Sixty businesses in San Diego County — from travel agencies and freight transporters to a jewelry retailer and a floral shop — received nearly $7 million in low-interest loans from the federal government in the aftermath of the Sept. 11, 2001 terrorist attacks.
Most have made good on the loans, which were designed to quickly help businesses that claimed financial losses from the devastation on the East Coast. Ten failed to make payments, leaving taxpayers on the hook for up to $1.3 million.
San Diego’s 60 loans were among nearly 5,000 worth more than $550 million that the government gave to hard-hit businesses across the country, according to Small Business Association data provided by the National Institute of Computer-Assisted Reporting, a nonprofit journalism organization based at the University of Missouri. More than 450 of those loans, valued at $64.2 million, went to businesses in California.
The charge-off rate, or the rate the government deemed a loan uncollectible, has been about 20 percent nationwide, and nearly 11 percent in California. In San Diego County, about one in six post-Sept.11 business loans have been charged off.
Some of the loans were fraudulent, an inevitability, an inspector general testified to Congress in 2006, “due to loan transactions being expedited in order to provide quick relief to disaster victims.” Schemes included businesses claiming false losses, using the loan money improperly and filing false financial statements.
After reviewing 51 loans, valued at about $20 million, the inspector general’s office issued 10 indictments and 10 convictions nationwide. The offending business owners were ordered to pay more than $1 million in restitution and settlements. An audit of a similar post-Sept. 11 SBA relief loan program showed 85 percent of a random sample of applications failed to adequately prove economic injury from the disaster.
Yet, for many, the loans were god-sent.
Maureen Anderson Rouleau said her $50,000 SBA loan saved her San Diego travel agency. Travel Travel had weathered other financial storms for 22 years, she said, but the atmosphere after 9/11 was like no other.
“There was absolutely no income,” Rouleau said. “(Some) people to this day will never get on an airplane again …”
Ten years later, Rouleau’s travel agency is thriving, she said, thanks in part to the loan, which she has since paid in full. It was a different story for ten county businesses that failed to pay their loans, causing the government to deem the balance uncollectible, categorizing them as a loss.
inewsource found that of those, at least eight have had their business licenses suspended by the secretary of state — an action taken when a business fails to pay taxes, penalties or interest, or neglects to file information with the state office. Nearly all the telephone numbers connected to those businesses have been disconnected. In instances where inewsource was able to find a working telephone number, e-mail or location for a business, owners either declined to talk or did not return messages.
A nationwide ‘disaster area’
After Sept. 11, the SBA made available about $1 billion in loans for victims of physical and economic damage from the attacks. For the first time ever, economic assistance loans were offered to business owners nationwide, not just those in the same area as the disaster. With flights grounded and people reluctant to leave their homes, the economy suffered.
Small businesses nationwide were “adversely affected by the lingering effects of the attacks and subsequent government action, such as airport closings and the precipitous drop in tourism,” stated the Government Accounting Office (GAO) in a 2003 report outlining the SBA’s lending practices after Sept. 11. “In essence, the entire country was deemed a disaster area.”
To assist those affected, the SBA made available disaster loans to any business in the county that could show it was negatively affected by the terrorist attacks. These loans, called Extended Economic Injury Disaster Loans, had a 4-percent interest rate, with a cap of $1.5 million and a 30-year term limit. Business owners in every state took up the offer.
With more than $64 million, California received the third-highest amount of loans, according to the 2003 GAO report, trailing only Florida and areas nearest the disaster sites in New York, New Jersey and Virginia.
To qualify for assistance, businesses needed to show they “suffered substantial economic injury as a direct result of the destruction of the World Trade Center or the damage to the Pentagon on Sept. 11, 2001, or as a direct result of any related federal action” from the attacks, according to SBA documentation. The SBA required business owners use the loan money only for “working capital” until the economic problems from the disaster abated – using the cash for refinancing or paying off debts incurred before 9/11 was forbidden.
According to the GAO, the bulk of 9/11 disaster funds went to manufacturers, such as vehicle and airplane constructors, transportation and warehousing companies, retailers and tourism businesses.
But what about florists and car dealers? How did these business owners prove that their livelihoods were affected?
According to SBA spokeswoman Carol Chastang, small businesses needed only “to document how the 9/11 attacks and any federal action that followed (such as airport closings) caused ‘substantial economic injury.’”
Federal code describes “substantial economic injury” as being “unable to meet its obligations as they mature or to pay its ordinary and necessary operating expenses.” The burden was on the borrower to show how the terrorist attacks had negatively affected business and to prove they were out of money and credit sources.
“Each loan officer basically had to talk with the borrower and really verify the
explanation,” Chastang said. Most of these verifications took place over the phone, Chastang said, adding a caveat that, as in private banking, the “lender has to trust the borrower.”
Loans and losses
Nearly 20 percent of the economic disaster loans — about $274 million nationwide, according to the data — have been charged off by the government, Chastang said. A charged-off loan is deemed a loss by the government, as the cost to collect the loan outpaces its recoverable amount.
Since 1953, when the SBA began distributing disaster loans to property owners and businesses, 10.77 percent have been charged off, Chastang said. Comparing charge-off rates from the 9/11 disaster to others is “like comparing apples and oranges,” she added, because the terrorist attacks affected businesses nationwide, not one specific region.
“…[T]he circumstances for this 9/11 declaration were unprecedented, and we haven’t seen anything comparable to it since,” she said.
Dr. David Ely, business professor at San Diego State University, said the rate that these businesses failed — and failed to pay back their loans — can be predictable, given the rising unemployment rate after Sept. 11.
Before the attacks, California’s unemployment rate hovered close to 5 percent.
“After that, you see the unemployment rate go up to 5.6 by August 2001, and by 2002, it was at 6.8,” Ely said. “That does suggest a reasonable hit to the California economy.”
Travel agency owner Rouleau experienced the blow to the economy firsthand.
Her profits plummeted amid travelers’ fears and restrictions on air travel. To make things worse, some of her biggest clients had often traveled to the East Coast – mainly New York City and Washington, D.C.
Rouleau said she came close to laying off some of her six employees, before getting her SBA disaster loan in late 2001.
“I knew if I had that loan, it would gap that bridge and allow me to survive,” she said.
It worked, and her business thrived. Rouleau sold Travel Travel to a Manhattan
travel agency, Protravel, in 2003. She still oversees its day-to-day operations.
See the story from our television partner, KGTV, aired at 6 p.m. Monday. This story also was published by our multimedia partner, KPBS.
inewsource is a nonprofit, nonpartisan newsroom dedicated to improving lives in the San Diego region and beyond through impactful, data-based investigative and accountability journalism.
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Below is a breakdown of staffing data at inewsource. We determine the composition of our staff by asking them to self-identify. It is based on a newsroom of 11 and a total staff of 15 as of August 2020. Percentages are based on 15 total survey responses. The numbers include full-time and part-time staff, full-time fellows and full-time and part-time interns.
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Newsroom Percentages are based on 15 completed survey responses to this question.
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Gender Identity
Gender Identity
Gender Identity
Women
80%
Women
82%
Women
75%
Men
20%
Men
18%
Men
25%
Sexual Orientation
Sexual Orientation
Sexual Orientation
Straight
87%
Straight
82%
Straight
100%
LGBTQ-identifying
7%
LGBTQ-identifying
7%
Not specified
7%
Not specified
7%
Speak a language beyond English at home
33%
Speak a language beyond English at home
18%
Speak a language beyond English at home
75%
Race/Ethnicity
Race/Ethnicity
Race/Ethnicity
White
67%
White
73%
White
50%
Hispanic or Latinx
20%
Two or more races
18%
Hispanic or Latinx
50%
Two or more races
13%
Hispanic or Latinx
9%
Age
Age
Age
20-29
40%
20-29
45%
20-29
25%
30-39
47%
30-39
45%
30-39
50%
60 or older
13%
60 or older
9%
60 or older
25%
* The percentages in the charts have been rounded and may not add up to 100.
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inewsource is a nonprofit organization, whose legal name is Investigative Newsource. It does business as inewsource. The business was incorporated on Aug. 4, 2009 in the state of California. Tax-exempt status as a 501c3 was granted by the IRS on Sept. 15, 2010. inewsource is funded primarily by individual contributions and foundation grants. We are guided by a board of directors.
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Lorie Hearn is the chief executive officer, editor and founder of inewsource. She founded inewsource in the summer of 2009, following a successful reporting and editing career in newspapers. She retired from The San Diego Union-Tribune, where she had been a reporter, Metro Editor and finally the senior editor for Metro and Watchdog Journalism. In addition to department oversight, Hearn personally managed a four-person watchdog team, composed of two data specialists and two investigative reporters. Hearn was a Nieman Foundation fellow at Harvard University in 1994-95. She focused on juvenile justice and drug control policy, a natural course to follow her years as a courts and legal affairs reporter at the San Diego Union and then the Union-Tribune.
Hearn became Metro Editor in 1999 and oversaw regional and city news coverage, which included the city of San Diego’s financial debacle and near bankruptcy. Reporters and editors on Metro during her tenure were part of the Pulitzer Prize-winning stories that exposed Congressman Randy “Duke” Cunningham and led to his imprisonment.
Hearn began her journalism career as a reporter for the Bucks County Courier Times, a small daily outside of Philadelphia, shortly after graduating from the University of Delaware. During the decades following, she moved through countless beats at five newspapers on both coasts.
High-profile coverage included the historic state Supreme Court election in 1986, when three sitting justices were ousted from the bench, and the 1992 execution of Robert Alton Harris. That gas chamber execution was the first time the death penalty was carried out in California in 25 years.
In her nine years as Metro Editor at the Union-Tribune, Hearn made watchdog reporting a priority. Her reporters produced award-winning investigations covering large and small local governments. The depth and breadth of their public service work was most evident in coverage of the wildfires of 2003 and then 2007, when more than half a million people were evacuated from their homes.
Laura Wingard is the managing editor at inewsource. She has been an editor in San Diego since 2002, working at The San Diego Union-Tribune, KPBS and now inewsource. At the Union-Tribune, she served in a variety of roles including as enterprise editor, government editor, public safety and legal affairs editor, and metro editor. She directed the newspaper’s award-winning coverage of the October 2007 wildfires and the 2010 disappearance of Poway teenager Chelsea King. She also oversaw reporting on San Diego’s pension crisis.
For two years, Wingard was news and digital editor at KPBS, overseeing a team of four multimedia reporters and two web producers. She also was the KPBS liaison with inewsource and collaborated with inewsource chief executive officer and editor Lorie Hearn on investigative work by both news organizations.
Wingard also worked at the Las Vegas Review-Journal as the city editor and as an award-winning reporter covering the environment and politics. She also was the assistant managing editor for metro at The Press-Enterprise in Riverside. She earned her bachelor’s degree at California State University, Fullerton, with a double major in communications/journalism and political science.
Brad Racino is the assistant editor and a senior reporter at inewsource. He has produced investigations for print, radio and TV on topics including political corruption, transportation, health, maritime, education and nonprofits.
His cross-platform reporting for inewsource has earned more than 50 awards since 2012, including back-to-back national medals from Investigative Reporters and Editors, two national Edward R. Murrow awards, a Meyer “Mike” Berger award from New York City’s Columbia Journalism School, the Sol Price Award for Responsible Journalism, San Diego SPJ’s First Amendment Award, and a national Emmy nomination.
In 2017, Racino was selected by the Institute for Nonprofit News as one of 10 “Emerging Leaders” in U.S. nonprofit journalism.
Racino has worked as a reporter and database analyst for News21; as a photographer, videographer and reporter for the Columbia Missourian; as a project coordinator for the National Freedom of Information Coalition and as a videographer and editor for Verizon Fios1 TV in New York. He received his master’s degree in journalism from the University of Missouri in 2012.
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