with an
RLF Plan (described in 13 C.F.R. § 307.9) that sets out the RLF's
financing strategy, policy, and portfolio standards. Under the RLF
program, EDA does not distinguish between loans made to small
businesses and loans made to other businesses. However, EDA officials
told us that nearly 100 percent of RLF business lending is to
businesses with 500 employees or fewer. Therefore, for our purposes
throughout this report, we are assuming that RLF loans were provided
to small businesses.
[25] RLF loans must be used to leverage private investment of at least
2 dollars for every 1 dollar of such RLF loans. This leveraging
requirement applies to the RLF portfolio as a whole rather than to
individual loans and is effective for the duration of the RLF's
operation. Private investment may include capital invested by the
borrower or others, financing from private entities, or the
nonguaranteed portion and 90 percent of the guaranteed portions of SBA
7(a) loans and 504 debenture loans. 13 C.F.R. § 307.15(d). According
to an EDA official, when working with private lenders, RLF grantees
assume the majority of financial risk because should the borrower
default on the loan, private lenders recoup their investments first,
after which grantees are allowed to recover their investment amount.
[26] Recapitalization grants are the investments of additional grant
funds to increase the capital base of an RLF. 13 C.F.R. § 307.8.
[27] 15 U.S.C. § 644(g). Under this provision, the President must
annually establish governmentwide goals for, among other things,
procurement contracts awarded to small business concerns. The
governmentwide goal for participation by small business concerns must
not be less than 23 percent of the total value of all prime contracts
awarded for each fiscal year. As stipulated in the Small Business Act,
procurement goals are established as a percentage of the total value
of all contracts directly awarded by the federal government in a
fiscal year.
[28] 15 U.S.C. § 644(g). The Small Business Act defines these
businesses as follows: (1) Small businesses are those that are
independently owned and operated and are not dominant in their field
of operations. (2) Small disadvantaged businesses must be owned and
controlled by socially and economically disadvantaged individuals--
such as African Americans, Hispanic Americans, Asian Pacific
Americans, Subcontinent Asian Americans, or Native Americans. These
owners must have at least a 51 percent stake in the business. (3)
Women-owned small businesses must have at least 51 percent female
ownership. For publicly owned businesses, one or more women must hold
at least 51 percent of the stock and control both management and daily
business operations. (4) Service-disabled veteran-owned small
businesses must be owned--also at least 51 percent--by one or more
veterans with a service-related disability. In addition, the
management and daily operations of the business must be controlled by
one or more veterans with a service-related disability. (5) HUBZone
small businesses must have their principal offices physically located
in these historically underutilized business zones, which are
economically distressed metropolitan or nonmetropolitan areas--that
is, areas with low-income levels or high unemployment rates--and must
employ some staff who live in these zones. The small business
regulations implementing the Small Business Act further define these
businesses. 13 C.F.R. §§ 121.401-121.413.
[29] 42 U.S.C. § 5150.
[30] FAR 4.603(b). In 2006, the FPDS-NG reporting threshold was raised
from $2,500 to $3,000. 71 Fed. Reg. 57364 (Sept. 28, 2006). In 2008,
the reporting threshold for FPDS-NG was set at the micro-purchase
threshold for most types of contract awards. 73 Fed. Reg. 21773 (Apr.
22, 2008) (interim); and 74 Fed. Reg. 2712 (Jan. 15, 2009) (final).
[31] FAR 44.101 defines a subcontractor as "any supplier, distributor,
vendor, or firm that furnishes supplies or services to or for a prime
contractor or another subcontractor."
[32] FAR 2.101 defines "simplified acquisition threshold" to mean
$100,000, except when the acquisition of supplies or services is used
to support a contingency operation or facilitate against nuclear,
biological, chemical, or radiological attack. In those instances, the
term means $250,000 for contracts to be awarded and performed inside
the United States and $1 million for contracts to be awarded and
performed outside of the United States.
[33] FAR 19.702, 2.101.
[34] The dollar threshold was changed to $550,000 on September 28,
2006. 71 Fed. Reg. 57363 (Sept. 28, 2006).
[35] These and other aspects of the small business subcontracting plan
requirement are set forth at FAR Subpart 19.7.
[36] Contracts that are below the simplified acquisition threshold,
are personal services contracts, are to be performed entirely outside
of the United States, are set aside, or are to be accomplished under
the 8(a) program do not require this clause.
[37] On July 16, 2010, the FAR was updated to include additional
guidance on eSRS, including reporting time frames for subcontracting
accomplishment reports and clarification of when a contracting officer
shall reject a report as not adequately completed. 75 Fed. Reg. 34260
(June 16, 2010); 73 Fed. Reg. 21779 (Apr. 22, 2008).
[38] According to Louisiana state program officials, the total number
of businesses that received loans may be overstated because some
businesses received more than one loan.
[39] Included in this amount were grant assistance of about $67.7
million and loan assistance of about $82 million, according to
Louisiana state program officials.
[40] 42 U.S.C. § 5155. The receipt of partial benefits does not
preclude additional federal assistance for any part of a loss or need
for which benefits have not been provided. 42 U.S.C. § 5155(b)(3).
[41] GAO, Small Business Administration: Actions Needed to Provide
More Timely Disaster Assistance, [hyperlink,
http://www.gao.gov/products/GAO-06-860] (Washington, D.C.: July 28,
2006); and Small Business Administration: Additional Steps Should Be
Taken to Address Reforms to the Disaster Loan Program and Improve the
Application Process for Future Disasters, [hyperlink,
http://www.gao.gov/products/GAO-09-755] (Washington, D.C.: July 29,
2009).
[42] For more information on SBA actions to reform the Disaster Loan
Program, see GAO, Small Business Administration: Continued Attention
Needed to Address Reforms to the Disaster Loan Program, [hyperlink,
http://www.gao.gov/products/GAO-10-735T] (Washington, D.C.: May 19,
2010).
[43] Loan performance data for SBA disaster loans are as of March 8,
2010.
[44] Loan performance data for GO loans are as of March 30, 2010.
[45] We defined the default rate as those loans that SBA had charged
off or liquidated. The remaining approximately 2.2 and 9.8 percent,
respectively, of disaster and GO loans were either committed or
deferred by SBA. Totals do not add to 100 percent because of rounding.
According to SBA, a committed loan is a loan that is approved on SBA's
books but has not yet been disbursed, and deferred refers to a loan in
deferment status. An SBA official explained that SBA disaster loans
generally come with a standard deferment--that is, the first payment
is not due until several months after the note date.
[46] The delinquency rate refers to loans that are between 30 and 120
days past due. The default rate calculated by the Louisiana Economic
Development refers to any loan that a loan intermediary has written
off, that has been transferred to the State Attorney General's office
for collection, or that is more than 120 days past due.
[47] FAR Subpart 19.704 (a)(10)(iii).
[48] For certain types of contracts and agreements, DOD still does not
use eSRS. According to DOD guidance, this is primarily because eSRS
does not support submitting reports on these certain contracts,
agreements, and orders.
[49] FAR Subpart 19.705-4 and 19.705-6.
[50] FAR Subpart 19.706.
[51] FAR Subpart 19.705-7.
[52] See footnote 37 of this report.
[53] Data on the number of small businesses come from the U.S. Census
Bureau's County Business Patterns database. We defined small
businesses as nongovernment establishments with 50 or fewer employees.
At the time of our review, 2007 data were the most recent data
available.
[54] In Louisiana, counties are recognized as parishes.
[55] The unemployment rate measures the number of unemployed persons
as a percentage of the size of labor force.
[56] Between August 2005 and January 2006, the unemployment rate in
Mississippi increased about 1 percent.
[57] According to the U.S. Census Bureau, MSAs are geographic entities
defined by the Office of Management and Budget for use by federal
statistical agencies in collecting, tabulating, and publishing federal
statistics. A metropolitan area contains a core urban population of
50,000 or more.
[58] States have jurisdiction in marine waters from the shore to 3
miles offshore in the Atlantic Ocean and Gulf of Mexico, except
Florida's West Coast and Texas, whose jurisdictions extend to 9 miles
offshore. Federal waters begin where state jurisdictions end and
extend to 200 miles offshore. See Congressional Research Service,
Offshore Oil and Gas Development: Legal Framework (Washington, D.C.:
2010).
[59] This closure does not prohibit recreational catch-and-release
fishing as long as saltwater fish are not harvested or possessed in
the closed area.
[60] Data are based on the following report: National Marine Fisheries
Service, Office of Science and Technology, National Oceanic and
Atmospheric Administration, Fisheries of the United States, 2008 (July
2009). The report states that the data are preliminary. In addition to
domestic landings of finfish and shellfish, the United States also
imports a significant amount of edible fishery products. For example,
according to Fisheries of the United States, in 2008, 5.2 billion
pounds of edible fishery products valued at about $14.2 billion were
imported into the United States.
[61] The U.S. Travel Association defines travel as activities
associated with all overnight trips away from home in paid
accommodations and day or overnight trips to places 50 miles or more,
one way, from the traveler's origin.
[62] U.S. Travel Association, The Economic Impact of Travel on
Louisiana Parishes 2008 (Washington, D.C.: October 2009). According to
this report, in 2008 travelers (domestic only) spent about $9.3
billion in travel expenditures in Louisiana, which directly generated
101,700 jobs.
[63] Data are not available on the number of these establishments that
are small businesses.
[64] These numbers do not include accommodation and food services
establishments located in the three additional Florida primary
counties for which SBA issued a disaster declaration on July 22, 2010.
[65] SBA makes an economic injury declaration in reliance on a state
certification that at least five small business concerns in a disaster
area have suffered substantial economic injury as a result of the
disaster and are in need of financial assistance that is not otherwise
available on reasonable terms. The state certification must be signed
by the governor; among other things, must specify the county or
counties or other political subdivisions in which the disaster
occurred, and must be delivered to the SBA office in accordance with
13 C.F.R. § 123.3(a)(5).
[66] Individual employees or crew members are not considered to be
small businesses and are not eligible for this assistance.
[67] The number of deferments granted includes existing SBA disaster
loans only. SBA's Loan Accounting System does not capture data on the
number of deferments granted for existing GO loans, 7(a) loans, and
504 loans.
[68] Business recovery center locations are as of June 17, 2010.
[69] Disaster loan balances are as of March 8, 2010. Data on existing
disaster loans do not include existing loans for businesses located in
the seven additional counties for which SBA issued a disaster
declaration on July 22, 2010.
[70] GO loan balances are as of March 30, 2010. Data on existing GO
loans do not include existing loans for small businesses located in
the seven additional counties for which SBA issued a disaster
declaration on July 22, 2010.
[701] Alabama, Mississippi, and Louisiana received a major disaster
declaration following Hurricane Katrina. Louisiana and Texas received
a major disaster declaration following Hurricane Rita.
[72] The semiannual reports were dated March 31, 2009, or September
30, 2009, and contained information on the total number of loans that
each RLF had made since its inception.
[73] For the focus groups, the Small Business Development Center
recruited small business owners who had been impacted by the
hurricanes and who may have participated in one of the programs
included in our review.
[74] We report on the Corps and the rest of DOD separately because at
least three supplemental appropriations measures for DOD activities
relating to Hurricane Katrina relief specifically directed certain
funds to the Corps for its disaster relief activities. (Pub. L. No.
109-62, 119 Stat. 1990 (2005); Pub. L. No. 109-148, 119 Stat. 2680
(2005); and Pub. L. No. 109-234, 120 Stat. 418 (2006).)
[75] Department of Housing and Urban Development, Current Housing Unit
Damage Estimates: Hurricanes Katrina, Rita, and Wilma (Washington,
D.C.: 2006).
[End of section]
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