Disaster Assistance: Federal Aid to the New York City Area	 
Following the Attacks of September 11th and Challenges		 
Confronting FEMA (24-SEP-03, GAO-03-1174T).			 
                                                                 
The terrorist attacks of September 11, 2001, resulted in one of  
the largest catastrophes this country has ever experienced. The  
federal government has been a key participant in the efforts to  
provide aid after the attacks, and it has been providing the New 
York City area with funds and other forms of assistance. The	 
magnitude of the disaster in New York and the size and scope of  
the federal government's response in aiding the city has	 
generated significant interest in the nature and progress of this
federal assistance. This testimony focuses on (1) how much and	 
what types of assistance the federal government provided to the  
New York City area following the September 11 terrorist attacks, 
(2) how the federal government's response to this disaster	 
differed from previous disaster response efforts, and (3) the	 
ongoing challenges FEMA faces as it, and its mission, are	 
subsumed into the Department of Homeland Security.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-1174T					        
    ACCNO:   A08559						        
  TITLE:     Disaster Assistance: Federal Aid to the New York City    
Area Following the Attacks of September 11th and Challenges	 
Confronting FEMA						 
     DATE:   09/24/2003 
  SUBJECT:   Counterterrorism					 
	     Disaster relief aid				 
	     Federal funds					 
	     Federal grants					 
	     Funds management					 
	     Terrorism						 
	     Interagency relations				 
	     Comparative analysis				 
	     Internal controls					 
	     Federal agency reorganization			 
	     Homeland security					 
	     FEMA Hazard Mitigation Grant Program		 
	     New York (NY)					 

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GAO-03-1174T

Testimony Before the Subcommittee on Clean Air, Climate Change, and
Nuclear Safety, Committee on Environment and Public Works, U. S. Senate

United States General Accounting Office

GAO For Release on Delivery Expected at 9: 00 a. m. EST Wednesday,
September 24, 2003 DISASTER ASSISTANCE

Federal Aid to the New York City Area Following the Attacks of September
11th and Challenges Confronting FEMA

Statement of JayEtta Z. Hecker, Director Physical Infrastructure Issues

GAO- 03- 1174T

Page 1 GAO- 03- 1174T Mr. Chairman and Members of the Subcommittee: I
appreciate the opportunity to be here to discuss issues related to the

federal government*s response to recovery efforts regarding to the
September 11, 2001, terrorist attacks, particularly the role of the
Federal Emergency Management Agency (FEMA), as well as management

challenges facing FEMA as the agency adjusts to its transfer to the
Department of Homeland Security (DHS). The terrorist attacks resulted in
one of the largest catastrophes this country has ever experienced. The
federal government has been a key participant in the efforts to provide
aid after the attacks, and it has been providing the New York City area
with funds and other forms of assistance. The magnitude of the disaster in
New York and the size and scope of the federal government*s response in
aiding the city has generated significant interest in the nature and
progress of this federal assistance.

In my testimony today, I will focus on (1) how much and what types of
assistance the federal government provided to the New York City area
following the September 11 terrorist attacks, (2) how the federal
government*s response to this disaster differed from previous disaster
response efforts, and (3) the ongoing challenges FEMA faces as it, and its
mission, are subsumed into the Department of Homeland Security. My
comments will be based on the following GAO work on FEMA issues, including
our January 2003 Performance and Accountability Reports that highlighted
both FEMA and DHS management challenges and program risks 1 and our August
2003 report on FEMA public assistance we issued to

the Full Senate Committee on Environment and Public Works, as well as
ongoing work we are conducting for the Committee on the overall federal
assistance to the New York City area in the wake of September 11. (See
appendix 1 for further discussion of the objectives, scope, and

methodology.) The President pledged, and the Congress authorized an
estimated $20 billion in assistance to the New York City area following
the terrorist attacks. 2 Many agencies of the federal government were
involved in

1 U. S. General Accounting Office, Major Management Challenges and Program
Risks: Department of Homeland Security, GAO- 03- 102 (Washington, D. C.:
January 2003) and

Major Management Challenges and Program Risks: Federal Emergency
Management Agency, GAO- 03- 113 (Washington, D. C.: January 2003).

2 The $20 billion in federal assistance does not include the Victim*s
Compensation Fund or income tax deferrals.

Page 2 GAO- 03- 1174T administering this funding, but most of the federal
aid* 96 percent* has been provided through four sources: FEMA, the
Department of Housing

and Urban Development (HUD), the Department of Transportation (DOT), and
the Liberty Zone tax benefits 3 . The assistance provided through these
sources targeted different aspects of the response and recovery efforts,
and in our work for the Committee, we have found that it is useful to
discuss the federal aid to the New York City area in terms of four broad
types of assistance instead of by each federal source of assistance.
Consequently, I will discuss the aid in the following four broad
categories:

 Initial response efforts, which include activities to save lives,
recover victims, remove debris, and restore basic functionality to city
services;

 Compensation for disaster- related costs and losses, which includes
compensation for losses incurred by individuals, businesses, and
governments;

 Infrastructure restoration, which includes efforts to restore and
enhance infrastructure that was severely destroyed by the collapse of the
World Trade Center towers and the subsequent response efforts; and

 Economic revitalization, which includes activities to help improve the
lower Manhattan economy that was harmed by the disaster.

In summary, 3 The Liberty Zone tax benefits are benefits primarily
targeted to the area of New York City damaged on September 11, designated
as the New York Liberty Zone

Page 3 GAO- 03- 1174T  As of June 30, 2003, an estimated $20 billion of
federal assistance has been committed to the New York City area, primarily
through FEMA, DOT,

HUD, and the Liberty Zone tax benefits. Figure 1 shows the amount of
assistance in each of the four broad categories.

Figure 1: Primary Purpose and Amount of Disaster Assistance Committed By
FEMA, HUD, DOT, and Liberty Zone Tax Benefits

a HUD*s plans for $1.16 billion have not been finalized. These funds are
not included in the purposes listed above and according to HUD will mostly
likely be directed to either infrastructure restoration or economic
revitalization.

The $2.55 billion for initial response efforts included numerous
assistance programs, such as search and rescue operations, debris removal
operations, emergency transportation measures, and emergency utility
service repair. FEMA provided the bulk of the federal funds for initial
response efforts*$ 2.20 billion* but DOT and HUD also provided funds.
Compensation for disaster- related costs and losses totaled about $4.81
billion. This funding, provided by FEMA and HUD, compensated state and

local organizations, individuals, and businesses for disaster- related
costs, such as mortgage and rental assistance to individuals and grants to
businesses to cover economic losses. The amount committed for
infrastructure restoration and improvement efforts is $5.57 billion. The
majority of this funding is a combination of FEMA and DOT funds to rebuild
and enhance the lower Manhattan transportation system, including the
construction or repair of roads, subways, ferries, and railroads. HUD is

funding efforts to improve utility infrastructure. Efforts to revitalize
the economy in lower Manhattan include the Liberty Zone tax benefit plan*

Page 4 GAO- 03- 1174T an estimated benefit of $5.03 billion 4 *and $515
million in HUD funding for business attraction and retention programs.
Once the city, state, and HUD

finalize plans for the remaining $1.16 billion, these funds will most
likely be directed to infrastructure restoration and improvements and/ or
economic revitalization.  The $20 billion to assist the New York City
area differed from previous

disaster response efforts in that it was the first time in which the
amount of federal disaster assistance to be provided was set early in the
response and recovery efforts, which resulted in two major changes to the
federal approach. First, the specified level of funding for the entire
federal

response to this disaster changed the traditional approach to
administering FEMA funds. In an effort to ensure that all FEMA funds were
expended for this disaster, FEMA broadly interpreted its provisions within
the Stafford Act, and the Congress authorized FEMA to compensate the city
and state for costs such as increased security that it could not otherwise
have funded within provisions of the Stafford Act. Secondly, this specific
level of funding for the disaster prompted Congressional appropriations
that authorized numerous forms of non- traditional assistance by agencies
other than FEMA, such as the Liberty Zone tax benefit plan and
improvements to the transportation infrastructure that exceeded normal
replacement cost.

 Simultaneous to FEMA*s efforts to assist the New York City area*s
recovery from September 11, FEMA faced the challenge of being transferred
into the newly formed DHS. As we previously reported in our 2003
Performance and Accountability Series, FEMA faces ongoing management
challenges resulting from its transfer into DHS, and DHS itself faces the
daunting challenge of combining FEMA and 21 other agencies with various
missions into an effective and collaborative agency. Recognizing the
magnitude of the overall challenge in establishing DHS, GAO has designated
the implementation and transformation of the department as high- risk.
Several of the specific challenges that FEMA faces include the need to (1)
ensure effective coordination of preparedness and response efforts, (2)
enhance provision and

management of disaster assistance for efficient and effective response,
and (3) reduce the impact of natural hazards by improving the efficiency
of mitigation and flood programs. We have ongoing work that is focusing

4 The Liberty Zone tax benefits are benefits targeted primarily to the
area of lower Manhattan damaged on September 11, designated as the New
York Liberty Zone. The amount of the tax benefit is an estimate prepared
by the Joint Committee on Taxation.

Page 5 GAO- 03- 1174T on FEMA*s challenges in each of these areas and will
be reporting on these efforts in the near future.

After a disaster, the federal government, in accordance with provisions of
the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the
Stafford Act) 5 ,assists state and local governments with costs associated
with response and recovery efforts that exceed a state or locale*s
capabilities. FEMA is the agency responsible for coordinating federal
disaster response efforts under the Federal Response Plan, an agreement
among 27 agencies and the Red Cross to deliver federal disaster
assistance. FEMA was established in 1978 to consolidate and coordinate
emergency management functions in one agency. In November 2002, the
Congress enacted legislation establishing DHS in an effort to consolidate
numerous homeland security functions in a single entity, which involved
subsuming 22 agencies, including FEMA. FEMA*s primary functions have
remained intact and have been placed primarily in DHS* Emergency
Preparedness and Response Directorate.

FEMA not only coordinates the federal disaster response, it also provides
significant assistance through a variety of programs funded through its
Disaster Relief Fund. This assistance is provided when disaster costs
exceed state and local government capabilities to respond and insurance
damage proceeds. These programs include FEMA*s individual assistance
program that provides aid to victims affected by a disaster and its hazard

mitigation program that provides funds to state and local governments to
reduce the risk of damage from future disasters. However, FEMA*s public
assistance program is typically the largest source of disaster relief. It
is designed to provide grants to eligible state and local governments and
specific types of private non- profit organizations that provide services
of a governmental nature, such as utilities, fire departments, emergency
and medical facilities, and educational institutions, to help cover the
costs of emergency response efforts and work associated with recovering
from the disaster.

Many other agencies play active roles in federal disaster relief. For
example, the Federal Highway Administration (FHWA), an agency of DOT, has
existing authority to assist in disaster relief. FHWA can provide up to
$100 million in emergency relief funding for each natural disaster or

5 Pub. L. No. 93- 288, 88 Stat. 143 (1974), as amended. Background

Page 6 GAO- 03- 1174T catastrophic failure event that is found eligible
within the provisions of the Emergency Relief Program. Other agencies
within DOT, such as the

Federal Transit Administration (FTA) and the Federal Railroad
Administration, also have had roles in previous disaster relief efforts.
HUD, which has had authority to assist in disaster relief efforts at
different times in the last few decades, once again became actively
involved in providing disaster recovery assistance following Hurricane
Andrew in 1992. Since that disaster occurred, the Congress has made
available more than $5.7 billion in 15 supplemental appropriations to HUD
for disaster

assistance. 6 Typically, HUD awards funds to the affected state or local
government, and then the funds are administered at the state or local
level.

The President*s declaration of September 11 as a federal disaster
activated 27 agencies, including the American Red Cross in response and
recovery efforts. On September 12, 2001, President Bush pledged to commit
at least $20 billion to help the New York City area recover. The President
sent a letter to the Speaker of the House requesting that the Congress
pass emergency appropriations to provide immediate resources. Over the
next 11 months, the Congress enacted three emergency supplemental
appropriation acts that provided more than $15 billion in direct federal
assistance as well as an estimated $5 billion economic stimulus package
for the New York City area.

The greatest role in providing federal assistance fell to FEMA, HUD, and
DOT. The funds appropriated to these agencies, along with the Liberty Zone
tax benefits, constitute over 96 percent of all federal assistance
designated to the New York City area. FEMA, the largest single provider of
assistance, was appropriated $8.80 billion for debris removal, rescue
efforts, and other assistance. Congress appropriated HUD $3.48 billion to
provide the New York City area assistance to aid businesses and
individuals and spur economic revitalization. DOT received $2.37 billion
to assist in the restoration and enhancement of the transit system in the
New

York City area. The Liberty Zone tax benefits is estimated by the Joint
Committee on Taxation to reduce federal tax revenue* and in turn increase
the funds retained by taxpayers* by $5.03 billion. An additional $0.82
billion in assistance to the New York City area has been appropriated to
15 other agencies to conduct numerous activities, such as environmental
studies and federal building restoration. Figure 2 shows the

6 All dollars are in nominal terms. Federal Disaster Assistance to the New

York City Area

Page 7 GAO- 03- 1174T amount of federal assistance, in both amount and
percentage, committed to the New York City area by the federal government.

Figure 2: Federal Assistance to the New York City Area by the Federal
Government

Note: Numbers do not total 100 percent due to rounding.

As the large majority of federal assistance to the New York City area is
primarily through FEMA, DOT, HUD, and the Liberty Zone tax benefits, I
would now like to discuss the assistance these sources did, or will,
provide in the four board categories I discussed earlier: (1) initial
response efforts, (2) compensation for disaster- related costs and losses,
(3) infrastructure restoration, and (4) economic revitalization. Initial
response assistance in New York City began immediately after the

hijacked aircraft collided with the World Trade Center towers and totaled
$2.55 billion. This assistance was predominately funded by FEMA. Figure 3
shows the amount each agency funded in this category of assistance.
Initial Response Activities

Totaled $2.55 Billion

Page 8 GAO- 03- 1174T Figure 3: Amount of Assistance Committed to Initial
Response Activities, by Agency

a HUD*s plans for $1.16 billion have not been finalized. These funds are
not included in the purposes listed above, and according to HUD, will most
likely be directed to either infrastructure restoration or economic
revitalization.

Initial response activities included urban search and rescue; debris
removal operations; emergency transportation measures; other initial
response assistance by FEMA, such as cleaning buildings; and emergency and
temporary utility service.

The terrorist attacks of September 11 prompted the largest search and
rescue operation in U. S. history, a $22 million effort. FEMA oversees 28
national Urban Search and Rescue Task Forces across the country and 20
were activated to respond to the attacks in New York. The teams operate
under FEMA authority and were deployed as part of the National Urban
Search and Rescue Response System. Almost 1,300 members of the Urban Urban
Search and Rescue

Operations

Page 9 GAO- 03- 1174T Search and Rescue teams and 80 dogs worked at the
World Trade Center site.

Immediately after the World Trade Center towers collapsed, the debris
removal operation began in order to help workers look for survivors. The
effort eventually transformed to a victim and evidence recovery operation
as well as a clean- up site. Debris removal operations totaled $1.70
billion,

although over one- half of those funds*$ 1 billion dollars* is to be used
to establish an insurance company with the intended purpose of covering
the City and its contractors for potential claims resulting from debris
removal at the World Trade Center site. The New York City Department of
Design and Construction and the New York City Department of Sanitation
completed the daunting task of removing debris piled from several stories
below street level to 11 stories above ground and weighing nearly 1.6
million tons, with support from FEMA, the Federal Highway Administration,
and the U. S. Army Corps of Engineers. FEMA provided $630 million to
reimburse the city for the costs associated with removal of the debris
from the World Trade Center site and barge it to a landfill on

Staten Island, New York, for screening, sorting, and disposal. Initial
estimates projected that the recovery effort and cleanup would take two
years and cost $7 billion; however, the effort was completed substantially
below these time and cost estimates. As of September 3, 2003, FEMA had
obligated $1 billion for the insurance program; however, no funds will be
disbursed until details for the establishment of the dedicated insurance
company are finalized.

The collapse of the World Trade Center buildings and subsequent recovery
efforts wreaked havoc on lower Manhattan*s transportation system: subway
stations and the PATH commuter rail terminal were destroyed, sections of
local roads became impassable due to damage or recovery efforts, and
subways and ferries were overcrowded as commuters returned to work using
different means or routes of transportation. FEMA and DOT coordinated with
a variety of transportation, public works, public safety, and utility
providers to plan emergency/ interim projects to address issues such as
shifts in travel demand after September 11, capacity issues, and system
delays associated with revised travel patterns. 7 Overall,

7 As debris removal efforts were completed, FEMA and FTA released the
*Emergency/ Interim Transportation Disaster Recovery Plan* in spring 2002,
which identified 100 projects proposed by local agencies to use available
FEMA and FTA funds. Debris Removal Operations, Including Liability
Insurance

Coverage Emergency Transportation Measures

Page 10 GAO- 03- 1174T FEMA and DOT provided approximately $299 million
for emergency transportation measures, including:

 Clean- up and emergency repair of local roads and tunnels, 
Construction of a temporary PATH terminal,  Expanded ferry service, and 
Capital projects to improve commuter transportation.

FEMA provided $285 million for other initial response assistance. For
example, as authorized by the Congress, FEMA entered into an interagency
agreement with the Department of Health and Human

Services to conduct a project to screen and monitor emergency services
personnel for long- term health effects of work at the World Trade Center
site. 8 In addition, FEMA worked with EPA officials to conduct clean- up
efforts that included vacuuming streets, parks, and other areas covered by
dust from debris and fires and in conjunction with New York City officials

conducted an indoor cleaning and testing program at private residences.
The collapse of the World Trade Center buildings and subsequent debris
removal efforts resulted in widespread damage to the energy and
telecommunications utility infrastructure. Utility firms worked to provide
service for rescue operations in the days immediately following the
disaster and to stabilize delivery of service to lower Manhattan,
including the reopening of the New York Stock Exchange 6 days after the
attacks. The Congress appropriated $250 million to HUD to reimburse
utility companies for uncompensated costs associated with restoring
service. Eligible firms will be reimbursed up to 100 percent of actual,
incurred,

uncompensated, and documented costs. These funds have not been disbursed
to utility companies; however, HUD approved a city plan for distributing
these funds on September 15, 2003, and HUD officials expect funds to begin
being obligated.

Approximately $4.81 billion in federal assistance is committed to
compensating state and local organizations, individuals, and businesses
for disaster- related costs and losses. The majority of the assistance
provided under this category was provided by FEMA. Figure 4 shows how much
each agency has committed to compensate for disaster- related costs and
losses.

8 P. L. 108- 7. Other FEMA Initial Response

Assistance Emergency and Temporary Utility Service

Compensation for Disaster- Related Costs and Losses Totaled $4.81 Billion

Page 11 GAO- 03- 1174T Figure 4: Amount of Assistance Committed to
Compensate Disaster- Related Costs and Losses, by Agency

a HUD*s plans for $1.16 billion have not been finalized. These funds are
not included in the purposes listed above, and according to HUD, will most
likely be directed to either infrastructure restoration or economic
revitalization. Note: Numbers do not equal total due to rounding. FEMA
provided funds through its Public Assistance Program, as

congressionally authorized, non- traditional assistance to New York City
and State; under its Hazard Mitigation Grant Program; Mortgage and Rental
Assistance Program, Crisis Counseling Assistance Program, Individual and
Family Grant Program, and also through a variety of other assistance
efforts. HUD provided assistance under its residential grant

program and business assistance programs.

Page 12 GAO- 03- 1174T FEMA reimbursed New York State, City, and other
organizations about $1.49 billion through its public assistance program to
compensate for

disaster- related costs and losses. Of this funding, $643 million was
provided to the New York City Police and Fire Departments to pay benefits
and wages to emergency workers during response and recovery efforts and to
replace vehicles and other equipment. As first responders, these
departments suffered heavy casualties and damages and received
compensation for overtime costs, death benefits, and funeral costs. FEMA

also reimbursed costs to the City to relocate several agencies* offices;
establish a Family Assistance Center; reschedule elections that were being
held on September 11 and replace damaged voting equipment; and pay for
instructional time for students who missed school due to closures, delayed

openings, and school relocations. 9 FEMA also provided assistance to other
entities, including the Port Authority, counties, and private nonprofit
organizations; and it also provided funds to the state of New Jersey. The
Port Authority was reimbursed for costs to replace equipment it lost when
its World Trade Center facilities were destroyed and for office relocation
costs. Additional assistance was provided to all New York counties for
cancelled election costs and to some private- non- profits, such as Pace
University, for

temporary relocation. FEMA additionally provided $88 million to New Jersey
for emergency protective measures.

In addition to the traditional public assistance FEMA provided to city and
state agencies, the Congress also authorized FEMA to provide funding to
the city and state for expenses associated with the disaster, but were

unreimbursable under the Stafford Act. The legislation ensured that FEMA
would be authorized to spend the entirety of the appropriated assistance
for New York recovery efforts*$ 8.80 billion* by allowing the city and
state to be provided reimbursement for disaster- related costs that FEMA
otherwise could not have funded. Non- traditional assistance that FEMA

was authorized to fund included reimbursements for heightened security in
the aftermath of the terrorist attacks and cost- of- living adjustments to
the pensions of survivors of firefighters and police officers killed in
the line of duty in the attacks. In order for FEMA to determine how much
funding was available for non- traditional assistance, FEMA officials
implemented an expedited close- out process, identifying and deobligating
any funds unspent as of April 30, 2003. These funds* totaling over $1

9 House Report 107- 593. Public Assistance to New York

State, City, and Other Organizations

Congressionally Authorized Non- traditional Assistance to New York City
and State

Page 13 GAO- 03- 1174T billion* were just recently provided to both the
city and state and they will ultimately have discretion to use the funds
as they deem suitable.

FEMA also provided $377 million in hazard mitigation grants to New York
State. Created in 1988 by the Stafford Act, the Hazard Mitigation Grant
Program provides funds to states affected by major disasters to undertake
mitigation measures. At the time of the New York disaster, FEMA could
provide mitigation grants in an amount up to 15 percent on top of the
total amount of other assistance provided. 10 However, in the New York
recovery effort, the President limited mitigation funds to 5 percent of
the funds appropriated within the total amount of funds. According to FEMA
officials, the agency reduced the percentage of hazard mitigation grant
funds available to New York initially because it was unclear how much the
disaster would actually cost in FEMA funds, and public assistance funds
were being provided at 100 percent Federal share. According to FEMA
officials, as a result of the broadened authority authorized in the

Consolidated Appropriations Resolution, New York has requested less for
the Mitigation Grant program* which contains a state and/ or local
matching requirement* so that it could use funds to reimburse other
disaster- related costs.

Individuals suffering financial hardships as a result of September 11
could obtain mortgage and rental assistance from FEMA. Prior to September
11, FEMA had provided a total of $18 million in mortgage and rental
assistance grants in all previous disasters, which provided rent or
mortgage payments to individuals in danger of losing their homes through
foreclosure or eviction as a result of a major disaster. In the wake of
September 11, this program increased tremendously, as FEMA provided nearly
$200 million in this type of assistance for the New York City area.
Initially, applicants were eligible if they resided in certain zones
around the World Trade Center site. FEMA, as directed by the Congress,
extended assistance to those working anywhere in Manhattan and to those
whose

employers were not located in Manhattan but were economically dependent on
a Manhattan firm; and anyone living in Manhattan who commuted off the
island and who suffered financially because of postSeptember 11
disruptions. The Mortgage and Rental Assistance program 10 The Disaster
Mitigation Act of 2000 increases this amount to 20 percent of total
estimated

federal assistance for states that meet enhanced planning criteria. For
states without an approved enhanced plan, the Consolidated Appropriations
Resolution of 2003 reduces the amount available for mitigation grants to
7.5 percent of the other assistance provided. However, neither of these
provisions were applicable on September 11, 2001. Hazard Mitigation Grant

Program Mortgage and Rental Assistance Program

Page 14 GAO- 03- 1174T closed on January 31, 2003, and as of August 5,
2003, $194 million had been disbursed of the $200 million available. FEMA
officials expect all funds to

be disbursed as applicants receive monthly assistance. 11 The Crisis
Counseling Assistance Program, funded by FEMA, led to the creation of
*Project Liberty.* Project Liberty, administered by the New York State
Office of Mental Health, provides short- term outreach, education,
referrals to mental health services, and a Regular Services Program to
provide support to individuals with longer- term issues. In the past, only
individuals from a declared disaster area were eligible to receive
counseling services; however, because of the broad impact of the disaster,
grants for this program were also provided to eligible individuals in New
Jersey, Connecticut, Massachusetts, and Pennsylvania. FEMA provided more
than $166 million for crisis counseling; this sum is more than all
previous counseling grants since 1974 combined. Of these funds, $99
million has been obligated and disbursed.

FEMA is authorized by the Stafford Act to provide individual and family
grants for individuals* necessary expenses related to disasters that were
not covered through insurance, other federal assistance, or voluntary
programs. For the September 11 disaster, FEMA*s Individual and Family
Grant Program provided eligible residents of New York City assistance for
home repairs, replacement of personal property, reimbursement for air
quality products, and repair or replacement of air conditioners. The New
York State Department of Labor was tasked with implementing and
administering the program. The Individual and Family Grant program closed
on November 30, 2002. As of August 5, 2003, $97 million had been disbursed
of the $110 million available through this program. In addition to
Mortgage and Rental Assistance and Individual and Family Grants, FEMA also
provided other temporary housing assistance,

including Minimal Home Repair and Transient Accommodations programs
totaling $34 million. Both programs address short- term needs such as
lodging expenses and temporary housing repairs. In addition, the Stafford
Act authorizes FEMA to provide unemployment assistance to individuals who
are unemployed as a result of the disaster but not eligible for regular

State Unemployment Insurance. For the New York City area, FEMA provided
$17 million for disaster unemployment insurance administered by the State
of New York.

11 Eligible applicants received up to 18 months of assistance as part of
this program. Crisis Counseling Assistance

Program Individual and Family Grant Program

Other FEMA Assistance

Page 15 GAO- 03- 1174T In addition to FEMA assistance programs, $281
million in HUD funds were used for the administration of the Residential
Grant Program to provide

compensation to those affected by the disaster who remained in the area,
address the vacancy rate increases, and provide incentives to attract
residents to the area. 12 The program consisted of three different grants*
a two- year commitment grant, a September 11 resident*s grant, and a
family grant. Applicants could apply for all three types of grants; each
grant*s value depended on the applicant*s location and housing/ rental
costs. The Residential Grant Program closed on May 30, 2003. As of June
30, 2003, over 31,000 applications totaling $172 million were approved and
$106 million had been disbursed in grants. 13 In addition, HUD funds were
used for a variety of business assistance

programs, such as recovery grants and loans to compensate for economic
losses and recovery efforts. Almost 18,000 businesses in New York City,
representing approximately 563,000 employees, were disrupted or forced to
relocate as a result of the terror attacks. Approximately 30 million
square feet of commercial space was damaged or destroyed. While businesses
near the World Trade Center site suffered physical damage, businesses all
across the city felt the economic impact of the disaster. The Empire State
Development Corporation (ESDC), as a grantee for HUD funds, administered
five programs in cooperation with New York City to compensate businesses
for economic losses and to assist in their recovery. HUD funds provided
$683 million for business assistance programs, and as

of June 30, 2003, $510 million had been disbursed. The Business Recovery
Grant Program, HUD*s largest September 11 business assistance program,
closed December 31, 2003, and provided $488 million to over 14,000
businesses in lower Manhattan as of June 30, 2003. 14 Other programs that
are still available include a $33 million plan to provide assistance to
businesses that lost a disproportionate amount of workforce due to the
disaster, and a $41 million Business Recovery Loan Program.

12 Although the Residential Grant program and its incentives helped to
revitalize the economy of lower Manhattan, we categorized it as
compensation for disaster- related losses because of its short- term
nature and intended affect on the City in terms of restoring predisaster

occupancy rates. 13 In July 2003, HUD officials announced that $50 million
unallocated from the Residential Grant Program would be used for an
affordable housing initiative in lower Manhattan. 14 ESDC provided funds
to small and large businesses through its recovery grant program. In
August 2003, HUD approved allocation of additional funds to allow full
disbursement of these programs, for a total of $578 million. HUD Funded
Residential Grant

Program HUD Funded Business Assistance Programs

Page 16 GAO- 03- 1174T The terrorist attacks at the World Trade Center
severely damaged the public transportation system that was used by more
than 85 percent of

commuters to lower Manhattan* the highest percentage of people commuting
to work by public transit of any commercial district in the nation. About
$5.57 billion has been committed for projects to restore and enhance
infrastructure in lower Manhattan and the amount of assistance each agency
has committed is shown in figure 5. Figure 5: Amount of Assistance
Committed for Infrastructure Restoration and

Improvement, by Agency

a HUD*s plans for $1.16 billion have not been finalized. These funds are
not included in the purposes listed above, and according to HUD, will most
likely be directed to either infrastructure restoration or economic
revitalization.

Infrastructure efforts being funded by FEMA, DOT, and /or HUD include
restoration and enhancement of the lower Manhattan transportation system,
including a new Port Authority Trans- Hudson (PATH) terminal and new
subway stations; permanent utility infrastructure repairs and About $5.57
Billion Has

Been Committed for Projects to Restore and Enhance Infrastructure

Source: GAO.

$4.81 Billion

$5.54 a

Billion Compensation

for losses Economic

revitalization

Total funds committed to specific projects.

$2.55 Billion

Initial response

$5.57 a Billion Infrastructure

restoration FEMA - $2.75 Billion

HUD - $0.58 Billion

DOT - $2.24 Billion

Page 17 GAO- 03- 1174T improvements; and short- term capital projects,
such as parks and open space enhancements.

The Congress has appropriated a total of $4.55 billion for transit
projects, including $1.80 billion in Capital Investment Grants to FTA for
replacing, rebuilding, or enhancing the public transportation systems
serving Manhattan, 15 and $2.75 billion in FEMA funds. Under an August
2002 Memorandum of Agreement between FTA and FEMA, FTA was designated the
lead federal agency in charge of administration and oversight. The three
largest projects identified are the restoration and improvement of the
PATH Transit Terminal, and the enhancements of the Fulton Street Transit
Center and South Ferry Subway Station.  PATH Transit Terminal* The PATH
commuter rail terminal, located

underneath the World Trade Center site, was completely destroyed in the
terrorist attacks. The Port Authority is requesting $1.4 billion to $1.7
billion to build a permanent PATH terminal that Port Authority officials

report will be a substantial improvement over the destroyed World Trade
Center terminal. This terminal will serve PATH commuter trains and four
subway lines and is to be completed in the 2007 to 2008 timeframe.

 Fulton Street Transit Center* The current Fulton Street* Broadway Nassau
Subway Station Complex provides access to the most heavily used subway
lines in lower Manhattan and lies one block east of the World Trade Center
site. The complex is comprised of four separate subway stations that serve
nine subway lines and 62,000 riders during weekday peak periods. The
complex was not damaged on September 11, but according to FTA and
Metropolitan Transit Authority (MTA) officials, it is difficult to
navigate and not easily accessible. The MTA is planning a $750 million
project to improve the existing Fulton Street* Broadway Nassau

Subway Station Complex to create a Fulton Transit Center designed to have
a visible street level entrance pavilion, improved intermodal
connectivity, expanded platforms and mezzanines, and new underground
pedestrian concourses. The project is estimated for completion in December
2007.

 South Ferry Subway Station* The South Ferry subway station, which is
located a half- mile from the World Trade Center site, was not damaged on
September 11; however, according to MTA officials, the South Ferry station
is outmoded: only five cars of a ten- car subway train can open onto

15 PL 107- 206. Projects Planned to Restore

and Enhance the Lower Manhattan Transportation System

Page 18 GAO- 03- 1174T the platform at one time; the tunnel is curved in
such a fashion that trains have to slow down substantially to negotiate
it; and it has no direct

passenger connections to nearby subway stations. MTA is planning to
improve the South Ferry subway station so that it would accommodate the
length of a standard ten- car subway train and would provide connection to
the Whitehall Street station that serves two other subway lines. FTA
officials anticipate that the project will cost $400 million and be
completed in the 2007/ 2008 timeframe.

The permanent PATH terminal, the Fulton Transit Center, and the South
Ferry station account for $2.55 billion to $2.85 billion of the $4.55
billion designated for lower Manhattan transit projects. At this time,
projects to be funded with the remaining $1.7 billion to $2 billion have
yet to be determined. In April 2003, various New York City and State
agencies 16 released a report entitled Lower Manhattan Transportation
Strategies that identified priority transportation projects. However, the
total cost of these projects far exceeds the remaining federal
transportation assistance funds.

High priority projects highlighted in the report include access to JFK
Airport and Long Island, enhancement of West Street, construction of a
tour bus facility, and construction of World Trade Center underground
infrastructure. To date no decisions have been made on which of these
projects will be funded within the $4.55 billion cap. A portion of
remaining $1.16 billion in HUD funds will most likely be directed to
infrastructure improvement activities depending on the results of on-
going studies.

In addition to the transit system, the Congress appropriated $442 million
for restoration and improvements to the local roads and enhancements to
ferry terminals and railroad tunnels. The Federal Highway Administration
is overseeing plans for $242 million in resurfacing and reconstructing

lower Manhattan streets through the Emergency Relief program. These
streets were damaged by the direct impact of the collapsed World Trade
Center buildings as well as wear and tear from response vehicles and
debris removal activities, and from emergency telecommunications repairs.
Ferry terminals were not damaged on September 11; however, FHWA was
appropriated $100 million in Miscellaneous Highway funds for ferry and
ferry facility construction projects. 17 Various ferry terminals are under
consideration for significant enhancements in both New York and

16 LMDC, Port Authority of New York and New Jersey, Metropolitan Transit
Authority, the New York State Department of Transportation and the City of
New York. 17 PL 107- 117.

Page 19 GAO- 03- 1174T New Jersey. Further, the Federal Railroad
Administration was appropriated $100 million to renovate the New York rail
tunnels. The

funds are to be used by Amtrak to modernize ventilation systems, install
communication systems, improve emergency exits from the tunnels, and
structurally rehabilitate four East River tunnels, two Hudson River
tunnels, and the subterranean section of Penn Station.

The Congress also appropriated HUD funds to provide assistance to utility
firms as they complete permanent repairs and improvements to the damaged
infrastructure around the World Trade Center site. In addition to the $250
million for emergency repairs previously discussed, the Congress

appropriated $500 million to HUD to provide funds to affected utility
firms for permanent repairs and rebuilding. The goals of the permanent
repair program are to prevent businesses and residences from bearing the
cost of rebuilding and to enhance the redevelopment of lower Manhattan by

supporting investment in energy and telecommunication infrastructure. New
York State officials worked with utility firms, and state and local
agencies to develop the program in order to help utility firms while
developing an improved system to attract new businesses to the area.
Applicants will have until December 31, 2007, to apply for certain

programs. 18 A New York State Agency worked with community groups, local
businesses, and city and state governments to select short- term capital
projects for HUD funding as part of its effort to improve the
accessibility and appearance of lower Manhattan. A plan submitted to HUD
was approved on August 6, 2003, detailing $68 million of proposed projects
that could be completed within one year of approval, such as parks and
open

space enhancements, West Street pedestrian connections, building and
streetscape improvements, and a new school, Millennium High School. In
addition, a portion of these funds will be used to conduct an outreach
campaign to keep residents informed of rebuilding efforts.

The terrorist attacks of September 11 disrupted New York City*s economy
and resulted in billions in lost [or forgone] income and tax revenues. The
attacks caused tens of thousands of job losses and severely impacted lower
Manhattan*s commercial and retail sectors. In response, the Congress
enacted the Liberty Zone tax benefits, estimated by the Joint

18 HUD approved the utility plan September 15, 2003. Permanent Utility

Infrastructure Repairs and Improvements

Short- term Capital Projects Efforts to Revitalize the New York Economy
Include Tax Benefits and Assistance to Businesses

Page 20 GAO- 03- 1174T Committee on Taxation to be $5.03 billion in lost
federal revenue, and appropriated funds to HUD, of which $515 million will
aid in revitalizing

the lower Manhattan economy. Figure 6 shows a breakdown of economic
revitalization assistance. Figure 6: Estimated Amount of Assistance
Committed for Economic Revitalization,

by HUD and Liberty Zone Tax Credits

a HUD*s plans for $1.16 billion have not been finalized. These funds are
not included in the purposes listed above, and according to HUD, will most
likely be directed to either infrastructure restoration or economic
revitalization. Note: Numbers do not equal total due to rounding. In Title
III of the Job Creation and Worker Assistance Act of 2002 19 ,

Congress instituted tax benefits primarily targeted to the Liberty Zone,
the 19 Job Creation and Worker Assistance Act of 2002 (Public Law 107-
147) Liberty Zone Tax Benefits

Page 21 GAO- 03- 1174T area of New York City most severely impacted by the
terrorist attacks, as shown in figure 7.

Figure 7: New York Liberty Zone

The amount of benefits to New York that will result from the Liberty Zone
tax provisions is unclear and likely to remain unknown. Before the Job
Creation and Worker Assistance Act was passed, the Joint Committee on
Taxation estimated the amount of tax revenue projected to be lost to the
U. S. Treasury from the Liberty Zone provisions. However, an estimate of
potential lost revenue is not the same as an estimate of the benefits
received by taxpayers. Furthermore, there are uncertainties with any
estimate. As with many tax benefits, usage of the Liberty Zone tax
benefits will depend on a variety of difficult to predict economic factors
that can influence the magnitude of the benefits. For example, an economic
downturn could slow rebuilding efforts in the New York City area, reducing
the use of benefits such as depreciation allowances. Conversely, an
economic upturn could increase benefit usage above existing estimates.

Additionally, information on usage of most Liberty Zone tax benefits is
not being collected or reported by federal, state or local agencies, and
the total amount of the benefits accruing to New York is likely to remain
unknown.

Liberty Zone

Canal St. Source: GAO.

geege

WTC site

Page 22 GAO- 03- 1174T In addition to the Liberty Zone tax benefits, the
Congress appropriated funds to HUD to revitalize lower Manhattan. New York
State agencies are

administering $515 million to provide programs to attract and retain
businesses to the area and for other projects to revitalize lower
Manhattan. Damage around the World Trade Center site displaced an
estimated 1,025 firms employing more than 75,000 workers, and many more
were displaced by subsequent recovery efforts. Of the $515 million
committed for a variety of economic revitalization efforts, $475 million
is provided to create incentives for existing small and large businesses
to remain in the area and to attract new businesses to lower Manhattan. As
of June 30, 2003, $161 million had been disbursed for these programs,
providing assistance for 985 businesses. An additional $40 million had
also been committed to help plan and coordinate rebuilding and
revitalization efforts

In its effort to provide assistance to the New York City area following
the terrorist attacks, the federal government provided aid in all
categories of assistance* initial response efforts, compensation for
disaster- related costs and losses, infrastructure restoration and
improvements, and economic revitalization* that differed from that
provided in any previous disaster. However, the most significant
difference in the federal

government*s response to this disaster was the designation of a specific
level of funding for disaster assistance. The designation of $20 billion
to assist the New York City area was the first time in which the total
amount of federal disaster assistance was set early in the response and
recovery efforts, and resulted in two major changes to the federal
approach to this disaster.

 Designating a specific level of funding for the entire federal response
to this disaster changed the traditional approach to administering FEMA
funds.

 This specific level of funding for the entire disaster prompted
Congressional authorization of numerous forms of non- traditional
assistance to be provided by other agencies. The specific level of funding
that was targeted by the President and passed by the Congress changed the
traditional approach taken to administer FEMA funds. Ordinarily, FEMA
assistance has no dollar limit . When a qualifying disaster event occurs,
the President declares that a major disaster or emergency exists. This
declaration activates numerous FEMA disaster assistance programs. The
funding for responding to a specific

disaster is not set; instead, the only factor limiting the amount of
assistance for response and recovery efforts is reimbursement eligibility
HUD Business Assistance

Programs and Planning for Rebuilding and Permanent Memorial The
Designation of a

Specific Level of Assistance Contributed to a Unique Federal Government
Response for this Disaster

Designation of a Specific Level of Funding Altered the Traditional FEMA
Disaster Assistance Process

Page 23 GAO- 03- 1174T under the Stafford Act. Historically, FEMA approves
all applications for grants and other assistance if* and only if* the
applications meet the

program requirements under the act. For example, compensation to rebuild a
public road would be an eligible project, but compensation to improve a
public road would not be. Economic losses to a city from reduced tourism
associated with a disaster would not be eligible. Further, as some
projects can be long term and are reimbursed upon completion, it

may take years to fully reconcile how much assistance was provided for
certain disasters. In responding to September 11, however, this
traditional practice was not followed, as the President pledged at least
$20 billion in federal assistance to New York, and subsequent to that
pledge, the Congress, in authorizing this specific level of federal
assistance, appropriated over $8.80 billion to FEMA* the first time that a
specified amount of funds had been

designated to FEMA to respond to a disaster. Consequently, FEMA officials
viewed the amounts legislated as the amount of money to be spent in
responding to the disaster and administered their programs

accordingly to ensure that this amount of funding was provided to the New
York area.

In addition, in order to respond to the amount of damage resulting from
the attacks and to provide the entire appropriated amount for this
disaster, FEMA expanded eligibility guidelines for many of its programs.
FEMA officials said that they broadly interpreted the Stafford Act to
provide public assistance for several projects. For example, FEMA* in
conjunction with DOT* provided funds for lower Manhattan transportation
system improvements. Previously, FEMA only provided funds to restore
damaged infrastructure to its pre- disaster condition. In recognizing the
interdependence of lower Manhattan*s transportation system, FEMA officials
reported that they interpreted their guidelines to allow maximum
flexibility to permit the rebuilding of the transportation system as a
whole instead of only what was damaged. Another example of the broadened
guidelines FEMA followed in this case is its determination

that costs associated with an EPA program to clean the interior of private
residences* the first of its kind* were eligible for reimbursement under
the Stafford Act. In this instance, FEMA determined that the dust
associated with the collapse of the World Trade Center towers was a type
of debris, and therefore costs associated with interior cleaning could be
reimbursed. Further, the Congress reinforced FEMA*s flexible approach to
eligibility

for assistance in two ways. First, the Congress authorized FEMA to

Page 24 GAO- 03- 1174T expand the eligibility guidelines of certain
programs due to the unique circumstances of the disaster and the
unprecedented amounts of

assistance available for response and recovery efforts. 20 For example,
nearly a year after September 11, Congress authorized FEMA to make the
Mortgage and Rental Assistance program more broadly available and directed
FEMA to review applications that had been previously denied. With these
new eligibility requirements, FEMA provided funds to individuals working
anywhere in Manhattan and to those whose employers were not located in
Manhattan, but who were economically dependent on a Manhattan firm.
Further, the Congress authorized FEMA to establish an

insurance company to manage a $1 billion insurance fund and to settle
claims filed by, among others, city and contractor workers who suffered
ill health effects as a result of working on debris removal operations. 21
Although FEMA regularly reimburses applicants for insurance costs that

are part of a contract for services, FEMA has never reimbursed for
insurance to cover a city for suits brought by its own employees.

Second, despite FEMA*s broadened eligibility guidelines interpretation and
the Congress* authorization of certain activities, there were still not
enough projects eligible within the authority provided by the Stafford Act
for which the New York City area could be reimbursed to reach the $8.80
billion target level for FEMA assistance. As a result, the Congress passed
the Consolidated Appropriations Resolution that ensured that FEMA would
spend the entirety of the FEMA- appropriated assistance for New York by
authorizing the agency to reimburse costs that it otherwise could not have
funded. This is the first time that FEMA has been given such expansive
authority to fund projects outside of provisions of the Stafford Act. New
York officials believe this was necessary because the Stafford Act was too
restrictive for responding to a major terrorist event, as it does not
allow FEMA to reimburse affected communities for many costs

directly related to the disaster. With the authority granted by the
Consolidated Appropriations Resolution, FEMA adapted its programs and
conducted an expedited close- out process that allowed for disbursement of
remaining funds to New York years sooner than in past disasters. As part
of the expedited closeout process, FEMA provided funds for projects that
the city or state had already completed and paid for. New York City and
State officials will ultimately have discretion to use these federal

20 Further discussion and additional examples of public assistance
projects that we identified as non- traditional can be seen in GAO- 03-
926. 21 Public Law 108- 7.

Page 25 GAO- 03- 1174T funds as they deem appropriate, in contrast to the
established process under which FEMA officials oversee distribution of
federal funds to assure

that only projects eligible within the provisions of the Stafford Act are
funded. The expedited close- out resulted in FEMA reconciling the most
expensive public assistance disaster in its history years before the
process is typically accomplished.

As a result of the different approach taken to respond to this disaster,
FEMA recently initiated an effort to develop a concept for redesigning its
public assistance program. As we noted in our August 2003 report on

FEMA*s public assistance program efforts in New York, a working group of
the Public Assistance Program Redesign Project was formed at the request
of the director of FEMA*s Recovery Division, and held its first meeting in
May 2003. 22 Members included FEMA public assistance and research and
evaluation staff and state program managers to provide a broader
perspective on the issues and concerns. The project was established to
suggest proposals to improve the public assistance program and make it
more efficient and capable of meeting community needs for all types and
sizes of disasters, including those resulting from terrorism. Among other
things, the project seeks to transform the program to one that is flexible
enough to meet the demands of disasters of all types and sizes and
eliminate redundancies in decision- making and processes. The working
group will examine potential options for redesigning the program that
include an annual block grant program managed by the states, a disaster-
based state management program, and a capped funding amount. The working
group plans to develop a basic design concept for revising the program by
September 30, 2003.

Not only was FEMA*s traditional disaster response effort changed in
assisting the New York area, but the specific level of funding that was
targeted by the President and passed by the Congress also spurred
authorization of other forms of non- traditional assistance for the New
York City area. The most notable of these is the Liberty Zone tax
benefits. To address the economic impact of the September 11 attacks on
New York, Congress passed the estimated $5.03 billion New York Liberty
Zone tax benefit package. 23 This was a unique way for the Congress to
provide assistance for the area affected by the disaster as, according to
IRS

22 GAO- 03- 926. 23 Job Creation and Worker Assistance Act of 2002 (PL
107- 147) Designation of a Specific

Level of Assistance Spurred Congressional Appropriation and Authorization
of Other Forms of Non- Traditional Disaster Assistance

Page 26 GAO- 03- 1174T officials, the Congress has never before passed a
tax benefits package in response to a disaster. Further, this tax package
was targeted to a

geographic area, which has not generally occurred in the past.
Additionally, DOT was authorized to fund transportation projects to
improve the overall transportation system substantially beyond predisaster
condition. In most disasters, DOT is authorized to provide funds only to
rebuild or restore damaged infrastructure back to its pre- disaster
condition. However, in response to September 11, the Congress authorized
DOT not only to restore transportation infrastructure directly damaged in
the disaster, but also to enhance the overall lower Manhattan
transportation system.

Further, the Congress also directed HUD to compensate businesses for
economic losses* the first time its funds have been used for this purpose.
In previous disasters, HUD funds were typically provided to address
longterm effects of the disaster, including economic redevelopment
efforts. However, after September 11, the Congress directed HUD to focus
on different aspects of relief efforts than in previous disasters, such as
compensating businesses and individuals for economic losses and funding
programs to promote tourism initiatives in lower Manhattan, which had not
been done before, according to HUD officials.

The integration of FEMA into DHS, a department whose focus is on security
against terrorism, while maintaining FEMA*s current roles is likely to
present both FEMA and DHS officials with major challenges. In January of
this year, we published the 2003 Performance and Accountability Series 24
that focused on major management challenges and program risks facing the
federal government. In that series, we published reports on challenges to
both FEMA and DHS. In our report on DHS, we noted that the creation of
DHS, involving the integration of FEMA and 21 other agencies specializing
in various disciplines, is a daunting challenge; yet only through the
effective integration and collaboration of entities can the synergy
expected of the department be achieved. Recognizing the magnitude of the
overall challenge in establishing DHS, we designated the implementation
and transformation of the department as high- risk. Our

24 U. S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Homeland Security, GAO- 03- 102 (Washington,
D. C.: January 2003) and

Major Management Challenges and Program Risks: Federal Emergency
Management Agency, GAO- 03- 113 (Washington, D. C.: January 2003). FEMA
Faces Major

Management Challenges While Making the Transition to the Department of
Homeland Security

Page 27 GAO- 03- 1174T Performance and Accountability report on FEMA
pointed to specific areas where its homeland security and non- homeland
security missions were

being transferred to separate DHS directorates. This divisional separation
could complicate FEMA*s historical all- hazards approach* a comprehensive
approach focused on preparing for and responding to all types of disaster,
either natural or man- made. The separation of disaster

and emergency responsibilities across two directorates of the new
department will present coordination challenges for the appropriate
Undersecretaries within DHS.

Our FEMA Performance and Accountability report noted a number of other
challenges. These include:

 Enhancing the provision and management of disaster assistance for
efficient and effective response. FEMA has demonstrated its ability to
quickly get resources to stricken communities and disaster victims, but
has had problems ensuring the effective use of such assistance, according
to the Office of Management and Budget (OMB). Among other things, FEMA
will be challenged to (1) improve its criteria for determining state and
local eligibility to receive federal disaster assistance, (2) assess the
extent of and approach to assistance for future major disasters based on
the recovery efforts undertaken in the New York City area, (3) enhance
disaster assistance staff training and resource planning, and (4) improve
its existing information system before it is used as a building block for
a multi- agency disaster management website.

 Reducing the impact of natural hazards by improving the efficiency of
mitigation and flood programs. For many years, FEMA has focused increased
emphasis on reducing the impact of natural hazards, not only to lessen the
impact to property and individuals, but also to reduce federal disaster
costs. Two of the agency*s major efforts in this regard have been

its mitigation programs and the National Flood Insurance Program. These
programs seek to strengthen structures against the effects of hazards or
remove them from harm*s way and to minimize the need for future FEMA
disaster assistance. However, concerns exist in both these efforts that
may limit their effectiveness in achieving these objectives. Moreover, the
placement of FEMA within DHS represents a substantially changed
environment in which FEMA will conduct its missions in the future, and
missions that focus on reducing the impacts of natural hazards, such as
hazard mitigation and flood insurance, may receive decreased emphasis.
Sustained attention to these programs will be needed to ensure they
maintain or improve their effectiveness in protecting the nation against,
and reducing federal costs associated with, natural disasters.

Page 28 GAO- 03- 1174T We continue to view these areas as challenges for
FEMA and expect to assist the Congress in its efforts to examine these
challenges. In this

regard, we have a number of assignments ongoing or planned that address
many of these issues, and we will be reporting on these in the near
future.

Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions you or Members of the Subcommittee may have. For
further information on this testimony, please contact JayEtta Z. Hecker at
(202) 512- 2834 or William O. Jenkins at (202) 512- 8777. Individuals
making key contributions to this testimony include Kevin F. Copping,
Matthew F. Ebert, Kara A. Finnegan- Irving, John T. McGrail, and

John R. Schulze.

Page 29 GAO- 03- 1174T The Subcommittee on Clean Air, Climate Change, and
Nuclear Safety, Senate Committee on Environment and Public Works, asked us
to describe the federal government*s response and recovery efforts to New

York City and how the federal government*s response to this disaster
differed from previous disasters. Additionally, we were asked to describe
the management challenges FEMA faces as it integrates into the Department
of Homeland Security (DHS).

In addressing the first and second objective, we limited our work to the
four federal sources of assistance that comprise 96 percent of the $20
billion in aid pledged by the President to help the New York City area
response to and recover from the terrorist attacks. We used information in
our August 29, 2003 report on the Federal Emergency Management Agency*s
Public Assistance Program and our ongoing work on the overall federal
response to the New York City area that we are conducting for the

Senate Committee on Environment and Public Works. To develop the
information for our ongoing work that we used in this statement, we
reviewed relevant legislation and obtained and reviewed information from
the appropriate budget documents, funding plans, status reports and other
documents from the respecting agencies. We also reviewed available
Executive Orders, Presidential correspondence, Office of Management and
Budget reports, and Congressional Budget Office reports related to federal
response and recovery efforts for New York City. We interviewed federal
officials from the Office of Management and Budget, FEMA, the Department
of Housing and Urban Development, the Federal Transit Administration, the
Federal Highway Administration, the Federal Railroad Administration, and
the Internal Revenue Service to get their perspectives on to what purposes
the assistance has been and will be used. We also

obtained pertinent documents from and interviewed officials with New York
State and New York City agencies, including the Lower Manhattan
Development Corporation, the Empire State Development Corporation, the New
York State Department of Transportation, the Metropolitan Transit
Administration, and Port Authority of New York and New Jersey. We also
interviewed officials from nonprofit planning and research organizations
in New York to gain their perspectives on use of the funding in the city*s
redevelopment process. We reviewed relevant agency documentation of
program plans and execution including budget

documents and databases. We also compared agency historical data to
documentation from the New York response and recovery.

To address management challenges facing FEMA as it transfers to the
Department of Homeland Security, we used information from two reports from
GAO*s Performance and Accountability Series. These were Major

Appendix I: Objectives, Scope, and Methodology

Page 30 GAO- 03- 1174T Management Challenges and Program Risks: Federal
Emergency Management Agency (January 2003 GAO- 03- 113) and Major
Management Challenges and Program Risks: Department of Homeland Security
(January 2003 GAO- 03- 102.)

The work we drew upon for this statement was conducted from July 2002
through September 2003 in accordance with generally accepted government
accounting standards.

(544083)

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