The House passed a bill Wednesday to overhaul the Small Business Administration’s disaster loan program, which was criticized for ineffectiveness and delays after the 2005 Gulf Coast hurricanes.

The measure, which seeks to enhance the loan program’s preparedness and resources, passed, 267-158. Republicans and the White House complained that the bill (HR 1361) would expose taxpayers to potentially heavy costs.

Steve Chabot of Ohio, the Small Business Committee’s ranking Republican, led the charge against the bill, unsuccessfully pushing amendments to strike what he called “fatal flaws.”

“While there are many important things that this bill does,” he said, two provisions “undermine the good work.”

His first amendment aimed to strike language that would authorize the SBA administrator to waive a prohibition against duplication of benefits for victims of the 2005 hurricanes. It was rejected, 178-246.

As originally written, the provision would have increased direct spending by $215 million from 2007 to 2009, according to the Congressional Budget Office (CBO). A manager’s amendment changed the provision to eliminate a conflict with House pay-as-you-go budget rules by using replacement grants to return money to victims.

Such grants are discretionary spending, which must be approved by appropriators, rather than direct spending and thus are not subject to pay-as-you-go budget rules.

The waiver allows “a person to be compensated for the same damage twice,” Chabot argued. “That’s just plain old double-dipping.”

Democrats countered that the provision was designed to address a unique problem with federal assistance to the Gulf Coast. They said the federal government funneled additional assistance to victims through state-run programs such as Louisiana’s Road Home grants only to take it away via the SBA program, which requires loan recipients to repay disaster loans when they receive other benefits.

Nydia M. Velázquez of New York, committee chairwoman and the bill’s sponsor, said the bill would give the administrator the flexibility to determine when a victim deserves the additional funds.

Chabot also sought to remove language that would allow the SBA to give grants of up to $100,000 to some businesses affected by the 2005 storms if they had been rejected for conventional disaster loans — a provision he called “the height of fiscal irresponsibility.” In rejecting their loan applications, the SBA determined that the firms were unlikely to survive, he observed.

The amendment was rejected, 174-252.

Patrick T. McHenry, R-N.C., tried to block passage of the bill by offering a motion to recommit it to the Small Business Committee with orders that it be amended to bar felons from receiving disaster loans.

House Republicans have made frequent use of the procedural tactic this year, offering politically appealing motions to recommit that have drawn a significant number of Democratic votes, but McHenry’s move was rejected, 204-218.

Majority Leader Steny H. Hoyer, D-Md., noting that the SBA already prohibits felons from receiving funds, said McHenry was trying “to kill this bill indirectly.”

Lawmakers adopted by voice vote an amendment by Bobby Jindal, R-La., that would extend to victims of the 2005 storms a provision allowing the SBA administrator to grant four-year deferment periods for their disaster loans.

The White House issued a statement of administration policy Wednesday criticizing specific provisions of the measure, including those targeted by Chabot, but stopping short of a veto threat. The administration said the bill would raise taxpayer costs and increase the likelihood that loan recipients would default.

The SBA program is the federal government’s main source of natural-disaster rebuilding assistance, and it has drawn harsh criticism for problems and delays in administering loans to homeowners, renters and businesses hit by the 2005 hurricanes.

The bill, which the House Small Business Committee approved March 15, would increase the limit for disaster loans to $3 million from $1.5 million. The White House called the new limit “unacceptably high.”

The manager’s package scaled back a provision added during the markup that would add “lack of snowfall” to the SBA program’s definition of a disaster. Republicans objected to the language, designed to help small businesses that are dependent on winter recreation, as too vague. The bill now would direct the SBA to study the agency’s need and ability to provide loans for such snow-related disasters.

The legislation would create a position within the SBA dedicated to disaster planning, require the agency to develop and implement a disaster response plan and maintain a 1,000-person “disaster reserve corps.”

The SBA also would be required to create a centralized application tracking system and to revise repayment and disbursement timetables to treat borrowers more favorably. The legislation would strengthen congressional oversight, requiring the agency to provide annual status reports on the disaster program. The SBA also would have to report basic information on a monthly basis during disasters.

In its March 29 cost estimate, CBO said the bill would add $347 million in discretionary spending over 2008-2012, beyond the cost of the duplicate-benefits waiver.

The Senate Small Business and Entrepreneurship panel approved its disaster overhaul measure (S 163) on March 29. Chairman John Kerry, D-Mass., in a statement Wednesday, praised the House action but did not say when the Senate might take up the legislation.

First posted April 18, 2007 12:32 p.m.