The fourth anniversary of Hurricane Katrina came and went last month without much fanfare or remembrance, even though it was one of the five deadliest storms in U.S. history.
More than 1,800 people died; huge swaths of three states were damaged, including most of New Orleans; and property losses ran into the tens of billions of dollars.
The storm marked a low point for the Bush Administration and in particular the Federal Emergency Management Agency and the Small Business Administration, which were directly responsible for managing the disaster.
Congress was so incensed by the SBA’s scandalously poor response it enacted the Small Business Disaster Response and Loan Improvements Act. The measure addressed the agency’s shortcomings and set forth a series of reforms to improve its ability to respond to disasters.
The SBA has had the intervening time to meet the legislation’s mandates. But midway through this year’s hurricane season, the agency would still be hard pressed to respond adequately if another Katrina-scale disaster were to occur, according to an investigation by the General Accountability Office.
The GAO’s report received little publicity, but its findings are significant and point to serious shortcomings that still exist in the SBA. The agency, for example, has implemented only half of the 26 requirements set forth in the law, according to the report.
Among the most serious shortcomings, the agency has yet to develop and maintain a comprehensive disaster recovery plan, leaving the SBA unprepared should a major disaster strike. The lack of just such a plan led to widespread mismanagement in the wake of Katrina.
In another significant criticism, investigators faulted the SBA for not leveraging regional and local emergency management groups and resources, which, it concluded, will limit an effective disaster response.
The SBA has also failed to implement a required program that would speed loans to small businesses and facilitate private small business lending after a disaster. Without this critical initiative, countless small business owners would be in danger of losing their businesses.
After a significant disaster, anywhere from 40 percent to 60 percent of businesses fail to recover, “often because they lack the financial resources to restart their operations,” according to House Small Business Committee Chairman Nydia M. Velazquez, D-N.Y.
“When small businesses are unable to recover from catastrophes, the local economy suffers and the pace of recovery in the entire community is slowed down, which is why the SBA’s disaster programs are a critical piece of our nation’s overall disaster response,” Velazquez added.
The SBA plays a critical role in disaster recovery because its disaster loan program is the primary federal conduit for funding long-term recovery assistance. The agency’s Office of Disaster Assistance not only helps small businesses, but also is responsible for providing financial assistance to homeowners, renters and non-profit organizations.
After the 2005 Gulf Coast hurricanes (Katrina, Rita, and Wilma), SBA faced an unprecedented demand for disaster loans. A backlog of applications quickly developed and hundreds of thousands of loans were not disbursed in a timely way, according to the report.
Among the lessons learned was the need for a “more organized, formal, and pre-planned approach for providing SBA services in response to a disaster,” the report states. Lawmakers found that it was necessary for SBA to develop and implement a written, comprehensive disaster plan.
Since the law was enacted, the SBA has failed to meet a deadline for filing an annual report on its progress to Congress and it has yet to update its disaster recovery plan, leading the GAO to warn about a “lack of transparency” in its efforts.
To its credit, the SBA received generally favorable remarks from the GAO for the way it responded to three major disasters in 2008: the Midwest floods and Hurricanes Ike and Gustav.
The floods left 13 dead, and damage region-wide was estimated in the tens of billions of dollars. Ike was the third most destructive hurricane in U.S. history, and was blamed for at least 100 deaths and damages estimated at about $24 billion.
Processing times for a home loan reached a maximum of about 90 days following Katrina, but in 2008 the processing time was cut to five days. Similarly, SBA took 70 days to process a business loan in 2005, but the average processing time was about nine days in 2008, the study noted.
The agency has also expanded its disaster reserve staff from about 300 to more than 2,000 people.
“While the agency is better equipped to respond to catastrophes than it was before Katrina, it has not taken all the steps required by the law,” Velazquez said. “These problems need to be swiftly rectified so that, when future disasters happen, SBA is ready to help small businesses get back on their feet.”
In the aftermath of Katrina, the government has poured almost $100 billion into Mississippi, Louisiana, and Alabama for Gulf Coast reconstruction. Even more money has been spent through the National Flood insurance program and through targeted tax breaks as part of the Gulf Opportunity Zone program.
About a billion dollars of emergency aid -— 16 percent of the total -— has been lost to fraudulent claims, according to the GAO. The number of households in New Orleans is now at about 77 percent of its pre-Katrina total. But 31 percent of its residential housing stock is still unoccupied.
The region has made impressive strides toward recovery and the SBA is better at handling disasters today than it was four years ago. But without more diligence in implementing reforms, the SBA is still putting the nation at risk for another Katrina-type disaster.