THE BLOG
10/16/2008 05:12 am ET Updated May 25, 2011

Hurricane Relief Will be Hampered By SBA Budget Cuts

Relief to small businesses and homeowners recovering from this season's round of hurricanes will be dramatically hampered by a series of severe Bush Administration budget cuts at the Small Business Administration (SBA). The SBA's ability to respond to victims of Hurricane Katrina was severely handicapped by dramatic budget and staffing cuts at the agency prior to the storm.

The SBA was so overwhelmed during relief efforts following Hurricane Katrina, that the agency was forced to hire thousands of temporary workers to do the work of the multitude of experienced SBA staff that had been laid off by the Bush Administration. A Government Accountability Office (GAO) report issued on July 25, 2007 stated, "SBA also faced challenges training and supervising the thousands of mostly temporary employees the agency hired to process loan applications and obtaining suitable office space for its expanded workforce. As of late May 2006, SBA processed disaster loan applications, on average, in about 74 days compared with its goal of within 21 days." (GAO-07-1124T, http://www.gao.gov/new.items/d071124t.pdf)

The SBA's lack of experienced staff was seen as a contributing factor in the hundreds of cases of fraud and abuse that were uncovered in the aftermath of relief efforts.

On March 28, 2008, the SBA Office of Inspector General released Report 8-11 stating, "Due to the unprecedented number of loans, by the fall of 2006 SBA had accumulated a backlog of more than 90,000 undisbursed loans. To expedite disbursement, SBA launched a 90-in-45 Campaign to resolve the backlog within 45 days. Several SBA employees involved in this initiative complained that, to meet performance goals, SBA disbursed funds against borrowers' wishes, circumvented loan-processing requirements, unnecessarily cancelled approved loans and inappropriately withdrew loan applications." (SBA OIG Report 08-11, http://www.sba.gov/ig/8-11.pdf)

Despite the SBA's efforts to mask its inability to adequately respond to the volume of disaster loan applications following Hurricane Katrina, the agency still managed to accumulate a massive backlog of loan applications.

According to Report 7-20 released by the SBA OIG, following the 2005 Gulf Coast hurricanes, the SBA approved 158,000 disaster loans totaling $10.6 billion. The report stated that as of September 30, 2006, the SBA had only dispersed $3.1 billion or 30 percent of the loans. Furthermore, Report 8-11 states that as of January 25, 2008, the SBA had only dispersed $6.3 billion after approving more than 160,000 disaster loans. (SBA OIG Report 07-11, http://www.sba.gov/ig/7-20.pdf)

Since taking office, President Bush has cut the SBA's budget and staffing more than any other federal agency. Today, the agency's budget is less than half of what it was when President Bush took office.

Depending on the overall magnitude of the damage caused by Hurricanes Ike, Gustav and the remainder of the seasons storms, the SBA may have to once again resort to hiring inexperienced temporary workers as a means of handling the workload the agencies larger and more experienced staff was able to provide in the past.

Relief to victims of this season's hurricanes could be even worse than it was after Katrina, because the SBA's budget and staffing have been cut further in the years following Katrina.

To date, neither Senator Barack Obama (D - IL), nor Senator John McCain (R - AZ) have posed plans to restore the SBA's Budget if elected president.