[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
HURRICANES KATRINA AND RITA: WHAT WILL BE
THE LONG TERM EFFECT ON THE FEDERAL BUDGET?
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, AUGUST 2, 2007
__________
Serial No. 110-18
__________
Printed for the use of the Committee on the Budget
Available on the Internet:
http://www.gpoaccess.gov/congress/house/budget/index.html
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COMMITTEE ON THE BUDGET
JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut, PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas Ranking Minority Member
JIM COOPER, Tennessee J. GRESHAM BARRETT, South Carolina
THOMAS H. ALLEN, Maine JO BONNER, Alabama
ALLYSON Y. SCHWARTZ, Pennsylvania SCOTT GARRETT, New Jersey
MARCY KAPTUR, Ohio MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California JEB HENSARLING, Texas
LLOYD DOGGETT, Texas DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts K. MICHAEL CONAWAY, Texas
ROBERT E. ANDREWS, New Jersey JOHN CAMPBELL, California
ROBERT C. ``BOBBY'' SCOTT, Virginia PATRICK J. TIBERI, Ohio
BOB ETHERIDGE, North Carolina JON C. PORTER, Nevada
DARLENE HOOLEY, Oregon RODNEY ALEXANDER, Louisiana
BRIAN BAIRD, Washington ADRIAN SMITH, Nebraska
DENNIS MOORE, Kansas [Vacancy]
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
[Vacancy]
Professional Staff
Thomas S. Kahn, Staff Director and Chief Counsel
James T. Bates, Minority Chief of Staff
C O N T E N T S
Page
Hearing held in Washington, DC, August 2, 2007................... 1
Statement of:
Hon. John M. Spratt, Jr., Chairman, House Committee on the
Budget..................................................... 1
Hon. Paul Ryan, ranking minority member, House Committee on
the Budget................................................. 2
Responses from Mr. Powell to Mr. Ryan's questions for the
record................................................. 38
Donald E. Powell, Federal Coordinator for Gulf Coast
Rebuilding, U.S. Department of Homeland Security........... 3
Prepared statement of.................................... 6
Stanley J. Czerwinski, Director, Strategic Issues, U.S.
Government Accountability Office........................... 9
Prepared statement of.................................... 12
Questions for the record submitted by Mr. Blumenauer..... 47
Responses to Mr. Blumenauer's questions.................. 48
Rev. Donald Boutte, Pastor, St. John Baptist Church.......... 21
Prepared statement of.................................... 24
HURRICANES KATRINA AND RITA:
WHAT WILL BE THE LONG TERM EFFECT
ON THE FEDERAL BUDGET?
----------
THURSDAY, AUGUST 2, 2007
House of Representatives,
Committee on the Budget,
Washington, DC.
The committee met, pursuant to call, at 10:06 a.m. In Room
210, Cannon House Office Building, Hon. John Spratt [chairman
of the committee] Presiding.
Present: Representatives Spratt, Edwards, Blumenauer, Boyd,
Etheridge, Hooley, Moore, Ryan, Bonner, Garrett, Hensarling,
Conaway, Campbell, Porter, Alexander, and Smith.
Chairman Spratt. I call the hearing to order. Good morning.
Welcome to our hearing on the long-term impact of Hurricane
Katrina and Hurricane Rita. We have this morning an excellent
panel of witnesses to help us examine this issue from several
different perspectives. The Gulf Coast hurricanes, horrendous
as they are, is not a new topic for Congress. A number of
committees have already held hearings on this topic. Those
hearings led to legislation to improve our efforts along the
Gulf Coast and in this case, the case of this committee, to
fund the 2008 budget resolution and to address critical needs.
But this is the first hearing on this topic at the Budget
Committee. And we scheduled it because we want to examine
budget-related issues from a longer term perspective.
Among the questions we will examine today, what have
expenditures been to date--that's a fair basic question--but in
this case, expenditures are substantial, unprecedented. What
additional expenditures are likely to be required to finish the
job and rebuild the Gulf Coast and over what period of time? We
need to know that as we prepare budgets that extend into the
outyears.
And finally, what is the appropriate Federal share? We
can't pick up the entire amount, but neither can local and
State government. This August will be 2 years since Hurricane
Katrina made landfall and overwhelmed the levies in New
Orleans. The devastation has been well chronicled and so have
the costly mistakes made in the initial response. In many cases
those mistakes will have long-term as well as short-term costs
both in financial and human terms.
At the same time, as resources were being misspent on
trailers and other supplies that would never be used, there was
a significant bottleneck in supplying funds to rebuild
infrastructure needed immediately and help homeowners rebuild
and come home. Those delays often led to lower and slower
private investment and higher building costs. In addition to
hearing from our witnesses today, the Congressional Budget
Office has compiled at our request information on hurricane-
related spending. CBO's analysis is very useful but CBO was
forced to rely on flawed accounting and tracking data on the
part of the executive branch.
That gap has seriously limited our ability to make up some
of the comparisons that would help us institutionalize disaster
management successes in the 1990s or learn from more recent
mistakes. As we move forward, it will be important to address
these issues, and I hope our witnesses will offer suggestions.
The communities devastated by Hurricane Katrina and
Hurricane Rita still face costly challenges in rebuilding their
homes, their schools, their hospitals, their entire
infrastructure, rebuilding costs for careful or long-term
planning and for targeted investments. We hope that our
discussion this morning and the more detailed information we've
obtained will help this committee and the Congress and CBO
capture the probable costs of the long-term rebuilding effort
and reform the processes that failed in 2005. We have three
excellent witnesses. But before turning to them, let me
recognize our ranking member, Mr. Ryan, for any opening
statement he wishes to make.
Mr. Ryan. Thank you, Chairman and welcome to our esteemed
panel. With a few notable exceptions, such as the Coast Guard,
the response to Hurricane Katrina from all levels of government
was clumsy and inadequate. And we all regret that.
Nevertheless, some facts of the episode cannot be ignored,
including the following. The sheer magnitude of Katrina's
impact posed unprecedented challenges to which all levels of
government fell far short from what we would want. This alone
tragically magnified the shortcomings of the response. Second
the episode demonstrates that Congress's response, pouring huge
sums of money into the region for recovery ends up creating its
own problems.
In particular, it becomes impossible to manage and oversee
such large infusions of cash disbursed in such short time
frame. This can easily lead to waste, fraud and abuse as we
have seen in time and again in other government financed
efforts and unfortunately here as well.
Third, we should not ignore one very large but not
surprising success, the outpouring of support to voluntary
organizations to assist victims and to help with the recovery.
There were over $4 billion in charitable donations provided to
the relief effort with about \2/3\ of it going to the Red Cross
and the Salvation Army. Something we learned from both 9/11 and
Katrina, Americans come through and help their neighbors in
distress, even if those neighbors live 1,000 miles away.
Now it is worthwhile to reflect on what went well and what
didn't, but only if it illuminates lessons that can be helpful
now and into the future. With that in mind, one of the lessons
we can learn is that the coordination of local, State and
Federal responses is absolutely essential. Each level of
government as well as voluntary aid organizations needs to
understand its own particular role in such catastrophes and how
best to work in conjunction with other organizations. I hope
this is an issue we can discuss today. We should also look at
the progress that State and local authorities have had in
developing a proper strategy for further recovery efforts so
that such activities and funds can be used effectively.
We can learn from the mistakes of the past. A recent report
by the Bureau of Government research in New Orleans indicates
that such planning still needs a lot of attention. We should
also be aware that without such a plan, future efforts and
funding for recovery will be much less effective.
I look forward to the discussion of today's hearings and
welcome the observations of our esteemed witnesses and
particularly Chairman Powell, nice to have you here too. Thank
you, Chairman.
Chairman Spratt. Thank you, Mr. Ryan. We have three
witnesses this morning. Mr. Donald E. Powell is the Federal
Coordinator for Gulf Coast Rebuilding. President Bush nominated
Chairman Powell, the former head of the FDIC, to coordinate the
Gulf Coast rebuilding in November of 2005, three months after
the hurricanes. Chairman Powell will describe what has been
done so far, the current status of recovery effort and the Bush
administration's expectations about additional costs and future
initiatives.
In addition, we have Stanley Czerwinski of the GAO. GAO has
conducted extensive oversight of the disaster response and
rebuilding, publishing some 40 reports since Hurricane Katrina.
Mr. Czerwinski will discuss their work with a particular focus
on exploring future and ongoing costs for the recovery.
And finally, we have Reverend Donald Boutte, pastor and
presiding minister at St. John Baptist church in New Orleans.
Reverend Boutte will describe his own personal experiences
during Hurricane Katrina, which destroyed his house and killed
13 of his parishioners, including his work on churches
supporting churches. He also describes the rebuilding effort on
the ground, including his plans to rebuild his church. I will
say to each of you, all three of you, your written testimony,
your written statement will be made part of the record if there
is no objection.
STATEMENTS OF DONALD POWELL, FEDERAL COORDINATOR FOR GULF COAST
REBUILDING; STANLEY CZERWINSKI, DIRECTOR, STRATEGIC ISSUES,
GOVERNMENT ACCOUNTABILITY OFFICE; AND REVEREND DONALD BOUTTE,
PASTOR, ST. JOHN BAPTIST CHURCH
Chairman Spratt. And you may summarize your statement in
any manner you please. Mr. Powell, let's begin with you. We
very much appreciate your coming. And we will look to your
statement before you begin. I would ask unanimous consent that
all members be allowed to submit an opening statement for the
record at this point. With no objections, so ordered.
Mr. Powell.
STATEMENT OF DONALD POWELL
Mr. Powell. Thank you. Chairman Spratt, Ranking Member
Ryan, distinguished members of the House Committee on the
Budget. My name is Don Powell and I am pleased to appear before
you today as the Federal Coordinator for the Gulf Coast
Rebuilding.
The efforts of the local, State and Federal governments,
working with the public spirited nongovernmental organizations
and the people of the Gulf Coast have improved conditions
dramatically since the dark days just after Hurricane Katrina
and Rita struck. Every trip I make to the Gulf Coast, I am
heartened by the progress I see. Of course, money is an
important part of the recovery process, and the President and
Congress have allocated more than $116 billion to the
rebuilding effort to date. More than \3/4\ of those funds have
been obligated to the States.
In addition to the cost for immediate relief and recovery,
the emergency supplemental appropriations have funded major
long-term rebuilding efforts, such as $17.1 billion for long-
term housing and community development, more than $10 billion
so far for local public infrastructure, $8.4 billion for
levies, wetlands restoration and other flood control items; and
more than $10 billion in Small Business Administration loans,
approximately $3.5 billion for Federal highways, bridges and
other infrastructure, $3 billion for health care, counseling
and other human services, and approximately $2 billion for
education.
In addition, approximately $13 billion in tax incentives
and relief have been made available to spur private sector
rebuilding. FEMA public assistance. I understand the concerns
about the speed and efficiency of the FEMA public assistance
program, which provides funds to repair public infrastructure
such as roads, sewer, water systems, schools and public safety
infrastructure. This project worksheet process often takes time
and I understand the sense of urgency on the part of those on
the local level to need to rebuild. Our office has worked hard
to improve the process. But rebuilding is a partnership. Once
the Federal Government has provided funds to the State
governments, State and local government officials become
primarily responsible for the managing of the rebuilding. A
very significant portion of the funds, $4.89 billion in
Louisiana or more than \3/4\ of the projected total is now
available to the local leaders for rebuilding.
The State of Louisiana has transferred only about $2.6
billion of that money into the hands of the local applicants.
Delays can result if State or local applicants do not know what
to do, a limited capacity of the local level. That is why FEMA
has worked to assist local stakeholders by providing millions
of additional funds for administrative costs and additional
hands-on support. State and local leaders must hold up their
end of the partnership by meeting basic responsibilities or
projects become stalled. The Federal Government has not been
blameless, but we have worked to streamline the public
assistance process, actually reducing the amount of time for
processing grants from months to weeks. Specifically, our
office worked with FEMA to improve FEMA's internal management
by reducing personnel turnover and empowering key leaders to
make decisions, improve cost estimates for local applicants,
cut unnecessary layers of bureaucracy in FEMA's approval
process while still ensuring appropriate and required due
diligence.
Help local communities set the building requirements and
implement and approve A to Z tracking system that tracks
applicants from initial application through award of funds. For
an example of FEMA's improved performance, State superintendent
Paul Pastorek recently praised FEMA for its prompt action to
initiate the rebuilding of five schools in order to have them
open in time for the beginning of classes next fall. Finally
FEMA and our office are working to improve the transparency of
the project worksheet process. Together we are preparing a Web
site that would allow government officials, local leaders and
the general public to track the progress of each project. For
example, it would allow people to check the status of the
rebuilding of their local public school, firehouse or police
station. By providing this information to the public, we hope
to make public interest a tool to drive progress. Looking
ahead, additional needs could arise on the Gulf Coast beyond
the $116 billion already appropriated.
Let me outline two areas where additional funds may be
requested. First, the Army Corps of Engineers started work
immediately after the storms. As of today over $8.4 billion
have been secured for hurricane protection and the Corps has
upgraded the levy and hurricane protection system
significantly. The Corps has repaired and restored more than
220 miles of levies and flood walls in the New Orleans area.
While vulnerability still exists hurricane protection in
southeast Louisiana is better than it has ever been. The Corps
is now in the process of preparing its cost estimates to
complete its efforts to provide 100-year protection to the New
Orleans area and is expected to announce those estimates very
shortly.
Governor Blanco's Road Home Program, which is intended to
provide homeowner assistance, has been federally funded through
the Community Development Block Grant Program. The State now
projects a shortfall in the current Road Home Program that is
estimated at between $2.9 billion and $5 billion based on the
eligibility determinations and program scope. The exact size of
the shortfall is still being determined since the Road Home
Program's application period closed just two days ago. The
administration, through our office, reached a consensus with
the State of Louisiana on funding for the Road Home Program.
During the discussions, we maintained that Federal funds would
only be allocated for homeowners who had experienced flood
damage.
We took that position for two reasons. Wind damage is an
otherwise insurable event. There is a robust private market in
homeowner insurance that covers wind damage and people need to
carry adequate insurance rather than rely on government aid. It
is what Nobel prize winning economist Kenneth Arrow calls
avoiding a moral hazard by government. The Federal Government
has a special responsibility to assist those homeowners who
experience flooding from an unanticipated storm surge or
breaches of Federal levies. These citizens still struggle the
most to recover, and we always believed their needs should be
prioritized. This position was communicated to the State of
Louisiana and the other four States hit by the 2005 hurricanes
in discussion about compensation for wind damage. The
administration requested additional CDBG funds for the Road
Home Program and the second supplemental was based exclusively
on assistance for homeowners who experienced flood damage.
After Congress appropriated the mutually agreed upon levels of
Federal funding, the State of Louisiana made a unilateral
decision to expand the Road Home Program to assist homeowners
who experienced only wind damage.
Under the very flexible CDBG program rules, there was no
authority to prevent the State from funding wind-only
applications. Based on current information, our office
calculates that there would be no shortfall in the Road Home
Program if it had remained limited to assistance for homeowners
who experienced flooding and storm surge. The Road Home
shortfall is a significant problem with broad implications on
the rebuilding and for the public policy nationwide for years
to come. Thousands of Louisiana citizens are relying on State-
promised grants to support their efforts to rebuild homes. If
they can't rebuild, their recovery will be slowed considerably.
According to recent data by the United States Postal
Service, the vacancy rate in flood damaged areas is still 53
percent as compared to 4 percent vacancy rate in wind-only
damaged areas. I have been in discussions with Louisiana
officials concerning the projected shortfall, and I met with
Louisiana Governor Blanco on June 6. The day after the meeting
I submitted a number of questions to the State related to the
financing of the Road Home Program. We are awaiting the State's
response to those questions and we will analyze the data when
it is received. Further discussion will focus on the analysis
of the facts. The Federal Government is following through on
its commitment to rebuild the Gulf Coast. Obviously a great
deal of work remains, and it will take a long time to complete.
It is going to take the leadership and cooperation by the
Federal, State and local leaders. That is why it is important
that we keep our eyes on the long-term vision. We are talking
about rebuilding an entire region of the country, a region, I
might add, that was facing significant challenges before
Katrina. The people who know me know that I love a challenge
and that is why I remain optimistic and believe that we are on
our way to a more hopeful future for all citizens along the
Gulf Coast. Thank you.
Chairman Spratt. Thank you very much, Mr. Chairman.
[The prepared statement of Donald Powell follows:]
Prepared Statement of Donald E. Powell, Federal Coordinator for Gulf
Coast Rebuilding, U.S. Department of Homeland Security
Chairman Spratt, Ranking Member Ryan and distinguished members of
the House Committee on the Budget: my name is Donald E. Powell and I'm
pleased to appear before you today as the Federal Coordinator for Gulf
Coast Rebuilding. I'm here today to discuss the federal budget
implications--both long-term and short-term--of the rebuilding effort
in the wake of Hurricanes Katrina and Rita.
I remain confident that Gulf Coast can and will achieve a full
recovery from the devastating hurricanes of 2005. Advancing that
recovery must be a priority to strengthen our nation's economy and
serve the Americans who bore the brunt of these disasters. The efforts
of local, state and federal governments working with public-spirited
organizations and the people of the Gulf Coast have improved conditions
dramatically since the dark days just after Hurricane Katrina struck. I
continue to see improvement in my frequent travels along the Gulf
Coast. But, as you know, full recovery will take time and require a
strong and continuing commitment from all levels of government.
Money is an important part of the recovery process, and Congress
appropriated more than $116 billion to support the rebuilding effort.
However, we should remember that recovery is not simply a matter of
money. It is about the people of the Gulf Coast region, leadership from
all levels of government and the private sector, charitable
organizations, and the thousands and thousands of Americans who have
generously volunteered to help their fellow citizens in one way or
another. These citizens have contributed and continue to contribute
enormously to the recovery, and have a huge impact on how effectively
money is spent in the recovery process.
The federal government has pushed to get appropriated funds to
projects on the Gulf Coast to jumpstart the recovery and invest in the
long-term rebuilding of the region. Of the funds made available for
Gulf Coast recovery, nearly 80% has been obligated to date. Update
figures will be available by the end of August. In addition to costs
for immediate relief and recovery, the major investments funded by
emergency supplemental appropriations for the Gulf Coast include:
$17.1 billion for housing and community development,
including homeowner assistance, rental housing and public housing
$8.3 billion for levees, wetlands restoration, and other
flood control items
More than $10 billion in Small Business Administration
loans
Approximately $3.5 billion for the Department of
Transportation- for federal highways, bridges, etc.
Approximately $3 billion for health and human services,
including federal payments to States for health care assistance, Social
Services Block Grants, Head Start, Temporary Assistance to Needy
Families and other health care and anti-poverty programs.
Approximately $2 billion for education
In addition, approximately $13 billion in tax incentives and relief
have been made available.
When we take a look at the perceived and sometimes actual delays
and bottlenecks slowing funding to the Gulf Coast, the problems vary
depending on the type of program. Basically the programs--excluding
direct aid to individuals--break down into three categories:
1. Federal/State partnerships (FEMA Public Assistance)--The Federal
Emergency Management Administration (FEMA) reviews the request for
funding (so-called project worksheets or PWs) and then obligates the
funds to the State for each individual project. The State, in turn,
grants the money to eligible applicants--generally local governments
and non-profit organizations--as work is completed. These partnership
projects require a significant degree of cooperation on the federal,
state and local level to operate efficiently;
2. Federal construction projects (ex. levees and hurricane
protection)--In these projects, the federal government secures the
funding and then implements the work over a number of years. The flow
of money is limited primarily by the pace of work, although delays can
sometimes arise related to a state's cost-share on a project; and
3. State-run programs (ex. LA and MS homeowners assistance programs
funded by the Department of Housing and Urban Development's (HUD)
Community Development Block Grant.--In these cases, the federal
government provides significant[k1] flexibility to the state and local
governments to determine funding priorities, and administer the funds.
Here the federal role is limited to preventing the gross misuse of
funds, allowing states very broad latitude to design relief programs as
they see fit.
fema public assistance
FEMA now estimates that the State of Louisiana will ultimately
receive $6.3 billion to repair State and local public infrastructure
(roads, sewer and water system, schools, public safety infrastructure
such as firehouses, jails, etc) and to fund debris removal and
emergency protective measures through the Public Assistance program. As
of July 20th, Louisiana has access to $4.89 billion (or 78% of the
total). The State of Louisiana has transferred about $2.6 billion (or
52% of the funds available to the state) into the hands of local
applicants. Across the Gulf Coast, FEMA has obligated over $10 billion
in public assistance funding to the States (Alabama, Mississippi,
Louisiana, Florida, and Texas).
As I stated, the rebuilding of public infrastructure is a
partnership. Once the federal government has provided funds to the
state government, state and local government officials become primarily
responsible for managing the rebuilding. (It is worth noting, however,
that there can be cases where money is obligated to a project while
additional monies are in dispute. These disputes can slow progress
despite the availability of money for substantial portions of the
project.) The bottom line is that a very significant portion of the
funds, more than three-quarters of the projected total, has been made
available to the state for rebuilding. Without minimizing the many
difficulties and delays that bedevil the rebuilding process, the
federal government has made and continues to make progress in the
effort to put federal funds to work in the recovery.
There are many legitimate reasons for rebuilding to be delayed
after federal funds have been obligated for a project. In New Orleans
Office of Recovery Management Executive Director Dr. Blakely's words
``We have to put the plans in place before we can spend the money * * *
we have to work with the recreation department, we have to make sure
the fire station and police station is in the right place and so on. As
we're going through that, we really can't spend any money because we
can't spend the money until we get agreement on the plans.'' These can
often be difficult and contentious decisions because they can affect
the character of the communities being rebuilt.
There are other times, frankly, when delays result from inaction by
state or local applicants. Some of these challenges are caused by
limited capacity at the local level. FEMA has worked to assist local
stakeholders by providing additional funds for administrative costs and
providing an unprecedented degree of hands-on support. At the end of
the day, however, state and local leaders must hold up their end of the
partnership by meeting certain basic responsibilities, or projects
become stalled.
I do not want to suggest that the federal government has been
blameless in this process. FEMA and other federal agencies have faced
challenges, and there have been some legitimate concerns. Nevertheless,
there have been significant improvements in the way that FEMA does
business.
We have worked to streamline FEMA's public assistance process,
actually reducing time for processing grants from months to weeks.
Specifically, we worked with FEMA to:
Improve FEMA's internal management by reducing personnel
turnover, empowering key leaders to make decisions, and improving cost
estimates for local applicants;
Cut unnecessary layers of bureaucracy in FEMA's approval
process, while still ensuring appropriate and required due diligence;
Help local communities set their PA priorities by working
more closely with local applicants to determine their priority PWs/
projects and address their concerns with the PA program; and
Implement an improved ``A to Z'' Tracking System that
tracks applications from initial application through awarding of funds.
In addition, we remain committed to ensuring that payments reach
their intended recipients and are used for their intended purpose.
hurricane protection
The Army Corps of Engineers started work almost immediately after
the hurricanes to repair and strengthen the hurricane protection system
to achieve a 100-year level of storm protection for the City of New
Orleans. As of today, over $7.1 billion has been secured for repairing
and upgrading the greater New Orleans hurricane protection system, and
the Corps has upgraded the levee and hurricane protection system to
make them stronger and more resilient than before the storms. While
vulnerabilities still exist, hurricane protection in southeast
Louisiana is better than it has ever been. The Corps has repaired and
restored more than 220 miles of levees and floodwalls in the New
Orleans area. The President also advocated and signed legislation
allowing Louisiana to share in revenues from drilling along the Outer
Continental Shelf, which will provide billions of dollars to help
Louisiana restore its coastal wetlands as directed by the State
Constitution.
louisiana's road home program
Louisiana's homeowner assistance program, a main part of the Blanco
Road Home Program, has received federal funds through the CDBG program.
It provides grants to eligible homeowners who suffered major or severe
damage to their homes due to the storms and the failure of the federal
levee system.
The Road Home Homeowners Assistance Program was budgeted by the
State at $7.5 billion--with approximately $6.3 billion coming from CDBG
funds (out of the total of $10.4 billion in CDBG funds allocated to the
State of Louisiana) and $1.2 billion coming from FEMA's Hazard
Mitigation Grant Program (HMGP).
The State now projects a shortfall in the current Road Home program
that is estimated at between $2.9 billion and $5 billion, based on
current eligibility determinations and program scope. The exact size of
the shortfall is still being determined because the program only closed
to new applications on July 31. Additional time will be needed to
determine exactly how many of the applicants will be found eligible for
the program, and determine what level of benefits they will be eligible
to receive. As of July 24, the program was reported to have received
165,500 applications.
Because my staff and I participated in the negotiations that
resulted in the initial funding of the Blanco Road Home program, I want
to take this opportunity to explain how the program came about. Our
office worked extensively with state officials during January and
February 2006 to develop a budget for the Road Home program, which led
to the President's request for additional CDBG funds which Congress
approved in June 2006.
During the discussions with Louisiana and separate discussions with
other affected states, the Administration, through our office, took the
position that federal funds would only be allocated for homeowners who
had experienced flood damage. We decided on that policy for two
reasons:
1. Wind damage is an otherwise insurable event. There is a robust
private market in homeowners insurance that covers wind damage, and
people need to carry adequate insurance rather than rely on government
aid.
2. The federal government has a special responsibility to assist
those homeowners who experienced flooding from unanticipated storm
surge or breaches of federal levees. These citizens still struggle the
most to recover and we have always believed their needs should be
prioritized.[k2]
This position was communicated to the State of Louisiana and to
other states on the Gulf Coast--most notably Texas--when they requested
funding for homeowner assistance programs that would cover those who
experienced only wind damage in Hurricanes Katrina and Rita. The
Administration's request for CDBG funds for the Road Home program was
based on assistance for homeowners who experienced flood damage.
Subsequently, the State of Louisiana made a unilateral decision to
expand the Road Home program to assist homeowners who experienced wind
damage. This decision was within their authority under the very
flexible CDBG program rules. The federal government had no legal
authority to overturn the state's decision to re-allocate these federal
funds. Our office, however, calculates that the program cost would be
within original estimates, if the State had remained limited to
assistance for homeowners who experienced flooding.
I have been in discussions with Louisiana officials, and I met with
Louisiana Governor Kathleen Blanco on June 6. The day after that
meeting, I submitted a number of questions to the State related to the
finances of the Road Home program. We are awaiting the State's response
to those questions and will analyze the data when it is received.
Future discussion will focus on an analysis of the facts.
conclusion
The Federal government is following through on its commitment to
rebuild the Gulf Coast. I've spent countless days with the citizens of
the Gulf Coast, and every week, I see more progress. Critical
infrastructure is being restored and rebuilt. The vast majority of
damaged schools have reopened. More and more citizens are coming back
to once-devastated neighborhoods that are coming back to life. And for
the New Orleans area, the levees are better than they've ever been, and
we're working toward achieving 100-year level of protection.
Obviously, a great deal of work remains, and it'll take a long time
to complete. We're talking about transforming an entire region of the
country--a region, I might add, that was facing significant challenges
before Katrina. Some of the work of rebuilding is entirely in the hands
of federal officials, some of it is entirely in the hands of state and
local officials, and other parts are conducted in partnership. But a
successful and efficient rebuilding requires cooperation on all levels.
That's why it's important that we keep our eyes on the long-term
vision.
So this isn't going to happen overnight, and we're not there yet.
But with continued Federal commitment, and increased leadership from
the local officials that must drive this rebuilding, we are on our way
to a more hopeful future for all citizens along the Gulf Coast.
Chairman Spratt. Now let's go to Mr. Czerwinski of the
Government Accountability Office.
STATEMENT OF STANLEY CZERWINSKI
Mr. Czerwinski. Thank you, Mr. Chairman and members of the
subcommittee. I would like to echo some of the opening comments
made today. This is an unprecedented challenge. It requires a
long-term perspective, and coordination of delivery benefits is
going to be the key. To assist the subcommittee's deliberations
today, I would like to cover three things.
First of all, I would like to talk about the Federal
funding and put it into the context of the overall damage to
the region as well as breaking down that funding between
response that came in the initial aftermath of the storm and
the longer term building.
The second part I would like to talk about is some key
areas where rebuilding has occurred and third, some issues that
are necessary to look at going forward. The Congressional
Budget Office estimates the damage for the Gulf Coast at
between $70 and $130 billion. Researchers at the University of
West Virginia put that number at about $150 billion. As
Chairman Powell noted, the Congress, in five supplemental
appropriations so far has appropriated about $116 billion.
What is important to note, however, is that the vast
majority of the money already appropriated went to the initial
response and recovery. The Brookings Institution has estimated
about $35 billion has been appropriated for long-term
rebuilding. In my written statement, I cover a number of the
key areas where long-term rebuilding is going on. Today I would
like to focus on two of them: Public Assistance and Community
Development Block Grants. But if you would want to cover those
in questions and answers, I would be glad to go into those
also. As you know when the Congress was faced with a need to
get funds down to the Gulf Coast it relied on some off-the-
shelf delivery mechanisms that have been used in prior
disasters. The first of these is Public Assistance.
As Chairman Powell noted, Public Assistance is for
rebuilding public infrastructure such as roads, bridges
hospitals. It is project-based assistance has very specific
rules that have to be followed to get the benefits. So far,
FEMA through Public Assistance has made available to Gulf Coast
States about $8 billion. The split in these funds mirrors a
split in the overall Federal funds. That is less than half of
the Public Assistance funds have gone into rebuilding. The
other part has gone into the emergency assistance, such as
clearing the roads before you can rebuild them, sandbagging low
lying areas so they can go in there and do the work.
The amount of Public Assistance that you are going to be
seeing in the future is likely to grow, and there are several
reasons for it. First of all, FEMA notes that there are
projects that are just entering the pipeline. They estimate
this will cost about an additional $2 billion. In addition to
that, if you look back to the history of prior disasters such
as Hurricane Andrew, Northridge, we are just closing the door
on Hurricane Andrew Public Assistance. The Northridge projects
are just finishing up also. Those disasters occurred 13 to 14
years ago.
So you are going to be seeing this going on on the Gulf
Coast, which far outstrips the size of those disasters, for
some time. In addition to that there is one additional piece
and that is the actual cost of the rebuilding for the Public
Assistance projects that are already in the pipeline will
probably exceed the estimated costs.
This is not surprising. This typically happens in
disasters. What happens is that people look at something right
then, but they can't project exactly the circumstances that
will occur. State of Louisiana officials tell us that they are
facing much higher material costs, much higher labor costs. It
makes sense. I will give you an example. I was on a trip to New
Orleans for this job back in the summertime. I happen to notice
a McDonald's was hiring counter workers and they were offering
$11 an hour. Those positions were going unfilled.
You can imagine what a skilled carpenter is making. You
couldn't have guessed that 2 years ago. So that is going to be
driving up costs also. The second area I would like to talk
about is Community Development Block Grants. As Chairman Powell
noted, over $16 billion have gone down to the Gulf Coast States
in Community Development Block Grants. Over $10 billion of that
to Louisiana, just under $6 of that to Mississippi. These
moneys go out there with very few strings attached. The program
is designed that way. What is important to look at is how the
States with the discretion have decided to spend their money.
In both Louisiana and Mississippi have chosen similar paths.
The lion's share of the money to both the States has gone into
homeowner assistance. And as Chairman Powell noted, the concern
about the adequacy of funding occurs in Louisiana's homeowner
assistance program called the Road Home. And there are several
reasons for this. First of all, more people applied than we
could have guessed. The grants going to them were higher than
anticipated. As Chairman Powell notes, a point of contention in
this is the handling of the wind damage.
And I know the Chairman spent a lot of time on this one. I
won't belabor that one. You can go into all the details you
want, and I can chime in, but really, this is an area that he
is on top of. The area that I would like to, though, emphasize
is an additional one. And that is the Hazard Mitigation Grant
program. This is a program FEMA runs and it is designed to help
people rebuilding rebuild to standards that if there is a
future storm, they won't be so vulnerable. The idea was to
combine the money from Community Development Block Grants which
help people rebuild their houses with the money from Hazard
Mitigation Grants which then says build them at a higher
elevation so that when there is a storm, the water washes under
the house instead of through it and knocks it away. There has
been a problem integrating that stream of funding from Hazard
Mitigation Grants with Community Development Block Grants.
FEMA had promised Louisiana about $1.2 billion which was
going to go into the Road Home Program. They have not delivered
that money because FEMA says that the State has not met the
requirements of Hazard Mitigation Grants.
When you roll all these things together, as Chairman Powell
notes and as the State of Louisiana auditor said, it brings you
a shortfall for the Road Home Program to about $3 to $5
billion. The bottom line is if you look at Public Assistance,
look at Community Development Block Grants, and you can look at
the other programs, levies, wetlands, go down the list, what we
would be facing is requests for additional Federal funding for
quite some time. The key here is, as Chairman Spratt knows, to
determine how much, for what, who is going to contribute?
Important piece is leveraging. With every additional Federal
investment we should be expecting leveraging of State and local
funds as well as from the private sector, both for profit and
nonprofit. In this environment, partnerships become critical.
If you are going to have this type of partnered
environment, it has to start from a shared vision, requires a
strategic plan, and you have to have measurable accomplishments
that everybody agrees to. The challenge to doing this is
tremendous. We are talking about crossing intergovernmental
lines involving multiple Federal agencies, and of course there
is a lot of congressional committees involved too. If you go
back to the example that I use, which is a fairly simple one,
just bringing together two streams of funds, Hazard Mitigation
and CDBG, we are struggling there. If we are talking about a
plan that involves multiple lines of funding, multiple players
the challenge becomes even greater to fit these pieces
together.
This committee with its cross-cutting jurisdiction is
uniquely placed to bring a broader view, and frankly, so is the
Chairman from the executive branch perspective. I view this
hearing as an important first step to doing that. The GAO as,
Chairman Spratt noted, we have done a lot of work at Gulf Coast
rebuilding, we are looking forward to doing a lot more for you
and we stand ready to help you in any way we can. That
concludes my statement Mr. Chairman. I would be glad to answer
any questions you may have.
[The prepared statement of Mr. Czerwinski follows:]
Prepared Statement of Stanley J. Czerwinski, Director, Strategic
Issues, U.S. Government Accountability Office
Mr. Chairman and Members of the Committee: I appreciate the
opportunity to participate in today's hearing to discuss our
preliminary observations on the federal financial implications of Gulf
Coast rebuilding issues.\1\ The Gulf Coast and the nation continue to
face daunting rebuilding costs, uncertainty surrounding numerous
decisions linked to the availability of federal funds, and the
complexity of integrating multiple public and private decisions that
will influence the future of the region. The size and scope of the
devastation caused by the Gulf Coast hurricanes\2\ presents the nation
with unprecedented rebuilding challenges as well as opportunities to
reexamine shared responsibility among all levels of government. Wide
swaths of housing, infrastructure, and businesses were destroyed,
leaving more than 1,500 people dead and hundreds of thousands of others
displaced without shelter and employment. Our ongoing work in
Mississippi, southern Louisiana, and New Orleans confirms that some
communities still lack fulfillment of basic needs, such as schools,
hospitals, and other infrastructure, while the doors of many businesses
remain closed. Almost 2 years since the hurricanes made landfall, many
Gulf Coast neighborhoods and communities still need to be rebuilt--some
from the ground up.
Major decisions still need to be made regarding infrastructure,
housing, levee protection, coastal restoration, and economic recovery,
among other issues. All levels of government, together with the private
and nonprofit sectors, will need to play a critical role in the process
of choosing what, where, and how to rebuild. Agreeing on what the costs
are, what rebuilding should be done and by whom, and who will bear the
costs will be key to the overall rebuilding effort.
My testimony today will offer some preliminary observations on the
federal financial implications of rebuilding efforts in the Gulf Coast.
These observations may assist you in your oversight of these
activities--now and over the longer term. I would like to: (1) place
the federal assistance provided to date in the context of varied damage
estimates for the Gulf Coast; and (2) discuss the key federal programs
that provide rebuilding assistance, with an emphasis on Public
Assistance (PA) and Community Development Block Grants (CDBG). In doing
so, we will highlight aspects of Gulf Coast rebuilding likely to place
continued demands on federal resources.
My statement is based largely on our completed and ongoing work in
Washington, D.C., as well as Louisiana and Mississippi--the two states
most directly affected by the Gulf Coast hurricanes. Specifically, we
analyzed state and local documentation related to funding for
rebuilding and interviewed state and local officials as well as
representatives from nongovernmental organizations in these two states.
We also interviewed various federal officials from the Federal
Emergency Management Agency (FEMA), the Department of Housing and Urban
Development (HUD), and the Coordinator of Federal Support for the
Recovery and Rebuilding of the Gulf Coast Region\3\ within the
Department of Homeland Security (DHS) and analyzed federal regulations
and state policies regarding funding for the Gulf Coast. We performed
our work in accordance with generally accepted government auditing
standards.
estimates raise questions regarding long-term funding
The total long-term funding for helping the Gulf Coast recover from
the 2005 hurricanes hinges on numerous factors including policy choices
made at all levels of government, knowledge of spending across the
federal government, and the multiple decisions required to transform
the region. To understand the long-term federal financial implications
of Gulf Coast rebuilding it is helpful to view potential federal
assistance within the context of overall estimates of the damages
incurred by the region. Although there are no definitive or
authoritative estimates of the amount of federal funds that could be
invested to rebuild the Gulf Coast, various estimates of aspects of
rebuilding offer a sense of the long-term financial implications. For
example, early damage estimates from the Congressional Budget Office
(CBO) put capital losses from Hurricanes Katrina and Rita at a range of
$70 billion to $130 billion\4\ while another estimate put losses solely
from Hurricane Katrina--including capital losses--at more than $150
billion.\5\ Further, the state of Louisiana has estimated that the
economic effect on its state alone could reach $200 billion. The exact
costs of damages from the Gulf Coast hurricanes may never be known, but
will likely far surpass those from the three other costliest disasters
in recent history--Hurricane Andrew in 1992, the 1994 Northridge
earthquake, and the September 2001 terrorist attacks.\6\ These
estimates raise important questions regarding how much additional
assistance may be needed to continue to help the Gulf Coast rebuild,
and who should be responsible for providing the related resources.
To respond to the Gulf Coast devastation, the federal government
has already committed a historically high level of resources--more than
$116 billion--through an array of grants, loan subsidies, and tax
relief and incentives. The bulk of this assistance was provided between
September 2005 and May 2007 through five emergency supplemental
appropriations.\7\ A substantial portion of this assistance was
directed to emergency assistance and meeting short-term needs arising
from the hurricanes, such as relocation assistance, emergency housing,
immediate levee repair, and debris removal efforts. The Brookings
Institution has estimated that approximately $35 billion of the federal
resources provided supports longer-term rebuilding efforts.\8\
The federal funding I have mentioned presents an informative, but
likely incomplete picture of the federal government's total financial
investments to date. Tracking total funds provided for federal Gulf
Coast rebuilding efforts requires knowledge of a host of programs
administered by multiple federal agencies. We previously reported that
the federal government does not have a governmentwide framework or
mechanism in place to collect and consolidate information from the
individual federal agencies that received appropriations in emergency
supplementals for hurricane relief and recovery efforts or to report on
this information.\9\ It is important to provide transparency by
collecting and publishing this information so that hurricane victims,
affected states, and American taxpayers know how these funds are being
spent. Until such a system is in place across the federal government, a
complete picture of federal funding streams and their integration
across agencies will remain lacking.
demand for federal rebuilding resources likely to continue
Demands for additional federal resources to rebuild the Gulf Coast
are likely to continue, despite the substantial federal funding
provided to date. The bulk of federal rebuilding assistance provided to
the Gulf Coast states funds two key programs--FEMA's Public Assistance
(PA) program and HUD's Community Development Block Grant (CDBG)
program. These two programs follow different funding models. PA
provides funding for restoration of the region's infrastructure on a
project-by-project basis involving an assessment of specific proposals
to determine eligibility. In contrast, CDBG affords broad discretion
and flexibility to states and localities for restoration of the
region's livable housing. In addition to funding PA and CDBG, the
federal government's recovery and rebuilding assistance also includes
payouts from the National Flood Insurance Program (NFIP) as well as
funds for levee restoration and repair, coastal wetlands and barrier
islands restoration, and benefits provided through Gulf Opportunity
Zone (GO Zone) tax expenditures.
public assistance program faces increased costs
The PA Grant program provides assistance to state and local
governments and eligible nonprofit organizations on a project-by-
project basis for emergency work (e.g., removal of debris and emergency
protective measures) and permanent work (e.g., repairing roads,
reconstructing buildings, and reestablishing utilities).\10\ After the
President declares a disaster, a state becomes eligible for federal PA
funds through FEMA's Disaster Relief Fund. Officials at the local,
state, and federal level are involved in the PA process in a variety of
ways. The grant
applicant, such as a local government or nonprofit organization,
works with state and FEMA officials to develop a scope of work and cost
estimate for each project that is documented in individual project
worksheets. In addition to documenting scope of work and cost
considerations, each project worksheet is reviewed by FEMA and the
state to determine whether the applicant and type of facility are
eligible for funding. Once approved, funds are obligated, that is, made
available, to the state. PA generally operates on a reimbursement
basis. Reimbursement for small projects (less than $59,700) are made
based on the project's estimated costs, while large projects (more than
$59,700) are reimbursed based upon actual eligible costs when they are
incurred.\11\
As of the middle of July 2007, FEMA had approved a total of 67,253
project worksheets for emergency and permanent work, making available
about $8.2 billion in PA grants to the states of Louisiana,
Mississippi, Texas, and Alabama. A smaller portion of PA program funds
are going toward longer-term rebuilding activities than emergency work.
Of the approximately $8.2 billion made available to the Gulf Coast
states overall, about $3.4 billion (41 percent) is for permanent work
such as repairing and rebuilding schools and hospitals and
reestablishing sewer and water systems, while about $4.6 billion (56
percent) is for emergency response work such as clearing roads for
access and sandbagging low-lying areas. The remaining amount of PA
funds, about $0.2 billion (3 percent) is for administrative costs. (See
fig. 1.) Of the funds made available by FEMA to the states for
permanent rebuilding, localities have only received a portion of these
funds since many projects have not yet been completed. Specifically, in
Louisiana and Mississippi, 26 and 22 percent of obligated funds,
respectively, have been paid by the state to applicants for these
projects.
The total cost of PA funding for the Gulf Coast hurricanes will
likely exceed the approximately $8.2 billion already made available to
the states for two reasons:
(1) the funds do not reflect all current and future projects, and
(2) the cost of some of these projects will likely be higher than
FEMA's original estimates. According to FEMA, as of the middle of July
2007, an additional 1,916 project worksheets were in process (these
projects are in addition to the 67,253 approved project worksheets
mentioned above). FEMA expects that another 2,730 project worksheets
will be written. FEMA expects these worksheets to increase the total
cost by about $2.1 billion, resulting in a total expected PA cost of
about $10.3 billion.
Some state and local officials have also expressed concerns about
unrealistically low cost estimates contained in project worksheets,
which could lead to even higher than anticipated costs to the federal
government. A senior official within the Louisiana Governor's Office of
Homeland Security and Emergency Preparedness recently testified that
some of the projects were underestimated by a factor of 4 or 5 times
compared to the actual cost.\12\ For example, the lowest bids on 11
project worksheets for repairing or rebuilding state-owned facilities,
such as universities and hospitals, totaled $5.5 million while FEMA
approved $1.9 million for these projects.
The extent to which the number of new project worksheets and actual
costs that exceed estimated costs will result in demands for additional
federal funds remains unknown. In addition PA costs may increase until
a disaster is closed, which can take many years in the case of a
catastrophic disaster.\13\ For instance, PA costs from the Northridge
earthquake that hit California in January 1994 have not been closed out
more than 13 years after the event. Our ongoing work on the PA program
will provide insights into efforts to complete infrastructure projects,
the actual costs of completed projects, and the use of federal funds to
complete PA projects.
additional resource demands anticipated for cdbg program
HUD's CDBG program provides funding for neighborhood revitalization
and housing rehabilitation activities, affording states broad
discretion and flexibility in deciding how to allocate these funds and
for what purposes. Congress has provided even greater flexibility when
allocating additional CDBG funds to affected communities and states to
help them recover from presidentially-declared disasters, such as the
Gulf Coast hurricanes.\14\ To date, the affected Gulf Coast states have
received $16.7 billion in CDBG funding from supplemental
appropriations--so far, the largest federal provider of long-term Gulf
Coast rebuilding funding.\15\ As shown in figure 2, Louisiana and
Mississippi were allocated the largest shares of the CDBG
appropriations, with $10.4 billion allocated to Louisiana, and another
$5.5 billion allocated to Mississippi. Florida, Alabama, and Texas
received the remaining share of CDBG funds.\16\
To receive CDBG funds for Gulf Coast rebuilding, HUD required that
each state submit an action plan describing how the funds would be
used, including how the funds would address long-term ``recovery and
restoration of infrastructure.'' Accordingly, the states had
substantial flexibility in establishing funding levels and designing
programs to achieve their goals. As shown in figure 3, Mississippi set
aside $3.8 billion to address housing priorities within the state while
Louisiana dedicated $8 billion for its housing needs.
Each state also directed the majority of its housing allocations to
owner-occupied homes and designed a homeowner assistance program to
address the particular conditions in their state. As discussed below,
each state used different assumptions in designing its programs, which
in turn affects the financial implications for each state.
Louisiana's Homeowner Using $8.0 billion in CDBG funding, the
Louisiana Recovery Authority (LRA) Assistance Program Anticipates
developed a housing assistance program called the Road Home to restore
the Shortfall housing infrastructure in the state.\17\ As shown in
figure 4, Louisiana set aside about $6.3 billion of these funds to
develop the homeowner assistance component of the program and nearly
$1.7 billion for rental, low-income housing, and other housing-related
projects. Louisiana anticipated that FEMA would provide the homeowner
assistance component with another $1.2 billion in grant assistance.
Louisiana based these funding amounts on estimates of need within the
state. Accordingly, Louisiana estimated that $7.5 billion would be
needed to assist 114,532 homeowners with major or severe damage.
Louisiana also estimated these funds would provide an average grant
award of $60,109 per homeowner.
The LRA launched the Road Home homeowner assistance program in
August 2006. Under the program, homeowners who decide to stay in
Louisiana and rebuild are eligible for the full amount of grant
assistance--up to $150,000. Aside from the elderly, residents who
choose to sell their homes and leave the state will have their grant
awards reduced by 40 percent, while residents who did not have
insurance at the time of the hurricanes will have their grant awards
reduced by 30 percent. To receive compensation, homeowners must comply
with applicable code and zoning requirements and FEMA advisory base
flood elevations when rebuilding and agree to use their home as a
primary residence at some point during a 3-year period following
closing. Further, the amount of compensation that homeowners can
receive depends on the value of their homes before the storms and the
amount of flood or wind damage that was not covered by insurance or
other forms of assistance.
As of July 16, 2007, the Road Home program had received 158,489
applications and had held 36,655 closings with an average award amount
of $74,216. With the number of applications exceeding initial estimates
and average award amounts higher than expected, recent concerns have
been raised about a potential funding shortfall and the Road Home
program's ability to achieve its objective of compensating all eligible
homeowners. Concerns over the potential shortfall have led to questions
about the Road Home program's policy to pay for uninsured wind damage
instead of limiting compensation to flood damage. In recent
congressional hearings, the Executive Director of the LRA testified
that the Road Home program will require additional funds to compensate
all eligible homeowners, citing a higher than projected number of
homeowners applying to the program, higher costs for homeowner repairs,
and a smaller percentage of private insurance payouts than expected.
According to the Federal Coordinator for Gulf Coast Rebuilding,
CDBG funds were allocated to Louisiana on the basis of a negotiation
with the state conducted between January and February 2006. That
negotiation considered the provision of federal funding for the state's
need to conduct a homeowner assistance program covering homes that
experienced major or severe damage from flooding. The state requested
the allocation of federal funding at that time to expand the program to
assist homeowners who experienced only wind damage. That request to
provide federal funds to establish a homeowner program for homes which
only experienced wind damage was denied, as were similar requests from
Gulf Coast states such as Texas. The Administration requested the
negotiated amount from Congress on February 15, 2006, Congress approved
that amount, and it was signed into law by the President on June 15,
2006. Subsequently, Louisiana announced the expansion of the Road Home
program to cover damage exclusively from wind regardless of the stated
intention of the federal allocation, but fully within their statutory
authority.
In addition, the Executive Director of the LRA testified that
Louisiana had not received $1.2 billion in funds from FEMA--assistance
that had been part of the Road Home program's original funding design.
Specifically, the state expected FEMA to provide grant assistance
through its Hazard Mitigation Grant Program (HMGP)--a program that
generally provides assistance to address long-term community safety
needs.\18\ Louisiana had planned to use this funding to assist
homeowners with meeting elevation standards and other storm protection
measures, as they rebuilt their homes.\19\ However, FEMA has asserted
that it cannot release the money because the Road Home program
discriminates against younger residents. Specifically, the program
exempts elderly recipients from the 40 percent grant reduction if they
choose to leave the state or do not agree to reside in their home as a
primary residence at some point during a 3-year period.
Although we have not assessed their assumptions, recent estimates
from the Road Home program\20\ and Louisiana's state legislative
auditor's office have estimated a potential shortfall in the range of
$2.9 billion to $5 billion.
While these issues will not be immediately resolved, they raise a
number of questions about the potential demands for additional federal
funding for the states' rebuilding efforts. Our ongoing work on various
aspects of the CDBG program--including a review of how the affected
states developed their funding levels and priorities--will provide
insights into these issues.
mississippi's homeowner assistance program proceeding in two phases
In Mississippi, Katrina's storm surge destroyed tens of thousands
of homes, many of which were located outside FEMA's designated flood
plain and not covered by flood insurance. Using about $3 billion in
CDBG funds, Mississippi developed a two-phase program to target
homeowners who suffered losses due to the storm surge. Accordingly,
Phase I of the program was designed to compensate homeowners whose
properties were located outside the floodplain and had maintained
hazard insurance at a minimum.\21\ Eligible for up to $150,000 in
compensation, these homeowners were not subject to a requirement to
rebuild. Phase II of the program is designed to award grants to those
who received flood surge damage, regardless of whether they lived
inside or outside the flood zone or had maintained insurance on their
homes. Eligible applicants must have an income at or below 120 percent
of the Area Median Income (AMI). Eligible for up to $100,000 in grant
awards, these homeowners are not subject to a requirement to
rebuild.\22\ In addition, homeowners who do not have insurance will
have their grant reduced by 30 percent, although this penalty does not
apply to the ``special needs'' populations as defined by the state
(i.e., elderly, disabled, and low-income).\23\
As of July 18, 2007, Mississippi had received 19,277 applications
for Phase I of its program and awarded payments to 13,419 eligible
homeowners with an average award amount of $72,062. In addition,
Mississippi had received 7,424 applications for Phase II of its program
and had moved an additional 4,130 applications that did not qualify for
Phase I assistance to Phase II. The State had awarded 234 grants to
eligible homeowners in Phase II with an average award amount of
$69,448.
substantial losses affect national flood insurance program ability to
repay
The National Flood Insurance Program (NFIP) incurred unprecedented
storm losses from the 2005 hurricane season. NFIP estimated that it had
paid approximately $15.7 billion in flood insurance claims as of
January 31, 2007, encompassing approximately 99 percent of all flood
claims received.\24\ The intent of the NFIP is to pool risk, minimize
costs and distribute burdens equitably among those who will be
protected and the general public.\25\ The NFIP, by design, is not
actuarially sound because Congress authorized subsidized insurance
rates for some policyholders. Until recent years, the program was
largely successful in paying its expenses with premium revenues--the
funds paid by policyholders for their annual flood insurance coverage.
In most years--since its inception in 1968--the NFIP paid for flood
losses and operating expenses with policy premium revenues, rather than
tax dollars. However, because the program's premium rates have been set
to cover losses in an average year based on program experience that did
not include any catastrophic losses, the program has been unable to
build sufficient reserves to meet future expected flood losses.\26\
Historically, the NFIP has been able to repay funds borrowed from the
Treasury to meet its claims obligations. However, the magnitude and
severity of losses from Hurricane Katrina and other 2005 hurricanes
required the NFIP to obtain borrowing authority of $20.8 billion from
the Treasury, an amount NFIP will unlikely be able to repay while
paying future claims with its current premium income of about $2
billion annually.
In addition to the federal funding challenge created by the payment
of claims, key concerns raised from the response to the 2005 hurricane
season include whether or not some property-casualty insurance claims
for wind-related damages were improperly shifted to NFIP at the expense
of taxpayers. For properties subjected to both high winds and flooding,
determinations must be made to assess the damages caused by wind, which
may be covered through a property-casualty homeowners policy, and the
damages caused by flooding, which may be covered by NFIP.\27\ Disputes
over coverage between policyholders and property-casualty insurers from
the 2005 hurricane season highlight the challenges of determining the
appropriateness of claims for multiple-peril events. NFIP may continue
to face challenges in the future when servicing and validating flood
claims from disasters such as hurricanes that may involve both flood
and wind damages. Our ongoing work addresses insurance issues related
to wind versus flood damages, including a review of how such
determinations are made, who is making these determinations and how
they are regulated, and the ability of FEMA to verify the accuracy of
flood insurance claims payments based on the wind and flood damage
determinations.
protection projects
Billions Appropriated for Congress has appropriated more than $8
billion to the U.S. Army Corps of Gulf Coast Hurricane Engineers
(Corps) for hurricane protection projects in the Gulf Coast. These
funds cover repair, restoration and construction of levees and
floodwalls as well as other hurricane protection and flood control
projects. These projects are expected to take years and require
billions of dollars to complete.\28\ Estimated total costs for
hurricane protection projects are unknown because the Corps is also
conducting a study of flood control, coastal restoration, and hurricane
protection measures for the southeastern Louisiana coastal region as
required by the 2006 Energy and Water Development Appropriations
Act\29\ and Department of Defense Appropriations Act.\30\ The Corps
must propose design and technical requirements to protect the region
from a Category 5 hurricane.\31\ According to the Corps, alternatives
being considered include a structural design consisting of a contiguous
line of earthen or concrete walls along southern coastal Louisiana, a
nonstructural alternative involving only environmental or coastal
restoration measures, or a combination of those alternatives. The
Corps' final proposal is due in December 2007. Although the cost to
provide a Category 5 level of protection for the southeastern Louisiana
coastal region has not yet been determined, these costs would be in
addition to the more than $8 billion already provided to the Corps.
restoring louisiana's wetlands and barrier islands will likely cost
billions
The Corps' December 2007 proposal will also influence future
federal funding for coastal wetlands and barrier islands restoration.
Since the 1930s, coastal Louisiana lost more than 1.2 million acres of
wetlands, at a rate of 25-35 square miles per year, leaving the Gulf
Coast exposed to destructive storm surge. Various preliminary estimates
ranging from $15 billion to $45 billion have been made about the
ultimate cost to complete these restoration efforts. However, until the
Corps develops its plans and the state and local jurisdictions agree on
what needs to be done, no reliable estimate is available. We are
conducting work to understand what coastal restoration alternatives
have been identified and how these alternatives would integrate with
other flood control and hurricane protection measures, the challenges
and estimated costs to restore Louisiana's coastal wetlands, and the
opinions of scientists and engineers on the practicality and
achievability of large-scale, comprehensive plans and strategies to
restore coastal wetlands to the scale necessary to protect coastal
Louisiana.
go zone tax incentives provide assistance for recovery
The Gulf Opportunity Zone Act of 2005 provides tax benefits to
assist in the recovery from the Gulf Coast hurricanes.\32\ From a
budgetary perspective, most tax expenditure programs, such as the GO
Zones, are comparable to mandatory spending for entitlement programs,
in that federal funds flow based on eligibility and formulas specified
in authorizing legislation.\33\ The 5-year cost of the GO Zones is
estimated at $8 billion and the 10-year cost is estimated to be $9
billion. Since Congress and the President must change substantive law
to change the cost of these programs, they are relatively
uncontrollable on an annual basis. The GO Zone tax benefits chiefly
extend, with some modifications, existing tax provisions such as
expensing capital expenditures, the Low Income Housing Tax Credit
(LIHTC), tax exempt bonds, and the New Markets Tax Credit (NMTC). The
2005 Act increases limitations in expensing provisions for qualified GO
Zone properties. The Act also increased the state limitations in
Alabama, Louisiana, and Mississippi on the amount of LIHTC that can be
allocated for low-income housing properties in GO Zones. Further, the
act allows these states to issue tax-exempt GO Zone bonds for
qualifying residential and nonresidential properties. Finally, the NMTC
limitations on the total amount of credits allocated yearly were also
increased for qualifying low-income community investments in GO Zones.
We have a congressional mandate to review the practices employed by
the states and local governments in allocating and utilizing the tax
incentives provided in the Gulf Opportunity Zone Act of 2005. We have
also issued reports on the tax provisions, such as LIHTC and NMTC, now
extended to the GO Zones by the 2005 Act.\34\
observations
Rebuilding efforts in the Gulf Coast continue amidst questions
regarding the total cost of federal assistance, the extent to which
federal funds will address the rebuilding demands of the region, and
the many decisions left to be made by multiple levels of government. As
residents, local and state leaders and federal officials struggle to
respond to these questions, their responses lay a foundation for the
future of the Gulf Coast. As states and localities continue to rebuild,
there are difficult policy decisions that will confront Congress about
the federal government's continued contribution to the rebuilding
effort and the role it might play over the long-term in an era of
competing priorities. Congress will be faced with many questions as it
continues to carry out its critical oversight function in reviewing
funding for Gulf Coast rebuilding efforts. Our ongoing and preliminary
work on Gulf Coast rebuilding suggests the following questions:
How much could it ultimately cost to rebuild the Gulf Coast and how
much of this cost should the federal government bear?
How effective are current funding delivery mechanisms--such as PA
and CDBG--and should they be modified or supplemented by other
mechanisms?
What options exist to effectively build in federal oversight to
accompany the receipt of federal funds, particularly as federal funding
has shifted from emergency response to rebuilding?
How can the federal government further partner with state and local
governments and the nonprofit and private sectors to leverage public
investment in rebuilding?
What are the ``lessons learned'' from the Gulf Coast hurricanes,
and what changes need to be made to help ensure a more timely and
effective rebuilding effort in the future?
Mr. Chairman and Members of the committee, this concludes my
statement. I would be happy to respond to any questions you may have at
this time.
endnotes
\1\ This testimony updates and expands on GAO, Gulf Coast
Rebuilding: Preliminary Observations on Progress to Date and Challenges
for the Future, GAO-07-574T (Washington, D.C.: Apr. 12, 2007); and GAO,
Preliminary Information on Rebuilding Efforts in the Gulf Coast, GAO-
07-809R (Washington, D.C.: June 29, 2007).
\2\ In this testimony, unless otherwise noted, we refer to
Hurricanes Katrina, Rita, and Wilma collectively as the Gulf Coast
hurricanes.
\3\ Throughout this report and unless otherwise noted, we refer to
this official as the Federal Coordinator for Gulf Coast Rebuilding.
\4\ According to CBO, capital losses include housing, consumer
durable goods, and energy, other private-sector, and government losses.
\5\ This estimate includes damages only to commercial structures
and equipment, residential structures and contents, electrical
utilities, highways, sewer systems, and commercial revenue losses. For
more information see, Mark L. Burton and Michael J. Hicks, Hurricane
Katrina: Preliminary Estimates of Commercial and Public Sector Damages
(Huntington, W.Va.: Marshall University, September 2005).
\6\ According to CBO, losses from Hurricane Andrew--a Category 5
hurricane that struck the coast of Florida in 1992--totaled about $38.5
billion in 2005 dollars. The earthquake that struck Northridge,
California in 1994, which measured 6.7 on the Richter scale--resulted
in $48.7 billion in losses, as measured in 2005 dollars. Further,
losses from the terrorist attacks on September 11, 2001, were estimated
at $87 billion in 2005 dollars, of which $35.2 billion were privately
insured losses.
\7\ Pub. L. No. 109-61, 119 Stat. 1988 (Sept. 2, 2005); Pub. L. No.
109-62, 119 Stat, 1990 (Sept. 8, 2005); Pub. L. No. 109-148, 119 Stat.
2680 (Dec. 30, 2005); Pub. L. No. 109-234, 120 Stat. 418 (June 15,
2006); and Pub. L. No. 110-28, 121 Stat. 169 (May 25, 2007). In
addition to these five supplemental appropriations acts, a number of
authorizations and programs in multiple federal agencies provided
assistance. Congress also increased the borrowing authority of the
National Flood Insurance Program to cover the large number of
hurricane-related claims. Pub. L. No. 10965, 119 Stat. 1998 (Sept. 20,
2005); Pub. L. No. 109-106, 119 Stat. 2288 (Nov. 21, 2005); and Pub. L.
No. 109-208, 120 Stat. 317 (Mar. 23, 2006). In addition, Congress
passed the Gulf Opportunity Zone Act to provide tax relief benefits and
incentives to affected individuals and businesses. Pub. L. No. 109-135,
119 Stat. 2577 (Dec. 21, 2005).
\8\ Amy Liu, ``Building a Better New Orleans: A Review of and Plan
for Progress One Year after Hurricane Katrina.'' Special Analysis in
Metropolitan Policy (Washington, D.C.: The Brookings Institution,
August 2006).
\9\ GAO, Disaster Relief: Governmentwide Framework Needed to
Collect and Consolidate Information to Report on Billions in Federal
Funding for the 2005 Gulf Coast Hurricanes, GAO-06-834 (Washington,
D.C.: Sept. 6, 2006).
\10\ A is typically a cost-share program between the federal and
state and local governments. However, for Hurricanes Katrina and Rita,
the state and local match requirements were waived for eligible
emergency work in the immediate aftermath of the storms and the federal
government provided 100 percent funding. In addition, Congress recently
passed, and the President signed into law, legislation to adjust the
federal cost-share of certain eligible rebuilding projects to 100
percent. U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and
Iraq Accountability Appropriations Act, 2007, Pub. L. No. 110-28 Sec.
4501, 121 Stat. 112, 156 (May 25, 2007).
\11\ Under the Robert T. Stafford Disaster Relief and Emergency
Assistance Act (Stafford Act), project funds cover the restoration or
rebuilding of damaged facilities to their predisaster design and
capacity. 42 U.S.C. Sec. 5172(e)(1)(A)(i).
\12\ Testimony before the Ad Hoc Subcommittee on Disaster Recovery
of the U.S. Senate Committee on Homeland Security and Government
Affairs, July 10, 2007.
\13\ A disaster is considered to be closed when all projects are
approved, all appeals are resolved, and all funds are obligated.
\14\ CDBG funds supported recovery efforts in New York City
following the terrorist attacks of September 11, 2001; in Oklahoma City
following the bombing of the Alfred Murrah Building in 1995; and in the
city and county of Los Angeles following the riots of 1992.
\15\ Pub. L. No. 109-148, 119 Stat. 2680, 2779-80 (Dec. 30, 2005);
Pub. L. No. 109-234, 120 Stat. 418, 472-73 (June 15, 2006).
\16\ Texas received more than $503 million, Florida received about
$183 million, and Alabama received nearly $96 million. HUD Notice of
Allocations and Waivers 71 Fed. Reg. 7666 (Feb. 13, 2006); 71 Fed. Reg.
63,337 (Oct. 30, 2006).
\17\ The LRA was created at the direction of Governor Blanco by
executive order in October of 2005 and subsequently authorized by the
state legislature in early 2006.
\18\ Authorized under section 404 of the Stafford Act, the HMGP
provides grants to states, which in turn provide funds to eligible
applicants to implement measures that substantially reduce the risk of
future damages, hardship, loss, or suffering in an area affected by a
major disaster. 42 U.S.C. Sec. 5172c.
\19\ Specifically, the Road Home program would use HMGP funds to
provide homeowners with elevation grants of up to $30,000 and up to
$7,500 for individual storm protection measures such as storm shutters.
\20\ These estimates were developed by ICF International,
Incorporated, a company under contract with the state of Louisiana to
administer the Road Home program.
\21\ To receive an award, eligible applicants must place a covenant
on their property, providing that flood insurance and hazard insurance
will be maintained in perpetuity, the home will be rebuilt or repaired
to local building codes, and if rebuilt, the home will be elevated to
FEMA elevation standards.
\22\ To receive an award, eligible applicants--similar to those in
Phase I--must place a covenant on their property, stipulating that (1)
flood insurance will be maintained in perpetuity, (2) the home will be
rebuilt or repaired to local building codes, and (3) if rebuilt, the
home will be elevated to FEMA elevation standards.
\23\ ``Low-income'' homeowners are those with incomes at or below
60 percent of the AMI--which ranges by county.
\24\ See GAO, National Flood Insurance Program: Preliminary Views
on FEMA's Ability to Ensure Accurate Payments on Hurricane-Damaged
Properties, GAO-07-991T (Washington, D.C.: June 12, 2007); and GAO,
National Flood Insurance Program: New Processes Aided Hurricane Katrina
Claims Handling, but FEMA's Oversight Should Be Improved, GAO-07-169
(Washington, D.C.: Dec. 15, 2006).
\25\ 42 U.S.C. Sec. 4001(d); 42 U.S.C. Sec. 4016.
\26\ See GAO, Flood Insurance: Information on the Financial
Condition of the National Flood Insurance Program, GAO-01-992T
(Washington, D.C.: July 19, 2001).
\27\ Property owners in certain coastal regions subject to
hurricanes and flooding may have to purchase at least two, and
sometimes more, different types of insurance policies. Flood insurance
is offered by NFIP, while insurance for wind-related damages is
generally offered by private insurance companies or state-sponsored
insurers. NFIP was established in 1968 in part to provide some
insurance protection for flood victims because the private insurers
were and still are largely unwilling to insure for flood risks.
\28\ See GAO, Hurricane Katrina: Strategic Planning Needed to Guide
Future Enhancements Beyond Interim Levee Repairs, GAO-06-934
(Washington, D.C.: Sept. 6, 2006); and GAO, U.S. Army Corps of
Engineers' Procurement of Pumping Systems for the New Orleans Drainage
Canals, GAO-07-908R (Washington, D.C.: May 23, 2007).
\29\ Pub. L. No. 109-103, 119 Stat. 2247, 2247 (Nov. 19, 2005).
\30\ Pub. L. No. 109-148, 119 Stat. 2680, 2761 (Dec. 30, 2005).
\31\ Pub. L. No. 109-103, 119 Stat. 2247, 2248.
\32\ Pub. L. No. 109-135.
\33\ Tax expenditures may substitute for a federal spending program
in that the federal government ``spends'' some of its revenue on
subsidies by forgoing taxation on some income. See GAO, Government
Performance and Accountability: Tax Expenditures Represent a
Substantial Federal Commitment and Need to Be Reexamined, GAO-05-690
(Washington, D.C.: Sept. 23, 2005).
\34\ See GAO, Tax Credits: Opportunities to Improve Oversight of
the Low-income Housing Program, GAO/T-GGD/RCED-97-149 (Washington,
D.C., Apr. 23, 1997); and GAO, Tax Policy: New Markets Tax Credit
Appears to Increase Investment by Investors in Low-Income Communities,
but Opportunities Exist to Better Monitor Compliance, GAO-07-296
(Washington, D.C.: Jan. 31, 2007).
Chairman Spratt. Thank you very much. Now let's go to
Reverend Donald Boutte. I might add that he is not only a
minister, he is a former employer, employee of the Louisiana
Health and Human Resources where he worked for 23 years. So his
experience in the subject matter about which he is testifying
is extremely extensive. We very much appreciate your coming. We
look forward to putting a human face on this testimony this
morning.
STATEMENT OF REVEREND DONALD BOUTTE
Rev. Boutte. Let me say, first, thank you to Congressman
Spratt and the distinguished committee and fellow panel members
for the opportunity to participate in this hearing this
morning. I want to also thank the National Council of Churches
for asking me to speak on behalf of my city today. The National
Council of Churches has been actively involved in advocating
for the Gulf Coast recovery, and, in fact, established a
Special Commission for Justice Rebuilding in September 2005
shortly after Hurricane Katrina. My name is Donald Boutte, and
I am the pastor of St. John Baptist Church, located in the
Carrollton-River Bend area of New Orleans.
I pastored the church for about 5 years. And prior to the
storm, we had a congregation of about 325 people. Today I still
minister to these people, but they are spread across dozens of
States because there is not adequate housing and sufficient
community infrastructure for them to return. I have been
working with an important initiative called Churches Supporting
Churches. This group, which with the National Council of
Churches, helped organize its initial stages and gathered 36
hurricane damaged churches to partner with over 360 churches
nationally, a 10 to 1 ratio to assist in both restoring the
churches and helping them to participate in the redevelopment
of their communities.
There is obviously a lot that can be said about the impact
of Hurricanes Katrina and Rita and its lasting effects on the
Gulf Coast region. Almost 2 years later, people are still
struggling to rebuild their lives. Homes and communities and
more than 200,000 residents have yet to return to the region.
And while there has been progress, some road blocks still
exist, housing, health care, insurance and environmental
concerns. I would like to focus my discussion today on two
aspects of the Gulf Coast recovery that I think will have long-
term effects on the Federal budget: The tremendous housing
needs of my city and the absolute necessity to have the levies
and the flood protection systems rebuilt and restored so that
the citizens of New Orleans are safe.
There are also two policy options that I would like for you
to consider: To take up the Gulf Coast Housing Recovery Act of
2007 and Senate bill 1668, currently before the Senate Banking
Committee, passed by the House of Representatives in House Bill
1227 in March 2007. It will help close a portion of the gaps in
helping restore people to housing. Also, structure future
resources to work in deeper partnership with the Gulf Coast
nonprofit and faith-based organizations. These are entities
driving the resident-focused recovery and few Federal resources
have been directed to their efforts.
Lastly, charge the Army Corps of Engineers to rebuild the
levies and flood protection systems to protect the investments
that private citizens and the Federal Government are now making
to rebuild New Orleans. The uncertainty around flood
protections continue to undermine the recovery in our city.
Housing is at the top of the list for local churches because
many of our congregants are still in the diaspora. And getting
them home revolves around addressing the housing need. I was
born and raised in New Orleans. Like many of my colleagues,
both my home and church were destroyed.
Although it has been 2 years, my church has just recently
been restored, yet half my congregation are still displaced
throughout the country. What has precluded their return is the
availability of the quality of affordable housing. Those
returning have faced barriers that hinder securing a decent
place to live. Renters are now facing new income criteria for
rental applications, a rigid credit history requirement,
homeowners are confronting escalating insurance costs and
increased property taxes and utility bills. Subsequent to the
storm, because my church was destroyed, it was necessary for me
to go back to work again, and I have been working with
PolicyLink as a consultant. PolicyLink is a national research
and action institute involved in equitable redevelopment in
Louisiana. So I am familiar with the dire housing needs from
both a personal and professional perspective.
We have helped to form a statewide housing coalition in
Louisiana with over 100 member organizations that work to help
families meet their housing needs. My recommendations to this
committee are best described by sharing what I know of New
Orleans's housing market prior to Katrina. For the past two
decades, tourism has been the basic economic engine for New
Orleans. While tourism has created a low-wage economy, housing
in the city was inexpensive. A family could rent a house for
between $300 and $700 monthly. Approximately 57 percent of New
Orleanians were renters prior to the storm. The pre-Katrina
supply of low-cost housing was critical to the economy and the
labor market. Many programs had efforts to create homeownership
but they failed and were unsuccessful because the low-wage
economy precluded potential home buyers from meeting the
mortgage income criteria. Therefore, affordable housing was
critical to the health and labor market and essential to the
workforce.
Hurricane Katrina radically changed the already fragile
housing market in New Orleans. There were over 150,000 rental
units lost. This represents half of the occupied rental units.
And of this amount, 89 percent were rental units affordable to
families of four earning less than 80 percent of the area
median income, which at that time was $42,000 a year. The
depletion of the inventory increased rental costs
exponentially. Between 2005 and 2006, rents increased between
70 to 200 percent. Today, a two-bedroom market rate apartment
is $978.
To afford this, a minimum wage earner must work at least
146 hours per week, representing four full-time jobs. This
abrupt increase in rent caused a paradigm shift in those
seeking affordable housing pre-Katrina. Prior to that, those
seeking affordable housing were generally seniors on fixed
incomes, persons with disabilities who received SSI, and, of
course, the very low wage earner. Today entry-level
schoolteachers, new police officers, construction workers and
even some clergy are in serious need of affordable housing.
These groups are pursuing affordable housing because they are
now paying more than 30 percent of their household income for
housing. The increased demand for affordable housing and the
depletion of the housing stock has adversely impacted the
vulnerable citizens of New Orleans and marginalized blue and
white collar workers.
Although only half the population is back in the city, the
homeless population has increased from 6,000 to over 12,000.
The supplemental Community Development Block Grant funds have
been tremendous assets to the recovery. Notwithstanding the
multitude of devastation it makes these funds insufficient to
serve the number of households affected and additional
resources needed. Of the $9.2 million in funding, $7.5 million
was dedicated to homeowners. The small landlord program
received $829 million, and $837 million was dedicated to
multifamily development. Projections from the tax credits from
the multifamily projects estimate that only 18 percent of the
rental units damaged or destroyed will be replaced by the
projects.
So even after the current funds are exhausted, there will
continue to be insufficient housing necessary for people to
return. Again, this is only with half the population back.
Moreover, beside insufficient housing inventory, there are
other barriers that citizens face seeking affordable housing.
For instance, in order to qualify for an apartment of $900 a
month, some apartment managers now are requiring income at four
times the monthly rate. Many citizens do not earn $3,600 a
month, and so sometimes even available property is not
accessible to a large segment of the workforce. Managers are
also enforcing more rigid credit history. Louisiana lost 18,000
businesses during the storm. Much of the workforce was
affected. And as a result, many working people have weak FICO
scores.
For some, a rental order has revealed that even
discrimination has spiked in the housing industry. Other
barriers to securing affordable housing are the costs of
insurance that is passed on to renters, and most recently, the
reassessment of property values that increased property taxes.
Unless additional resources are provided, the recovery in New
Orleans will come to a standstill. Consequently the challenge
to replace the depleted housing stock will worsen. The result
will be slow economic recovery, increased homelessness,
dilapidated and blighted property, creating safety and health
risks for those citizens who have chosen to return. The Special
Commission also released a report card in February that
identified and evaluated the governing agencies that are
responsible for rebuilding the Gulf Coast region. Unless
additional costs are provided, the recovery of New Orleans will
come to a standstill.
We are asking that this committee look at Senate bill 1668,
which can help address some of the unmet housing needs facing
citizens of the Gulf Coast and to help them get home. Please
direct future funding to work in partnership with local faith-
based and nonprofit service providers who have been the
effective drivers of the recovery to date. And please do not
fail to address the repairs of our levies, which will allow
private investment to follow with confidence that it will not
flood, and that people can live in safety, even those that are
making investments in the city. I thank you for your time.
[The prepared statement of Rev. Boutte follows:]
Prepared Statement of Rev. Donald Boutte, Pastor, St. John Baptist
Church
introduction
Let me first say thank you to this distinguished committee for the
opportunity to participate in the hearing this morning. I want to also
thank the National Council of Churches for asking me to speak on their
behalf at this hearing today.
My name is Rev. Don Boutte and I'm pastor of the St. John Baptist
Church located in the Carrollton-River Bend area of New Orleans. I have
also been working with an important initiative called Churches
Supporting Churches. This group, which the National Council of Churches
helped organize in its initial stages, has partnered 36 local churches
with 360 churches nationally--a ten to one ratio--to assist in the
restarting, restoring and rebuilding of the churches to participate in
the redevelopment of their community. I'm here representing the
National Council of Churches' Special Commission for the Just
Rebuilding of the Gulf Coast, which was established in September 2005
shortly after Hurricanes Katrina and Rita ravaged the Gulf Coast of the
United States.
There is obviously a lot that can be said about the impact of
Hurricanes Katrina and Rita and its lasting effects on the Gulf Coast
region. Almost two years later, people are still struggling to rebuild
their lives, homes and communities and more than 200,000 residents have
yet to return to the region.
I would like to focus my discussion today on one aspect of the Gulf
Coast recovery that will have a long-term effect on the Federal
budget--the tremendous housing needs for my city. Housing is the top
issue to local churches because many of their congregants are still in
the diaspora and everything else revolves around the housing need.
I was born and raised in New Orleans. Like many of my colleagues,
my home and my church were destroyed. Although it's been two years and
my church has been rebuilt thanks in part to a grant from the National
Council of Churches' Eco-Justice program, half of my congregants are
still displaced throughout the country. What has precluded their return
is the availability of quality affordable housing and some of the
recent barriers that hinder securing a decent place to live--new income
criteria for rental applications, rigid credit history requirements,
escalating insurance costs, and increased property taxes.
As a consultant to PolicyLink, a national research and action
institute advancing economic and social equity, I'm familiar with the
dire housing needs from both a personal and professional perspective.
Initially invited by Governor Blanco, I've been working with PolicyLink
over the past two years to advance equitable development in Louisiana,
particularly in the area of housing policy advocacy. We've helped to
form a statewide housing coalition in Louisiana, with over 40 member
organizations.
housing market
My recommendations to this committee are best described by sharing
what I know of the New Orleans housing market pre-Katrina. For at least
the past two decades, tourism has been the basic economic engine for
the city of New Orleans. Although largely a low-skilled, low-wage
economy, the city was able to provide affordable housing in a fragile
housing market. This situation created a disproportionate number of
renters, where approximately 57% of New Orleanians were renters prior
to the storm. In order to afford a two-bedroom market rate apartment
without any housing assistance, someone had to earn $10/hour. Many
residents earned much less than $8/hour.
Many program efforts to create homeownership and to change the
owner/renter ratios were unsuccessful because the low-wage economy
precluded potential homebuyers from meeting the mortgage income
criteria. Therefore, maintaining affordable housing was critical to the
health of the labor market and essential for the workforce.
Hurricane Katrina radically changed this fragile housing market in
New Orleans. There were over 51,000 rental units lost. This represents
half of the occupied rental units and of this amount 89% were rental
units affordable to a family of four earning less than 80% of the area
median income ($42,000/year). The depletion of the housing inventory
increased rents exponentially. Between 2005 and 2006 rents increased
70%.\1\ Today, a two-bedroom market-rate apartment is $978/month. To
afford this, a minimum wage earner must work at least 146 hours/week,
representing about 4 full-time jobs. This abrupt increase in rents
caused a paradigm shift in those seeking affordable housing. Pre-
Katrina, those in affordable housing were generally:
---------------------------------------------------------------------------
\1\ Reported by the Times-Picayune on October 2006.
---------------------------------------------------------------------------
seniors on fixed income,
persons with disabilities who received SSI, and
the very low-wage earner.
Today, entry level school teachers, new police officers,
construction workers, and even some clergy are in serious need of
affordable housing. These new groups are looking affordable rentals
because they are paying more than 30% of their household income for
housing. The increased demand for affordable housing and the depletion
of the housing stock has adversely impacted the most vulnerable
citizens and marginalized our blue collar workers. Although only half
of the population is back in the city, the homeless population has
increased from 6,000 to more than 12,000.
The supplemental Community Development Block Grant funds have been
a tremendous asset in the recovery. Notwithstanding, the magnitude of
the devastation necessitates additional resources. Of the $9.2 billion
in funding, $7.5 billion was dedicated to homeowners and it is
projected that this amount will not be sufficient to meet the demand to
replace the owner occupied stock. The Small Landlord Program received
$829 million and $837 million was dedicated to multi-family
development. Projections from tax credits from the multi-family
projects estimate that only 18% of the rental units damage or destroyed
will be replaced by the projects. Thus, even after the current funds
are exhausted, there will continue to be insufficient housing stock
necessary to meet the current housing demand. Again, only half of the
pre-Katrina population is back in New Orleans.
Moreover, beside an insufficient housing inventory, there are other
barriers that citizens seeking affordable housing face. For instance,
in order to qualify for an apartment at $900/month some apartment
managers now require income at four times the monthly rent amount. Many
citizens do not earn $3,600/month and sometime even available property
is not accessible to a large segment of the workforce. Managers are
also enforcing more rigid credit history requirements.
Louisiana lost 18,000 businesses during the storm. Much of the
workforce was affected and, as a result, many working people have weak
FICO scores. For some, a recent rental audit revealed that
discrimination has spiked during this recovery. Other barriers to
securing affordable housing are the cost of insurance that is passed on
to renters and, most recently, the reassessment of property values that
increased property taxes.
Unless additional resources are provided, the recovery of New
Orleans will come to a standstill. Consequently, the challenge to
replace the depleted housing stock will worsen. The result will be slow
economic recovery, increased homelessness, dilapidated and blighted
property creating safety and health risk to the citizens of New Orleans
who have chosen to return. The Special Commission also released a
report card in February that identified and evaluated the governing
agencies that are responsible for the rebuilding of the Gulf Coast in
the following areas: timely response, administering and distributing
funds; practicing environmental justice, addressing the healthcare
shortage, improving schools, responding to housing demands, and
insurance. Grades were assigned to the Federal Government, the states
of Louisiana and Mississippi, and the City of New Orleans. There is
still a great need for improvement in all areas.
Another report will be released later this month about the
resources invested by the faith community in the efforts to rebuild the
Gulf Coast. We understand the long-term impacts these disasters have
had on our communities and we hope that the Federal Government will be
steadfast in finding ways to allocate resources to the region so that
the Gulf Coast will be rebuilt with justice.
Thank you for your time.
Chairman Spratt. We thank you for your excellent
presentation. That was extremely useful and informative. Do we
have members here from the affected areas? Mr. Alexander. Oh,
yeah, Jo Bonner. Well I was going to yield to them first. Mr.
Alexander, would you like to lead though?
Mr. Alexander. Thank you, Mr. Chairman, members of the
panel. Thank you for being here this morning. Thank you for
your presentation.
Mr. Powell, I would like to say thank you for what you have
done. You have been in Louisiana and the Gulf Coast region a
lot. You have been here a lot, been to our offices. We have had
several meetings with you. You know, the job that you have
taken has been extremely difficult. You have probably wondered
why you were given that assignment, and I am sure more than
that, you have wondered why you took that assignment. But I
want to say that although we have been somewhat puzzled by some
of the events that have taken place, we appreciate what you
have done.
The question is, in your opinion, has the money paralleled
the damages in the Gulf Coast region on a per-State basis as
far as recovery has gone? Do you feel like that it has been
fairly doled out?
Mr. Powell. Obviously, each area along the Gulf Coast that
was damaged from Texas to Alabama, there are unique challenges.
As you recall, Congressman, Congress first--obviously in
addition to the direct emergency moneys for immediate relief,
there was some moneys that were approved by the Congress for
Community Development Block Grants. And part of that
restriction, Congress said that no State would receive more
than 55 percent. That is an important note I think because at
that time, as in the testimony, Louisiana received something
like $6.2 billion, and Mississippi about $5.5 billion. Texas
and Alabama, something less than that. And again, there were
devastating damages in Mississippi and Louisiana. Louisiana
approached our office and approached this administration and
Members of Congress saying they needed more money, specifically
to assist those citizens whose homes were destroyed by the
storm surge and the breach of the levies.
We worked very closely with the State of Louisiana and came
to a consensus about those needs. I might add that our folks--I
am an old banker, as you know, and I kind of looked at it like
a loan application, give me the facts and things of that
nature.
So they looked at Red Cross data, they looked at FEMA data,
they looked at SBA data, they did the satellite imaging, and
there was lots of discussion between the folks in Louisiana and
our office and came to the conclusion and the consensus that
there was an initial $4.2 billion of money needed to assist
those people whose homes were damaged by the storm surge and by
breach of the levy, water. Part of that discussion was
obviously about wind also. And at the end of the day, the
consensus was that the $4.2 billion would need meet the needs
of those people whose homes were destroyed by water. This
President through his leadership and Congress granted an
additional $4.2 billion for Louisiana. So we believe that the
CDBG money was sufficient with the numbers that we had and we
continue to believe were based upon the numbers we have that
that is sufficient.
As my testimony has said, that I have reflected there is a
shortfall now, and that shortfall, we believe, is as a result
of Louisiana expanding the eligibility of their program to
include wind. We still believe that had Louisiana stayed with
just the water-damaged homes based upon the current data that
we have that there would be sufficient funds. And as per my
testimony, once we determined through the press that, in fact,
there was a shortfall, we approached the governor on June 6 and
asked her seven or eight different questions. And to date, we
have not received an answer to those questions. Once we receive
an answer to those questions, we will analyze that data to go
with other data and make a decision about, should there be
additional moneys necessary and from the Federal Government.
Mr. Alexander. Well, the reason I ask the question is Mr.
Czerwinski said that out of the $16 billion that had been
allocated for home rebuilding, Louisiana got $10, Mississippi
$6. Louisiana had a little over 200,000 homes lost. Mississippi
Texas and Alabama had about 75,000. So I am not a mathematician
but that doesn't seem like it is equally proportioned. But you
made a statement to the panel that you had asked questions on
June 6 and it is August 2 and you have not gotten an answer.
Mr. Powell. No, sir.
Mr. Alexander. Does that bother you?
Mr. Powell. Obviously the faster we can get those answers,
the quicker we can respond to any potential needs and analyze
the numbers that those answers will--or give some light to some
things that we don't know the answer to.
Mr. Alexander. You and I both have been in the New Orleans
area a lot.
Mr. Powell. Yes.
Mr. Alexander. Have you ever made the statement that some
of these homes shouldn't be built back in the same location?
Mr. Powell. That is a decision, Congressman, for the local
people.
Mr. Alexander. In your opinion.
Mr. Powell. You know, there are two guiding principles that
we follow in our office. One is to be good stewards of the
taxpayers' money, the other is that the locals should plan
their own destiny. And this is not an exercise in centralized
planning. And I am confident that the locals will make those
decisions, and we encourage those locals to make decisions
based upon the facts that they know and facts that the Federal
Government has and we encourage them to make responsible
rebuilding decisions, such as rebuilding, changing the code,
the building code and looking at the evidence that we have that
shows what could happen in certain areas.
Mr. Alexander. Thank you, Mr. Chairman.
Chairman Spratt. Thank you, Mr. Alexander. Now I would like
to recognize Mr. Scott who has a markup, and I wanted to give
him an opportunity, since he showed up early with questions to
ask. Mr. Scott.
Mr. Scott. Thank you. And I thank the gentleman from Texas
for deferring. I would like to just mention to all of the
witnesses, I think we have gotten the sense that we have
appropriated enough money, just a little frustrated that we
haven't seen more progress. The gentleman from Louisiana said a
couple hundred thousand people had lost their homes. Just with
arithmetic, if you had a million people given each $2,000 a
piece, family of four almost $100,000 a year support, that
would be $2 billion a month, $24 billion a year that you could
have families--a million, and you only mentioned a couple
hundred thousand--would cost $24 billion a year. And we have
appropriated almost $100 billion.
So the fact that a lot more hadn't been done is a little
frustrating. And the longer it takes, obviously, the longer
people have to be supported. Reverend Boutte, you mentioned the
people who have rented. What happened to the people who lost
their homes and had a mortgage? What happened to them?
Rev. Boutte. Many of those people who had mortgages had
also foreclosures. Because what happened eventually after the
storm is, you had to find lodging for your family. So if you
were in Houston, for instance, you were paying rent. And even
though the house had been inundated in New Orleans, you still
had to try to maintain that. At the same time, many of them
lost their jobs. And so you had a high level of foreclosures.
And the other thing that happened after the storm is, many of
the mortgage companies agreed to work with the homeowners for
90 days.
For instance, I will give you a personal example. The storm
occurred in August. I called Countrywide the 23rd and 25th of
September, made arrangements and they said they were going to
defer the mortgage payment until January. They did. Effective
January, I got a notice stating that I owed interest for three
months on that house. Now my salvation came because my
insurance company settled later on in January, which allowed me
to deal with my mortgage. But many folks were not as fortunate.
Mr. Scott. I don't mean to cut you off. But I only have 5
minutes and I have a bunch of questions to ask. Mr. Czerwinski
is there any reason why we should allow policies to be written
that are not all hazard policies rather than, your home was
destroyed, you might get paid you might not?
Mr. Czerwinski. Are you talking about flood and----
Mr. Scott. Flood, fire, whatever. Is there any reason why
we shouldn't insist on all hazards insurance?
Mr. Czerwinski. No. When people are facing hazards from
different sources, that should be a requirement they are
covered for all those.
Mr. Scott. Now is 100 years enough? I always thought if you
had 100-year plan in Virginia, it means every year an entire
House of Delegates district could be wiped out every year. And
that is what is in the hundred years would happen around the
country. Is 100 years enough?
Mr. Czerwinski. You are getting at the heart now of the
underwriting of the National Flood Insurance Program. We know
what type of actuarial strength they have right now.
Mr. Scott. Okay. Mr. Powell, Chairman Powell we talked a
little earlier about the fact that it appears now that in the
fall of 2006, I understand that of 128 public schools in New
Orleans, 53 were slated to open by the fall of 2006. I
understand that right now the schools are ready to open and
accommodate virtually all that are returning. I would like you
to provide me with what the government could have been ready to
do and can do for the next tragedy so that we could have been
ready by 1 year afterwards in terms of money, get rid of red
tape and everything else. And if you could also--particularly
since we were told that 100,000 people in New Orleans either go
to college or are employed by a college. If you could get them
back up and running, obviously you have got 100,000 people
paying paychecks. And if you could also let us know what we
could do in the criminal justice system, there is a lot of
dysfunction in the criminal justice system, records, people in
jail, I mean just totally dysfunctional. What can we do for the
next tragedy in the education system and in the criminal
justice system so we don't suffer the same kind of dysfunction
that we have suffered for the last 2 years?
Mr. Powell. Happy to do so. But I would say--and as you
know from our previous discussion in front of the entire
committee that there will be adequate space for the students
that will be returning in 2007. There is something like 36,000
students that they are anticipating in the fall. That is 6,000
more than last year. But they have provided 11,000 more
classrooms. So I am convinced----
Mr. Scott. It is 2007. And we should have been able to be
at that point about a year later, 2006. And what do we need to
do as a government to make that possible?
Mr. Powell. I will get that to you.
Mr. Scott. Again, thank you, Mr. Chairman.
Chairman Spratt. Thank you, Mr. Scott. Mr. Bonner.
Mr. Bonner. Thank you, Mr. Chairman. I want to thank my
colleagues not only in this committee, but in the entire House
for their support. We don't always say thank you enough for the
overwhelming support of the American people when the worst
natural disaster in the history of America came to our shores
on August 29. A lot of people forget that Alabama was one of
those participating States, although it is hard to tell the
people in Mobile who had 14 feet of water in our streets or
communities by the bayou that were wiped off the map that they
didn't suffer because they did. But we were fortunate compared
to our friends and brothers and sisters in Mississippi and
Louisiana. And we know how blessed we were. But thank you for
the support that you have given as well as the prayers that
have come. I would like to try to get a few quick questions in.
Mr. Powell, I want to go back to something that Congressman
Alexander started on with regard to the Road Home Program in
Louisiana. In your response to that, you had asked for
additional questions from the State of Louisiana, and have yet
not get gotten that information. I am assuming it is hard to go
forward with the game plan unless the State, the local
communities are giving you the information that you need to
know what role we can play at the Federal level?
Mr. Powell. That is correct. And as I said in my testimony,
that program closed at the end of the month. So hopefully we
will know more in the days ahead. But you are correct, it would
be very helpful if we had the answer to those questions.
Mr. Bonner. Given that the State of Louisiana has run into
a shortfall because of their decision to cover wind-only
damage, what can the Bush administration, what can Congress,
what can the American taxpayer be expected to do? Did you
allocate funds to either Texas or Mississippi or Alabama to
cover wind-only damage?
Mr. Powell. We had discussions, I can recall, being from
Texas with my friend, Governor Perry, about wind damage and
also other members of the congressional delegation. We
discussed wind in Texas, Mississippi, Alabama, and Mississippi,
and we did not cover wind damage for those States.
Mr. Bonner. And you didn't because----
Mr. Powell. Because wind is a peril that is insurable. And
again, specifically with Louisiana and Mississippi, the storm
surge and the breach of the levies system, we believe that
those were the--that we have responsibility there to assist
those people to rebuild their homes. And I think the facts--and
I want to emphasize one more thing in my testimony, current
data shows that in the neighborhoods whose homes were destroyed
by water, they have a 54 percent vacancy rate. Those
neighborhoods that were destroyed by wind have a 4 percent
vacancy rate. And again, that is an insurable peril that people
can buy insurance for.
Mr. Bonner. And for the record, Congressman Gene Taylor,
our colleague who is from Mississippi, has introduced
legislation to expand the program to wind and that is being
considered--actually, I think has been considered by the
appropriate committees, and appropriate action is being taken
by the full House. Let me quickly shift. I know there has been
a lot of focus on New Orleans. And Reverend, thank you so much
because I personally know from experience that had the faith-
based communities not stepped up and the private partners that
none of the recovery we have seen thus far would have occurred.
But, Mr. Chairman, could you give us a perspective in terms of
your impressions about the recovery efforts in Mississippi and
in Alabama and the other communities that were affected?
Mr. Powell. Both of those, from Alabama to Texas, offered
unique challenges. I think we focused on primarily Louisiana,
and we sometimes forget that southwest Louisiana was devastated
also. I mean, it was like my native State, Texas. They were
virtually wiped out. And Mississippi, you that have been to
Mississippi, it is hard to describe the devastation in
Mississippi. And then I think we need to recall that New
Orleans, the City of New Orleans was underwater for 90 days.
That is hard for me to imagine. It is hard for me it imagine.
So there are unique challenges in New Orleans/Louisiana, and
there are unique challenges in Mississippi. I think part of the
component of recovery obviously includes the nature of the
devastation, but it also includes leadership. It includes the
citizens' participation. It includes faith-based. It includes
all those areas.
I think Mississippi, because of the nature of their
devastation, in some areas they are further behind than in
other areas. But I think there has been a tremendous amount of
progress in Mississippi. I attended the opening of a bridge
that connects Bay St. Louis and Pass Christian. A remarkable
feat, a remarkable feat that those people were able to build
that bridge in the time that they were able to do it. And it is
a very important economic indicator. Debris itself, debris in
three counties in Mississippi alone, there was more debris in
those three counties than all of Hurricane Andrew and the World
Trade Center combined. That took 2 years. I can't tell you
about the debris in New Orleans. The last 90 days that I have
been in the area in Mississippi and in New Orleans, not one
person has mentioned debris to me.
So while there is lots of work to be done, there has also
been some progress. In New Orleans, schools are open. Help
wanted signs are out. The port is 100 percent. The oil and gas
infrastructure is 100 percent. Hotels are back. Restaurants are
open. Neighborhoods, we got a long way to go. We got a long way
to go on this housing issue that my friend mentioned a moment
ago. It is a critical issue. Health care is a critical issue.
Criminal justice is an issue. But housing and affordable
housing is very important. That is the reason the Road Home
Program is important that it function the way it was designed.
Mr. Bonner. Thank you very much.
Chairman Spratt. Mr. Etheridge.
Mr. Etheridge. Thank you, Mr. Chairman. Let me thank you
for holding this important hearing, you and the ranking member,
because I think it is important. We folks in North Carolina and
South Carolina aren't immune to hurricanes. We have had our
fair share over the years. We have had hurricanes like Bonnie,
Dennis, Fran, Flloyd, and of course, in 1989, we had what was
called the 500-year flood. I don't know how they measure a 500-
year flood, we haven't figured that one out, but we know how
much damage it did. I mention that only because, at that time,
we got a great response from the Federal Government. I mean, we
had a lot of people lose their homes. We had places where water
stood with dikes for months before we pumped it out, and yet
the Federal Government responded. We had a full professional
staff in FEMA that responded quickly.
And I have been to New Orleans now three or four times,
flew over it when it was underwater, went back on a couple
other occasions with Homeland Security. I was amazed at what I
thought was just utter incompetence and mismanagement by a
whole host of agencies, and the lack of coordination and
oversight. And I hope we are making progress. I know we've got
a group going down in a couple weeks. As you already heard this
morning, 23 different agencies have received somewhere near a
$100 billion that were appropriated by Congress in one way or
another. In a lot of cases, a lot of that money has not been
spent, as you have indicated. FEMA can't say to a large degree
where a lot of their $45 billion has been spent. The Bush
administration has identified $500 million in contractor
overpayments, but has recovered less than 2 percent of that.
$8.7 billion in contracts have been identified as wasteful,
fraudulent or mismanaged. Mr. Czerwinski, let me ask you, how
did the cost of the additional response compare to previous
responses, say Andrew, which was pretty devastating in Florida,
as an example, in 1992?
Mr. Czerwinski. This is far off that scale. It dwarfs
anything we have seen before.
Mr. Etheridge. Okay. Why? Size?
Mr. Czerwinski. Oh, yes. Absolutely. Any dimension you want
to look at, the damage that you have seen from Katrina far
outstrips anything we have had before.
Mr. Etheridge. Water?
Mr. Czerwinski. Because it was a multiple event, it was a
significant hurricane event and a tremendous flooding event put
together. So those two things just combined to, in terms of
property destroyed, lives lost, on and on and on.
Mr. Etheridge. Coordination, response time?
Mr. Czerwinski. That is always a challenge.
Mr. Etheridge. I know you weren't there, but----
Mr. Czerwinski. That is a challenge.
Mr. Etheridge. Level of incompetence was significant? I
mean, when people didn't get food, didn't get water, we didn't
move.
Mr. Powell, last September, the GAO recommended OMB create
a government-wide framework to report on hurricane-related
expenditures. Can you share with us what progress we have made
in producing government-wide estimates of cost?
Mr. Powell. Yeah, our office works very closely with OMB
and all agencies within the government. I think we know where
the money has been spent. We know where the money has not been
spent, and what it has been dedicated for.
Mr. Etheridge. Will there be a report issued or can we get
an update?
Mr. Powell. I would be happy to give you----
Mr. Etheridge. Would you?
Mr. Powell. Yes. Yes.
Mr. Etheridge. Okay. Let me ask you one other question. I
won't go back and replow that ground anymore other than to say
I think we all can agree, I think we can, that the initial
response of FEMA, it occurred before your watch so we won't go
there, but it was abysmal. And I am concerned that we don't
have that again, because a significant portion of the money
that was appropriated to rebuild has not yet been spent, much
of which was meant for Louisiana and Mississippi homeowner
assistance programs. What is your assessment of these programs
at this point? And why has the spending been as slow as it has
been? And do you anticipate that now that we have gotten some
handle of it increasing and will it be spent--will we be
spending a lot of it as it needs to be to get people back? You
know, we talk about schools and others, but you can't fill the
schools until people come home with children. And I think that
is a critical piece. Can you give us some insight into that?
Mr. Powell. Yeah, I think it is important for us to reflect
that there are three components of the spending other than the
immediate relief and the emergency relief. And one is the
Federal-State partnership. The other one really is the
responsibility of the State and the locals. And the other one
is the responsibility of just the Federal Government. Let me
give you some examples. A State-Federal partnership would be
the Public Assistance programs, where those applications are
made by the locals to FEMA. They analyze those applications,
submit those, after they approve them, to the State. The State
then does another check and balance. They have audit
procedures. The work has to be completed. And then they
reimburse the locals. So there is a responsibility there of the
Federal, there is a responsibility of the State, and there is a
responsibility of the locals. That is a Federal-State and local
partnership.
Then there are Federal, just Federal expenditures that we
are responsible for, such as the levees. It is a project that
the Federal Government manages, is responsible for completing
from the first day to the end. So that is a sole responsibility
of the Federal Government. Then there are certain components of
the expenditure that is the sole responsibility of the State,
such as the Road Home Program. The CDBG money is directed to
the Governor. The Governor designs, modifies those programs.
They are responsible for executing those programs to the
beneficiaries of the people of the State of Louisiana,
Mississippi or Alabama. So there are three components of that
spending other than immediate relief. So the Federal Government
has a role in two of those. We are in a Federal and State
partnership, and then we have sole responsibility for certain
of those things.
Mr. Etheridge. Thank you. I would just encourage, on
lessons learned----
Mr. Powell. Yes, sir.
Mr. Etheridge [continuing]. Since it is so big, we should
have learned something thus far----
Mr. Powell. I agree.
Mr. Etheridge [continuing]. To start shrinking some of that
timeline and doing away with some of the bureaucratic things we
can do to help people. Because it is really about people in the
end. And I yield back.
Chairman Spratt. Mr. Ryan.
Mr. Ryan. Thank you. And I want to make sure I don't take
up all our time. And I wanted to make sure our gulf State
legislators had a chance first. I want to ask you again about
the Road Home Program, which we are exploring in detail here,
and then the levees. Chairman Powell, the Road Home Program is
CDBG-expended funds; correct?
Mr. Powell. Correct.
Mr. Ryan. So the State gets the CDBG and then they decide
the eligibility?
Mr. Powell. Yes, sir.
Mr. Ryan. So Alabama, Mississippi, Texas, chose to apply
their CDBG moneys to the Road Home Program to flood damage, and
that is it; correct?
Mr. Powell. Correct.
Mr. Ryan. And so wind damage, the decision to cover wind
was a decision exactly by who in Louisiana?
Mr. Powell. That was the Governor and her administrative
staff and the people of Louisiana.
Mr. Bonner. If the gentleman would yield.
Mr. Ryan. I would be happy to yield.
Mr. Bonner. Mr. Chairman, correct me if I am wrong, the
Road Home Program is uniquely Louisiana. That was designed by
the Governor of Louisiana. And we don't have a similar named
program in Alabama or Mississippi.
Mr. Powell. Mississippi has one also, but he is correct,
Louisiana's program was crafted, designed by the Governor. And
I might add, too, part of our deliberation, we asked Congress
to--if we could have some oversight on that, and Congress chose
not to allow that. So it is an exclusive authority of the
State.
Mr. Ryan. Here is your Federal money, you decide.
Mr. Powell. Yes, sir.
Mr. Ryan. So the moral hazard issue obviously is the big,
you know, white elephant in the room here. If they didn't apply
it to wind--this is Louisiana--they would have had enough money
to cover all of the flood damaged program, the Road Home
Program?
Mr. Powell. Based upon the current data that we have today,
yes, sir.
Mr. Ryan. Right. And it is a 53 percent vacancy rate on
flood-damaged houses and only a 4 percent vacancy on wind-
damaged homes in Louisiana?
Mr. Powell. Correct. Based upon U.S. Postal data.
Mr. Ryan. That seems like a fairly obvious issue and a huge
moral hazard which could affect all of the taxpayers that we
represent. A final question, because I know we have a vote and
I want to get to other folks. I think, Mr. Edwards, did you--
the levees, what is the cost estimate of the current levy
construction project around New Orleans, number one? Number
two, what is the matching rate between Federal and State share
of the levees if there is? And number three, are the levees
protecting areas of New Orleans that are still under sea level?
Mr. Powell. First of all, I think we spent about $8.4
billion on hurricane protection to date. The Corps is
determining the cost that will be required to complete the
levees to the 100-year flood protection. We anticipate that
cost to be announced very soon. And as I have shared with some
of the members here, that cost is going to be a large dollar
amount, could be $5 to $10 billion. So it is going to be a
large amount. With reference to your third point about the cost
share, traditionally there is a 65-35 percent----
Mr. Ryan. Sixty-five Federal, 35 State?
Mr. Powell. Yes, sir.
Mr. Ryan. And it is protecting areas that are under the sea
level?
Mr. Powell. Yes, sir.
Mr. Ryan. Thank you. I will yield.
Chairman Spratt. Thank you, Mr. Ryan.
Mr. Edwards of Texas.
Mr. Edwards. Thank you, Mr. Chairman. Thank you all for
being here and the important work you are doing. Mr. Powell, I
especially want to thank you for the personal sacrifices you
and your family have made to allow you to take on this
responsibility. And it is a huge one. I think we all agree that
the Federal Government didn't respond quickly and effectively
enough in the immediate aftermath of Katrina and Rita, but I
know, in the wake of that response, when you got your
responsibility, you worked hard to try to bring people
together. I would like to clarify, for the record, you don't
have--while you are given the title coordinator, you don't have
the line authority to direct HUD, FEMA or Homeland Security to
take certain steps. Is that correct?
Mr. Powell. That is correct. However, I would say,
Congressman, we work very closely with our friends at HUD and
DHS and all of the other agencies. And we work very close with
health care issues, criminal justice issues, all of those
things, and we receive a spirit of cooperation. But to answer
your question directly, we do not have authority to.
Mr. Edwards. Thank you. I had several other questions, but
I would like to just focus on one. I guess one of the most
important decisions the Federal Government and the
administration will have to make in particular will be how much
additional funding to ask from Congress and what the local and
State share should be in that effort. I don't know what the
status of the Louisiana economy is, the New Orleans economy,
their tax revenues.
Reverend, you mentioned there was a loss of 18,000
businesses. Can you tell me, compared to pre-Katrina and Rita,
what are the revenues of the State government and the New
Orleans government? Because certainly while we would expect
local and State participation and infrastructure investments
from year to year, this is a unique situation where those
entities may not have the resources to contribute the normal
cost share that we might expect.
Mr. Powell. Immediately after the storm, obviously their
revenues went down. But the State recently announced a 2.2, I
think--either $2.250 or $2.5 billion excess in their State
revenue. I know the City of New Orleans, their sales tax
revenue is back to very close to pre- Katrina levels. That is
obviously because of the economic activities, but to be fair, I
think part of that is because of the consumers buying new
appliances, carpet, lumber and things. The same thing is true
in Mississippi. There has been an economic push. But I think we
need to temper that with, what is it going to look like 2 and 3
and 4 and 5 years now? So there has been an upswing in revenue
to State government and local government.
Mr. Edwards. Much of that is because of the direct infusion
of tax dollars?
Mr. Powell. That is right.
Mr. Edwards. Okay. Thank you.
Thank you, Mr. Chairman.
Chairman Spratt. Thank you, Mr. Edwards. I am going to run
the clock until about 3 minutes. We have got a series of votes
coming up, a 15-minute vote, followed by three 5-minute votes.
So we are going to try to move this along.
Mr. Hensarling?
Mr. Hensarling. Thank you, Mr. Chairman.
Mr. Ryan covered most of the ground that I wanted to cover,
but I did want to add my voice to that of my fellow Texan, Mr.
Edwards, and thank Mr. Powell for his service to his country. I
know it is a sacrifice. It is an important job, but it is
probably a thankless job as well.
Mr. Powell, I have kept up with a series of articles
written by the New Orleans Times-Picayune. They seem to have
done a series of reports and exposes about the Road Home
Program. In this article, they recount how, last year, the
Governor thanked Congress and the President for fully funding
the program, although now we know they are requesting $5
billion more. In this same article, dated July 28th, just a
couple of days ago, it says that the State now lacks money to
pay more than a third of the applicants, that the last day to
file an application was approaching, and that the State had not
succeeded in handing out money already in hand, that only about
a quarter of eligible applicants had collected grants, compared
with 83 percent of eligible flood victims in neighboring
Mississippi.
So I am going to have two questions. Number one, what was
Mississippi doing differently than New Orleans in their ability
to help their homeowners in a more timely fashion? Second of
all, the article goes on to say that the Blanco administration
made a series of politically popular promises, vowing to help
seemingly every storm victim, landlords, business owners, New
Orleans power company, and University Hospital, and then it
talks about the controversial decision to cover wind damage. So
the second question is really, is this particular article
accurate?
Mr. Powell. Congressman, I have read that article. And
while I don't make a habit of reading articles each and every
day, I think that article pretty well reflects the history of
the Road Home Program. I think it depicts the events
accurately, and also I think it describes the rationale and the
reason for the potential shortfall.
Why is Mississippi 83 percent and Louisiana a third? There
are various reasons. Some of them are subjective, obviously.
Again, I described earlier that the devastation in Mississippi
presented unique challenges, and they sure presented unique
challenges in Louisiana. Title records, the complexity of
destroyed title information in Louisiana was I think a little
bit different than in Mississippi. Amending the Road Home
Program in Louisiana on numerous, numerous times I think caused
a slow-up of the process. The sheer volume of applicants in
Louisiana presented more of a challenge. So I think there are
several reasons, but I think the Road Home Program in Louisiana
now has got its feet beneath it and is--now they have closed
something like almost 40,000, 40,000 of these programs.
Chairman Spratt. Thank you, Mr. Hensarling.
Mr. Boyd, I take it you want to ask a question, probably
about insurance.
Mr. Boyd. Mr. Chairman, is it your intention to come back
after the votes?
Chairman Spratt. I think, in fairness to our witnesses, we
will not come back, because it will be at least 45 minutes
before we make it.
Mr. Boyd. Okay. Mr. Chairman, I will be very brief then.
And I wanted to say that welcome, first of all, to the
witnesses, and thank you for your work, all of you. And tell
you that I represent a portion of the Gulf Coast in Florida
that I don't know, is probably 250 miles of the Gulf Coast. And
we are very accustomed to hurricanes. We get them several times
a year. I told Chairman Powell when he was visiting the other
day, we get out of the way, let them come through, and then we
go in and clean up and pick up and rebuild as a common
occurrence.
And we learned in 1992 after Andrew that FEMA and our State
emergency response--preparedness and response systems were
inadequate. And we worked hard in Florida to fix that. And the
Federal Government fixed FEMA, too. And I have dealt with FEMA
for 10 years, or 15 years now, and found it to be one of the
best Federal agencies there was. Something happened in 2001,
and we are not sure what, at least in my experience in
response--in dealing with FEMA. But we deal with them every
year on several different incidents.
Mr. Czerwinski, can you speak to that? Was it the structure
change that we made in FEMA? You know, we see a lot of misuse
of funds now and lack of response and those kinds of things.
Can you speak to that?
Mr. Czerwinski. Sure. Sure, Mr. Boyd. First of all, I agree
completely with your assessment of what went on in Florida. I
led GAO's work on Andrew, and the response to Andrew was
lacking both on the Federal part and on the State part. And now
Florida has one of the model programs that we point others to.
At that time, we also did a lot of work with FEMA about how
they could improve their response. And you are absolutely
right; their response improved tremendously. It seems as if
they have forgotten the lessons that they have learned.
Mr. Boyd. So is it just going to take hard work? Is there
structural changes Congress needs to make, or is it totally an
executive decision that is going to--executive action that is
going to have to improve?
Mr. Czerwinski. Actually, I would point to four products
that lay out a road map for what FEMA needs to consider. One is
what the House study did after Katrina about a year-and-a-half
ago. The Senate had a similar study. GAO had another study. And
the administration did, too. And if you were to follow those
recommendations, you would have a fixed FEMA.
Mr. Boyd. Thank you very much. It is a complicated
situation, but it is important, Mr. Chairman, to those of us
who live on the gulf that we have a well-oiled, well-working
Federal partner when it comes to preparing and responding to
emergencies. And I hope, Mr. Chairman, we can spend some more
time on this as time goes on.
Chairman Spratt. I couldn't agree more. I come from a
coastal State also. It is not on the gulf, but we have
hurricanes, and we have significant damages, too. Thank you all
for your testimony, and particularly for your forbearance. And
we may be calling upon you again to complete our understanding
of this, but you have made a substantial contribution to it
today, and we greatly appreciate it. In light of the time
factor, I think, in fairness to you, we will adjourn the
hearing at this point. Before I do, I would like to ask
unanimous consent that members who did not have the opportunity
to ask questions be given 7 days to submit questions for the
record. Without objection, so ordered. Once again, thank you
very much.
[The information follows:]
[Questions for the record submitted by Mr. Ryan and the
subsequent responses follow:]
Responses From Mr. Powell to Mr. Ryan's Questions for the Record
Question: In your testimony you discuss the Louisiana homeowner
grants program, aka The Road Home Program and its potential multi-
billion dollar budget shortfall. Recently (July 28) I read with
interest an article in the New Orleans Times Picayune (NOTP) by David
Hammer that outlined the program as well. Do you agree with the overall
content of that article? In your opinion, is the New Orleans Times
Picayune considered the ``paper of record'' for Hurricane Katrina in
New Orleans?
Answer: The New Orleans Times-Picayune is a well respected
newspaper. It has by far the largest circulation of any paper in
Louisiana and received a Pulitzer Prize in 2006 for its coverage of
Hurricane Katrina.
The Office of the Federal Coordinator (OFC) saw the same article
(attached) and believes that it provides a good summary of the
situation surrounding the Road Home program.
Question: If, as you and the NOTP article suggest, the State has
run into a shortfall because of its decision to cover wind-only damage,
what does the Administration plan to do? Did the Administration
allocate Federal funds for wind-only damage to any of the affected
States, including Louisiana? If not, why didn't the Administration
cover wind-only damage after the hurricanes?
Answer: The Administration has not taken a position with respect to
the Road Home shortfall. Furthermore, any effort to cover the
shortfall, in part or in full, would require legislation. Consistent
with the article, current estimates prepared by HUD indicate that there
would be very little or no shortfall in the Road Home program if
benefits had remained limited to assistance for homeowners who
experienced flooding as the Administration intended.
The Administration, through the Office of the Federal Coordinator
for Gulf Coast Rebuilding, made a clear policy decision that CDBG funds
would only be allocated to establish homeowner assistance programs for
those homeowners that experienced flood damage. The Administration took
that position for two reasons:
1. Wind damage is an otherwise insurable event. There is a robust
private market in homeowners insurance that covers wind damage, and
people need to carry adequate insurance rather than rely on government
aid; and
2. The Federal government has a special responsibility to assist
those homeowners who experienced flooding from breaches of Federal
levees or storm surge not anticipated in Federal flood maps. These
citizens still struggle the most to recover and we have always believed
their needs should be prioritized.
The Federal government communicated this position to the State of
Louisiana and to other states on the Gulf Coast--most notably Texas--
when they requested CDBG funding for homeowner assistance programs that
would cover those who experienced only wind damage in Hurricanes
Katrina and Rita. The Administration's request for CDBG funds for the
Road Home program was based exclusively on assistance for homeowners
who experienced flood damage.
Question: At what point did it come to your attention that there
was a serious shortfall in the Louisiana Road Home program funds? What
form of notification did you receive? Is there regular and open
communication between your office and the State? Do you have any
knowledge that the State was aware of a potential shortfall?
Answer: The Office of the Federal Coordinator for Gulf Coast
Rebuilding read about the projected shortfall in a newspaper report
outlining a May 1, 2007 letter from Representative Bobby Jindal (R-LA)
in which he expressed budgetary concerns about the Road Home Program.
The State of Louisiana had not sent prior notification to OFC or any
other Federal Agency. It is our understanding that in Spring 2007 this
subject came up informally in telephone conversations between the state
and HUD although, to date, HUD has not received a formal notification
from the state advising them of a funding shortfall.
In addition to daily interaction between State staff and HUD
program staff, the Office of the Federal Coordinator also has led a
weekly conference call with all stakeholders involved in the Road Home
program since November 2006. The attendees for the call include
Governor Blanco's office, the Louisiana Recovery Authority, the
Louisiana state Office of Community Development, the contractor
managing the program, ICF International, the City of New Orleans, as
well as Federal agencies such as OFC, FEMA, HUD, and SBA. At no time
was any potential shortfall raised on one of these calls.
OFC has no direct knowledge of when the State became aware of a
potential shortfall. Press reports--such as the David Hammer article in
the New Orleans Times-Picayune attached in response to the first
question--indicate that the State may have been aware of a potential
shortfall even as it was designing the Road Home program in early 2006.
Question: In your testimony you state that you met with Governor
Blanco on June 6, 2007, to discuss her Road Home Program and that the
very next day you submitted a number of questions to the State related
to the finances of the Road Home program. At our hearing on August 2,
2007, you had still not gotten a response from Governor Blanco. Have
you received the answers to your questions since? If not, have you made
any efforts to contact the State of Louisiana to inquire about your
list of questions and when you would get a response? If you have made
efforts to contact the State, could you please furnish the dates and
means employed by your office to get a response from the State.
Answer: The State submitted its response to the June 7 questions on
August 12, 2007. During the intervening period we were in regular
contact with the State asking for a response. When received, OFC found
the State response to several questions to be incomplete, and
Coordinator Powell reiterated the OFC request for the missing
information in a letter to Governor Blanco on August 31, 2007. To date,
no response has been received to this follow up letter.
Question: If the Federal Government is required to cover the
Louisiana Road Home program shortfall, as well as Louisiana's proposal
to cover wind damage, please estimate and describe:
(a) possible statutory implications
(b) any budgetary implications
(c) possible impact on similar programs in Texas, Mississippi,
Alabama, Florida and other states impacted by the 2005 hurricane
season.
Answer:
(a) The Federal Government is not required to cover the Louisiana
Road Home program shortfall. At no point has the State of Louisiana
indicated in their program documents that the Federal Government had a
statutory requirement to cover any shortfall in the Road Home program.
Public program documents, in fact, make it clear to the State of
Louisiana and the Louisiana Recovery Authority (LRA) that any shortfall
in total funding necessary to meet Road Home needs would require the
filing of program amendments with HUD in order to adjust available CDBG
program resources and potentially meet that need.
(b) The impact on the budget of covering the Road Home shortfall
depends on the exact size of the shortfall, which is still being
determined. Again, the Federal government is under no obligation to
cover the Louisiana Road Home Program shortfall and has no authority to
cover the shortfall under current law. Louisiana reports that more than
180,000 households have applied under the program. Louisiana officials
have indicated that the State expects to exhaust its available funds in
December 2007.
There is considerable uncertainty and discussion regarding the size
of the Road Home shortfall. HUD has conducted a preliminary analysis of
data provided by ICF International, the Road Home program
administrator. HUD's analysis showed that there were thousands of
duplicate addresses among the 180,000+ households reported by the State
to have applied for Road Home benefits. The inclusion of these
duplicates has a significant effect on the projected shortfall. HUD has
notified the State about its concerns, and the State has indicated to
HUD that it does not intend to revise its estimates.
(c) There would be no direct impact on housing assistance programs
in other states. We anticipate, however, that other states will again
raise requests for funding of wind-only housing assistance programs
that were initially denied by the Administration.
Question: It seems that most of the rebuilding funds after any
natural disaster come from the FEMA Public Assistance (PA) program.
That process can be lengthy and is a collaborative one between the
Federal, local, and State governments. Is there anything you can
suggest to improve that process?
Answer: The Federal government has an important role in the
reconstruction of public infrastructure after a disaster. It provides
funds to rebuild public buildings, schools, public hospitals, roads,
bridges, sewers, and other public assets necessary for recovery.
Nevertheless, it is critical to recognize that the Federal role is not
the lead role. Disaster recovery is not an exercise in central
planning, and the Stafford Act leaves key decisions about rebuilding to
the local officials who best represent the victims of the disaster.
Once we recognize that it is neither feasible nor appropriate for
the Federal government to subsume the role played by State and local
officials, approaches to improving the Public Assistance process fall
under several categories:
1. Reducing Federal red tape;
2. Improving coordination and communication; and
3. Helping State and local officials perform their roles.
(1) OFC has worked with FEMA to streamline the Public Assistance
process, actually reducing time for processing grants from months to
weeks. Specifically, we have worked with FEMA to:
Improve FEMA's internal management challenges by reducing
personnel turnover, empowering key leaders to make decisions, and
improving cost estimates for local applicants;
Cut unnecessary layers of bureaucracy in FEMA's approval
process, while still ensuring appropriate and required due diligence;
Help local communities set their PA priorities by working
more closely with local applicants to determine their priority projects
and address their concerns with the PA program; and
Implement an improved ``A to Z'' Tracking System that
tracks applications from initial application through awarding of funds;
Notably, in March 2007, my office and FEMA were able to shepherd 18
education-related projects through the ``Million Dollar Queue'' within
a record time of just one week. (The ``Million Dollar Queue'' refers to
the additional review process required by Sec. 508 of the DHS
Appropriations Act in order to provide ample notification to Congress
of grants over $1 million.)
OFC continues to consider and develop ideas to reduce process and
paperwork burdens in the Public Assistance process, and would like to
solicit ideas from members of the Committee. The Stafford Act includes
documentation and verification requirements that are necessary to
determine and substantiate benefits. These may include verification of
the condition of facilities before the disaster, the amount of damages
resulting from the storm, the cause of damages, cost of repair or
replacement, and compliance with mitigation and environmental
conditions. While this process requires documentation and verification,
it fulfills a fiduciary duty to ensure proper accountability to the
U.S. taxpayers.
(2) FEMA and OFC are now working to improve the transparency of the
project worksheet process to both State and local governments and to
the general public. Together, we are preparing a website that will
allow government officials, local leaders and the general public to
track the progress of project worksheets. An incomplete beta version of
the website can now be accessed at http://www.fema.gov/hazard/
hurricane/2005katrina/map/index.html. We continue to work with FEMA to
add data and refine the user interface to make the website faster and
more functional.
When complete, this website will allow people to check the status
of the rebuilding of their local public school, fire house, or police
station. It will indicate the date that the Federal government
obligated money for a project, and will indicate what the next step is
in the process as a project worksheet moves toward becoming a completed
project. By providing this information to the public, we hope to
provide better and more timely information to local officials who are
grappling with the Public Assistance process while making public
interest and concern a tool to drive progress.
(3) Local officials often face difficult and controversial
decisions under trying circumstances. First, few local officials have
any familiarity with the Public Assistance process before the disaster
strikes. This means that they are faced with learning a new set of
procedures and paperwork requirements in the midst of an emergency.
This is frequently complicated by the loss of local government records
and administrative resources.
Second, successful reconstruction after a catastrophe on the scale
of Hurricane Katrina requires extensive planning. In New Orleans Office
of Recovery Management Executive Director Dr. Blakely's words ``We have
to put the plans in place before we can spend the money. * * * we have
to work with the recreation department, we have to make sure the fire
station and police station is in the right place and so on. As we're
going through that, we really can't spend any money because we can't
spend the money until we get agreement on the plans.'' This planning
often raises difficult and contentious issues because it affects the
character of the communities being rebuilt.
Third, the process of rebuilding can exceed the management capacity
of local government institutions. For example, a school district that
normally builds one school per decade on a normal time frame can find
itself faced with the task of rebuilding five schools on an emergency
basis using the unfamiliar Public Assistance process. As a result, some
officials are overwhelmed by the challenges of rebuilding on a massive
scale even if sufficient funds are available.
Therefore, some of the most promising ideas to improve the Public
Assistance process involve supplementing limited capacities at the
local level. FEMA has worked to assist local stakeholders by providing
additional funds for administrative costs and providing an
unprecedented degree of hands-on support. The Federal government will
continue to look for ways to support local officials in their
rebuilding efforts and to prevent projects from stalling.
Question: There are so many pieces and aspects to a rebuilding
process on this grand a scale. What do you see as a direct role of the
Federal Government rather than a Federal partnership with the State/
Locals?
Answer: The Stafford Act structures much of the Federal disaster
response to be a coordinated effort with state and local governments.
The Federal Government provides assistance, financial and technical to
the affected state and local entities who are, however, responsible for
implementation. For example, a disaster will generate a large amount of
debris, which need to be removed and disposed of properly. The Federal
Government will fund a substantial portion of this debris removed,
however, the state and local governments are responsible for hiring the
contractors to haul the debris, ensuring that they are properly
licensed, and permitting the disposal facilities.
On the Gulf Coast, the most significant project where the Federal
Government leads from securing the funding to implementation is the
reconstruction and improvement of the levee and hurricane protection
system. Progress on hurricane protection has been robust. The U.S. Army
Corps of Engineers (Corps) completed the repair and restoration of 220
miles of floodwalls and levees by June 1, 2006. The Corps continues to
improve the hurricane protection system and the New Orleans-area now
has the best flood protection in its history.
The Administration is committed to achieving full 100-year storm
protection for Greater New Orleans by 2011. The Corps has announced a
need for an additional $6.3 billion to achieve 100-year protection, and
$1.3 billion for a network of drainage projects to establish a more
complete hurricane protection system for the New Orleans area. The
Administration is committed to work with Congress to provide these
additional funds in order to protect the area's residents. These levee
improvements, combined with prior appropriations, total close to $15
billion.
An independent group of 150 scientists--the Inter-Agency
Performance Evaluation Task Force--released maps that assess the risk
associated with specific locations in the greater-New Orleans area.
These maps (available at http://nolarisk.usace.army.mil/) clearly show
the safety-enhancing effect of the President's commitment to 100-year
storm protection. If another Katrina were to hit tomorrow along the
same track, the Corps does not expect New Orleans would have the same
catastrophic flooding that occurred during Katrina. Significant
hurricane protection measures include: flood walls reinforced at
numerous locations; I-walls replaced by stronger T-walls at breach
sites; armoring of flood walls and strengthened transition points
between flood walls and levees; interior pump station repairs and
improvements; and flood gates at the three outfall canals to prevent
surge. In addition, the Corps now has 73 pumps in place with a total
pumping capacity at the outfall canals of about 16,200 cubic feet per
second.
[From the New Orleans Times Picayune, Sunday, July 29, 2007]
Every Step Bumpy for Road Home
Crescendo of Gaffes Sets Stage for Shortfall
By David Hammer, Staff Writer
On a scorching day last August, after months of haranguing Congress
for flood recovery aid, Gov. Kathleen Blanco came to New Orleans to
hail the opening of the first homeowner assistance center to serve
beneficiaries of the newly minted Road Home program.
``Full speed ahead,'' the governor vowed, beaming over the
impending recovery. ``This is a most joyful day.''
She promised to rebuild Louisiana ``safer, stronger, smarter,''
with incentives for displaced homeowners to return, penalties for those
who left and stringent protections against fraud.
Blanco seemed to have reason to rejoice: She had just emerged from
a pitched political scrap with Republican-dominated Washington to
secure the recovery money. She had boldly accused the White House of
``choosing between our children'' when the government told her to run a
limited program with $6.2 billion. She had persuaded officials to
increase that figure to $10.4 billion, using $7.5 billion of that for
direct payments to homeowners.
But that sweltering August day might have been the last joyful one
the Road Home ever gave Blanco. More important, the majority of flooded
homeowners still await the joyful day when their check arrives--if
ever, given the budget shortfall in the program of up to $5 billion.
Nearly a year and countless bureaucratic foul-ups after Blanco's
triumphant proclamation, the state lacks the money to pay more than a
third of eligible applicants. And with the last day to file a Road Home
application approaching, neither has the state succeeded in handing out
the money already in hand: Only about a quarter of eligible applicants
have collected grants, compared with 83 percent of eligible flood
victims in neighboring Mississippi.
Blanco has countered that Mississippi, by virtue of its Republican
ties to then-GOP-controlled Washington, received far more recovery cash
and cooperation last year from the Federal establishment. To date,
Mississippi has collected about $5.5 billion in Federal blocks grants,
while Louisiana--with four times the number of storm victims--has
received only about double that, at $10.4 billion.
Fairness questions aside, critics say the Blanco administration
fumbled the handling of the Federal aid it did secure. Hoping both to
secure maximum money for rebuilding and ensure residents behaved
properly by rebuilding their destroyed homes, she created the
quintessential paternalistic government program: aiming to please every
conceivable constituent, bloated by a micromanaging bureaucracy and
bound in a thicket of attached strings.
many watchful eyes
In tackling what seemed the simplest of tasks--handing out the
Federal Government's money--the state instead designed an expensive
exercise in social engineering and forensic auditing of every cent paid
out.
Over-sensitive to Louisiana's reputation for graft and seeking to
reassure Washington, state officials crafted layer upon layer of
verification to discourage fraud, including finger-printing. And
fearing applicants would take the money and run, rather than rebuild,
state officials gummed up the bureaucratic works with penalties for
leaving the state and an installment program that dribbled out money to
those who stayed, sending them jumping through more hoops--even after
they signed on the dotted line--to prove work was being done on their
homes.
``What the state created was a Rube Goldberg machine--you drop a
ball in the top, and it goes through all these tubes and levers and a
wheel that spins,'' said Nell Bolton, a leader of the Jeremiah Group, a
faith-based organization that has taken on the role of Road Home
watchdog.
Each lever and wheel--home appraisals, insurance payment
verifications, fraud safeguards, spats with Federal authorities about
grant rules, and so on--created a bottleneck that to this day keeps the
bulk of grants stymied. The design of Louisiana's program, many argue,
produced the opposite of the intended effect: repelling trustworthy
homeowners who were already predisposed to rebuild.
Robby Knecht, an eastern New Orleans homeowner, is a case in point.
During 10 months of delays over a dispute about his appraised value, he
had to split his seven children between two FEMA trailers and move the
family back into a still-unfinished house. He said struggles with Road
Home did more to weaken their bond with Louisiana than Katrina ever
did.
``It's depressing,'' he said. ``I could have gone anywhere. * * *
We're both native New Orleanians, and we want to be here. But my wife,
especially, she talks about leaving.''
running out of money
Because of the shortfall, an estimated 50,000 eligible applicants,
out of an expected total of about 140,000, will have to depend on a
bailout from a wary Congress.
At the time the state crafted Road Home rules, the Blanco
administration might have had reason to believe a cavalry of Federal
cash would cover any shortfall. After all, President Bush's point man
for Gulf Coast recovery, Donald Powell, had implied as much during
tense negotiations about the initial Federal commitment of $6.2
billion, which state officials at the time called grossly inadequate.
``After that plan is in place, and there is a need for more money,
I can assure you we will go back after that's done and work hand in
hand with the leadership of Louisiana to ask for more money,'' Powell
said. The Bush administration ``would be open to many more needs for
housing and infrastructure, or any other needs that the good people of
Louisiana believe are appropriate.''
And Powell's comments, of course, came on the heels of Bush's own
commitment at Jackson Square to do ``whatever it takes'' to rebuild
Louisiana.
After Powell lent his support, Congress allocated an additional
$4.2 billion, bringing Louisiana's recovery kitty to $10.4 billion, for
everything from housing relief to infrastructure.
Still, documents and interviews with state and Federal officials
show the state knew or should have known from the start that even that
increased allocation would never cover the program they promised back
home.
The state's own early estimates--based on FEMA damage estimates
later found to be too low--pegged the program at about $2 billion short
of covering the cost. The problem would get worse, as Louisiana added
more benefits for overlooked niche constituencies and as the
devastation and costs to repair it all proved worse than anticipated.
settling for less
In early 2006, during the negotiations with Powell for additional
housing money, the Louisiana Recovery Authority used consultants to
work up a detailed cost estimate for its planned homeowner assistance
program. Working with the FEMA data, the consultants concluded that
Louisiana would need $9.4 billion to compensate 128,000 homeowners, at
a rate of about $70,000 per grant, along with some money to pay a
private contractor.
Yet the Blanco administration settled for a $7.5 billion housing
program and profusely thanked the American taxpayers and their
congressional representatives. Last July, Blanco praised Congress and
the Bush administration for ``the funding we need to run our full
program.''
A year later, it turns out the ``full program'' will really cost up
to $5 billion more.
One Democratic congressional aide, who declined to be quoted by
name opposing Blanco, said Democrats on Capitol Hill puzzled over the
governor's gleeful acceptance of the lower amount offered by Powell and
Congress--and wondered how the state would make it work.
``Some of us were really surprised the governor was so happy,'' the
unnamed aide said. ``We were also surprised they (the state) were able
to drop their number and make the program work. * * * The way to do it
was to take that and immediately say, `OK, we still need more.' ''
spending freely
Instead, the state started designing programs that ultimately would
cost far more--in some cases ignoring the financial parameters set by
Powell in closed-door meetings. Blanco's administration made a series
of politically popular promises, vowing to help seemingly every storm
victim: landlords, business owners, the New Orleans power company and a
university hospital.
Two decisions in particular made the tab skyrocket, ensuring an
eventual shortfall. The state added loans of as much as $50,000 for
low-income homeowners, a decision that added an estimated $1.7 billion
to estimated Road Home payouts.
And a controversial decision by state leaders to cover homes
damaged only by wind--which many argued should have been shouldered by
insurance companies--put an even heavier dent in the Road Home budget.
The state made that call even after Powell declined its plea for money
to cover wind damage, Powell said in an interview.
The state's initial request specifically calculated wind-only
compensation costs for 19,000 homes at $1.1 billion, a figure that
would prove far too low. The FEMA estimates used at the time
underestimated the number of wind-damaged homes by about 20,000,
according to the latest figures, a gaffe that doubled the state's
estimated obligation to homes that didn't flood.
Amy Liu, an analyst at the Brookings Institution, said Blanco
defied the White House's calls for a limited flood-relief program
because of political pressure from south-central and southwest
Louisiana. Liu said Blanco's team deserves credit for creating a smart
program early on, but the local politics compromised the original
design.
``I don't doubt the political pressure they were under, but in the
myopia of serving such a broad demand, they may have undermined their
credibility in Washington,'' she said.
state can't keep up
Last summer, Steve Alison, who lost his Gretna home in Hurricane
Katrina, kept a close eye on the state's housing aid plans and rushed
to be one of the first to apply when Blanco announced the birth of the
Road Home.
``I thought it would be within 30 days,'' he said. ``At first it
moved really quickly, I had the interview, they came in and estimated
my damage, took pictures, but then they started the snafus.''
While the state proved adept at adding beneficiaries to the aid
program, it couldn't manage to get most of them paid. Struggling to
speed payments while complying with hundreds of intricate policies and
procedures, ICF International, the private contractor, soon found
itself the early scapegoat for delays and screw-ups that started even
before the state could write its first check to a flood victim.
In response, the contractor, under pressure from Blanco over
delays, devised ``preliminary award letters.'' The letters backfired,
immediately infuriating applicants, both because they seemed to mean
nothing--they promised no specific amount of cash, by no specific
date--and because more than a quarter of the first letters included
errors, often obvious assaults on common sense.
In one case that became a cause celebre, Saul and Mildred Rubin,
who are in their 90s, received a letter denying the grant claim on the
basis that their Lakeview house--which had taken on 9 feet of water--
had no damage.
A second backlash came at the roughly 60 steps of verification,
which added months to the process.
On Dec. 18, 2006--before even one-tenth of 1 percent of Road Home
applicants had made it to a grant closing--state Rep. Cedric Richmond,
D-New Orleans, met with state legislators and the governor's staff
about the delays. He walked out in a huff over Road Home's seemingly
endless checks and balances.
``You're treating homeowners like thieves and children,'' Richmond
recalled telling the assembled officials.
The administration had worried, understandably, about reassuring
Federal politicians that Louisiana would prove a good steward of their
money, given the state's legendary history of corruption. But the
Blanco administration seemed to have grafted that reputation--earned by
the state's politicians--onto work-a-day homeowners, generally the most
law-abiding and trustworthy citizens in the state, Richmond said.
``People called us thieves for so long, the governor began to
believe her people were thieves,'' Richmond said in an interview.
unneeded red tape
Neither could Richmond and other critics understand the complex
array of incentives, penalties and auditing procedures that sought to
ensure residents rebuilt their destroyed homes. They viewed Louisiana
residents, and particularly those in New Orleans, as already deeply
rooted to their communities, both by family ties and unique culture.
Their collective recommendation: Just compensate people for their
loss--as quickly as possible--and most will decide to stay.
According to the 2000 U.S. census, 77 percent of New Orleans
residents were born in Louisiana, the highest nativity rate of any
major U.S. city. What's more, geographer Richard Campanella finds
Katrina's flooding was worse in the parts of New Orleans with the
fewest out-of-state transplants.
That makes it all the more confounding that Blanco designed a Road
Home program geared so much toward keeping New Orleanians from fleeing,
said John Lovett, associate law professor at Loyola University.
``The silver lining was those people were the most likely to stay,
if only you would have given them a chance,'' Lovett said. ``It's just
tragic that Blanco and her consultants didn't appreciate this unique
affinity New Orleanians have for their long-time community.''
According to interviews with hundreds of frustrated Road Home
applicants, many grant delays seemed driven by simple confusion about
program rules, both on the part of applicants and program managers--
confusion that often extended to senior state officials who enacted and
enforced the policies.
Road Home applicants also report being treated with skepticism
every step of the way, and they resented the implication that they
needed to be prodded to rebuild their lives in the same communities
where they grew up.
Knecht, one of thousands whose application dragged on for months--
despite scores of promises, misinformation and unreturned phone calls--
looked at Mississippi's record of faster payouts with envy.
``And their homeowners weren't fingerprinted, with a mug shot--like
we're going to prison,'' he said.
The Louisiana Recovery Authority's own surveys had shown in March
2006--months before the administration finalized policies--that the
vast majority of Louisianians wanted to rebuild in place. Yet the Road
Home still created complex functions to keep homeowners from leaving
and, once they chose to stay, to make sure they used the grants only to
rebuild.
``I had no problem with verifying that I deserved the money, but
then they're going to be Big Brother about how I spend it? That's where
I got upset,'' Alison said.
mississippi got more
Mississippi's similar homeowner assistance effort has always served
as a bellwether for Louisiana's recovery efforts, with Blanco's
administration alleging the state has gotten political favoritism and
Louisiana's critics holding up Mississippi as a model of efficient
government.
For a while this spring, Louisiana leaders avoided comparisons with
Mississippi, which seemed to be a dead end in Washington. But finally,
with the Road Home budget falling flat in the past two months, state
leaders are back to comparing the states again, wailing about
Mississippi's privilege and alleging GOP plots to make Republican Gov.
Haley Barbour into a hero and Democrat Blanco a failure.
``God bless them, they suffered too, but not to the extent that we
did,'' Blanco said of Mississippi in a recent interview.
Blanco has a point: Katrina and Rita hit larger population centers
here and exacted an extra punishment on New Orleans because of the
failure of federally built levees.
Donna Sanford, the disaster recovery director at the Mississippi
Development Authority, said she feels for Louisiana's Road Home
predicament but is proud that her state has generally avoided the same
fiscal fate. Sanford attributes it to more than just the politics cited
bitterly by Blanco. She credits Barbour's leadership and willingness to
make hard choices about which victims would be prioritized for speedier
payouts.
The plan, as Sanford describes it, was to split the homeowner aid
program into ``buckets'' of beneficiaries and start paying the next
bucket only once it was clear how much money was left over.
The first bucket paid for homes outside the flood plain damaged by
flood surge. That amounted to about 16,000 homeowners with insurance,
who should get a little more than $1 billion in grants. With $3 billion
budgeted for homeowner relief, the state then confidently moved onto
the next bucket, expected to be about 14,000 insured properties within
the flood zone. From the beginning, it refused to cover uninsured
homeowners, while Louisiana simply assessed a 30-percent penalty for
those without coverage.
The initial FEMA estimates in December 2005, which have come into
serious question now, showed 331,070 Louisiana homes damaged by the
storms and 157,914 in Mississippi. Even with more than $5 billion in
the first congressional handout, Mississippi decided it didn't have
enough to cover them all.
Rather than using the FEMA numbers to exclude those with minor
damage--as Louisiana did, only to have to add an estimated 15,000 homes
classified incorrectly by FEMA--Mississippi excluded wind-only claims
and prioritized those who weren't required to have flood insurance.
From there, Mississippi also cut out wealthier families, limiting
eligibility within the flood zone to about 9,500 families making less
than 120 percent of the area median income, or about $58,000 for a
family of four.
And one more bucket of spending in Mississippi provides a stark
contrast to Louisiana: its $48 million Phase One contract with Resnick
Group. That accounts for less than 2 percent of the state's $3 billion
housing aid package.
Louisiana will pay contractor ICF International as much as $756
million to run a $7.5 billion homeowners budget and an $869 million
small rental aid program. That's 9 percent of the total budget going to
the contractor.
still waiting
Twenty-two months after Katrina, more than 127,000 Road Home
applicants--more than the total number of homeowners FEMA initially
found eligible--still have no Federal aid. And that reality will likely
make it more difficult to get quick action from a Congress in the
throes of budget constraints and Katrina fatigue, and, to be sure, less
than impressed by the state's management of Road Home.
Only recently, and under Federal pressure, did the state reform the
verification process, and then only to reduce the number of steps from
60 to 42. That action appears to have speeded payments considerably.
In another sea change, the Federal Department of Housing and Urban
development pressured reluctant state officials, abandoned the practice
of parceling out grants in stages from an escrow account--with the
first installment no more than $7,500, an amount exasperated rebuilders
said couldn't even get them started.
Soon, the state changed to a lump-sum compensation grant, similar
to Mississippi's. With that and other changes, money finally started to
flow in April, when the program closed 8,000 grants, followed by 10,000
in May and 10,300 in June. But when the money started moving, it then
became clear the Federal spigot would run dry long before the state
fulfilled its promises to victims.
Shaken by the shattering of a signature piece of her program and
the firestorm of criticism it prompted, Blanco quit her re-election bid
a few days later, saying she hoped to remove politics from the state's
recovery efforts.
Blanco recently went to Washington, asking Congress to kick in
another $3 billion to $4 billion, and has offered to match it with $1
billion in state money.
At the least, the state will have to wait until a congressional
spending bill this fall, which means more uncertainty for weary
homeowners, many of whom can't rebuild without the promised help or
have already given up and left the state.
few happy endings
Susan McClain said she's giving Louisiana, the state her family has
called home ``forever,'' one more chance--but she isn't optimistic.
She got a Road Home check this month, but the day before the
closing it was cut by $55,000. The Road Home suddenly decided to cut
her home's estimated square footage by a third, with no explanation.
Closing agents told her she had better take the money or risk getting
nothing because of the shortfall, something she called ``the bait-and-
switch with threats.'' The surprise slashing forced her to scrap plans
to raise her Gentilly house above the 7-foot level that Katrina
inundated.
``The next flood will destroy my home, and then I'm leaving this
state,'' she said. ``The corps flooded me last time, but now the state
won't let me rebuild to where it needs to be.''
Some of the other 39,000 who have been lucky enough to get a Road
Home check have also reported a ``bait and switch,'' but the state
doesn't disclose how many grants are challenged at closings. The
average award has been steadily dropping in the two months since the
state first acknowledged the shortfall.
Even those who have found eventual success are weary of the Road
Home. Take the case of Knecht, who proved more dogged than most in the
pursuit of a reappraisal of his home's value.
An appraiser, one who also works for the Road Home, certified four
months ago that Knecht's house is worth enough to get a grant, but the
program never accepted the document, despite repeated reassurances from
the Road Home staffers Knecht harangued for months. Then, just last
week, came a breakthrough that would mean the difference between no
Road Home grant and getting about $60,000 to replace the house's flimsy
Tylex paper exterior with real siding.
Knecht, after months of frustration interactions with Road Home
advisers, finally managed to get the ear of a top supervisor and told
him he had shared his tale of woe with the newspaper. He suddenly got
an e-mail Friday saying his appraisal would be accepted and that he
could close on a grant within weeks. Though ecstatic, Knecht kept it in
perspective.
``For the average person who doesn't get to talk to the top people,
I don't know if they could ever get their money,'' he said.
[Questions submitted by Mr. Blumenauer follow:]
Questions for the Record Submitted by Mr. Blumenauer for Mr. Czerwinski
a. Importance of mitigation: In 2005, the Multi-Hazard Mitigation
Council of the National Institute of Building Sciences issued a report
indicating that, on average, one dollar spent by FEMA on hazard
mitigation provides the nation four dollars in future benefits. Also in
2005, FEMA concluded that mitigation and building standards had already
saved over $1 billion annually in reduced flood losses. However, our
budget rules count up-front spending on mitigation against PAYGO
limits, but after-the-fact spending on disaster relief and recovery is
considered ``emergency'' and is thus outside PAYGO limitations.
Mr. Czerwinski: Has the GAO examined this issue? Could any of the
$116 billion already estimated spent by the Federal Government on Gulf
Coast recovery have been avoided by expending some of those funds on
mitigation prior to the storms? If so, how much could have been saved?
Are there any changes you would recommend in Federal budgetary policies
to encourage the investment in mitigation up-front to avoid increased
damages in the future?
b. National Flood Insurance Program: The NFIP is an important part
of the recovery of the region affected by hurricanes Katrina and Rita.
Unfortunately, because the program is not actuarially sound, it does
not have the resources to pay all the claims resulting from Hurricane
Katrina and Rita. In fact, in 2005, Congress raised the NFIP's
borrowing authority from $1.5 billion to $20 billion. The NFIP is
currently $17.5 billion in debt. Part of this is due to the way the
program is structured, which for years has encouraged the rebuilding of
structures in harm's way. In 2004, Congress passed, and the President
signed, legislation making changes to the program that were supposed to
reduce the number of repetitively flooded properties that were putting
a strain on the system. Unbelievably, three years later, FEMA has yet
to implement this legislation--which would not only help keep people
out of harm's way, but could make progress towards restoring the
solvency of the NFIP and reduce the likelihood that the Federal
taxpayer will be called upon to bail out the program.
Mr. Czerwinski: I know the GAO has done a number of studies of the
NFIP. In your prepared testimony you indicate that the NFIP is unlikely
to be able to repay the $20.8 billion it may borrow from the Treasury
with its current premium income of about $2 billion annually. What
changes to the program has the GAO recommended that could increase the
likelihood that this outcome will be avoided in the future?
[Responses to Mr. Blumenauer's questions follow:]
[Whereupon, at 11:23 a.m., the committee was adjourned.]