I would be happy answer any questions.

[The prepared statement of Mr. DeMonte can be found in the appendix.]

Chairman TORRES. Thank you, sir. Thank you very much. The next speaker is from SBA, the next witness that is, Mr. Belloni.

This morning, Mayor Agnos said that in this city there is 296 residential building owners who have made application to the State CALDAP loan programs to date because they were not given adequate SBA loans to repair or to rebuild. Over half of these applications receive nothing from SBA. Maybe in your statement, sir you could give us an answer to this charge.

STATEMENT OF ROBERT BELLONI, SBA DISASTER AREA DIRECTOR, AREA 4, U.S. SMALL BUSINESS ADMINISTRATION Mr. BELLONI. I will certainly try, sir.

Good morning, it is a pleasure to be here to provide testimony on the part of the SBA. I would like to start with advising you as to how we get involved in the first place. Basically, in time of disaster, the Small Business Administration is authorized to make loans to victims of disaster whether they are homeowners, renters, or businesspersons.

The purpose of the SBA loan is to assist a disaster victim with the repair or replacement of the damaged property, whether it be real property or personal property. This, in a business sense, would include inventory, replacement of furniture and fixtures. And in a individual's residence, it would include all of their personal belongings. There are also some working capital loans that may be made to small businesses to offset economic injury as a consequence of the disaster.

The basic criterion for eligibility to our loans is essentially ownership, ability to repay, and that the injury must be disaster related.

The agency is able to make the loans to the victims of the disas ter whether it is declared either by the President or the Administrator of the Agency; SBA has its own declaration authority.

Under a presidential declaration, when SBA is unable to make a loan to a homeowner or renter, that individual may be referred to the State Individual and Family Grant Program for possible grant aid. And you heard earlier today that the grant aid is up at $10,400 and that the State of California has come up with a matching $10,000, making the maximum grant in this State $20,400.

When we are at the individual centers, the disaster application centers, interviewing individuals we make every effort to determine whether or not there will be possible repayment. At that time, if we determine that there will not be we make reference to the grant program. Basically we issue an immediate denial and refer individuals to the grant program for possible aid there.

In addition to that, after we have accepted applications along the way, we also have the possibility of declining an individual. And where it is a homeowner or renter we refer them to the grant program at that time too.

At the interview stage, in a Presidentially declared disaster, we make that assessment and refer the individuals over to the grant program.

Loans to homeowners may be for up to $100,000 for real estate and up to $20,000 to cover personal property. Loans to businesses are limited to $500,000.

There is one exception to that, and that is where the business meets the Agency's criteria for major source of employment, which would require 10 percent of the employment in a community to be eligible. And at that point, the agency may make the loan for any amount that is needed.

The interest rate on loans is 4 percent or 8 percent. The term may be for as long as 30 years.

If we decide that a firm has credit available to them elsewhere we would limit the loan term to 3 years. In either case homeowners get up to 30 years to pay the loan.

We participate with FEMA in these disaster centers that FEMA arranges. During this particular disaster we were in 14 different centers and we interviewed more then 60,000 individuals. And we received, ultimately, more than 23,000 loan applications. We have processed better than 20,000 of those applications completely. We have approved more 12,000 loans, totaling more than $400 million. At this very moment, we have through several offices that we have set up in the area closed loans, actually signed the documents and recorded the deeds and that sort of thing, on more than 7300 cases, totaling more than $90 million. Documents necessary to close those loans, such as loan agreements, authorization and copies of deeds and that sort of thing, have been submitted to all of those individuals, very much like the individuals that were here earlier today testifying. As soon as they are able to complete that documentation and we can get everything recorded we will be able to disburse moneys.

I think that, in my own estimation, this is a pretty sizable task. It isn't over yet. The declaration period is still open. I believe it is identified as the Twenty-first of this month. We are still accepting applications.

That is about all I have to say.

[The prepared statement of Mr. Belloni can be found in the appendix.]

Chairman TORRES. Thank you, Mr. Belloni.

Mr. Pennington?

STATEMENT OF DANIEL G. PENNINGTON, CHIEF, DIVISION OF COMMUNITY AFFAIRS, CALIFORNIA DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT

Mr. PENNINGTON. I have submitted written testimony and it includes a summary of all the programs that were enacted by the legislature and approved by the governor. Perhaps the quickest way for me to address you all is to give you the backbone of our two programs, which are CALDAP programs, both rental and homeowner occupied programs.

Chairman TORRES. When Mr. Belloni was talking about the grant program, he was referring to yours?

Mr. PENNINGTON. No, sir, the IFG program was operated by the Department of Social Services. Our program we consider a last resort program. In order to be eligible, you must go through the SBA process and the IFG process, and if you have remaining needs, then you apply to CALDAP.

Our program for homeowners was funded at the $32 million level. There is no income criteria on the program. It is a deferred 3 percent simple interest loan, which stays with the house until it is either sold or title is transferred, and at that time the loan is payed back. There is a $30,000 cap. However, that can be waived in the event that there is some special need.

In terms of the rental program, it is for rental property. It also was funded at the $32 million level. There is no cap on the amount that can be borrowed. It can be used for acquisition of properties. It also is deferred; it is deferred for 20 years. Again, it is a 3 percent simple interest loan. It is deferred for 20 years for rehab if there is an acquisition involved. It is deferred for 30 years if the property is kept at affordable rents for low and moderate income levels. Starting with the tenth year, there is a forgiveness provision, which at the end of the 20 or 30 year period the entire loan would be forgiven provided it is kept at affordable rates for low income individuals.

We think these are very successful programs, but the only catch is that you have to go through the FEMA, IFG and SBA process, and we will provide fund the remaining needs.

The State and the governor also approved some other programs. They approved $5 million in emergency shelter money, which has all been spent.

A half a million dollars was approved for the Rental Deposit Guarantee Program, that, too, has been spent.

There was $1,500,000 given for a Farmworker Housing Grant Program, that, too, has been spent. Actually, it has not been spent, it has been awarded to projects in Santa Cruz, Watsonville, and the counties of Santa Cruz and Monterey.

We expect to process through the CALDAP Program somewhere between 2000 and 3000 loans. And I think that it is a very good program that is married to the other programs that disaster victims can access.

I think that just gives you a brief summary of what the State of California is doing.

[The prepared statement of Mr. Pennington can be found in the appendix.]

Chairman TORRES. Thank you very much.

By way of the committee's count, we have heard from 39 witnesses in the last 2 days. We have one more to go, which will make it 40. Mr. Ward will be the 40th witness to these hearings. In retrospect, I think maybe he should have been the first witness to address us. We would have had a better perspective of the geological aspects of all this. Instead, he is the 40th. But certainly last, but not least, and probably just as important.

Mr. Ward, please?

STATEMENT OF PETER WARD, GEOPHYSICIST, UNITED STATES GEOLOGICAL SURVEY

Mr. WARD. Thank you, Mr. Chairman. The nature of my comments will be quite different from what we have been hearing today and yesterday in that I have been asked to put the Loma Prieta disaster into an earth-science perspective-more specifically: What can we reasonably expect from the future, in the near future?

The Loma Prieta earthquake was the costliest natural disaster in the history of the United States since the 1906 San Francisco earthquake. Over $6 billion worth of damage was done in 15 seconds. That is structural property damage and does not include nonstructural damage. Sixty-two lives were lost and over 18,000 homes were damaged.

This was an anticipated event. The Loma Prieta earthquake, as early as 1983, had been anticipated by Dr. Allen Lindh with the U.S. Geological Survey, when he said that with 47 to 83 percent probability there would be a magnitude 7 earthquake on a specific segment of the San Andreas Fault in the Santa Cruz Mountains. In 1988, the U.S. Geological Survey appointed a national committee of experts to evaluate the probability of earthquakes occurring on all of the major fault segments in California. That committee, being a committee, took a little more conservative approach, and they concluded that there was a 30 percent probability of this particular segment of the San Andreas Fault causing an earthquake of magnitude 7 within the next 30 years. This was the highest probability that they assigned to any fault segment in northern California, in the San Francisco Bay region. Thus, this was an earthquake that earth scientists were waiting for.

We anticipate more damaging earthquakes. In the Bay Area, specifically, the national panel has suggested there is a 50 percent probability that an earthquake the size of the Loma Prieta earthquake will occur either on the San Andreas Fault, along the San Francisco Peninsula, or on the northern or southern segments of the Hayward fault in the East Bay, which slices through Oakland, Berkley, Fremont, Hayward, and many other towns.

It has been 83 years since the last severely damaging earthquake.

at?

Chairman TORRES. Mr. Ward, could you outline where those are Mr. WARD. In a minute.

Mr. LEHMAN. Can I ask one clarification also? You say a 50 percent probability. Is there a time frame on that?

Mr. WARD. Yes, that is within 30 years.

This was the most damaging earthquake, though, the only significantly damaging earthquake we have had in 83 years since 1906, in the San Francisco Bay region proper. And it seems reasonable for many of us to assume that it would be another 83 years before we see another damaging earthquake. Unfortunately, history gives us a very different message.

In the latter part of the 19th Century, just before 1906, there was on the average one Loma Prieta size earthquake, or more specifically a 6.5 or larger earthquake, in the San Francisco Bay region

per decade. An earthquake in 1865, just like the Loma Prieta earthquake, was followed 3 years later by an earthquake on the Hayward Fault in 1868, which caused extensive damage in San Francisco and in the East Bay.

Now, what concerns many of us is that the Loma Prieta earthquake was 65 miles from downtown San Francisco and yet it caused significant damage in San Francisco and Oakland. An earthquake on the Hayward Fault is only 10 miles from the Embarcadero center. And as I have shown on the chart on the right, the segment of the San Andreas fault that broke in the case of Loma Prieta is here in the Santa Cruz Mountains. And that oval shows the region of the maximum shaking, the greatest shaking during the earthquake. And within that oval, live about 200,000 people.

For an earthquake on the Hayward Fault of magnitude 7.5, the region of major shaking is shown in the upper oval, and 3 million live within that region. So now we are talking about what is the damage going to be like in downtown Oakland, in the Marina, and other parts of San Francisco, when an earthquake is within 5 or 10 miles of that area, instead of 65 miles away as occurred in the case of Loma Prieta.

It has been suggested from various studies that the life loss we are talking about for a Hayward Fault earthquake is on the order of 1,500 to 4,500 compared with 62 in the case of Loma Prieta. The economic loss in terms of structural property damage is probably in 1990 dollars in excess of $70 billion. That is 11 or 12 times the loss in the case of Loma Prieta.

Now, the Bay Area is not the only region that has a potential threat from earthquakes. In the Los Angeles region, the national committee has said that there is a 60 percent chance that a major damaging earthquake, that is, magnitude 7 or larger, Loma Prieta size or larger, will occur on the San Andreas Fault in southern California within the next 30 years. And that there is a 50 percent chance that a similar earthquake will occur on the San Jacinto Fault, which is parallel to the San Andreas Fault, and a little bit closer to Los Angeles.

On the pamphlet that was handed out, and I think all of you have it, on the rear cover (page 16) is a map of the United States, which shows historic seismicity in the United States. The red dots on this map are earthquakes that have occurred that were the size of the Loma Prieta earthquake or larger. And what you can see on this map is that 19 States in the United States have had earthquakes of this magnitude or larger within their borders or very close to their borders.

Thus, the Loma Prieta earthquake is not a fluke. It is not a single event. It has to be put in a context with the fact that there are many other areas where we can have this type of earthquake. Now, in much of the United States, the percentage, if we were able to put a percentage on it, or the probability of an earthquake occurring is probably much lower.

But outside of California, the level of concern with structural engineering related to earthquakes is much lower and the potential for damage is much higher. The largest earthquakes in the United States occurred in southeast Missouri and western Tennessee in