In 2009, Congress passed a disaster aid bill appropriating $85 million in funding assistance to Iowa businesses. Cedar Rapids had the majority of businesses affected by the floods and was due to be the largest recipient of these funds. The first iterations of grant program development using these funds offered rent assistance for businesses and lost rent reimbursement for landlords. Later programs then targeted larger areas of unmet need including equipment and inventory replacement. While the intent of the program was good, the equipment and inventory program, initially, was impossible to administer to acceptable federal documentation standards and was quickly modified to be better aligned with the documentation available from businesses.
The Stafford Act is a federal law intended to prevent fraud and protect tax-payer interests in use of federal funds in post-disaster assistance. The law lays out a funding hierarchy that establishes federal sources be used to reimburse losses that can’t be funded through other means. It sets the priority of recovery money to come first through a business’ own resources, then local sources, then state sources and finally federal assistance as last concern. A duplication of benefits is meant to prevent assistance from various sources funding the same item of loss.
A ruling on duplication of benefits came out that defined loans as a source of assistance. The majority of businesses had either a commercial disaster loan or an SBA disaster loan as their first method of paying for recovery and rebuilding which caused most applicants to be ineligible due to duplication of benefits. After considerable lobbying, HUD determined that loans obtained commercially were private funds and therefore not a duplication of federal funds. SBA loans were ruled to be duplications of federal money, but interpreted that businesses could qualify for the grant awards and have the money paid directly to the SBA and applied to their disaster loans.
The Business Case Management Team worked closely with city, State and federal agencies to revise grant program design as well as provide new programs designed around unmet needs and the documentation that businesses were able to provide. Those organizations, including the case management team, worked together to obtain assistance from congressional offices to work through HUD on major issues that had stalled the grant process. Those efforts funneled through Congressman Dave Loebsack’s office and resulted in a conference with HUD in Washington DC. The issue halting nearly every award was a duplication of benefits (DOB) ruling. The collaboration team was able to resolve the DOB issue with federal officials. As follow up, the local team made recommendations on program design modifications and how documentation requirements could be attained through available business records including tax returns, SBA loss verification reports and other 3rd party documents such as insurance.
A challenging element of designing, implementing and administering grant assistance is the auditing process. These assistance programs are structured and approved by HUD and state economic development agencies, then audited by other agencies. The interpretation of compliance is based on written guidance to these programs more so than program intent. Since these programs were the first of their kind, there was no template or established program to adopt. As such, the auditing process leaves room for interpretation by a group that was not part of the programs design or intent. Eligibility, non-compliance and repayment situations result from this process flaw in cases where no fraud exists. While audits are meant to protect intended use and identify fraud, they become the leading element of program effectiveness rather than the trailing accountability safeguard they are meant to provide.
The other flaw that is present in the grant process is the complexity of working through layers of governments. Grant process flow is onerous and inherently inefficient.
The assessment process identified areas of loss and economic impact to flood-affected businesses. The largest expenses occurred in reconstruction costs as well as replacement of equipment and inventory. There were limitations on reimbursement eligibility through grants in the construction category. Davis-Bacon rules on federally funded projects was the main barrier as most reconstruction was done without those bid, construction contract and reporting elements. Reconstruction costs, especially for commercial building owners, remains one of the least assisted through grants.
By far, the two areas of greatest negative impact to businesses resulting from the flood were revenue losses and added debt burden. Debt is the area that poses the greatest threat to long-term business survival and recovery. A normal, healthy business generates profits and cash flow that allows it to reinvest in itself to remain viable and competitive.
Those investments typically include staff expansion, wage increases, new/replacement equipment, acquisitions and other activities that enhance the business’ ability to generate revenue or increase value. The overhead created by disaster debts does not improve the business, it simply allows the business to continue with current or reduced capability that comes with a higher cost of operation. This debt overhead cuts off reinvestment in the business and threatens long-term viability. Another effect of debt is the loss of cash reserves and ability to withstand another disruption to business whether it be a physical disaster or an economic downturn cycle
To advocate for specific situations, Case Managers proposed more than 20 “Case Review Requests,” which were approved by the JumpStart office, the City and IDED. Case reviews were a process to appeal an application denial or clarify and supplement acceptable documentation sources. Case reviews were prepared for a group of businesses with similar circumstances or individual businesses.
Examples follow:
v Expanded documentation sources such as supplemental tax documents or 3rd party insurance documents to prove pre-flood existence of equipment.
v Supporting photos and landlord letters clarifying equipment as removable and not a fixture allowing those items to be eligible for reimbursement.
v Clarification of fundable intent. Some items such as equipment located off site needed additional documentation and explanation to qualify for reimbursement.
v Applicable to many businesses - Acceptance of the tax form 4684 Casualties & Thefts to document pre-flood equipment ownership, if equipment is listed as property lost or damaged and cannot be found in another portion of the tax returns.
v Applicable to upper floor businesses with basement equipment storage or outside generators – This equipment will be eligible if it is referenced in the BRAP lease, lease amendment, or supplemental lease dated pre-flood.