James Lee Witt Associates

Statement of James L. Witt, CEO, James Lee Witt Associates, a part of Global Options Group Inc. &

Chairman Velazquez and distinguished members of the committee, thank you for inviting me to participate in today's hearing. I appreciate the opportunity to come before you to share my thoughts about the Committee's proposed reforms to the Small Business Administration's (SBA) disaster recovery programs currently under consideration. My testimony has been shaped by my perspective of working on these issues in both the public and the private sector and at all levels of government – Federal, State, and local government.

During my tenure as Director of the Federal Emergency Management Agency (FEMA), I viewed our Federal partners at SBA as critical to our efforts for helping communities recover following a major disaster. SBA's disaster loan programs for individuals generally provided greater financial resources for an individual or family looking to rebuild or repair their home than was available through FEMA grant programs. SBA's loans to small business owners were essential for making sure that disaster-impacted communities were able to retain the small businesses that employed their residents; that provided vital goods and services; and that sustained the tax base for municipal government.

Additionally, SBA was frequently able offer its disaster loan assistance to communities that experienced disasters which did not meet FEMA's criteria for a major disaster declaration. These were disasters where there were significant losses, but where the state and local resources were not so overwhelmed as to warrant a major disaster declaration. While I oversaw more than 350 disasters during my years as FEMA Director, SBA was involved with a good number more than that. SBA not only supported the Federal effort in those 350 major disasters, but also processed loan applications for the disasters that were declared under SBA's own declaration authority. SBA disaster loans are an essential tool in the Federal government's toolkit for assisting disaster victims following a natural disaster or terrorist incident.

I see the current predicament for SBA as being similar to the FEMA that I inherited. In getting ready for my testimony this morning, I reflected on my time as FEMA Director since I see the solutions for repair of SBA as analogous to the kinds of reform that was required for FEMA at that time. I also am reminded of the critical role that Congress and our oversight committees played in the re-invention of FEMA.

When President Clinton asked me to be his FEMA Director after he won his first election in 1992, we were facing many of the same issues following Hurricane Andrew that FEMA and SBA face today following the response and recovery assistance after Hurricane Katrina.

The response and recovery efforts had been slow and inadequate following Hurricane Andrew in 1992 - only a few years prior to my appointment as FEMA Director. From the Senate floor, Senator Hollings famously called FEMA the biggest bunch of jackasses he had ever seen and often talked about how FEMA could not even lead a one car parade.

When I arrived in Washington, there were several bills in Congress to abolish FEMA. Some proposals sought to break it up and give its responsibilities to numerous agencies and some advocated turning everything over to the military following a disaster.

There were several reasons why we were successful in turning FEMA around and making it into a model agency, but it had everything to do with strong leadership and a committed desire to change the system. It started with President Clinton and key members of Congress who gave us a chance to make FEMA work.

Leaders like Congressman Louis Stokes and Jerry Lewis and Senators Barbara Mikulski and Kit Bond gave us the funds and the support we needed to get things turned around and it was very much a bi-partisan effort. I credit those great statesmen and women for working with us and not giving up on the vision of what FEMA could become and how we could re-make our nation's approach to delivering disaster assistance and reducing future losses though prevention and mitigation programs.

Fixing FEMA really required a desire for the Clinton Administration to work with Congress – to make Congress a partner in the re-invention of FEMA; to give members of the House and Senate the information being requested; and for us at FEMA to listen to the suggestions for improvements coming from Capitol Hill. It also required great patience and commitment on behalf of Congress. Our oversight committees gave us the necessary legislative changes and resources, but they also demanded accountability and really held our feet to the fire. There were numerous reports on the status of the Disaster Relief Fund and regular updates on the various reform initiatives that we had put in place. It was this kind of partnership between the Executive and Legislative Branches that created the necessary environment for an historic change at FEMA.

The partnership between the Administration and Congress allowed us to look at legislative changes or clarifications that made FEMA more effective at responding. This gave us better clarity about the ability to pre-position resources even before a disaster occurred and before the President actually made the formal disaster declaration.

We created and trained Emergency Response Teams with the best and brightest members of FEMA who could be ready at a moment's notice and who could deploy within hours to a disaster area.

We professionalized the Federal Coordinating Officer cadre and other disaster reservists through on-going credentialing and standardized training initiatives. We cross-trained and re-trained employees in the agency who had never had disaster responsibilities so that they could help out in the field or could play support roles back in headquarters. It is not that they did not want to take on that responsibility, but rather that they had never been asked or trained how to work in the disaster programs.

We made better use of technology to speed up the damage inspections in the field and the processing of disaster assistance that exponentially increased the speed with which we issued assistance to disaster victims. We reduced the time it took for disaster victims to receive assistance from an average of three weeks to and average of seven days. Seven days was just the average, it was frequently even quicker than that. We were able to make those changes to the FEMA assistance delivery system in 1994, over a decade ago and before the internet had become widely used, just imagine how technology could be leveraged today to expedite assistance to disaster victims now.

We even got Congress to invest more in mitigation and prevention efforts by increasing the amount of funding available following a disaster to mitigate future risk and by creating the first pre-disaster mitigation fund to address risk before a disaster occurred.

I mention my experiences at FEMA not simply to relive the good old days, but to offer some hope and encouragement and possibly a blueprint for what the Small Business Committee and the SBA are embarking on today. You have the power to impact so many lives of our fellow Americans who experience great suffering following the ever-increasing number of natural disasters that we experience each year and for whom there is constant concern about future terrorist attacks on US soil.

I have reviewed the legislation that the Committee has drafted and believe that the bill is what is needed to restore and improve the SBA disaster programs that are so critical to a community's recovery from disaster and resiliency to future disasters.

I agree that SBA must have comprehensive disaster response plans in place that incorporate a risk-based all-hazards approach. Training and exercising these plans with all of SBA's partners in disaster is essential. Federal, state, and local government must exercise together, but it is also important to include the private sector and that plans address the need for surge capacity during a disaster. There are several states such as New Jersey, Texas, and Illinois that are building business mutual aid networks that can support both the public and the private sector with resources during a disaster. It is the business cards that are exchanged and the relationships that are developed through pre-disaster planning, training, and exercising that lead to an effective disaster response and a quick recovery. It is not only prudent and appropriate for SBA to have such plans in place and regularly exercise with partners in disaster, it is important for the Federal government to model what it is asking individuals and families, businesses, states and municipal governments to do – be prepared.

It is always a challenge to maintain an appropriately sized disaster reservist cadre with well-trained individuals, but it will either make or break the quality of response and recovery efforts following a disaster. When I was FEMA Director, I was always amazed at the quality of the individuals that we were able to recruit and train as disaster assistance employees (DAEs). Many of these people were retired CEOs, COOs, CFOs of large organizations. Our disaster reservists were senior, decorated military veterans; they were skilled architects and engineers who had flexibility in their jobs or they had employers who recognized the important role that temporary disaster assignments could play in the lives of their fellow Americans both personally and professionally. There is so much talent in the communities throughout our nation, and it is imperative that we tap into this talent and direct the energy and goodwill that exists when disaster strikes. The Committee's bill stresses the importance of just such staffing efforts and I agree with your insights. I would also suggest that you consider offering health benefits for the temporary disaster workforce. Maintaining a quality disaster cadre can be difficult without the ability to offer health benefits. When I was at FEMA we were sought and received the authority for 2-year and 4-year term appointments known as Cadre on-call Response Employees (CORE). We created the CORE positions to insure that we did not lose experienced folks in our disaster programs and to make sure that we retained the employees in whom we had invested so much training.

Another issue that I found difficult to get a handle on was the FEMA disaster budget. Initially, I couldn't get anyone to tell me exactly how much we had in the Disaster Relief Fund (DRF) at any given point. Consequently, it was difficult for FEMA to know how much money to ask of Congress for the disaster programs. Planning for disasters is a lot more difficult if you do not know how much of your resources are available. Additionally, it was difficult for Congress to justify the amount of funding to appropriate to FEMA. We immediate began working to establish the 5-year average for declared disasters, excluding the 1994 Northridge Earthquake in the Los Angeles Area as the outlier, and came up with $2 billion as the annual funding needed with some contingency funding at the Office of Management and Budget to allow for unexpected emergencies.

As FEMA and SBA work to reform the manner in which their agencies operate and revise their respective disaster programs to better meet the needs of disaster victims, it will be even more important to re-examine how the two organizations and their various disaster programs work together. I suspect that some of the previous grant levels for FEMA and loan amounts for SBA should be reviewed to determine if they are continuing to meet the disaster needs of businesses and individuals. In addition to raising the caps on small business loans, I would also suggest a review of the maximum loan amount for homeowners as the $200,000 limit is no longer adequate in most real estate markets. Every disaster is different so the programs require the necessary flexibility to address constantly changing situations, but it is also important to have parameters and goals that keep in tact the over-arching philosophy of Federal disaster assistance as a supplement to private insurance, state assistance, voluntary organizations, and help from family and friends.

From my experience as FEMA Director, I found there to be a very close working relationship between the FEMA and SBA leadership that lead to a seamless Federal approach to disaster assistance. A lot of times the coordination on disaster assistance happened in a relatively low-tech way by having our SBA partners sitting in the FEMA teleregistration and helpline phone centers so that when a disaster victim called with a SBA loan issue instead of a FEMA inquiry, we were able to easily re-direct the call to the SBA staff that were sitting along side our staff. With the volume of applications and the unique problems that arose following Katrina, it is especially important that these close coordination is still taking place now while both organizations are working to respond to the failures highlighted following Hurricane Katrina. The Committee may want to ask SBA, FEMA, IRS, and others agencies to study ways to better share information of those applying for assistance while still respecting Privacy Act concerns. The ability for these agencies, and others active in disasters, to share information will allow for expedited application and review, better accuracy, and less frustration on behalf of disaster victims. The sharing of this information will facilitate the verification of addresses, social security numbers, and other common data that all of the agencies collect separately; but that each of them needs to administer their respective programs.

When we began working on the re-invention of FEMA in 1994, the first priorities needed to be improvements to the speed and accuracy with which we delivered disaster assistance. After we completed that, we very quickly turned our attention to some of the broader system issues of the damage-repair-damage cycle that exists. In doing so, we focused on promoting prevention and mitigation of risk. We recognized that it would give us the best return on the federal investment. This Committee is beginning the reform of SBA by seeking to correct the problems with the SBA disaster assistance programs and delivery systems that were uncovered through hearings, that GAO identified in its February report on the SBA response to Katrina, that dedicated and frustrated career civil servants are sharing because they know SBA can do better and has done better in the past, and that small businesses and individuals in the Gulf States are sharing about their experience since Hurricane Katrina devastated that Region. While addressing and correcting the speed and accuracy for administering disaster loans is the front burner issue today, I would encourage you and the SBA leadership to also look at the larger systemic issues and to begin identifying how the SBA can also impact the damage-repair-damage cycle that exists and how SBA can help promote better preparedness and mitigation in our communities.

Another area that I believe SBA can play an important role with in the future is in facilitating regional public-private partnerships for security and sustainability. The Department of Homeland Security (DHS) has emphasized the importance of regional planning and of public-private collaboration, but has not shown much leadership to date in facilitating such efforts. There are a number of organically grown initiatives that have sprung up but so far DHS has done very little to provide any blueprint to guide such efforts, and technical assistance, or any seed funding to establish regional public-private partnerships that promote preparedness and mitigation efforts. I would ask that this Committee, together with SBA, discuss whether and how SBA might assume a leadership role in this area in the future. We are reminded of the interdependent nature of the public sector and the private sector whenever the often-quoted statistic that 80-85% of the nation's critical infrastructure is owned or controlled by the private sector. Additionally, we need to look no further than the incident that has resulted in our hearing today – Hurricane Katrina. Katrina severely disrupted thousands of businesses throughout the Mississippi Gulf Coast Region and had a significant impact on our economy.

While there are many business success stories following Hurricane Katrina with larger corporations such as Wal-Mart, Home Depot, and FedEx coming back online quickly and being open for business within days, you know all too well that small businesses did not fair as well. A study conducted for MasterCard International earlier this year found that 84% of small business owners in the US are not worried that a natural disaster will not affect them in the next 12 months; however, 77% of these owners admit that their businesses are not fully prepared should one occur. These findings strongly support the need for better planning and preparedness that involves all of the players having a stake in the recovery process. Businesses, non-profits, volunteer groups, federal, state and local governments need to come together in a concerted effort. As you work to address the immediate reforms that are need at SBA, please continue to consider an SBA role in addressing the longer-term needs of preparedness and mitigation.

It is human nature, and continues to be borne out by the actions of corporations and governments, that disaster programs are frequently cut during the short breaks in the natural disaster activity or in light of new or emerging threats such as terrorism. However, as I close my testimony today, I offer a few observations that suggest we would be wise to resist such a natural tendency to let our guard down or to roll the dice with the programs we have to assist our fellow citizens following a disaster.

The recent trilogy of international catastrophic disasters that included the South Asia Tsunami late in 2004, Hurricane Katrina in 2005 and the 2005 Kashmir earthquake, demonstrated again the awesome and destructive power of nature. These mega-disasters were responsible for the loss of over 200,000 lives in the tsunami, 73,000 lives in the earthquake, and 1,200 lives in the hurricane. In addition to the previously unimaginable loss of life, these natural disasters each have had staggering long-term economic, ecological and social impacts on the communities in which the catastrophes occurred.

Even during years without disasters of such historic magnitude, the impacts of natural disasters are becoming increasingly more costly and this trend is being tracked by global insurance companies such as Swiss Re. Swiss Re's annual report that looks at the global costs of disasters found that in 2003 human-caused and natural disasters resulted in 60,000 deaths and about $70 billion in economic losses. In addition, it is estimated that the economic costs of such disasters threatens to double, reaching an average of $150 billion a year in the next 10 years.[1]

The World Watch Institute, in its publication State of the World 2001: A Report on Progress Toward a Sustainable Society, demonstrated the human cost of disasters by examining global deaths by disaster type and found that floods were responsible for forty-nine percent of deaths, that earthquakes or volcanoes were responsible for thirty percent of deaths, that windstorms were responsible for fifteen percent of deaths and that all other disasters caused six percent of deaths. The World Watch report also notes that floods alone cause nearly one-third of all economic losses, half of all deaths, and seventy percent of all homelessness. [2]

Those communities that have taken steps to reduce their risks have realized significant returns on their investments. In fact, the World Watch Institute study found that every dollar spent on disaster mitigation and preparedness saves seven dollars in disaster related economic losses.[3] SBA already is an important player in US disaster recovery efforts and with the help of this Committee it can lead efforts with the business community and municipal leadership to make our communities safer and more resilient.

[1]Thomas Hess, Sigma No. 1/2004 Natural Catastrophes and Man-made Disasters in 2003: Many fatalities, comparatively moderate insured losses Published by Swiss Reinsurance Company Economic Research & Consulting pp. 3-14

[2] Janet Abramovitz, State of the World 2001: A World Watch Institute Report on Progress Toward a Sustainable Society, 2001, World Watch Institute, pp. 123-142

[3] Ibid

Statement of James L. Witt, CEO, James Lee Witt Associates, a part of Global Options Group Inc. & Former Director of the Federal Emergency Management Agency (FEMA)