[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.]

                                  
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