By Frank Bass

and Dirk Lammers,Associated Press Writers

WASHINGTON – Congress will investigate the “flagrant abuse” of a federal loan program designed to help businesses recover from the Sept. 11 attacks and make sure such problems don’t occur with Hurricane Katrina relief, a key Senate Republican announced Friday.

Sen. Olympia Snowe, R-Maine, chairwoman of the Senate Small Business and Entrepreneurship Committee, announced the investigation in response to an Associated Press story Thursday that showed the federal program was so loosely managed that it gave low-interest loans to companies that didn’t need terrorism relief or even know they were getting it.

“The apparent widespread abuse of loans provided through the Supplemental Terrorist Activity Relief Act is nothing short of an outrage,” Snowe said.

The committee chairwoman said she would demand answers from both the banks that gave the loans and the Small Business Administration, which supervised the program.

“Congress must seek and find answers when confronted with a situation that represents a possible betrayal of the public trust especially at a time when the people of the Gulf Region need every resource available to recover,” Snowe said. “…I intend to exert my oversight power to determine how such flagrant abuse could happen and to ensure that Small Business Administration loans truly go to those who need them.”

The SBA guaranteed $3.7 billion in loans under the STAR program, bringing its total Sept. 11 assistance package for businesses to nearly $5 billion.

Sen. John Kerry of Massachusetts, the committee’s top Democrat, joined in the call for an investigation.

“This was a deliberate attempt to cover up White House budget gimmicks that left the SBA’s largest loan program underfunded and on the brink of shutting down,” Kerry said. “The administration asked SBA employees to bend the rules and steer regular loans through the program aimed at helping businesses impacted by 9/11.”

Also on Friday, Sen. Hillary Rodham Clinton, D-N.Y., sent a letter to SBA Administrator Hector Barreto, urging him to conduct a comprehensive review of the STAR program and report the agency’s findings to Congress as soon possible.

In a statement released Friday night, Barreto called the AP story “rife with errors and based on misunderstanding of what the programs were intended to accomplish.” The statement did not cite any examples of errors or misunderstandings. Earlier, an agency spokesman, Michael Stamler, also claimed the story was wrong but refused to elaborate.

Barreto’s statement said the program that provided roughly 75 percent of the $5 billion recovery effort “was operated in an open, transparent and aboveboard manner and did not reduce the availability of low-interest disaster recovery loans to small businesses in the areas directly attacked by the terrorists. We look forward to demonstrating to Congress and the American people that the SBA appropriately implemented its congressional mandate.”

The AP reported Thursday that businesses as diverse as Dunkin’ Donuts shops and motorcycle dealers far from New York and Washington got loans drawn without their knowledge by their banks from the Sept. 11 program.

AP quoted several business owners as saying they hadn’t been hurt by the attacks and were embarrassed to learn their loans came from the program. And banking officials and SBA documents show the SBA encouraged lenders to give out the low-interest, government guaranteed loans using the loosest interpretation of the rules.

Meanwhile, a poll taken shortly before the story was published showed that nearly three quarters of Americans believe the government did a good job helping the economy recover from Sept. 11.

An AP-Ipsos poll found there was general satisfaction with the economic relief efforts from Congress and the Bush administration among people in all gender, race, educational and age categories.

When last week’s poll participants were interviewed and told about AP’s findings about the loan program, some said the program seemed misguided to give away valuable aid so broadly.

“It’s not necessarily what I would have done,” said Nancy Hannaford, a Santa Clara, Calif., tutor and Web designer. “Nobody bailed everyone here out during the dot-com bust.”

Overall, 27 percent of those surveyed said the government had done a very good job, and 45 percent said a somewhat good job, on the recovery. Twenty-seven percent said they believed had done a somewhat poor or very poor job on the economic recovery.

Young Americans, unmarried people and Democrats were less approving of the response, while older Americans, married people and Republicans were more likely to approve.

The poll of 998 adults was conducted Aug. 30-Sept. 1 by Ipsos, an international polling firm, and has a margin of sampling error of plus or minus 3 percentage points.

The economic toll from the Sept. 11 suicide hijackings has been estimated to be as high as $639 billion and to have cost 2 million jobs, according to a New York Senate panel study. The federal government responded with billions of dollars in loans and grants from numerous programs and agencies.

It also launched the largest federal reorganization in a half century, merging 22 agencies to create the Department of Homeland Security, which will spend approximately $47 billion this year.

David Seratto, an Orange County animal control officer, said one of the government’s better responses to the attacks was taking over security at all U.S. airports, returning confidence to flying.

“You’re safer when you’re flying now,” he said. “It’s inconvenient, but it’s a necessary inconvenient.”

AP-ES-09-09-05 2115EDT

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