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$10,000 apiece-certainly a paltry sum compared to the money being spent in the l'nited States every year.

I believe that when you take the administrative expenses that go with that kind of loan, for the period of the loan and the time that it takes to service that loan, it costs the United States Government many more dollars than if these people had been handed their grant or had a chance for insurance.

We would have been better off if the SBA had never come to Stroudsburg. Senator LEHMAX.

Thank you very much, gentlemen. I want to ask you one question. These Small Business Administration loans—they are loans; are they not?

Mr. Monatt. They are loans.

Senator LEHMAX. So that the man gets nothing in the way of compensation for his losses, either in the case of business concerns or in the case of private homeowners. These are straight loans.

Mr. Monatt. They absolutely are.

Senator LEHMAN. So that whatever loans or debts, liabilities the private homeowner or businessman may have had, they are increased by the amount of the loans he takes out.

Mr. Monatt. Yes, sir. In this particular case, I had a $95.000 mortgage. I got a $120,000 loan. That is $215,000 altogether. My clients had an equity in their

business of $129,000. They had an actual physical loss of $150,000. They now have to work 10 years to make back $11,000, and be $11,000 worse off than they would be if they had given it up. And these people are the employers that are giving jobs in this country, paying taxes.

I would like to say finally that the only one that gave us any help at all was the Director of Internal Revenue in Scranton. I conferred with him for 3 hours, with his administrative assistant, and he promised us that he will accept any estimate on estimated taxes that we make, without any penalties for the September 15 and January 15 payment. Furthermore, wherever the books have been flooded out, my working papers become prima facie evidence. In addition to that, any replacements that are made become absolute evidence of flood loss. And wherever we file a claim for refund, if we file a letter with it and state that it was a flood loss, he will see that the money comes back to us in 24 hours. That is the only help we received.

Senator LEHMAN. One more question, which I would like to ask you as an accountant. Am I right in saying that a man with a large income, which puts him in the upper brackets, who loses his home, a valuable home, really suffers virtually no loss at all because he can write it off his income tax?

Mr. MONATT. That is right, sir. As a matter of fact, Senator, the Lackawanna Railroad had a loss of $10 million. They are definitely

$. in the 52 percent bracket. They also have a State tax, in either Pennsylvania or New York, of 5.5 percent. So by the time the loss trickles down to the small stockholder of a hundred shares, it may mean a passed dividend. But the small-business man gets nothing. He cannot go to the Red Cross. He cannot go anywhere. He is just left to his own resources. We feel that is an injustice.

Senator LEHMAN. May I ask you, Doctor, if the Red Cross gives a man money to rebuild or rehabilitate his home; is that a grant?

.

Reverend STIMSON. That is a gift—an outright gift. But it is all based on need and not on loss.

Senator LEHMAN, I understand. I am very grateful to you for bringing that out. I am grateful to you, too, Mr. Monatt, for bringing out these things. I think your testimony has been very valuable indeed.

Senator Bush, Is this the first time Stroudsburg has ever been hit with this kind of flood ?

Reverend STIMSON. Yes.
Senator Bush. Try to put yourself back into July, now.
Reverend STIMSON. Yes, sir.

Senator Bush. If an insurance program against flood had been available, such as the kind the Senator has in his bill, do you think the people of Stroudsburg would have availed themselves to any wide extent?

Reverend STIMSON. That would be hard to tell. I know they would now. But at that time perhaps not. We have had minor floods in Stroudsburg in the sense that this Third Street area, where we had the 22 feet of water in the houses, in the 4 years I have been pastor in Stroudsburg, twice they have had water in that street before, but it has not been anything serious. The cellars have been full of water. The street has had water in it so you could not drive through it. But the houses are high enough so they did not have water on the first floor. Some people lost their oil burners, I remember, in one of the earlier floods.

Senator Bush. Mr. Chairman, I wonder if you would approve of this suggestion. Mr. Monatt has made some pretty sharp and acute observations about the SBA, in which he ends up with the statement that they feel they would be better off if they never came into town after this flood. I wonder

if you would approve of asking the Director of SBA, Mr. Wendell Barnes, to have a copy of this transcript of this gentleman's testimony, both gentlemen, in fact, and ask him for his comments on it for the benefit of the committee.

Senator LEHMAN. I see no objection to that.
Mr. MONATT. We would be happy to hear his answers.

Senator Bush. If the Senator chooses, we will put them in the record. But I would like to see them myself.

Senator LEHMAN. You will have the record.

Senator Bush. I mean Mr. Barnes observations. I would like to see the SBA observations on both of these statements. This is the first time, I think, that I have run into this kind of positive criticism of the way the SBA has operated. We did not have these reactions in Connecticut.

Mr. MONATT. I am very much interested in meeting Mr. Barnes face to face and give him more statistics, if he likes them. As a matter of fact, I would like to read a letter into the record that I wrote as a protest, to Washington. I wasn't even permitted to send it directly to Washington. I had to have it funneled through Philadelphia. I called Mr. Engles up and asked him to kindly reconsider some of the stipulations he made, and he asked me to get his man in Stroudsburg on the phone, and he said, "Well, I have to talk to Mr. Wolf in Philadelphia" and Mr. Wolf said “You have to send the letter to me—you cannot send it to Mr. Engles.” I had to channel it through to Phila

delphia to get it into Washington. If you like, I will read that into the record.

Senator LEHMAN. Will you just put it in the record, please?

Mr. Monatt. I would like to put in the record my letter addressed to Mr. William H. Harman, of September 29, 1955, re authorization of Pocono Gardens Lodge, dated September 20, 1955, which had to do with stipulations on the loan granted by them at that date. (The letter referred to follows:)

S. M. MONATT ('0.,

Stroudsburg, Pa., September 29, 1955. Re authorization of Pocono Gardens Lodge, dated September 20, 1955. Mr. WILLIAM H. HARMAN, Regional Director, Small Business Administration,

Philadelphia, Pa. DEAR MR. HARMAN: The captioned borrower has authorized me to request modification of certain conditions outlined in the authorization mentioned above. These and the reasons are as follows:

1. Under item 4 (b) a pledge of the capital stock of the corporation is required. We respectfully request the elimination of the requirements of the pledge of all shares of the stock of the corporation due to the fact that the lenders will receive a mortgage of the corporation, a chattel mortgage of the corporation, a guaranty agreement of the corporation, and a stipulation as to additions to fixed assets and officers' salaries. It is felt that the above is satisfactory set'llrity and that in view of the fact that Mr. Peter Rossi is presently 72 years of age we might encounter an estate complication in the event of his death during the loan period in the event the stock was pledged as security. The Philadelphia National Bank has indicated that they are willing to forego these requirements and it is also pointed out that they did not have the stock pledged to them on the now existing mortgage.

2. A ruling is requested as to the eligibility of Elmer Christine, Esq., to act as counsel for the Philadelphia National Bank and in the disbursements of this loan in view of the fact that he is representing your Administration in Stroudsburg, Pa., as cocounsel. It should be pointed out that Mr. Christine was accepted as counsel at the time the original mortgage was written and is again acceptable to them as counsel for the conclusion of this loan. The reason for this request is the fact that both the attorney and the acountants for the corporation are tempering their fees materially due to the circumstances and due to the fact that they regularly represent this client in all matters. It is felt that if counsel would be employed by a firm in Philadelphia they would reap a windfall on work performed by local counsel who will in any event have to certify to that counsel the title and prepare the mortgages, statement of financial condition, release of mechanics' liens, and practically all papers required to close this loan. We re. peat that the above arrangement is acceptable to the Philadelphia National Bank.

3. Item 5 (b) refers to the cost of rehabilitation substantially within the estimate referred to in paragraph 8 of my letter dated August 26, 1975. Regarding the cost of rehabilitation it has been pointed out to Washington that legal and accounting fees should be permissible disbursement in connection with cost rehabilitation. Furthermore, we find that the company is presently incurring costs for such items as room and board for their employees, telephone expenses in connection with the loss, traveling expenses to secure loans, electricity, fuel oil, during the period of rehabilitation. In addition the company is seeking reimbursement for fuel oil lost in the flood, for food destroyed during the flood, all of which are considered properly cost rehabilitation or replacement of property before the flood.

We therefore request a ruling that these items are disbursable and,'or reimbursable within the framework of the $120,000 loan granted under the above authorization. We wish to state that if our original estimates were in excess of the actual requirements we will request reimbursement only of the actual requirements. The Philadelphia National Bank is in agreement with the abole request.

4. Item 15 of the authorization states that no disbursements shall be made after 6 months from date of authorization. We have explained to Mr. Fugle and he had agreed orally, that a 6-month provision is an impossibility due to the fact that as soon as the ground freezes no further work can be done thereon.

Furthermore we do not know whether the winter freeze will destroy flooded out parts of the building which we felt would need no repairs at this time. Another item in this category is that all air-conditioning equipment was flooded and we were assured by the craftsman that repairs thereon would be sufficient. We will not know whether that is so until the hot weather sets in and we can sufficiently test such equipment.

It is, therefore, requested that item 15 be amended from 6 months to 1 year from the date of authorization or in absence thereof that we have assurances that we will be granted extensions in the future as necessary.

In view of the fact that this resort has already expended substantial amounts and in view of the fact that every effort is being made to open the resort to the public by October 15, it is requested that this matter be handled as expeditiously as possible. Every delay, regardless of how short, will produce further hardship since some of the contractors have already indicated that they have reached their credit limit. Very truly yours,

SAMUEL M. MONATT. Copies to Mr. Wolfe, Small Business Administration, Philadelphia, Pa.; Mr. D. Ort, Philadelphia National Bank; Mr. Yomer, Small Business Administration, Stroudsburg, Pa.

Mr. MONATT. Senator Bush, if I may, I would like to answer this question which you posed to the reverend as far as flood insurance against the businessman. I would like to point out to you that when we make loans, like the Pocono Gardens loan of $95,000, the Philadelphia National Bank was loaning us the money—they would have liked to have flood insurance but it was not available. Every businessman would like to have flood insurance, and every financial institution would insist on flood insurance. The only fortunate thing that came out of the flood was that most of the cars were covered, because most of the cars were financed, and the finance companies insisted on coverage.

Senator LEHMAN. Thank you very much. I just want to make one brief observation.

I express my satisfaction with regard to the recital that has been made by Dr. Stimson and Mr. Monatt which I thought was very informative and helpful. The reason I say that is I think they, as well as other witnesses, indicate at least what I have felt for a long time that in the absence of flood insurance the loss falls to a far greater extent on the little fellow and the little businessman than it does on the wealthy man or on the large corporations.

Senator Bush. I agree with that.

(The following was subsequently received from Mr. Monatt for insertion in the record :)

S. M. MONATT Co.,
CERTIFIED PUBLIC ACCOUNTANTS,

Stroudsburg, Pa., November 22, 1955. Hon. HERBERT H. LEHMAN,

United States Senate, Washington, D. C. DEAR SIR : To supplement the testimony I have given before your committee in New York recently, I would like to submit the following:

1. The Small Business Administration has relaxed its requirements on loans under $20,000 to the effect that they have deleted the compensation, management, after acquired property, fixed assets, and use of proceeds clauses from their authorization. I believe that that is a tremendou's chievement by your committee and I would like to express my appreciation.

2. According to the enclosed article which appeared in this morning's paper, 266 businesses could have been helped by a $3,770,000 grant. Surely a paltry amount to rehabilitate an area of the scope stated in this article, particularly when it is remembered that the Red Cross spent almost an equal amount (in grants) for homeowners in the same area.

60096_56–pt. 1—21

For the sake of proper statistics I would like to call to your attention the fact that the number of loans referred to in this article might encompass loans approved even though they may not have been accepted by the borrowers; further. more, not everyone affected by the flood has requested a loan. Because of this last statement and my personal knowledge I believe that these figures should not be considered indicative of the amount of flood-insurance coverage needed in this area, nor the amount of insurance which would be purchased, if available.

Again I wish to thank you and your committee for extending to me the opportunity to be heard. Very respectfully yours,

SAMUEL M. MONATT.

[The Daily Record, Stroudsburg-East Stroudsburg, Pa., Nov. 22, 1955)

LOANS TOTALING $517,517 APPROVED BY SBA OFFICE Seventy-five loans amounting to $517,517 have been approved by the Stroudsburg emergency office of the Federal Small Business Administration since it was opened August 23.

This announcement was made yesterday by William H. Harman, SBA regional director, following a visit here.

To date, Harman said, the Philadelphia regional office has accounted for the approval of 266 loans for a total of $3,770,246.

FIFTY MORE APPLICATIONS

“We have not finished,” said Harman, “as there are approximately 50 more applications to process. We hope to finish these in another week to 10 days."

Outlining the work done by the regional SBA office since the flood, Harman reminded that his men were in the field the day after the disaster struck.

“After a preliminary investigation, we opened offices in Scranton, Wilkes-Barre, Stroudsburg, Tamaqua, Easton, Trenton, Flemington, New Hope, Milford, and Bristol," he said. "In fact, we opened the Stroudsburg office on Tuesday, August 23."

These offices were manned by personnel from the regional office, as well as by SBA staff men from as far away as Texas and Tennessee, Harman pointed out. Assistance also was recruited from various banks and other Government agencies.

“A man or two came out of retirement and several from private industry," he added. “It was a huge task to recruit at least four experienced men for every branch office, but they were on duty by the time the applicants began to call on us.

BANKS HELPFUL

“The banks have lent every possible assistance with personnel, credit information, and use of facilities,” he continued. "Their officers have served on our local advisory committees.

"It must be remembered that this disaster affected nearly all of lower New England, New York, Virginia, and the Carolinas," Harman reminded. “While we in Philadelphia were opening 10 branch offices, the overall organization was opening 18 others."

Harman disclosed that more than 400 applications have been received in the Philadelphia office to date.

"Our branch offices have now been consolidated to five, which we plan to close by the end of the month," he said. “Thereafter, applications will be received and presented by the Philadelphia office until the end of February 1956."

The records of the loans approved by these branch offices since they were set up after the flood follows: 26 in Scranton, totaling $161,700 : 42 in Easton for $188,250 ; 75 in Stroudsburg for $517,517: 42 in Flemington for $217,399 ; 27 in Trenton for $143,630; and 38 in Philadelphia for $874,650.

APPROVE SMALL LOANS

This gives a total of 250 applications approved in the branch offices which amount to $2,103,246.

Harman explained that field office managers were allowed to approve loans up to $20,000 and the regional office had authority to 0. K. applications for loans up to $50,000.

"In addition to the above loans, 16 in excess of $50,000 and amounting to $1,667,000 were approved in Washington," Harman said. "Therefore, to date.

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