Report Showing Positive Business Signs in the Katrina Zone Sinks Below Media Radar

September 7th, 2007 2:09 PM

On the eve of the August 29 second anniversary of Hurricane Katrina striking the Mississippi-Louisiana Gulf Coast, as the American news media prepared to do a slew of anniversary-update stories, the non-partisan Political and Economic Research Council released a hefty study of how the region's small-business sector is doing.

The study, Recovery, Renewal, and Resiliency: Gulf Coast Small Businesses Two Years Later, by Michael Turner, Ph.D.; Robin Varghese, Ph.D.; and Patrick Walker, M.A., got very little press notice.

The New Orleans Times-Picayune mentioned it in an August 29 story. So did USA Today. And that's about it.

Here's how USA Today mentioned the study:

Studies tend to provide only a hazy picture of how well businesses have recovered. Research by Louisiana State University notes an upswing in the number of employers in southeast Louisiana as "concrete evidence" of recovery. But it includes little data on how businesses are coping. Meantime, one of the most comprehensive studies yet on small businesses, to be issued today by the non-partisan Political & Economic Research Council (PERC), says most of the 1,032 companies surveyed are struggling. Its research, though, doesn't analyze the firms that have gone out of business. Michael Turner, the council's president, cautions, "These are the success stories."

Success in this region, though, is relative. While nearly one in four businesses is ringing up more sales than before Katrina, almost half of small businesses have 75% or less revenue than before — even with fewer competitors, the council found. Overall, two of every three small-business owners — those with fewer than 25 employees — are bringing in lower revenue than before Katrina, its research shows.

"What this means," Turner says, "is staff reductions, salary cuts, the inability (of businesses) to fulfill credit obligations."

Later in its story, USA Today says this about Small Business Administration loans and grants meant to help the region's economy recover:

Many small-business owners couldn't access SBA money because their collateral was their house — and their house "may not be worth anything if it's wrecked," says Andy Kopplin, executive director of the Louisiana Recovery Authority, the agency in charge of helping the state rebuild.

Long delays have also plagued businesses that applied for SBA loans. Congress has held hearings on these snafus, which are blamed for helping put some companies out of business.

SBA Administrator Steven Preston acknowledges that the agency didn't "respond quickly enough" but says it was "overwhelmed" by applications for loans.

While it is undoubtedly true, those three paragraphs don't tell the whole story of SBA loans to small businesses in the region: According to the PERC study, small businesses in the regions that PERC surveyed "had a higher Small Business
Administration loan approval rate than the general pool of applicants for disaster
loans in the wake of hurricanes Katrina and Rita: 56.7% vs. 28%."

Read that again: SBA loan applicants along the Louisiana-Mississippi Gulf Coast after Katrina got their loan applications approved at DOUBLE the normal rate for SBA disaster loans nationwide.

PERC says SBA loan applicants from the Katrina zone "nonetheless had a largely negative opinion of the SBA, with 46.6% holding some unfavorable opinion of the agency vs. 30% holding a favorable opinion," a fact PERC attributes to the process of dealing with the bureaucracy.


Nonetheless, the SBA, like other public institutions, has ranked unfavorably among those it interacted with. Respondents seemed to feel that the loan process itself was substantially and unnecessarily complicated. Loss of documentation, other information and assets no doubt made the loan process a more arduous one in the New Orleans MSA. Nonetheless, the poor responsiveness, apparently for reasons of capacity, remains a problem. To the credit of the federal government, authorizing the use of private banks and other sub-contractors to process SBA loans can assist greatly.

To be sure, the PERC report provides a mixed picture of small-business recovery in the Katrina zone - though none of the good news in the PERC report seemed to find its way into any of the national media's stories on the second anniversary of the hurricane.

Here are some of PERC's "key findings":

Recovery is evident within the small business community…

  • Nearly 1 in 4 small business owners in those areas directly affected by hurricanes Katrina and Rita are doing better today than they were two years ago in terms of sales revenues. A solid 1 in 5 respondents indicated that current revenues were between 100% and 200% of their pre-Katrina levels, while 3% of all respondents indicated that their current sales were more than double their pre-storm level. A further 1 in 6 respondents (17%) reported current revenues on par with earnings two years ago.
  • Further evidence of recovery is found in the hiring plans of small business owners. While more than 2 in 3 respondents (64%) indicated that their staff levels would remain unchanged, another 1 in 3 (32%) reported an intention to increase staff levels in the coming year. Just 4% of small business owners reported an intention to reduce staff levels in the coming twelve months.
  • The nearly universal positive opinions on near-term and long-term business prospects also could be interpreted as evidence of recovery. Nearly 2 in 3 respondents believed their short-term business prospects were either “Good” or “Very Good,” while more than 2 in 3 respondents perceived their long-term business prospects to be promising...but it is not being enjoyed equally by all groups:
  • African-American owned businesses recovered by far the worst in terms of sales, with 78% reporting lower revenue than before the hurricane. By contrast, just 60% of Caucasian-owned small businesses reported lower revenues today than pre-Katrina.
  • An astounding 60% of Hispanic-owned businesses reported earning the same or more revenue today than prior to the 2005 hurricanes. More than 1 in 4 Hispanic (28%) business owners reported current revenues between 100% and 200% of their pre-Katrina levels, while 3% reported earning more than double their pre-storm revenues.
  • Furthermore, African-American business owners express greater concern about the state of demand than either Caucasian or Latino business owners.
  • African Americans also reported a much harder time getting affordable credit than Caucasians or Hispanics, with 40% reporting they had trouble, compared to 28% for Hispanics and 25% for Caucasians.
  • Diminished demand and difficulties accessing credit likely led to a higher exit rate of African American-owned small businesses than for other groups. Evidence from our analysis of telephone disconnect rates suggests that the exit rate for African American-owned businesses was 28% higher than for Hispanic-owned businesses, and nearly 110% higher than for Caucasian-owned businesses.

PERC also found that 86% of small business owners who filed insurance claims received either full or partial settlements, and the vast majority (65%) were satisfied or neutral towards their insurer’s response to Katrina. After so much media coverage of the insurance industry as a "second hurricane" devastating people's lives, the media should have reported these stats just to be fair.

The New Orleans Times-Picayune focused on the PERC study in this August 28 story, chosing to highlight a lot of negatives from the study while ignoring the positives.

All of the findings in the PERC study - positive and negative - would have been good fodder for news media wanting to do balanced stories on the Katrina zone two years after the hurricane, but the PERC study got little notice by the media. Maybe that's because the report doesn't bash the Bush administration.


One of the most striking findings in PERC's report is that small business owners in the Katrina zone have a much less positive opinion of public institutions than of private charities:

In general, government institutions received little by way of confidence that they had had a positive impact. This outlook covered not only the SBA, but also the military, and state and local agencies. Charities, especially local charities and faith groups, by contrast, did elicit a substantially more favorable opinion.
Respondents were asked which institution from among a list (government and non-profit) had the most positive impact on their business. Non-profit charities received higher approval ratings than any government agency, by as much as 2 to 1. In the aggregate, government agencies (whether state, local or federal) received a positive response from only 37% of respondents. Of course, charities are not charged by, or accountable to the public for disaster recovery assistance, whereas government is held directly responsible.

Much of the media's coverage of Katrina now still tends to ask what is government (by which they mean President Bush) is going to do to fix the problems that remain. But that's a narrow question, driven by the media's big-government-is-good mindset and its desire to continue using Katrina to bash Bush.

Small business owners in the Katrina zone no longer expect their government - state, local or federal - can solve their problems, and they have more faith in private charities and faith-based organizations to aid the region's recovery.

That's a story in itself.