Blown Away By Katrina

In mid-September the Big Easy began to show the faintest signs of life. Floodwaters that covered about 80% of the city were starting to recede, revealing rubble-strewn streets, wind-crushed buildings, and horrific visions of death. Against this backdrop, Alden McDonald Jr. surveys his once-thriving bank. Its formerly pristine floors are now covered with shattered glass and debris. An ATM machine lies overturned and damaged by looters. Several of the branch’s computers have been stolen.

The president & CEO of Liberty Bank and Trust Company (No. 3 on the BE BANKS list with $348.2 million in assets) soon learns several bank branches within the city share similar fates. None are operational. Outside of New Orleans, two branches in Jackson, Mississippi, and three in Baton Rouge are open for business. McDonald is working to get branches damaged by Hurricane Katrina reopened. “Part of the problem is going to be whether or not the city or the government will let us rebuild some of them because it could be in a contaminated area of the city,” he says.

Rebuilding requires money. Loads of it. McDonald says that Liberty — one of the major banks used by the city’s school system-has lost an estimated $40 million, and roughly 80 of the bank’s 160 employees are out of work. McDonald is courting some of the corporate giants that will be part of the rebuilding process to open accounts. “If big corporations want to help out, they can put some deposits in our banks and run some checking accounts through us,” he says. “That way we can lend money to people who are rebuilding or buying in other communities.”

McDonald is one of thousands of black business owners affected by Katrina. The monstrous storm that wreaked havoc along the Gulf Coast, displacing and killing scores throughout Louisiana, Mississippi, and Alabama, was equally devastating to businesses, particularly black businesses. In this issue, BLACK ENTERPRISE takes a look at Katrina’s impact through the eyes of economists, experts, and entrepreneurs left picking up the pieces.

BRACING FOR THE ECONOMIC STORM
On a macro scale the damage caused by Katrina is clear, and Hurricane Rita further serves to slow down cleanup efforts. As crews continue to repair damaged offshore platforms in the Gulf, rising oil prices mean higher prices at the pumps. Immediately after the storm, gas prices jumped as much as 50 cents per gallon in some areas. This affected consumer spending — a major economic indicator.

From a business perspective, that means the cost of shipping increases dramatically. And although the Port of New Orleans reopened, congestion caused by debris in the channel as well as barge shortages will make for higher freight costs.

New Orleans is responsible for receiving about 18.5% of U.S. imports and shipping out almost 30% of U.S. exports, according to William Spriggs, senior fellow at the Economic Policy Institute in Washington, D.C., and a member of the BE Board of Economists. This could mean higher prices for consumers for everything from a cup of coffee to bananas. Spriggs points out that over the next year, Katrina’s impact on the U.S. economy could result in slower growth of the Gross Domestic Product (the nation’s production of goods and services) by 0.5% to 1%, and slower job growth — a loss of about 20,000 jobs a month. It gets worse. An estimated 400,000 Americans will likely lose their jobs, according to a report issued by the Congressional Budget Office.

Although rebuilding New Orleans should give the economy a boost, the question at hand for black entrepreneurs is whether African American businesses will get a shot at the billions in reconstruction contracts that will be doled out and whether the black customers will come if they build it. One need only look at the demographics of the Mississippi Delta to see how many African Americans have been affected. Pre-Katrina, the black population in Louisiana was 32.5%; it was close to 66% in New Orleans. In Mississippi and Alabama, blacks made up 36.3% and 26% of the population, respectively, according to the Census Bureau. That’s roughly 3.6 million African Americans.

BLACK BUSINESS IN PERIL
Scores of black businesses have been wiped out as a result of Katrina. In Mississippi alone, more than 2,000 black-owned businesses were severely affected by the hurricane, and these firms generated sales and receipts of $126 million, according to the Economic Policy Institute. Louisiana had some 20,000 black companies that generated nearly $886 million that were affected (see chart). The vast majority of these are small businesses, and it is likely that most won’t open their doors again, leaving thousands jobless. Skyrocketing fuel prices, resulting from a slowdown in oil out of the Gulf, will affect companies across the board.

In the short term, the effects on black businesses are obvious: the immediate devastation of businesses and the complete loss of markets. There’s likely to be a significant change in New Orleans’ demographics. Many suspect that after rebuilding, it will no longer boast such a large black population. The impact on black businesses in the Gulf will be “dire,” says Eugene Cornelius Jr., district director for Louisiana Office, U.S. Small Business Administration. “It will mean devastation to the African American business community in New Orleans as we know it.” Long-term, in the region as a whole, more than 60,000 black-owned businesses generating $3.3 billion a year could potentially be impacted.

By late September, minority business owners across the Gulf Coast claimed they were being shut out of the rebuilding process and that contracts were being doled out to white business owners who had longstanding connections with federal officials. Also posing a challenge to black business owners is that there are few black businesses of scale that can handle such daunting projects. It’s the proverbial catch-22; black-owned firms need to be large enough to handle these projects but they need the business to get to that scale.

UNEXPECTED DIASPORA
Sandra Berry and her husband, Joshua Walker, owners of The Neighborhood Gallery in New Orleans, were displaced by Katrina and ended up in Atlanta. Their gallery was once home to pieces from the area’s brightest African American artists. Now, the 20-year New Orleans residents are looking for a new home of their own.

The couple, Berry’s brother, and a friend evacuated the city a day before heavy winds and rain hit. “I could see the waves coming onto the bridge, and I knew that we had to go, and we just sang. We sang songs of thanksgiving,” Berry, 61, said between sobs. “We were very much involved in the neighborhood, and a lot of the people we left sitting in the park. They did not understand the urgency.”

Two weeks after the evacuation, Berry was still uncertain about the future. But she did say that she and her husband plan to return to New Orleans and rebuild their business. “We know what we can do. When we first got our building, we restored it and we can do it again. We are a part of the city and the city is a part of us. We will be back.”

Displacement following natural disasters has happened before, although never on such a massive scale. As Thomas D. Boston, of Boston Research Group in Atlanta and a member of the BE Board of Economists, points out, hurricane-related destruction in Florida and other Gulf Coast communities in the past has been quickly followed by an inrush of real estate developers, many of whom aren’t interested in building low-cost or affordable housing. There’s little money in that. They want to build luxury condos, rentals or upscale homes, which dramatically escalates land values.

And in New Orleans, where one-third of the black residents lived in poverty, odds are that most African Americans who left the city won’t return. This dynamic may have major political, social, and economic implications. “So you
have the loss of the market itself, and the displacement of population, which undermines political power and the ability to have some political influence in both the economic development of the city and just regular, ongoing affairs,” says Boston. “I just think that with all of those things combined, we can potentially see the death of black-owned businesses in New Orleans on a significant level.”

REBUILDING A BUSINESS COMMUNITY
However, if African Americans can participate in the rebuilding process, it could provide just the stimulus black business will need. With rebuilding costs estimated at well over $100 billion, jobs could be created and black entrepreneurs in areas such as construction and related sectors could see some benefit. This, in turn, would create more jobs for blacks and a cycle of economic prosperity that will bring New Orleans’ displaced African Americans back home. But that’s only if the black community is represented when these contracts are handed out.

President George W. Bush addressed some of the black business community’s concerns in his Sept. 15 address to the nation. What wasn’t mentioned were contracting opportunities. “When the streets are rebuilt, there should be many new businesses, including minority-owned businesses, along those streets,” Bush said in his speech. “When the houses are rebuilt, more families should own, not rent, those houses. When the regional economy revives, local people should be prepared for the jobs being created.” Bush later proposed the creation of a “Gulf Opportunity Zone” that would provide immediate incentives for job-creating investment, tax relief for small businesses, incentives to companies that create jobs, and loans and loan guarantees for small businesses, including minority-owned enterprises. “It is entrepreneurship that creates jobs and opportunity; it is entrepreneurship that helps break the cycle of poverty; and we will take the side of entrepreneurs as they lead the economic revival of the Gulf region,” Bush said in his speech.

Margaret Simms, vice president of governance and economic analysis with The Joint Center for Political and Economic Studies in Washington, D.C., and member of the BE Board of Economists, says the president’s speech was a marked departure from his usual approach of creating the right environment and letting businesses take care of themselves. The $200 billion question: Where will the money come from? “The speech that he gave certainly included a lot of components of what would be needed in a comprehensive rebuilding for the city of New Orleans and something that might be considered surprising, considering his past record, and difficult to achieve given the current budget situation.”

Contracting opportunities would grow black businesses and, in turn, increase the number of black employees and generate higher average incomes in a city that’s long been plagued by poverty and crime. It would also bring back some of the displaced black business community and possibly lead to more black construction companies. According to Spriggs, about 2% of the construction sales in Louisiana and Mississippi come from black-owned companies. Only one, HJ Russell & Sons, ranks on the BE 100S. “At least $2 billion should go to these black firms,” says Spriggs.

EMBATTLED B.E. 100s
America’s largest black businesses are by no means immune to Katrina’s ravages. And with experts expecting many of the displaced African Americans to permanently relocate in other areas (such as Texas and Georgia), this creates another business issue: black businesses — particularly smaller ones — are predominantly patronized by black people. Fewer blacks in a newly built New Orleans brings into question the future of black business there. Some experts are indicating that the city will undergo massive gentrification, pricing out the African American population that was the city’s backbone.

Sidney King, president and CEO of Mobile, Alabama-based Commonwealth National Bank (No. 25 on the BE BANKS list with $53.6 million in assets), says the bank could only open one of its three branches — the location with a generator purchased after 2004’s Hurricane Ivan. “The biggest concern, the biggest negative impact, was that our cash comes out of New Orleans through the Federal Reserve,” King says. “So our cash shipment was canceled and it was canceled at a critical time, being that it was right after a storm. It was before a holiday and it affected the third of the month, which is the busiest day at the bank, when the government checks come out.” King says that all these things combined created a tremendous need for cash and that he was concerned the bank would run out of cash. Fortunately, the institution received an emergency cash shipment from the Federal Reserve out of Birmingham, Alabama.

Patrick Fontenot, president and CEO of Opelousas, Louisiana-based Williams-Progressive Life & Accident Insurance Co. No. 5 on the BE INSURANCE COMPANIES list with $10.4 million in assets), says Katrina had no direct effect on his business other than the fact that he is part owner of United Bank and Trust, a black bank in New Orleans, which has since relocated to WPL’s offices. Long term, however, he is optimistic. “I think the redevelopment in New Orleans will be a win-win for my bank.”

Virgil Robinson Jr., president and CEO of Dryades Savings Bank F.S.B. (No. 16 on the BE BANKS list with $102.9 million in assets), has also been affected by the storm. Robinson is trying to get cleanup crews to make his three New Orleans-based branches operational: one is three feet underwater, a second location is likely to have had serious flooding, and a third branch has wind damage and minor flooding. “Obviously we’re incurring expenses that we didn’t expect or plan for. Insurance only covers a portion of expenses, and we’re looking into some programs that might help us recoup some funds,” says Robinson. “From a business interruption, because we will experience a downturn with our customers surely, we’re looking at major economic setbacks.” However, Robinson expects Dryades to be one of the first banks online and to participate in rebuilding New Orleans.

Bob Goldston, owner of Family Ford and Family Hyundai in Florence, Alabama, has “actually seen a spike in business at [the] Hyundai dealership, which is a new dealership, because of the gas and cost of car.”

“With the surging gas prices after Katrina, people want an economical car. So we’ve seen about a 10% increase in business. In fact, a lot of the displaced families have settled in this area. We were on the forefront of helping out, and when people needed cars they thought of us. One of the displaced families that lost their car in the Katrina devastation bought two cars.” (For coverage of the B.E. 100s’ contributions to the Katrina relief efforts, see sidebar and visit blackenterprise.com/katrina.)

FAITH IN FEMA
Andrew Rhodes, 49, owner of Shab Diversified Inc., a small non-emergency medical transportation company that had two full-time and two part-time employees, is another displaced black entrepreneur from New Orleans now scattered throughout the country. He currently resides in a hotel in Montgomery, Alabama.

Business was growing. Shab generated $130,000 in revenues last year, and prior to Katrina, Rhodes had expected to gross $230,000 for 2005. “I increased my capacity with the purchase of two new vans in April, and I increased the distance I traveled,” Rhodes said. All that changed with Katrina as Rhodes and his family were forced to drive more than 12 hours from New Orleans to Montgomery in a convoy of cars and one of his company’s vans.

Rhodes is unsure what will become of the business that once transported 40 to 50 people daily. He has a contract with the state of Louisiana to transport Medicaid recipients to hospital visits, but Rhodes is contending with a n
umber of major problems. “It’s a hell of a feeling to wake and be homeless,” he says. “I get a little teary when I talk about this because this has to do with my pride. I wake up depressed every morning. I am very proud of what I have accomplished with my business. I’ve never had to get assistance from the government, and now I am applying for food stamps and welfare.”

Rhodes, who is awaiting word on a missing cousin, is not sure what steps the government will take to help his business, which was not insured for natural disasters. Thus far, his family received $360 per adult from the American Red Cross. Rhodes and two other family members received $2,000 checks from FEMA on Sept. 12. All he can do is wait and hope. “I’m hoping that through FEMA I can get back on my feet,” he says. “Small businesses are the lifeblood of New Orleans. They have to come back.”

Liberty’s McDonald, a member of the rebuilding commission recently formed by Mayor C. Ray Nagin (eight blacks and eight whites sit on the 16-member board), is also optimistic. “We have our work cut out for us but, hey, black folks have never had it easy,” he says. “We’ve always had to work as if there was a Depression. When you really stop and think about it, black folks, for the most part, have had to struggle for everything that we had. So what makes this different?”

The SBA’s Cornelius is optimistic about the possible contracting opportunities for black businesses. “I can assure you that we’re going to rebuild New Orleans with the fact that 67% of it is African American, and we’re going to have a good and solid representation of African Americans in those rebuilding efforts.”

As the debris is cleared and the Gulf Coast rebuilds, many questions remain regarding the fate of black business in that region. There’s certainly a lot of work to be done, from environmental cleanup, construction, and rebuilding infrastructure. Without significant participation in the rebuilding process, these businesses and the jobs they create will also be swept away.
— Additional reporting by Topher Sanders, Nicole Marie Richardson & Joyce Jones

Black Owned Businesses
Number of Sales and Number of
State Firms receipts ($1,000) Employees
Louisiana 40,252 1,994,686 21,655

Mississippi 25,004 1,333,119 11,450

BLACK BUSINESS GIVES BACK
In Katrina’s wake, the broadcast news was relentless in airing segments that depicted the plight of the predominantly black residents of the devastated areas. While the debate rages on regarding the government’s response to the disaster, many executives and employees at BE 100S companies across the nation took action to assist hurricane victims.

• Thompson Hospitality (No. 23 on the BE INDUSTRIAL/SERVICE list with $165.6 million in sales) plans to provide a free meal plan for the academic year to any college student forced to relocate to another college or university that is serviced by the contract food company.
• MV Transportation Inc. (No. 15 on the BE INDUSTRIAL/SERVICE list with $271.9 million in sales) sent 52 buses and vans to Louisiana, some borrowed from clients, and 75 employees from across the country to transport elderly, disabled, and ailing evacuees. After MV set up points in different regions of the country where the drivers could meet, more than half of the vehicles arrived in Louisiana by Friday, and the remainder arrived the next day.
• Mays Chemical Co. Inc. (No. 25 on the BE INDUSTRIAL/SERVICE list with $159 million in sales), organized a fundraiser to support employees who took in displaced relatives in Indianapolis. It also pledged corporate contributions to the Red Cross and Tom Joyner’s Black America Web initiative created to help families taking in victims.
• CAMAC International Inc. (No. 2 on the BE INDUSTRIAL/SERVICE list with $987 million in sales) provided financial assistance through its subsidiary, Unity National Bank. The company also pledged a corporate donation of $10,000 and sponsored a fundraising drive.
• Calhoun Enterprises (No. 31 on the BE INDUSTRIAL/SERVICE list with $112.7 million in sales) sent two truckloads of food and other nonperishable goods and arranged to sell products at a discount to the Red Cross and other organizations sending items. The company will also hold a radio fundraiser in conjunction with its local Red Cross.
• Integrated Packaging Corp. (No. 32 on the BE INDUSTRIAL/SERVICE list with $107.8 million in sales) has set up a payroll deduction program to assist families and may also make a corporate donation.
• SET Enterprises Inc. (No. 17 on the BE INDUSTRIAL/SERVICE list with $212 million in sales) is taking contributions from employees, which the CEO will match.
• The Specialized Packaging Group (No. 29 on the BE INDUSTRIAL/SERVICE list with $128.8 million in sales) organized an unlimited employee gift-matching program. The proceeds were sent to the Red Cross.
• Sun State International Trucks L.L.C. (No. 48 on the BE INDUSTRIAL/SERVICE list with $75 million in sales) took up a collection among employees to which the company will add $5,000

Black Owned Businesses