    September 11: Overview of Federal Disaster Assistance to the New
    York City Area (31-OCT-03, GAO-04-72).

    The federal government has been a key participant in the efforts
    to provide aid to the New York City area to help it respond to
    and recover from the September 11 terrorist attacks. The
    President pledged, and the Congress subsequently authorized,
    about $20 billion in federal aid. This federal aid was provided
    primarily through four sources: the Federal Emergency Management
    Agency (FEMA), the Department of Housing and Urban Development
    (HUD), the Department of Transportation (DOT), and the Liberty
    Zone tax benefits--a set of tax benefits targeted to lower
    Manhattan. These sources provided 96 percent, or $19.63 billion,
    of the committed federal aid to the New York City area. It has
    been over 2 years since the attacks occurred, and many efforts
    have been undertaken to aid the New York City area to cope with
    the disaster and its many impacts. GAO was asked to describe how
    much and what type of federal assistance was provided to the New
    York City area through these four sources and how the federal
    government's response to this disaster differed from previous
    disasters. We provided a draft of this report to FEMA, DOT, HUD,
    and Internal Revenue Service (IRS) for their review and comment,
    and all four agencies generally agreed with the information
    presented.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-04-72
        ACCNO:   A08770
      TITLE:     September 11: Overview of Federal Disaster Assistance to
    the New York City Area
         DATE:   10/31/2003
      SUBJECT:   Compensation
    	     Disaster relief aid
    	     Economic development
    	     Federal aid programs
    	     Federal aid to cities
    	     Financial analysis
    	     Funds management
    	     Losses
    	     Terrorism
    	     FEMA Disaster Relief Fund
    	     FHwA Emergency Relief Program
    	     IRS New York Liberty Zone Tax Benefits
    	     Program

    	     New York (NY)
    	     World Trade Center (NY)

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    GAO-04-72

    United States General Accounting Office

    GAO

                           Report to Congressional Requesters

    October 2003

    SEPTEMBER 11

           Overview of Federal Disaster Assistance to the New York City Area

    GAO-04-72

    Highlights of GAO-04-72, a report to congressional requesters

    The federal government has been a key participant in the efforts to
    provide aid to the New York City area to help it respond to and recover
    from the September 11 terrorist attacks. The President pledged, and the
    Congress subsequently authorized, about $20 billion in federal aid. This
    federal aid was provided primarily through four sources: the Federal
    Emergency Management Agency (FEMA), the Department of Housing and Urban
    Development (HUD), the Department of Transportation (DOT), and the Liberty
    Zone tax benefits-a set of tax benefits targeted to lower Manhattan. These
    sources provided 96 percent, or $19.63 billion, of the committed federal
    aid to the New York City area.

    It has been over 2 years since the attacks occurred, and many efforts have
    been undertaken to aid the New York City area to cope with the disaster
    and its many impacts. GAO was asked to describe how much and what type of
    federal assistance was provided to the New York City area through these
    four sources and how the federal government's response to this disaster
    differed from previous disasters.

    We provided a draft of this report to FEMA, DOT, HUD, and Internal Revenue
    Service (IRS) for their review and comment, and all four agencies
    generally agreed with the information presented.

    www.gao.gov/cgi-bin/getrpt?GAO-04-72.

    To view the full product, including the scope and methodology, click on
    the link above. For more information, contact JayEtta Z. Hecker at (202)
    512-2834 or heckerj@gao.gov.

    October 2003

    SEPTEMBER 11

    Overview of Federal Disaster Assistance to the New York City Area

    An estimated $20 billion of federal assistance has been committed to the
    New York City area through FEMA, HUD, DOT and the Liberty Zone tax
    benefits. While plans for use of $1.16 billion in HUD funds have not been
    finalized, $18.47 billion have been committed for the following four
    purposes:
    Initial response efforts, which includes search and rescue operations,
    debris removal, emergency transportation, and utility system repairs,
    totaled
    $2.55 billion. The largest single amount-$1 billion-has been set aside for
    the establishment of an insurance company to cover claims resulting from
    debris removal operations.
    Compensation for disaster-related costs and losses, which includes aid
    to individuals for housing costs, loans to businesses to cover economic
    losses, and funding to the city and state for disaster-related costs,
    totaled
    about $4.81 billion.
    Infrastructure restoration and improvement, which includes restoration
    and enhancement of the lower Manhattan transportation system and
    permanent utility repair and improvement, totals $5.57 billion.
    Economic revitalization, which includes the Liberty Zone tax benefits and
    business attraction and retention programs, is estimated to total $5.54
    billion. The amount of this funding is estimated, and will likely remain
    so,
    because the tax benefit amounts are not being tracked.

    The designation of $20 billion to assist the New York City area was the
    first
    time in which the amount of federal disaster assistance to be provided was
    set early in the recovery effort; normally, the level of assistance is
    determined as needs are assessed against established eligibility criteria.
    FEMA, in response to the designation of a specific level of funding and
    enhanced authority from the Congress, changed its traditional approach to
    administering disaster funds by expanding eligibility guidelines,
    initiating an
    early close-out process, and reimbursing New York City and state for
    nontraditional costs. Further, the designation of a specific level of
    assistance
    prompted congressional authorization of numerous forms of nontraditional
    assistance to be provided.

    Total funds committed to specific purposes

    Source: GAO analysis of agency-provided data.

    aThe Lower Manhattan Development Corporation's plans for $1.16 billion in
    HUD funds have not been finalized, as of June 30, 2003. These funds are
    not included in the graphic and, according to HUD, will mostly likely be
    directed to either infrastructure restoration or economic revitalization.

    Contents

    Letter 1

    Executive Summary 2

    Purpose 2
    Background 3
    Results in Brief 4
    GAO Analysis 6
    Agency Comments 11

    Chapter 1 Introduction 13

    Many Agencies Play Significant Roles in Responding to Disasters 13
    Federal Disaster Assistance to the New York City Area Set at about
    $20 Billion 15
    Federal Response Provided to the New York City Area Represents
    Four Broad Purposes of Assistance 20

    Chapter 2

    Initial Response Assistance Totaled $2.55 Billion 22

    Search and Rescue Operations Totaled $22 Million 24
    Debris Removal Operations Totaled $1.70 Billion, Including

    Liability Insurance Coverage 25
    Emergency Transportation Measures Totaled $299 Million 27
    Emergency and Temporary Utility Repairs Total $250 Million 31
    Testing and Cleaning Efforts Totaled $53 Million 31
    Other Initial Response Services Totaled $232 Million 34

    Chapter 3 	Compensation for Disaster-Related Costs and
    Losses Totaled $4.81 Billion 36

    Compensation of the City, State, and Other Organizations Totaled

    $3.32 Billion 38
    Assistance to Individuals and Families Totaled $807 Million 42
    Assistance to Businesses Totaled $683 Million 49

    Chapter 4 	Almost $5.57 Billion Committed for Projects to
    Restore and Enhance Infrastructure 57

    Projects Planned to Restore and Enhance the Lower Manhattan
    Transportation System Total $5.01 Billion 59
    Permanent Utility Infrastructure Repairs and Improvements Total
    $500 Million 69

    Short-term Capital Projects Total $68 Million

    70

    Chapter 5

    Efforts to Revitalize the New York Economy
    Include Tax Benefits and Assistance to Businesses 72

    Liberty Zone Tax Benefits Focus on Economic Revitalization 74
    $515 Million of HUD Funds Committed for Business Assistance and
    Other Projects to Revitalize Lower Manhattan 79

    Chapter 6 	Designation of a Specific Level of Assistance
    Led to a Distinct Federal Government Response
    for this Disaster 85

    Designation of a Specific Level of Funding Altered the Traditional

    FEMA Disaster Assistance Approach 85
    Designation of a Specific Level of Assistance Spurred
    Congressional Appropriation and Authorization of
    Nontraditional Assistance 88

    Appendix I Objectives, Scope, and Methodology

    Appendix II 	Proposed Transportation Infrastructure Improvements for Lower
    Manhattan

    Appendix III 	Joint Committee on Taxation Estimated Revenue Effects of the
    Liberty Zone Tax Benefits

    Appendix IV Description of Liberty Zone Tax Benefits

    Appendix V Liberty Zone Tax Benefits Bond Authority 100

    Appendix VI 	GAO Contacts and Staff Acknowledgments 101
    GAO Contacts 101

                                  Acknowledgments 101

    Glossary

    Related GAO Products

    Tables

    Table 1: Initial Response Assistance, as of June 30, 2003 Table 2:
    Compensation for Disaster-Related Costs and Losses, as of June 30, 2003
    Table 3: Infrastructure Restoration and Improvement, as of June

    30, 2003 Table 4: Economic Revitalization Efforts, as of June 30, 2003
    Table 5: Emergency Supplemental Funds for New York Disaster

    Relief Appropriated, by Agency Table 6: Initial Response Assistance, as of
    June 30, 2003 Table 7: Compensation for Disaster-Related Costs and Losses,
    as of

    June 30, 2003 Table 8: Assistance for the City, State, and Other
    Organizations, as

    of July 31, 2003 Table 9: Assistance to Individuals and Families, as of
    June 30, 2003 Table 10: Assistance to Businesses, as of June 30, 2003
    Table 11: Infrastructure Restoration and Improvement, as of June

    30, 2003 Table 12: Lower Manhattan Transportation System Restoration and

    Enhancement, as of June 30, 2003 Table 13: Economic Revitalization
    Efforts, as of June 30, 2003 Table 14: Approved Liberty Bond Projects

                                           8

                                           9

                                         10 11

                                         18 24

    38

    39 42 50

    59

                                                                        60 74 100

    Figures

    Figure 1: Primary Purpose and Amount of Disaster Assistance

    Committed by FEMA, HUD, DOT, and Liberty Zone Tax

    Benefits 5 Figure 2: Timeline of Supplemental Appropriations and Other
    Related Legislation Enacted by the Congress That Provided Assistance to
    the New York City Area 16

    Figure 3: Allocation of Federal Assistance to the New York City

    Area by the Federal Government 17
    Figure 4: Costliest Disasters for FEMA, HUD, and DOT 19
    Figure 5: Primary Purpose and Amount of Disaster Assistance

    Committed by FEMA, HUD, DOT, and Liberty Zone Tax
    Benefits 20
    Figure 6: Amount of Assistance Committed to Initial Response
    Activities, by Agency 23
    Figure 7: Urban Search and Rescue Teams Assist in Searching for
    Survivors at the World Trade Center Site 25
    Figure 8: FEMA-Funded Debris Removal Operations Were a Major

    Component of Initial Response Assistance 26
    Figure 9: FEMA Funded Interim Repairs to West Street 28
    Figure 10: FEMA Funded Efforts to Remove Debris from the PATH

    Tunnel 29
    Figure 11: FEMA Provided Funds to Build the Temporary PATH

    Terminal Currently under Construction 30
    Figure 12: Buildings Needing Cleaning after September 11, 2001 33
    Figure 13: Amount of Assistance Committed to Compensate

    Disaster-Related Costs and Losses, by Agency 37
    Figure 14: Map of LMDC Residential Grant Program Zones in
    Lower Manhattan 43
    Figure 15: LMDC Published Its "It Pays to Live Downtown" in
    Multiple Languages 45
    Figure 16: Areas of Lower Manhattan Assisted by ESDC Business
    Recovery Grant Program 52
    Figure 17: Amount of Assistance Committed for Infrastructure
    Restoration and Improvement, by Agency 58
    Figure 18: Current and Proposed South Ferry Subway Station

    Layout 63
    Figure 19: Workers Conducting Street Repairs in Lower Manhattan 65
    Figure 20: New York City Department of Transportation Map of

    Planned Emergency Relief Program Road Repairs
    (excluding West Street) 66
    Figure 21: Present West Street and West Street Design Concept
    with Belowground Lanes 68

    Figure 22: Estimated Amount of Assistance Committed for
    Economic Revitalization, by HUD and Liberty Zone Tax
    Benefits 73

    Figure 23: New York Liberty Zone 75

    Figure 24: Studio Daniel Libeskind's Memory Foundations Winning Design for
    Rebuilding the World Trade Center Site Was Selected as Part of an
    International Design Competition 82

    Figure 25: The World Trade Center Rebuilding Plans Include Recognition of
    the Footprints of the Original Twin Towers 83 Figure 26: Lower Manhattan
    Transportation Projects-Restoration and Enhancement 90

    Abbreviations

    CDBG Community Development Block Grant
    DOT Department of Transportation
    EPA Environmental Protection Agency
    ESDC Empire State Development Corporation
    FEMA Federal Emergency Management Agency
    FHWA Federal Highway Administration
    FTA Federal Transit Administration
    IG Office of Inspector General
    HUD Department of Housing and Urban Development
    IRS Internal Revenue Service
    LMDC Lower Manhattan Development Corporation
    MTA Metropolitan Transportation Authority
    PATH Port Authority Trans-Hudson
    SBA Small Business Administration

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    United States General Accounting Office Washington, DC 20548

    October 31, 2003

    The Honorable James M. Inhofe
    Chairman
    The Honorable James M. Jeffords
    Ranking Minority Member
    Committee on Environment and Public Works
    United States Senate

    The Honorable George V. Voinovich
    The Honorable Hillary Rodham Clinton
    United States Senate

    In response to your request, this report discusses how much and for what
    purposes federal assistance was provided to the New York City area in
    response to the terrorist attacks of September 11, 2001. In addition, this
    report describes the differences in the federal government's response to
    this disaster as compared with previous disasters.

    If you, or your staffs, have any questions about this report, please call
    me
    at (202) 512-2834. Major contributors to this report are listed in
    appendix

    VI.

    JayEtta Z. Hecker
    Director, Physical Infrastructure Issues

    Executive Summary

    Purpose 	The terrorist attacks of September 11, 2001, resulted in one of
    the largest catastrophes this country has ever experienced. The attacks
    and their aftermath caused the loss of thousands of lives, billions of
    dollars of property, untold numbers of jobs, and the displacement of many
    individuals and businesses. In the New York City area, the attacks killed
    nearly 3,000 people, injured thousands, and dislocated thousands of
    workers and residents. The World Trade Center towers collapsed, destroying
    or damaging numerous other buildings on and around the World Trade Center
    site, and disabling major electrical, communications, and transportation
    infrastructure in lower Manhattan.

    The federal government has played a key role in the efforts to provide aid
    after the attacks and has been providing the New York City area with funds
    and other forms of assistance. The magnitude of the disaster 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 the federal
    assistance provided the New York City area. Consequently, in a May 2,
    2002, letter the Chairman and Ranking Minority Member of the Senate
    Committee on Environment and Public Works and Senators Hillary Rodham
    Clinton and George V. Voinovich asked GAO to assess the federal
    government's response and recovery efforts to the New York City area. They
    requested GAO to determine (1) how much federal assistance has been
    delivered to the New York City area and for what purposes and (2) how the
    federal government's response to this disaster differed from previous
    disasters.

    In performing its work, GAO focused on the primary sources of federal
    assistance-the Federal Emergency Management Agency (FEMA), the Department
    of Housing and Urban Development (HUD), the Department of Transportation
    (DOT), and the Liberty Zone tax benefits1-that targeted different aspects
    of the recovery efforts in the New York City area. To provide information
    on the amount and purpose of federal assistance, GAO categorized the
    recovery efforts into four broad purposes:

    o  Initial response efforts.

    o  Compensation for disaster-related costs and losses.

    1The Liberty Zone tax benefits are benefits targeted primarily at the area
    of New York City damaged on September 11, designated as the New York
    Liberty Zone.

    Executive Summary

    o  Infrastructure restoration and improvement.

    o  Economic revitalization.

    Background

    GAO briefed your staffs previously on the preliminary results of its work
    and provided testimony summarizing these results in a September 24, 2003,
    hearing.2 GAO also issued a separate report on one aspect of the response,
    FEMA's public assistance program.3

    After a disaster, the federal government, in accordance with provisions of
    the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the
    Stafford Act),4 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, a signed
    agreement by 27 agencies and the Red Cross to deliver federal disaster
    assistance. As a result, FEMA provides assistance, through a variety of
    programs to state and local governments. However, at times, the Congress
    directly funds agencies to conduct specialized activities in response to
    particular disasters, such as HUD's Community Development Block Grants for
    economic development.

    After the attacks on September 11, 2001, the New York City area was faced
    with significant human and economic losses, over a million tons of debris,
    and severely damaged infrastructure. In the days immediately following the
    attacks, the President pledged at least $20 billion in federal assistance
    to the New York City area to address these impacts. Subsequently, over the
    next 11 months, the Congress enacted several pieces of legislation to

    2See U.S. General Accounting Office, Disaster Assistance:Federal Aid tothe
    New YorkCity Area Following the AttacksofSeptember11th and
    ChallengesConfrontingFEMA, GAO-03-1174T (Washington, D.C.: Sept. 24,
    2003).

    3See U.S. General Accounting Office, Disaster Assistance:Information
    onFEMA's Post-9/11 Public Assistance to the NewYork CityArea, GAO-03-926
    (Washington, D.C.: Aug. 29, 2003).

    4P.L. 93-288, 88 Stat. 143 (1974), as amended.

    Executive Summary

    Results in Brief

    provide an estimated $20 billion in direct funding and tax benefits.5 Of
    the assistance authorized by the Congress, 96 percent is provided through
    four primary sources; FEMA, HUD, and DOT-for funds directly appropriated
    to assistance for the New York City area-and the Liberty Zone tax
    benefits-seven provisions that provide specific federal tax benefits for
    businesses in lower Manhattan damaged by the terrorist attacks.

    About $18.47 billion in federal assistance has been committed to specific
    projects for the New York City area primarily through FEMA, HUD, DOT and
    the Liberty Zone tax benefits for: (1) initial response efforts, (2)
    compensation for disaster-related costs and losses, (3) infrastructure
    restoration and improvement, and (4) economic revitalization. An
    additional $1.16 billion in HUD funds that have not been committed to a
    specific purpose will most likely be directed to infrastructure
    restoration and/or economic revitalization. Figure 1 shows the amount of
    assistance committed to the primary purposes.

    5The $20 billion federal assistance to New York does not include financial
    assistance to victims as part of the September 11 Victim Compensation Fund
    of 2001. It also does not include financial benefits being provided by the
    Internal Revenue Service providing administrative tax relief to
    individuals and businesses in the period following the terrorist attacks.

    Executive Summary

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

                       Total funds committed to specific purposes

    Source: GAO analysis of agency-provided data.

    aThe Lower Manhattan Development Corporation's plans for $1.16 billion in
    HUD funds have not been finalized, as of June 30, 2003. These funds are
    not included in the graphic and, according to HUD, will mostly likely be
    directed to either infrastructure restoration or economic revitalization.

    o  	Initial response activities totaled $2.55 billion. FEMA, DOT, and HUD
    assistance funded many activities, including search and rescue operations,
    debris removal operations, emergency transportation measures, and
    emergency utility service repair. In addition, funds were provided for
    environmental cleaning and testing in a widespread area of lower
    Manhattan.

    o  	Assistance to compensate for disaster-related costs and losses equaled
    $4.81 billion. This funding, provided by FEMA and HUD, compensated state
    and local organizations, individuals, and businesses for disaster-related
    costs. Such compensation included funds to New York City and State to
    rebuild damaged facilities, to individuals for rental and mortgage
    assistance and for crisis counseling, and to businesses for days of lost
    revenue and recovery loans.

    o  	Funding to restore and improve infrastructure totaled $5.57 billion.
    The majority of this assistance is a combination of FEMA and DOT funds
    designated to rebuild and enhance the lower Manhattan transportation
    system, including the construction or repair of transit terminals,
    streets, and ferry stations. New York is currently evaluating projects for
    which to use these funds. Planning studies evaluating transportation
    improvement options are underway, and a portion of the $1.16 billion of
    the remaining HUD funds may be committed for these efforts. HUD has also
    committed funds to improve utility infrastructure and to complete a
    variety of short-term capital projects.

    Executive Summary

    o  	Efforts to revitalize the economy in lower Manhattan are underway and
    are estimated to total $5.54 billion. The revitalization efforts include
    an estimated $5.03 billion Liberty Zone tax benefit plan. The tax benefits
    have several provisions, such as special depreciation deductions, to
    reduce tax burdens and spur economic development in lower Manhattan. The
    total amount of assistance provided by the tax benefits will depend on
    benefit usage; however, the IRS does not track the usage of these
    benefits, and consequently, the total amount of this benefit will remain
    unclear. In addition, the Congress appropriated HUD funds that made
    available $515 million to revitalize the lower Manhattan economy,
    including incentives for existing businesses to remain in the area and as
    well as to attract new businesses to lower Manhattan. A portion of the
    $1.16 billion of the remaining HUD funds may also be used for
    revitalization efforts.

    The designation of $20 billion to assist the New York City area was the
    first time in which the amount of federal disaster assistance to be
    provided was set early in the response and recovery efforts and resulted
    in two major changes in the federal approach to this disaster. FEMA, in
    response to the designation of a specific level of funding, changed its
    traditional approach to administering disaster funds, and with
    congressional authorization, FEMA reimbursed the city and state for
    "associated costs" that it could not have otherwise funded within
    provisions of the Stafford Act to ensure that the entire amount of funds
    appropriated to FEMA for this disaster would be spent for the New York
    City area. In addition to the flexibility given FEMA, this specific level
    of funding for the entire disaster prompted congressional authorization of
    numerous forms of nontraditional assistance to be provided by other
    agencies, including the first geographically targeted tax program in
    response to a disaster.

    We provided a draft of this report to FEMA, DOT, HUD, and the Internal
    Revenue Service (IRS) for their review and comment, and all four agencies
    generally agreed with the information presented.

                                      GAO Analysis

    Initial Response Efforts Initial response assistance totaled $2.55 billion
    for activities, such as

    Totaled $2.55 Billion 	search and rescue operations, debris removal
    operations, emergency transportation measures, temporary utility repairs,
    testing and cleaning efforts. FEMA activated 20 of its 28 urban search and
    rescue teams from across the country to conduct search and rescue
    operations immediately

    Executive Summary

    following the collapse of the World Trade Center towers. Debris removal
    operations funded by FEMA included costs to recover and identify the
    remains of victims. These activities included screening, sorting, and
    disposing of nearly 1.6 million tons of debris from the World Trade
    Center. As part of the $2.55 billion for initial response efforts, FEMA
    has established a $1 billion insurance company to cover the city and its
    contractors for claims resulting from debris removal work at the World
    Trade Center site. FEMA and DOT funded emergency measures to restore
    operation to the transportation systems, such as temporary repairs to
    local roads. In addition, HUD funds have been committed to reimburse
    utilities for costs associated with emergency repairs to the utility
    infrastructure. FEMA also provided funds to clean buildings in the lower
    Manhattan area damaged by debris and fires and to monitor air quality.
    Table 1 shows how much each agency committed, obligated, and disbursed for
    initial response efforts.

                                   Executive Summary

     Table 1: Initial Response Assistance, as of June 30, 2003 Dollars in millions

                   Activity               Funding     Total     Total       Total
                                          agency    committed obligated disbursed
         Search and rescue operations      FEMA           $22       $22       $22
          aDebris removal operations       FEMA         1,698       698
           Emergency transportation     FEMA / DOT        299       298
                   measures
          Temporary utility repairs         HUD           250         0
         Testing and cleaning efforts      FEMA            53        53
    Other initial response services     FEMA           232       232
                    Total                              $2,554    $1,303    $1,170

    Source: GAO analysis of agency-provided data.

    Notes: Numbers may not add due to rounding. Due to the expedited
    close-out, FEMA data are reflected as of July 31, 2003.

    aFEMA obligated $1 billion for its debris removal insurance program to New
    York on September 3, 2003, which is not reflected in the table. None of
    these funds have been disbursed yet.

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

    Approximately $4.81 billion in federal assistance has been committed to
    compensate state and local organizations, individuals, and businesses for
    disaster-related costs and losses. FEMA reimbursed the city and state of
    New York and other organizations for a multitude of projects through its
    public assistance program. In addition, the Congress authorized FEMA to
    provide funding to the city and state for expenses associated with the
    disaster but not reimbursable under the Stafford Act, such as costs for
    heightened security throughout the area. FEMA and HUD provided assistance
    to individuals and families that included funds to lower Manhattan
    residents for mortgage and rental assistance, crisis counseling, and
    family grants to cover disaster-related expenses not covered through other
    programs. 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. Table 2 shows how much each agency
    committed, obligated, and disbursed to compensate for disaster-related
    costs and losses.

                                   Executive Summary

    Table 2: Compensation for Disaster-Related Costs and Losses, as of June 30, 2003
                                  Dollars in millions

                    Activity               Funding    Total     Total       Total
                                           agency   committed obligated disbursed
        Assistance for state, city, and
                     other
                 organizations              FEMA       $3,319    $1,857    $1,593
         Assistance for individuals and   FEMA/HUD        807       729
                    families
           Assistance for businesses         HUD          683       574
                     Total                             $4,809    $3,160    $2,649

    Source: GAO analysis of agency-provided data.

    Notes: Numbers may not add due to rounding. Due to the expedited
    close-out, FEMA data are reflected as of July 31, 2003.

    About $5.57 Billion Has Been Committed for Projects to Restore and Enhance
    Infrastructure

    About $5.57 billion has been committed for projects to restore and enhance
    infrastructure in lower Manhattan. The majority of this financial
    assistance, $5.01 billion, is a combination of FEMA and DOT funds to
    restore and enhance elements of the transportation system supporting lower
    Manhattan. These efforts include a permanent replacement for the destroyed
    Port Authority Trans-Hudson (PATH) terminal and enhancements to the Fulton
    Street Transit Center and the South Ferry Subway Station, although these
    latter two facilities were not damaged in the attacks. New York is
    currently considering other projects to fund with the allotted transit
    funds. At this point, a small percentage of funding has been obligated for
    transportation projects. HUD has funded several planning studies to
    determine whether to commit funds to transportation improvement efforts.
    The attacks and subsequent recovery efforts also heavily damaged utility
    infrastructure in lower Manhattan, and HUD has committed $568 million to
    rebuild and enhance utility infrastructure and to fund other short-term
    capital projects for infrastructure improvements to the areas around the
    World Trade Center site. As shown in table 3, most funds committed for
    infrastructure restoration and improvement projects remain to be obligated
    and disbursed, due to the long-term nature of such projects.

                                   Executive Summary

    Table 3: Infrastructure Restoration and Improvement, as of June 30, 2003 Dollars
                                      in millions

            Activity Agency       Total committed Total obligated Total disbursed
        Rebuilding and improving
            lower Manhattan
         transportation system             $5,006            $238             $54
              FEMA/DOT/HUD
           Permanent utility                  500               0
    infrastructure repairs HUD
           Short-term capital                  68               0
              projects HUD
                 Total                     $5,574            $238             $54

    Source: GAO analysis of agency-provided data.

    Notes: Numbers may not add due to rounding. Due to the expedited
    close-out, FEMA data are reflected as of July 31, 2003. This table does
    not include $24 million appropriated to DOT for formula grants.

    Efforts to Revitalize the New York Economy Include Tax Benefits and
    Assistance to Businesses

    In an effort to revitalize the New York City area economy, the Congress
    enacted the Liberty Zone tax benefits-estimated by the Joint Committee on
    Taxation to be $5.03 billion-and appropriated $515 million to HUD for
    revitalization programs. Estimates vary regarding what the ultimate usage
    of the Liberty Zone tax benefits will be and IRS is not collecting-nor is
    it required to collect-data on the Liberty Zone tax benefit usage and
    financial impact. As a result, the actual financial benefit of the tax
    provisions to the New York City area will remain unclear. HUD is providing
    funds to revitalize the lower Manhattan economy to attract and retain
    businesses through job creation and retention grants. These funds will
    also supplement multiple planning efforts to revitalize lower Manhattan,
    including coordinating the World Trade Center site rebuilding and memorial
    design competition. In addition to the $5.54 billion, the Lower Manhattan
    Development Corporation has not yet committed $1.16 billion in HUD funds
    to specific activities that will likely fund a mix of economic
    revitalization efforts and transportation improvements. Table 4 shows the
    amount of assistance committed for economic revitalization.

    Executive Summary

        Table 4: Economic Revitalization Efforts, as of June 30, 2003 Dollars in
                                        millions

    Total committed/ Activity Funding agency estimated benefits Total
    obligated Total disbursed Tax benefits

    b b

    Liberty Zone tax benefits IRS $5,029a

                              Other revitalization efforts

            Job creation and retention grants        HUD    320      320
        Small firm attraction and retention grants   HUD    155      155
                  Other planning efforts             HUD        40   39
                         Subtotal                           515      514
                     Estimated total                       $5,544   $514b   $173b

    Source: GAO analysis of agency-provided data. Note: Numbers may not add
    due to rounding. aRevenue estimate by the Joint Committee on Taxation.
    bTax benefits are not obligated or disbursed.

    Designation of a Specific Level of Assistance Led to a Distinct Federal
    Government Response for this Disaster

    Agency Comments

    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 altered the federal approach to this
    disaster. FEMA, in response to the designation of a specific level of
    funding for this disaster and enhanced authority from the Congress,
    revised its historic approach to administering FEMA funds. In an effort to
    ensure that all FEMA funds appropriated for this disaster were spent for
    the New York City area, FEMA broadly interpreted its provisions within the
    Stafford Act, and the Congress authorized FEMA to compensate the city and
    state for "associated costs," such as increased security, that it could
    not otherwise have funded within provisions of the Stafford Act. In
    addition to the flexibility given to FEMA, the Congress appropriated and
    authorized numerous forms of nontraditional assistance, such as the
    Liberty Zone tax benefit plan and improvements to the transportation
    infrastructure that exceeded normal replacement cost.

    We provided a draft of this report to FEMA, DOT, HUD, and IRS for their
    review and comment, and all four agencies generally agreed with the
    information presented. In commenting on the draft report, FEMA, DOT,

    Executive Summary

    and HUD provided technical comments, which we incorporated into the report
    as appropriate.

                                Chapter 1: Introduction

    The terrorist attacks of September 11, 2001, caused tremendous emotional,
    physical, and economic damage in the New York City area. Nearly 3,000
    people-including passengers aboard the hijacked aircrafts, individuals in
    and around the World Trade Center buildings at the time of the disaster,
    and emergency workers responding to the disaster-lost their lives in the
    disaster, and countless more were devastated and disrupted by this human
    tragedy. In the aftermath of the attacks, New York was faced with over a
    million tons of debris, severely damaged utilities, and damaged and
    destroyed transportation infrastructure.

    The attacks had a substantial negative impact on the lower Manhattan
    economy as well, strongly affecting businesses, both large and small. Some
    businesses were destroyed, some were displaced, and others were unable to
    conduct business due to street closures and the lack of utility services.
    The New York City area lost about 83,000 private sector jobs from
    September 11, 2001, through the end of December 2001 as well as the tax
    revenues that those jobs would have generated. The damage or destruction
    of buildings by the terrorist attacks will result in lower
    property-related tax revenues losses in 2003 and beyond. The attacks
    seriously disrupted the entire New York City area transportation network
    and continue to impact hundreds of thousands of commuters.

    In accordance with provisions of the Robert T. Stafford Disaster Relief
    and Emergency Assistance Act (the Stafford Act),1 when a major natural
    catastrophe, fire, flood, or explosion occurs that is beyond the
    capabilities of a state and local government response, the President may
    declare that a major disaster exists. This declaration activates the
    federal response plan for the delivery of federal disaster assistance. The
    response plan is an agreement signed by 27 federal departments and
    agencies as well as the American Red Cross. The plan supplements other
    federal emergency operation plans to address specific hazards by providing
    a mechanism for coordinating delivery of federal assistance and resources
    to augment efforts of state and local governments overwhelmed by a major
    disaster or emergency. The Federal Emergency Management Agency (FEMA) is
    responsible for coordinating the federal and private response efforts. The
    Congress may also fund specific agencies to assist disaster relief efforts
    for areas in which they retain expertise, including the Department of
    Housing and Urban Development (HUD) to administer funds for economic

    Many Agencies Play Significant Roles in Responding to Disasters

                     1P.L. 93-288, 88 Stat. 143 (1974), as amended.

    Chapter 1: Introduction

    redevelopment and infrastructure restoration, the Department of
    Transportation (DOT) to provide assistance for road restoration, and other
    agencies for activities such as providing small businesses disaster
    assistance loans and public health or medical service that may be needed
    in the affected area. Listed below is a description of the roles of
    specific agencies:

    o  	FEMA. The disaster declaration from the President triggers FEMA's role
    as coordinator of the federal response plan and initiates FEMA's
    responsibility to deliver assistance through several programs it
    administers. These programs include individual assistance to victims
    affected by a disaster and hazard mitigation funds to state and local
    governments to reduce the risk of damage from future disasters. In
    addition, FEMA's public assistance program is typically the largest
    disaster assistance effort. It is designed to provide grants to eligible
    state and local governments and specific types of private nonprofit
    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. The
    Stafford Act sets the federal share for the public assistance program at
    no less than 75 percent of eligible costs of a disaster, with state and
    local governments paying for the remaining portions.

    o  	DOT. 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 to a state for each natural
    disaster or catastrophic failure event that is found eligible for funding
    under its Emergency Relief Program. For a large disaster that exceeds the
    $100 million per-state legislative cap, the Congress can pass special
    legislation to increase the amount FHWA can provide to an affected area.
    The Emergency Relief funds are available for permanent repairs and for
    work accomplished more than 180 days after an event at the pro rata
    federal-aid share that would normally apply to the federal-aid facility
    damaged. For interstate highways, the federal share is 90 percent. For all
    other highways, the federal share is 80 percent. Emergency repair work to
    restore essential traffic, minimize the extent of damage, or protect the
    remaining facilities, accomplished in the first 180 days after the
    occurrence of the disaster, may be reimbursed at 100 percent federal
    share. Other agencies within DOT, such as the Federal Transit
    Administration (FTA) and the Federal Railroad Administration, have had
    limited roles in previous disaster relief efforts.

                                Chapter 1: Introduction

    o  	HUD. HUD has been provided authority to assist in disaster relief
    efforts at different times in the last few decades, primarily through its
    Community Development Block Grant (CDBG) program. Although the CDBG
    program's primary purpose is community development, not disaster
    assistance, supplemental CDBG appropriations have been made to provide
    recovery assistance from past natural disasters, usually severe
    hurricanes, earthquakes, or floods. Typically, HUD awards funds to the
    affected state or local government, and then the funds are administered at
    the state or local level.2

    o  	Other agencies and organizations. Many other agencies play active
    roles in federal disaster relief. For example, the Small Business
    Administration provides disaster loans to businesses for physical damage
    and economic injury and to homeowners to help those with disaster losses.
    The Department of Health and Human Services provides critical services,
    such as health and medical care; preventive health services; mental health
    care; veterinary services; mortuary services; and any other public health
    or medical service, that may be needed in the affected area. The
    Department of Agriculture and Forest Service, among other things, are
    responsible for managing and coordinating firefighting activities on
    federal lands and providing personnel, equipment, and supplies in support
    of state and local agencies.

    Federal Disaster In the days immediately following the terrorist attacks
    in New York on

    September 11, the President pledged to commit at least $20 billion to
    helpAssistance to the New the New York City area recover from the
    terrorist attacks. The President York City Area Set at sent a letter to
    the Speaker of the House requesting that the Congress pass

    emergency appropriations to provide immediate resources to respond to

    about $20 Billion 	the terrorist attacks. 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 tax benefit plan for the New York City area. Figure 2
    shows a time-line of the legislative actions to assist the New York City
    area.

    2The Empire State Development Corporation (ESDC) is the New York State
    entity designated by the Governor to administer the first of three CDBG
    appropriations for New York. ESDC is a corporate governmental agency of
    the state of New York and is currently engaged in housing and economic
    development and special projects throughout the state. In November 2001,
    ESDC's board of directors authorized the creation of the Lower Manhattan
    Development Corporation (LMDC) to assist in the economic recovery and
    revitalization of lower Manhattan, to develop programs and distribute
    assistance appropriated in the second and third CDBG appropriations for
    New York.

                                Chapter 1: Introduction

    Figure 2: Timeline of Supplemental Appropriations and Other Related
    Legislation Enacted by the Congress That Provided Assistance to the New
    York City Area

                      Source: Congressional Budget Office and GAO.

    In addition, the Congress passed legislation providing details on how
    appropriated funds could be spent. The Consolidated Appropriations
    Resolution, enacted February 20, 2003, allowed FEMA to provide already
    appropriated funds to the city and state of New York for costs associated
    with the disaster that are unreimbursable under the Stafford Act. In
    addition, the legislation required FEMA to provide $90 million from
    existing appropriations to administer screening and long-term health
    monitoring of emergency services personnel. FEMA was also directed to
    provide up to $1 billion from existing appropriations to establish an
    insurance company or other appropriate insurance mechanism for claims
    arising from debris removal, including claims made by city employees.

    The funds appropriated to FEMA, HUD, and DOT, along with the Liberty Zone
    tax benefits, constitute about 96 percent of all assistance designated to
    the New York City area, as shown in figure 3.

    Chapter 1: Introduction

    Figure 3: Allocation of Federal Assistance to the New York City Area by
    the Federal Government

                                     Other agencies

    $0.82 billion

    DOT $2.37 billion

    HUD $3.48 billiona

    Liberty Zone $5.03 billion

    FEMA $8.80 billion

    Source: GAO.

    Four primary sources of federal assistance equal 96 percent of all funds.

    aHUD funds include the $1.16 billion yet to be committed to a specific
    purpose.

    In total, FEMA was appropriated $8.80 billion to its Disaster Relief Fund
    for the New York City area. Of this amount, FEMA's public
    assistance-related funds totaled approximately $7.4 billion for activities
    such as debris removal and infrastructure restoration, while the remainder
    of the funding was committed for individual assistance and other nonpublic
    assistance. The Congress appropriated HUD $3.48 billion of CDBG assistance
    to provide the New York City area through the Empire State Development
    Corporation (ESDC) and its subsidiary, the Lower Manhattan Development
    Corporation (LMDC), to aid businesses and individuals and spur economic
    revitalization. DOT received a total of $2.37 billion to assist in the
    restoration and enhancement of the transit system in the New York City
    area.

    Other agencies also received funding as part of the emergency
    appropriations; however, throughout the report we will focus on FEMA, DOT,
    and HUD, as funds to these agencies constitute about 95 percent of all
    appropriated funding provided to the New York City area. Table 5 provides
    a breakdown of all funds appropriated for recovery efforts in the New York
    City area by agency.

    Chapter 1: Introduction

    Table 5: Emergency Supplemental Funds for New York Disaster Relief
    Appropriated, by Agency

                        Dollars in millions Agency Appropriation

                       Federal Emergency Management Agency $8,799

                   Department of Housing and Urban Development 3,483

                           Department of Transportation 2,366

                           Small Business Administration 250

                                Department of Labor 249

                      Department of Health and Human Services 120

    Department of Justice

    General Services Administration

    Department of Treasury

    Securities and Exchange Commission

    Commodity Futures Trading Commission

    Department of Education

    Department of Commerce

    Social Security Administration

    Federal Drug Control Programs

    Equal Employment Opportunity Commission 1

    Department of Housing and Urban Development Office of Inspector
    General 1

    a

    Export-Import Bank

    Totalb $15,464

    Source: CRS, Congressional Budget Office, and GAO analysis.

    Note: Numbers may not add due to rounding.

    aThis agency received less than $1 million in emergency supplemental funds
    for recovery efforts in the New York City area.

    bThese figures represent direct appropriations, therefore, do not include
    the $5.03 billion Liberty Zone tax benefits, the September 11 Victim
    Compensation Fund, or tax deferrals.

    Not only were FEMA, HUD, and DOT the primary sources of assistance to the
    New York City area, but each of these agencies provided more assistance
    for the September 11 disaster than it had for any other single disaster.
    For example, prior to September 11, FEMA disaster assistance exceeded $1
    billion in six other disasters, the largest of them being the Northridge
    Earthquake in California in 1994. The $3.48 billion appropriated to HUD
    for the New York City area is nearly seven times the amount of assistance
    HUD has provided for any other single disaster. DOT was also appropriated
    more funds for recovery efforts after September 11 than in

                                Chapter 1: Introduction

    any other disaster. Figure 4 displays several large disaster relief
    efforts and how much of these efforts the three agencies funded.

    Figure 4: Costliest Disasters for FEMA, HUD, and DOT

    Cost of disasters (in millions of nominal dollars, unadjusted for
    inflation)	9-11-01 Terrorist Attacks

    $9,000

    8000

    7000

    6000

    5000

    4000

    3000

    2000

    1000

    0 1989 1992 1993 1994 1997 1998 2001

    FEMA DOT HUD Source: GAO anaylsis of agency-provided data.

                                Chapter 1: Introduction

    Federal Response Provided to the New York City Area Represents Four Broad
    Purposes of Assistance

    Federal assistance provided to the New York City area for response and
    recovery activities covered a wide spectrum of efforts and various types
    of direct and indirect aid. To organize this discussion of the overall
    funding provided to New York, we identified four broad purposes of
    assistance. The first purpose includes initial response efforts to save
    lives, recover victims, remove debris, and restore basic functionality to
    city services, among other things. The second purpose consists of
    government actions to compensate state and local organizations,
    individuals, and businesses for losses of income and housing resulting
    from the attacks. The third purpose of assistance is the restoration and
    enhancement of the lower Manhattan transportation and utility
    infrastructure that was severely destroyed by the buildings' collapse and
    the subsequent response efforts. The last purpose is the provision of
    federal aid to help revitalize the lower Manhattan economy that was
    impacted by the disaster. Figure 5 shows the amount of funds provided by
    the four primary sources-FEMA, DOT, HUD, and the Liberty Zone tax
    benefits-for each purpose of assistance. The remaining portion of HUD
    funds is in the planning stages and will most likely be directed to
    infrastructure restoration and/or economic revitalization activities.

    Figure 5: Primary Purpose and Amount of Disaster Assistance Committed by
    FEMA, HUD, DOT, and Liberty Zone Tax Benefits

    Total funds committed to specific purposes

    Source: GAO analysis of agency-provided data.

    aThe Lower Manhattan Development Corporation's plans for $1.16 billion in
    HUD funds have not been finalized, as of June 30, 2003. These funds are
    not included in the graphic and, according to HUD, will mostly likely be
    directed to either infrastructure restoration or economic revitalization.

    This report assesses the federal government's response and recovery
    efforts to the New York City area by determining how much federal
    assistance has been committed for specific purposes, and how the federal
    government's response to this disaster differed from previous disasters.
    To

    Chapter 1: Introduction

    respond to our objectives, we reviewed relevant legislation, budget
    documents, funding plans, status reports, program plan documents, and
    databases. Though federal assistance was administered through 18 agencies
    in total, we focused on the primary sources of federal assistance-FEMA,
    HUD, DOT, and the Liberty Zone tax benefits-that targeted different
    aspects of the recovery efforts in New York. Accordingly, we interviewed
    FEMA, DOT, HUD, and IRS officials, as well as state and local officials
    and officials from nonprofit planning and research organizations. All data
    are recorded as of June 30, 2003, unless otherwise noted. We provided a
    detailed description of the federal government's response and recovery
    efforts, but did not evaluate the administration or impact of recovery
    funds. While we reported on the differences between response to this
    disaster and previous disasters, we did not evaluate the implications of
    these differences. We conducted our work from June 1, 2002, through
    September 30, 2003, in accordance with generally accepted government
    auditing standards. See appendix I for complete details on our objectives,
    scope, and methodology.

    Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    Initial response assistance to the New York City area began immediately
    after the hijacked aircraft collided with the World Trade Center towers
    and totaled $2.55 billion. Efforts to search for and rescue victims and
    clear more than a million tons of debris began immediately after the
    disaster, as part of the initial response effort that was funded by the
    Federal Emergency Management Agency (FEMA). In addition, the Department of
    Transportation (DOT), Department of Housing and Urban Development (HUD),
    and FEMA took measures to provide funds to restore operation to utilities,
    transportation systems, and to monitor poor air quality resulting from the
    debris and fires. Figure 6 shows the amount each agency funded in this
    category of assistance, and table 6 shows how much each agency committed,
    obligated, and disbursed to perform initial response activities.

    Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    Figure 6: Amount of Assistance Committed to Initial Response Activities,
    by Agency

                       Total funds committed to specific purposes

    FEMA - $2.20 billion

    DOT - $0.10 billion

    HUD - $0.25 billion Source: GAO analysis of agency-provided data.

    aThe Lower Manhattan Development Corporation's plans for $1.16 billion in
    HUD funds have not been finalized, as of June 30, 2003. These funds are
    not included in the graphic and, according to HUD, will mostly likely be
    directed to either infrastructure restoration or economic revitalization.

              Chapter 2: Initial Response Assistance Totaled $2.55 Billion

     Table 6: Initial Response Assistance, as of June 30, 2003 Dollars in millions

             Activity          Funding        Total        Total            Total
                                agency      committed    obligated      disbursed
         Search and rescue       FEMA               $22          $22          $22
            operations
          aDebris removal        FEMA             1,698          698
            operations
             Emergency
          transportation       FEMA/DOT             299          298
             measures
         Temporary utility       HUD                250            0
              repairs
    Testing and cleaning      FEMA                53           53
              efforts
           Other initial         FEMA               232          232
         response services
               Total                             $2,554       $1,303       $1,170

    Source: GAO analysis of agency-provided data.

    Notes: Numbers may not add due to rounding. Due to the expedited
    close-out, FEMA data are reflected as of July 31, 2003.

    aFEMA obligated $1 billion for its debris removal insurance program to New
    York on September 3, 2003, although none of these funds have been
    disbursed yet. This information is not reflected in this table.

    Search and Rescue The terrorist attacks on September 11 prompted the
    largest Urban Search

    and Rescue operation in U.S. history, a $22 million effort. FEMA oversees
    Operations Totaled 28 national Urban Search and Rescue Task Forces across
    the country, and $22 Million 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
    Search and Rescue teams and 80 dogs worked at the World Trade Center site.
    Representatives from the rescue teams at the World Trade Center site are
    shown in figure 7.

              Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    Figure 7: Urban Search and Rescue Teams Assist in Searching for Survivors at the
                                World Trade Center Site

                              Source: FEMA Photo Library.

    The rescue teams worked closely with officials from the Department of
    Agriculture's Forest Service Incident Management Team. The Forest Service
    Team members are activated by FEMA, as part of the Federal Response Plan,
    to manage large emergency situations. The Forest Service Team managed the
    rescue operation providing support for federal, state, local, and
    voluntary workers busy at Ground Zero.

    Debris Removal Operations Totaled $1.70 Billion, Including Liability
    Insurance Coverage

    Immediately after the World Trade Center towers collapsed, the debris
    removal operation began in order to help workers look for survivors.
    Debris removal operations-including funds to establish an insurance
    company to cover the city and its contractors for debris removal claims
    resulting from work at the World Trade Center site-totaled $1.70 billion.
    New York City's Department of Design and Construction and Department of
    Sanitation, with support from FEMA, the Federal Highway Administration,
    and the U.S. Army Corps of Engineers, completed the daunting task of
    removing debris piled 11 stories aboveground and extended seven stories
    below street level and weighing nearly 1.6 million tons. FEMA provided
    $630 million to reimburse the city for the costs associated with the 9
    month operation to remove the debris from the World Trade Center site and
    barge it to a landfill on Staten Island, New York, for screening, sorting,
    and disposal-much less than initial estimates that the operation would
    take 2 years and cost $7 billion. Figure 8 shows debris removal
    operations.

              Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    Figure 8: FEMA-Funded Debris Removal Operations Were a Major Component of
                              Initial Response Assistance

                              Source: FEMA Photo Library.

    As part of the debris removal operation, FEMA assigned the U.S. Army Corps
    of Engineers to manage the sorting and disposal of debris at the city
    landfill; FEMA paid $68 million for this service. The sorting activities
    were an intense, meticulous effort to recover remains and personal
    belongings of victims and to gather criminal evidence of the terrorist
    attacks. The Corps of Engineers provided labor, heavy equipment, conveyer
    belts, and screening equipment. It also provided temporary buildings for
    the storage of supplies and to shelter workers, worker decontamination
    facilities, and food service facilities.

    As directed by the Congress, FEMA also committed $1 billion for an
    unprecedented project to establish an insurance company to protect
    contractors and New York City against liability claims resulting from
    debris removal operations.1 According to New York City officials, private
    contractors came to Ground Zero to do search and rescue, recovery, and
    debris removal work in the immediate aftermath of the terrorist attacks
    before entering into formal contract agreements with New York City.
    Contractors and city officials were unable to reach a final agreement on
    compensation for debris removal work because they had not secured
    liability insurance coverage. City officials said that liability insurance
    could not be obtained from a private insurance company because of the
    unknown long-term risks and potentially large number of liability claims.
    On the basis of input from insurance experts, city officials and FEMA

    1P.L. 108-7.

    Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    Emergency Transportation Measures Totaled $299 Million

    determined that the best solution was to establish an insurance company
    with $1 billion in federal funds to provide coverage for a period of up to
    25 years. The insurance company will cover debris removal contractors and
    New York City.2

    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 terminal, located under the World Trade Center site
    were destroyed, sections of local roads were 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 as part of several work groups, which included a
    variety of transportation, public works, public safety, and utility
    providers, to plan emergency/interim projects to address shifts in travel
    demand after September 11, capacity issues, and delays associated with
    revised travel patterns. Another bi-state, interagency task force met
    regularly to discuss ferry-related issues. Overall, FEMA and DOT funds for
    emergency transportation measures totaled $299 million. Primary examples
    of the emergency efforts to restore transportation around lower Manhattan
    are described below.

    o  	Clean-up and emergency repair of local roads and tunnels. During the
    initial response after September 11, officials were focused on removing
    debris quickly to look for survivors and victims and on restoring vital
    utilities to the area. Many of the local roads around the World Trade
    Center were damaged by the heavy truck traffic and emergency utility work.
    FEMA provided $5 million to the New York City Department of Transportation
    to repair local roads. Additionally, FEMA provided $6 million for interim
    repairs to West Street (Route 9A), a major thoroughfare in lower
    Manhattan. West Street was damaged by the collapse of the World Trade
    Center towers and surrounding buildings; the interim repairs were
    completed in March 2002. Figure 9 shows the interim West Street under
    construction.

    2As of September 3, 2003, FEMA obligated $1 billion for insurance
    coverage; however, no funds will be disbursed until details are finalized.

    Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    Figure 9: FEMA Funded Interim Repairs to West Street

    WTC site

    Service road

    Interim West Street

    Source: New York State DOT and GAO.

    Note: West Street was damaged by the collapse of the World Trade Center
    towers. FEMA funded interim repairs to the road that are highlighted in
    yellow. Plans for permanent repairs to the street have not yet been
    finalized.

    FEMA also provided assistance to the Port Authority of New York and New
    Jersey (Port Authority) to remove debris and repair the PATH tunnels that
    were extensively damaged and flooded after the collapse of the World Trade
    Center buildings. The Port Authority had to repair the tunnels to curb the
    flooding before workers could begin to clear away debris, as shown in
    figure 10.

              Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    Source: Port Authority of New York and New Jersey.

    Left: A view of PATH tunnels that suffered extensive damage and flooding.
    Right: Port Authority workers completing repairs to allow the tunnels to
    be used again; a FEMA-funded operation.

    o  	Construction of a temporary PATH terminal. The collapse of the World
    Trade Center towers also destroyed the World Trade Center PATH terminal
    located under the buildings. Prior to September 11, more than 67,000
    passengers boarded the PATH system at the World Trade Center station every
    day. FEMA provided $140 million to the Port Authority, which will
    construct a temporary PATH terminal with these funds along with insurance
    proceeds from the original terminal. The temporary terminal is scheduled
    for completion in November 2003. Planners intend to use portions of this
    temporary terminal, pictured in figure 11, as a basis for the construction
    of an enhanced, state-of-the-art, permanent PATH terminal that will be
    integrated with other portions of the New York City transit system.

    Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    Source: Port Authority of New York and New Jersey.

    Note: The original PATH terminal was located under the World Trade Center
    towers and was destroyed by the collapse of the buildings. The temporary
    PATH terminal, highlighted in gray, is expected to be operational in
    November 2003.

    o  	Expansion of ferry service. The private ferry fleet operating in New
    York Harbor is the largest in the United States, with lower Manhattan
    being the prime destination. To address commuter capacity that was
    dramatically reduced by the cessation of lower Manhattan PATH service and
    subway services near the World Trade Center site as well as vehicle
    restrictions, FEMA also provided $48 million for emergency ferry service.
    These FEMA funds reimbursed the Port Authority and other city agencies for
    costs associated with operating additional ferries.

    o  	Capital projects to improve commuter transportation. Recognizing the
    importance of transit to millions of commuters in the New York City area,
    FTA has committed almost $99 million for various transit capital projects
    in New Jersey and New York. These projects include nearly $25 million for
    acquisition of five high-powered electric locomotives and about $56
    million for accelerated construction of modifications to New Jersey
    Transit's main rail maintenance facility to meet increased demand on the
    New Jersey transit system due to transit traffic that could not access
    lower Manhattan following September 11. Additional funds went toward other
    projects to upgrade infrastructure and to improve passenger facilities.

              Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    Emergency and Temporary Utility Repairs Total $250 Million

    Testing and Cleaning Efforts Totaled $53 Million

    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 quickly 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 funds to HUD for the Lower Manhattan
    Development Corporation (LMDC) to reimburse utility companies for
    uncompensated costs associated with restoring service. The primary
    objective of this assistance was to prevent consumers from bearing the
    burden of these costs in the form of rate increases. LMDC and the Empire
    State Development Corporation (ESDC) worked with utility providers, New
    York State Department of Public Service, and transportation agencies to
    develop a program that will provide reimbursement for emergency and
    temporary repair costs.3 Eligible firms will be reimbursed up to 100
    percent of actual, incurred, uncompensated, and documented costs. The
    amount awarded to each applicant will be considered based on various
    criteria and requests will be subject to a multiagency review process to
    validate costs.4 It is estimated that this reimbursement will total $250
    million. LMDC has designated ESDC to administer the program, which will
    coordinate with New York State and city agencies to avoid duplication of
    other federally funded programs.5

    The collapse of the World Trade Center buildings created a large cloud of
    dust and debris that enveloped many buildings in lower Manhattan, and
    covered an extensive area-up to a mile beyond the center of the attacks.
    The Environmental Protection Agency (EPA) advised rescue workers and lower
    Manhattan residents about the possible release of asbestos and other
    dangerous contaminants from the collapsed buildings and fires. As a
    result, concern about air quality prompted demand for federal assistance
    in testing and cleaning the interiors of buildings and residences in lower

    3A total of $750 million in HUD funds was authorized for infrastructure
    rebuilding. Other funds to improve and enhance infrastructure will be
    discussed in chapter 4.

    4Criteria include: (1) assurance of dollar benefit of funding on consumer
    rates, (2) the extent to which funds will be used to repair or replace
    equipment and infrastructure facilities that will provide a direct benefit
    to the public, and (3) consideration of pursuit of insurance claims to
    cover losses.

    5 These funds have not been disbursed to utility companies; however, HUD
    approved LMDC's plan for distributing these funds on September 15, 2003,
    and HUD officials expect the disbursement of these funds to begin shortly.

    Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    Manhattan. In addition, numerous other buildings required exterior
    cleaning after the disaster, as shown in figure 12.

              Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    Source: Urban Data Solutions.

    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; washing vehicles used in the debris removal efforts; and providing
    protective gear to workers. In addition, FEMA reimbursed the New York City
    Board of Education for air quality testing and cleaning public schools.
    Officials from FEMA, EPA, the Occupational Safety and Health
    Administration, and New York City coordinated and participated in a task
    force to complete residential cleaning efforts. FEMA provided funds for

              Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    the interior cleaning program, which was led by the New York City
    Department of Environmental Protection and EPA-the first program of its
    kind. Overall, environmental cleaning and testing efforts cost $53
    million.

    In a December 2002 report, FEMA's Inspector General (IG) found that the
    division of responsibilities between FEMA and EPA were not specific enough
    so that either agency could determine when to deliver services, noting
    that the program to test and clean residences began months after the
    disaster.6 Specifically, after a disaster occurs, FEMA relies on the
    expertise of EPA to provide air quality evaluations, and EPA must confirm
    that a problem exists before FEMA can provide funds to respond. Although
    EPA made announcements concerning possible contaminants in the air, it did
    not identify any specific danger; therefore, FEMA did not request EPA to
    perform any extensive studies. The FEMA IG report recommended that in
    future disasters, FEMA enlist the expertise of EPA earlier in the recovery
    effort so that it can conduct necessary testing to determine if a threat
    exists so that cleaning efforts can begin sooner.

    FEMA committed an additional $232 million for initial response assistance
    through the use of mission assignments and interagency agreements. As part
    of its role in responding to disasters, FEMA may assign work to or enter
    into agreements with other federal agencies to handle aspects of the
    relief effort within their area of expertise. These agreements are called
    mission assignments and interagency agreements. Mission assignments were
    widely used in the first few months after the World Trade Center disaster
    to provide assistance for short-term projects. Typically, mission
    assignments are used for three purposes: (1) to fund support of FEMA's
    response and recovery efforts, such as funding for the General Services
    Administration, to provide supplies and office equipment; (2) to fund
    provision of technical assistance to a jurisdiction, such as funding for
    the U.S. Army Corps of Engineers to provide assistance in maintaining
    water supply; or (3) to fund a response activity that the state or
    locality cannot perform, such as funding for the Department of Health and
    Human Services to provide medical teams to the affected area. In this
    disaster, FEMA also used interagency agreements for long-term projects,
    which are similar to mission assignments in that they are funding
    agreements among

    Other Initial Response Services Totaled $232 Million

    6FEMA, Office of Inspector General Inspections Division, FEMA's Deliveryof
    Individual Assistance Programs: New York -September 11, 2001, (Washington,
    D.C.: Dec. 2002).

    Chapter 2: Initial Response Assistance Totaled $2.55 Billion

    agencies to provide goods and services on a reimbursable basis. For
    example, as authorized by the Congress, FEMA entered into an interagency
    agreement with the Department of Health and Human Services to conduct a
    $90 million project to screen and monitor emergency services personnel for
    long-term health effects of work at the World Trade Center site.7

    7P.L. 108-7.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    Approximately $4.81 billion in federal assistance has been committed to
    compensate state and local organizations, individuals, and businesses for
    disaster-related costs and losses. During the months following the
    disaster, the city and state of New York incurred significant costs to
    replace damaged equipment, rebuild damaged facilities, and provide
    increased security. In addition, thousands of businesses and individuals
    were disrupted by the emergency response, debris removal, and rebuilding
    efforts surrounding the World Trade Center site. Residential occupancy
    rates dropped significantly in the area, and about 18,000 businesses in
    New York City, representing approximately 563,000 employees, were
    disrupted or forced to relocate as a result of the terrorist attacks. To
    address the costs and losses of those affected by the disaster, the
    Federal Emergency Management Agency (FEMA) and the Department of Housing
    and Urban Development (HUD) committed funds to (1) reimburse state and
    local organizations for disaster-related costs; (2) assist individuals and
    families, including funds for rental assistance, crisis counseling, and
    family grants for lower Manhattan residents; and (3) compensate businesses
    and nonprofits for economic losses and recovery efforts as shown in figure
    13 and table 7.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

                       Total funds committed to specific purposes

    FEMA - $3.84 billion

    HUD - $0.96 billion

    Source: GAO analysis of agency-provided data.

    aThe Lower Manhattan Development Corporation's plans for $1.16 billion in
    HUD funds have not been finalized, as of June 30, 2003. These funds are
    not included in the graphic and, according to HUD, will mostly likely be
    directed to either infrastructure restoration or economic revitalization.

    Note: Numbers may not add due to rounding. In this section, HUD funds
    include business assistance programs and funds for the Residential Grant
    Program, most of which were for retention and attraction.

      Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled $4.81
                                        Billion

    Table 7: Compensation for Disaster-Related Costs and Losses, as of June 30, 2003
                                  Dollars in millions

                    Activity               Funding    Total     Total       Total
                                           agency   committed obligated disbursed
        Assistance for state, city, and     FEMA
                     other
                 organizations                         $3,319    $1,857    $1,593
         Assistance for individuals and   FEMA/HUD        807       729
                    families
           Assistance for businesses         HUD          683       574
                     Total                             $4,809    $3,160    $2,649

    Source: GAO analysis of agency-provided data.

    Notes: Numbers may not add due to rounding. Due to the expedited
    close-out, FEMA data are reflected as of July 31, 2003.

    Compensation of the City, State, and Other Organizations Totaled $3.32
    Billion

    From the initial days of the disaster recovery effort, FEMA officials
    worked closely with officials from the New York City Office of Management
    and Budget and the New York State Emergency Management Office to reimburse
    the city and state through its public assistance program.1 This program is
    designed to reimburse state and local organizations for disaster-related
    costs of repairing, replacing, or restoring disaster-damaged facilities as
    authorized by the Stafford Act. In addition, at the direction of the
    Congress, FEMA committed funds to compensate the city and state for
    expenses that were associated with the disaster, but not reimbursable
    within the provisions of the Stafford Act-the first time that FEMA has
    been granted such broad authority. Finally, FEMA committed funds for
    hazard mitigation grants to help lessen the effects of future disasters.
    Table 8 reflects the amount of assistance FEMA has committed, obligated,
    and disbursed to compensate the city, state, and other organizations for
    disaster-related costs and losses.

    1 For more details on FEMA's public assistance program, consult U.S.
    General Accounting Office, Disaster Assistance:Information onFEMA'sPost
    9/11 Public Assistance to theNew York CityArea, GAO-03-926 (Washington,
    D.C.: Aug. 31, 2003).

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    Table 8: Assistance for the City, State, and Other Organizations, as of July 31,
    2003 Dollars in millions Activity Funding agency Total committed Total obligated
                                    Total disbursed

    Assistance for the city, state, and FEMA
    other organizationsa $1,486 $1,486 $1,486

    Reimbursement of associated costs

    a

    authorized by the Congress FEMA 1,241 68

    Hazard mitigation grants FEMA 377 169

    Other administrative costsb FEMA 215 133

                               Total $3,319 $1,857 $1,593

    Source: GAO analysis of agency-provided data.

    Note: Numbers may not add due to rounding.

    aAs our report was being finalized, FEMA obligated and disbursed and
    additional $56 million to the city, state, and other organizations through
    the public assistance program and $1.24 billion in September 2003 to the
    city and state for congressionally authorized activities not reflected in
    this table. These funds are in addition to FEMA assistance for initial
    response activities discussed in ch.1 of this report.

    bAdministrative costs include grantee costs, contractor costs associated
    with FEMA's public assistance program, and costs associated with on-going
    programs.

    Assistance for New York City, State, and Other Organizations Totaled $1.49
    Billion

    FEMA disbursed $1.49 billion to reimburse New York City, state, and other
    organizations 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.2

    FEMA also reimbursed other entities, including the Port Authority,
    counties, and private nonprofit organizations; it also provided funds to
    the state of New Jersey. Among the applicants receiving some of the
    largest amounts was the Port Authority, which sustained substantial losses
    of lives and property as a result of the terrorist attacks. The Port
    Authority was reimbursed for costs to replace equipment it lost when its
    World

    2 House Report 107-593.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    Trade Center facilities were destroyed and to reimburse for office
    relocation costs. Additional funds were provided to all New York counties
    for cancelled election costs and to private nonprofits, such as Pace
    University for temporary relocation costs. FEMA also provided $88 million
    to New Jersey for emergency protective measures.

    Reimbursements of Associated Costs to the City and State Total $1.24
    Billion

    In addition to the traditional public assistance FEMA provided to city and
    state agencies, the Congress authorized FEMA to provide funding to the
    city and state of New York for expenses associated with the disaster that
    were unreimbursable within the provisions of the Stafford Act. The
    Consolidated Appropriations Resolution enabled FEMA to depart from the
    Stafford Act criteria. The legislation ensured that FEMA would be
    authorized to spend the entirety of the appropriated assistance for the
    New York City area recovery efforts-$8.80 billion-by allowing the city and
    state to be provided reimbursement for associated costs that FEMA
    otherwise could not have funded.

    As a result of the Consolidated Appropriations Resolution, FEMA
    implemented an expedited close-out process to determine how much of the
    $8.80 billion appropriated to FEMA remained available to reimburse the
    city and state for disaster-related expenses. To do this, FEMA reviewed
    each on-going public assistance project with appropriate New York
    officials to deobligate any funds not expended as of April 30, 2003, and
    set aside these funds to provide to the city and state as reimbursement
    for associated costs authorized by Congress under the Consolidated
    Appropriations Resolution. In addition, FEMA officials reconciled how much
    they expected to disburse in its other programs-including individual
    assistance and hazard mitigation-with the amount of obligated funds and
    identified additional funds that could be deobligated. FEMA reimbursed the
    city and state for associated costs with the funds that were deobligated
    from unfinished projects and remaining funds from other
    programs-approximately $1.24 billion. To receive reimbursement for these
    associated costs, FEMA officials required the city and State prepare grant
    applications for incurred costs. Since FEMA provided the funds for
    projects already completed and paid for, city and state officials will
    ultimately have discretion to redirect as they deem suitable.

    As of July 31, 2003, FEMA approved several proposals to reimburse
    associated costs that were otherwise ineligible for reimbursement under

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    the Stafford Act and is discussing other proposals with city and state
    officials. For example, FEMA provided funds to reimburse the state-funded
    "I Love New York" campaign3 and costs incurred to provide heightened
    security across the area. Other costs that are under consideration include
    reimbursing the state for cost of living allowances that the state has to
    pay on pensions of deceased police and fire staff and New York State's
    cost share of the Individual and Family Grant Program.4

    Hazard Mitigation Grants Totaled $377 Million

    FEMA has also committed $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.5 At the time of the disaster, FEMA could
    provide mitigation grants to New York State in an amount up to 15 percent
    above the total amount of other assistance provided.6 However, in the New
    York City area 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 recommended reducing the
    percentage of hazard mitigation grant funds available to New York
    initially because it was unclear how much the disaster would cost. FEMA
    officials told us that New York officials requested less funds for the
    Hazard Mitigation Grant Program than they were eligible so that they could
    use funds to reimburse other associated costs.

    3 The "I Love New York" public awareness campaign was designed to attract
    visitors back to the city after the terrorist attacks.

    4 As this report was being finalized, applications for these associated
    costs were approved and funds were obligated and disbursed to the city and
    state.

    5 Mitigation actions include activities such as elevating buildings in
    flood-prone areas or creating tornado-resistant structures.

    6 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.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    Assistance to Individuals and Families Totaled $807 Million

    Not only were thousands of people unable to return to work or their homes
    due to the damage and debris, the economic effect of the disaster resulted
    in further job losses and increased vacancy rates. About $807 million in
    federal assistance was provided to individuals and families through
    residential grants, mortgage and rental assistance, crisis counseling,
    individual and family grants, and other assistance. Table 9 shows the
    amount of assistance committed, obligated, and disbursed by FEMA and HUD
    to compensate individuals and families for disaster-related costs and
    losses.

    Table 9: Assistance to Individuals and Families, as of June 30, 2003 Dollars in
                                        millions

            Activity           Funding     Total          Total             Total
                                agency   committed      obligated       disbursed
    Residential grants     HUD                $281          $281          $106
          Mortgage and        FEMA                200           195
    rental assistance
    Crisis counseling      FEMA                166            99
         Individual and       FEMA                110           104
         family grants
        Other individual      FEMA                 51            50
           assistance
             Total                               $807          $729          $546

    Source: GAO analysis of agency-provided data.

    Notes: Numbers may not add due to rounding. Due to the expedited
    close-out, FEMA data are reflected as of July 31, 2003.

    Residential Grants Made Available $281 Million

    Access to residential communities in lower Manhattan was restricted for
    months after September 11 due to continued recovery efforts. The Lower
    Manhattan Development Corporation (LMDC) reported that occupancy rates in
    neighborhoods near the World Trade Center site fell to approximately 60
    percent after September 11. To provide compensation to those affected by
    the disaster who remained in the area, address the vacancy rate increases,
    and maintain a stable residential population, LMDC developed and
    administered the Residential Grant Program with $281 million in HUD funds
    to provide incentives to attract residents to the area.7 LMDC's program
    consisted of three different grants-a 2-year commitment-based grant, a
    September 11 residents grant, and a family

    7Although 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 effect on the city in terms of restoring pre-disaster
    occupancy rates.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    grant. Applicants could apply for all three types of grants; each grants'
    value depended on the applicant's location and housing/rental costs, as
    shown in figure 14.

    Source: LMDC and GAO.

    o  	The 2-Year Commitment-Based Grant. LMDC provided grants of up to
    $12,000 over 2 years to attract and retain renters and homeowners to lower
    Manhattan. Renters who signed at least a 2-year lease on or before May 31,
    2003, were eligible for up to 30 percent of monthly rent, and homeowners
    who purchased a home on or before the same date and agreed to remain in
    the area for at least 2 years were eligible for 30 percent of monthly
    housing costs-although the grant amount varied depending on zone.
    Corporations, universities, and other institutions that purchased or
    rented residential housing in lower Manhattan were also eligible for the
    grant.

    o  	September 11 Residents Grant and Family Grant. LMDC provided a
    one-time September 11 Residents Grant of $1,000 per household for those
    individuals residing in lower Manhattan on September 11 that remained in

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    the area through the date of award to compensate for the expenses they may
    have incurred as a result of the disaster. LMDC officials expected that
    these grants may also provide an incentive for residents to stay in the
    area. In addition, LMDC provided a one-time Family Grant between $750 and
    $1,500 per household with children under 18 that make a 1-year commitment
    to live in lower Manhattan.

    LMDC officials said that, in administering the Residential Grant Program,
    they attempted to be flexible in determining eligibility and advertising
    the program given the multiplicity of housing arrangements and diverse
    populations in lower Manhattan. There are many types of buildings where
    individuals reside in New York City, and before approving a grant, LMDC
    officials had to determine if an applicant's reported home was a
    residential property and met all appropriate housing standards. LMDC
    officials reported that to determine eligibility for this program they had
    to verify the habitability of all buildings in lower Manhattan. Their
    effort resulted in a collection of current property information, such as
    the classification of buildings that met current housing code that the
    city had not previously recorded. Another useful side benefit of the
    program was the large number of housing units repaired and brought up to
    housing code by landlords seeking to get their properties eligible for the
    grants. In addition, LMDC developed alternative applications to address
    the needs of the applicants who lived in eligible areas but did not have
    traditional lease agreements. To spread the word about the program, LMDC
    organized "It Pays to Live Downtown" day where over 100 volunteers visited
    every residential building in lower Manhattan to encourage participation
    in the program. LMDC also conducted a publicity campaign across New York
    City advertising the program in multiple languages with posters like those
    in figure 15.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    LMDC officials report that the occupancy rate of Battery Park City, a
    lower Manhattan neighborhood, has risen from 60 percent to 95 percent and
    that 50 percent of residents in "zone 1" are new to the area since
    September 11. The Residential Grant Program closed May 31, 2003, but LMDC
    extended the program deadline to June 14, 2003, for applicants providing
    alternative lease documentation. As of June 30, 2003, LMDC had approved
    over 31,000 applications totaling $177 million and had disbursed $106
    million in grants. According to LMDC officials, applications surged in the
    last 2 weeks of the program; many applications were still under review as
    of June 30, 2003.8

    Mortgage and Rental Individuals suffering financial hardships as a result
    of September 11 could Assistance Totaled $200 obtain mortgage and rental
    assistance from FEMA. Prior to September 11, Million FEMA had provided a
    total of $18 million in mortgage and rental

    assistance grants in all previous disasters, which provided rent or

    8 As this report was finalized, LMDC announced that it planned to redirect
    $50 million originally committed to the Residential Grant Program for a
    program to develop affordable housing.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    mortgage payments to individuals in danger of losing their homes through
    foreclosure or eviction as a result of a major disaster. After September
    11, FEMA committed $200 million through this program. Eligible applicants
    received up to 18 months of assistance as part of this program.9
    Initially, applicants were eligible if they resided in certain zones
    around the World Trade Center site and lost 29 percent or more of their
    income as a result of the disaster. FEMA, as directed by the Congress,
    extended assistance to those who lost 25 percent of their income working
    anywhere in Manhattan, to those whose employers were not located in
    Manhattan but were economically dependent on a Manhattan firm; and to
    anyone living in Manhattan who commuted off the island and who suffered
    financially because of post-September 11 travel restrictions.

    In a December 2002 report that examined this program, FEMA's Office of
    Inspector General (IG) noted that the unique nature of the disaster and
    its economic impact required FEMA officials to expand eligibility
    guidelines more broadly than ever before.10 This resulted in FEMA having
    to re-evaluate applications, reverse previous determinations to deny
    benefits, and attempt to contact applicants initially denied but now
    eligible under the expanded guidelines. Additionally, the report stated
    that FEMA was challenged to provide outreach to the large, diverse
    population of Manhattan. To accomplish this, FEMA translated all program
    information into seven languages, promoted the program in 26 non-English
    papers, and set up a toll free number where individuals could ask
    questions in 157 different languages. FEMA's IG recommended that FEMA
    implement a broader, more flexible program in order to respond to any
    future disasters that have a widespread effect on the economy and result
    in large-scale individual needs.11

    In a December 2002 report on charitable organizations' contributions after
    September 11, we noted, among other things, that coordination among

    9 In all disasters, self-employed or business-owner applicants are advised
    to apply first to the Small Business Administration (SBA) for an Economic
    Injury Disaster Loan before FEMA assistance can be provided. Assistance
    provided by SBA is part of the more than $20 billion designated to New
    York, but is not a primary source and, therefore, not specifically
    discussed in this report.

    10 FEMA, Office of Inspector General Inspections Division, FEMA's
    Deliveryof Individual Assistance Programs: New York -September 11,
    2001(Washington, D.C.: Dec. 2002).

    11 Because FEMA's Mortgage and Rental Assistance Program had been rarely
    used in past disasters, it was eliminated with the passage of the Disaster
    Mitigation Act of 2000, which made the nationwide program unavailable for
    disasters declared after May 1, 2002.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    charities-of which some provided rental assistance-and FEMA could be
    enhanced.12 We reported that both charities and individuals who were
    indirectly affected by the disaster (e.g., by job loss) were confused
    about what aid might be available. We recommended that FEMA convene a
    working group with involved parties to take steps to implement strategies
    for future disasters that build on the lessons learned in the aftermath of
    September 11. FEMA agreed with this recommendation, noting that such a
    working group would foster enhanced coordination and potentially lead to
    improvements in service to those affected by disasters.

    The deadline to apply for the Mortgage and Rental Assistance Program in
    the New York City area was January 31, 2003, and as of July 31, 2003, $194
    million had been disbursed of the $200 million available. Even though the
    period to apply for the program has passed, FEMA officials expect all
    funds to be disbursed as applicants continue to receive monthly
    assistance.13

    Crisis Counseling Assistance Totaled $166 Million

    The Crisis Counseling Assistance and Training Program, funded by FEMA, led
    to the creation of "Project Liberty." Project Liberty is administered by
    the New York State Office of Mental Health and provides short-term
    outreach, education, and referrals to mental health services, and other
    programs for long-term care. 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.

    In addition to Project Liberty, the Department of Justice's Office for
    Victims of Crime and various charities, such as the American Red Cross,
    offered counseling services after September 11.14 In its December 2002
    report, FEMA's IG found that the availability of counseling services from
    multiple agencies was confusing for victims. In the event of a disaster
    that is also a criminal activity, FEMA and the Department of Justice
    cooperate

    12 GAO-03-259.

    13 Eligible applicants can receive up to 18 months of assistance.

    14 The Department of Justice's Office for Victims of Crime provided
    counseling assistance in this disaster since the attacks were criminal
    acts. Counseling assistance provided by the Department of Justice is part
    of the more than $20 billion designated to New York, but is not a primary
    source and, therefore, not specifically discussed in this report.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    to provide services. However, the IG recommended that more detailed and
    comprehensive guidance be developed to minimize duplication and ensure
    victims obtain appropriate services. Specifically, the IG recommended that
    a memorandum of understanding officially detail the relationship and
    responsibilities of FEMA and the Department of Justice and time frames in
    administering crisis counseling assistance.15

    FEMA committed more than $166 million in grants to Project Liberty; this
    sum is more than all previous counseling grants since 1974 combined. Of
    these funds, $99 million has been obligated and disbursed. As of July 31,
    2003, the program was still available and remaining funds will continue to
    be disbursed until the program deadline, March 31, 2004.16

    Individual and Family Grants Totaled $110 Million

    FEMA is authorized by the Stafford Act to provide individual and family
    grants for 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.

    In its December 2002 report on Individual Assistance, FEMA's IG reported
    that the state program officials faced few challenges in providing
    individual and family grants until a jump in applications resulted in
    delays and required the New York State Department of Labor and FEMA to
    dedicate additional staff to manage the program.17 The New York State
    Department of Labor officials experienced a surge in grant applications in
    June 2002, particularly for air quality product assistance. Applications
    do not typically increase at this point in the recovery phase. FEMA
    officials reported that the increase in applications occurred around the
    same time that EPA released reports on air quality in lower Manhattan. The
    IG

    15 FEMA, Office of Inspector General Inspections Division, FEMA's
    Deliveryof Individual Assistance Programs: New York -September 11,
    2001(Washington, D.C.: Dec. 2002).

    16 FEMA officials told us that, although details have not been finalized,
    limited extensions for parts of the program may be granted.

    17 FEMA, Office of Inspector General Inspections Division, FEMA's
    Deliveryof Individual Assistance Programs: New York -September 11,
    2001(Washington, D.C.: Dec. 2002).

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    reported that although FEMA officials could not have anticipated this
    surge of applications, they could use lessons learned in this disaster and
    work with states to develop contingency plans that can be implemented
    quickly to avert a similar situation in future disasters.

    The report also noted that the lack of inspections to verify property
    damage, and the relaxed requirements to document whether an applicant was
    eligible for advance payment of grant, may have increased the likelihood
    of fraud in the Individual and Family Grant Program. The IG reported that
    FEMA officials did not perform the typical inspections to verify property
    damage because they determined it would not be cost-effective for
    inspectors to examine damage to a single property item. Instead, state
    officials established a self-certification process requiring applicants to
    document damage and provide receipts for purchases, or if an applicant
    self-certified that they were unable to pay for equipment up front, FEMA
    provided advanced payment and requested that receipts be provided after
    the purchase. These issues, combined with the large number of
    applications, may have increased the likelihood of fraud and abuse.

    The application deadline for the Individual and Family Grant Program was
    November 30, 2002. As of July 31, 2003, $97 million had been disbursed of
    the $110 million available through this program.

    Other Individual Assistance Totaled $51 Million

    Assistance to Businesses Totaled $683 Million

    In addition to Mortgage and Rental Assistance and Individual and Family
    Grants, FEMA also committed other funds for temporary housing assistance,
    including $34 million for programs that 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, as
    a result of the disaster, who are 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.

    Almost 18,000 businesses in New York City, representing approximately
    563,000 employees, were disrupted or forced to relocate as a result of the
    terrorist attacks. Approximately 30 million square feet of commercial
    space was damaged or destroyed. Businesses near the World Trade Center
    site suffered physical damage, but businesses all across the city
    experienced the economic impact of the disaster. The Empire State
    Development Corporation (ESDC), as a grantee of HUD funds,

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    administered a variety of assistance programs in cooperation with New York
    City to compensate businesses for economic losses and to assist in their
    recovery. Businesses could apply for multiple programs. Table 10 shows the
    amount of assistance committed, obligated, and disbursed by HUD for
    businesses assistance.

      Table 10: Assistance to Businesses, as of June 30, 2003 Dollars in millions

              Activity          Funding       Total        Total            Total
                                agency      committed    obligated      disbursed
         Business recovery        HUD              $578         $503         $488
              grantsa
         Business recovery        HUD                41           41
               loans
          Compensation to
           businesses for
    disproportionate loss      HUD                33            0
            of workforce
            Bridge loans          HUD                 7            7            b
        Technical assistance      HUD                 5            5
               grants
        Other administrative      HUD                19           19
               costs
               Total                               $683         $574         $510

    Source: GAO analysis of agency-provided data.

    Note: Numbers may not add due to rounding.

    aBusiness recovery grants include funds to small and large businesses. HUD
    approved obligation and disbursement of all remaining business recovery
    grants August 6, 2003.

    bAlthough no funds have been disbursed for this program, $7 million in
    other city and state funds have been provided in loan loss reserves to
    private banks and nonprofit lenders. ESDC plans to reimburse these funds
    in the future.

    Business Recovery Grants Totaled $578 Million

    The Congress required that at least $500 million of the HUD funds to
    compensate small businesses, not-for-profits, and individuals in New York
    for their economic losses-the first time HUD funds have been used for this
    purpose.18 ESDC estimates that businesses with fewer than 200 employees
    account for 99 percent of all businesses affected by September 11 and
    about 50 percent of all affected employees. Accordingly, ESDC developed
    the Business Recovery Grant Program, which offers grants to small
    businesses and nonprofits to compensate for economic losses. As part of
    this program, businesses with fewer than 500 employees in lower Manhattan,
    south of 14th Street, were eligible for reimbursement of a number of days
    of lost revenue depending on their proximity to the World Trade Center
    site. In addition to small businesses, ESDC provided

    18 P.L. 107-117.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    recovery grants to businesses that have more than 500 employees outside of
    lower Manhattan, but have facilities with fewer than 200 in lower
    Manhattan. Firms receiving these grants include McDonalds, XEROX, and
    Starbucks. The areas of lower Manhattan eligible for business recovery
    grants are shown in figure 16.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    Source: ESDC and GAO.

    Prior to September 11, ESDC had never administered such a large HUD-funded
    endeavor. ESDC officials worked closely with HUD officials to efficiently
    provide services to businesses in the weeks following the disaster and
    meet HUD's requirements for the Community Development Block Grant (CDBG)
    program. HUD officials and its IG conducted several reviews of ESDC's
    programs and issued various letters and reports.19

    19 HUD staff have conducted a series of HUD Management Review Reports: May
    2002, January 2003, and July 2003. HUD's IG has also released two audit
    reports: an interim report in May 2002 and a final report in March 2003.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    Although the reviews generally concluded ESDC was handling funds
    appropriately, HUD's IG and ESDC officials reported challenges in
    providing assistance to affected businesses while avoiding duplication of
    benefits from other federal programs, such as the Small Business
    Administration (SBA) Disaster Assistance Loans.20 HUD officials and its IG
    determined that ESDC did not have adequate controls in place to avoid
    duplication of benefits and HUD worked with ESDC officials to implement
    these procedures. ESDC had to reevaluate previously approved applications
    to account for this requirement. Another challenge ESDC officials
    encountered was that the amount of eligible grant funds applied for in
    business recovery grants exceeded the amount of committed funds due to a
    surge in applications in the last 2 days of the program. Businesses could
    apply for the program from January 25, 2002, through December 31, 2002.
    Over 19 percent of all applications were received in the last 2 days of
    the program. As of June 30, 2003, ESDC reported that 2,166 businesses had
    not yet received their approved grants.

    To address this shortfall, ESDC redirected funds from other programs and
    LMDC requested that HUD approve transfer of additional funds for LMDC to
    transfer to ESDC in order to meet program commitments. Once the transfer
    of funds is approved, $578 million will have been disbursed to compensate
    businesses in lower Manhattan with $558 million provided through business
    recovery grants for small and large businesses. As of June 30, 2003, ESDC
    reported $475 million disbursed in recovery grants to small businesses and
    $13 million for large firms-a total of $488 million. According to LMDC,
    the Business Recovery Grant Program will have directly impacted more than
    141,000 jobs when all grants have been disbursed.

    Business Recovery Loans The Business Recovery Loan Program provides
    funding to community-

    Available Up to $41 Million 	based lending organizations, which in turn
    provide low-cost working capital loans to businesses that were adversely
    affected by the terrorist attacks and to businesses that have subsequently
    located or will locate

    20As part of the about $20 billion in federal assistance designated to New
    York, the Congress made special appropriations to SBA for disaster
    assistance; however, since it was not a primary source of funds, we did
    not include specific information about the program in our review. For more
    information on SBA disaster assistance and other business assistance, see
    U.S. General Accounting Office, September11: Small BusinessAssistance
    Provided in Lower Manhattan in Response to the Terrorist Attacks,
    GAO-03-88 (Washington, D.C.: Nov. 1, 2002).

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    new operations in lower Manhattan. Funds may be used for payroll, rent,
    utilities, inventory, and, in certain circumstances, refinancing existing
    debt. Loans are available to businesses based on their location in lower
    Manhattan or economic relationship with a business in that area.21 The
    program enhanced access to capital for businesses, particularly to those
    that do not meet SBA credit or eligibility criteria for disaster loans.
    The $41 million committed to this program provided funds to eight
    community-based lenders. As of June 30, 2003, ESDC had disbursed $12
    million in program funds to participating lenders, and the lenders have
    closed 201 loans.

    Up to $33 Million Committed for Businesses with Disproportionate Loss of
    Workforce

    As part of the federal assistance to the New York City area, the Congress
    appropriated funds to HUD to compensate businesses that suffered a
    disproportionate loss of employees due to the disaster.22 LMDC provided
    $33 million for the program, which will be developed and administered by
    ESDC.23 The program targets firms in the World Trade Center or in the
    immediate surrounding area that lost (1) at least 6 permanent employees,
    representing at least 20 percent of the firm's workforce or 50 percent of
    its New York City employees or (2) at least 50 percent of its New York
    City workforce. To be eligible, firms must maintain 50 percent of an
    agreed upon level of employment in New York City for 3 years. All funds
    will be divided among eligible firms, and the amount for each business
    will be based on the magnitude and proportionality of employee loss. As of
    June 30, 2003, no funds have been requested, obligated, or disbursed for
    this program.

    21 Eligible businesses could be (1) located on or south of 14th Street in
    Manhattan as of September 11, 2001; (2) located in the five boroughs of
    New York City, but outside of lower Manhattan, that were adversely
    affected because at least 10 percent of their revenues were derived from
    sales or services to other businesses located on or south of 14th Street
    in Manhattan; or (3) newly located on or south of 14th Street in Manhattan
    since September 11, 2001.

    22 P.L. 107-206.

    23 Although these funds will provide businesses with incentives to remain
    in the area, such as programs discussed in chapter 5, the primary
    objective of this program is to compensate businesses for losses.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    About $7 Million Available for Lenders to Make Bridge Loans to Businesses

    Through the Bridge Loan Program, ESDC provided loan loss reserve subsidies
    to lenders that made bridge loans to businesses awaiting SBA loan
    approvals.24 Eligible businesses are New York City-based, commercial,
    industrial, retail, and not-for-profit organizations that were affected by
    September 11 and applied for SBA loans. Participating banks and
    community-based lenders offered bridge loans to provide interim capital to
    businesses until the SBA loan was approved. Upon approval of a SBA loan,
    the business paid off the bridge loan with the SBA loan proceeds and if
    the loan was not approved, the lender had the option to restructure the
    bridge loans as term loans.25 The program closed January 31, 2003, as the
    SBA loan stopped accepting applications for disaster loans. As of June 30,
    2003, the loan loss reserve fund totaled $7 million to support the $33
    million in loans provided by the lenders.

    Technical Assistance Grants Totaled $5 Million

    The Technical Assistance Program provided grants to community-based
    organizations and other technical service providers to allow them to
    provide additional assistance to businesses affected by the disaster. ESDC
    committed $5 million to this program and allowed for a maximum grant of
    $250,000 per organization. Services may include help with strategic
    planning, finance, insurance, and legal issues; and basic business
    management such as marketing, member development, and attraction efforts.
    Businesses took part in a variety of services, including direct
    assistance, on-line activities, and workshops or training seminars on
    various business recovery and marketing topics. To apply for technical
    assistance, businesses must have fewer than 200 employees, have been

    24 A bridge loan is a short-term loan that is intended to provide
    financing until a more permanent arrangement is made.

    25 In the original Bridge Loan Program, New York City and state shared
    equally in providing participating lenders with a 20 percent loan loss
    reserve subsidy for approved bridge loans. ESDC will use HUD funds to
    reimburse the city and state for their loss reserve expenditures at a
    later date.

    Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled
    $4.81 Billion

    affected by the disaster, and currently be located in lower Manhattan. As
    of June 30, 2003, ESDC had 23 technical service providers under contract
    that have assisted over 3,000 small businesses, representing over 30,633
    employees, and a total of $2 million has been disbursed through this
    program.

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

    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 as well as
    enhance transportation and other infrastructure in lower Manhattan. The
    majority of this financial assistance, $5.01 billion, is a combination of
    FEMA, DOT, and HUD funds to restore and enhance elements of the
    transportation system supporting lower Manhattan. The attacks and
    subsequent recovery efforts also heavily damaged utility infrastructure in
    lower Manhattan, and $568 million in HUD funds have been committed to
    rebuild utility infrastructure and to fund other short-term capital
    projects for infrastructure improvements to the areas around the World
    Trade Center. The amount of assistance each agency has committed is shown
    in figure 17. Since the infrastructure restoration and improvement
    projects are in planning stages, most funds remain to be obligated and
    disbursed as shown in table 11.

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

                       Total funds committed to specific purposes

    Source: GAO analysis of agency-provided data.

    aThe Lower Manhattan Development Corporation's plans for $1.16 billion in
    HUD funds have not been finalized, as of June 30, 2003. These funds are
    not included in the graphic and, according to HUD, will mostly likely be
    directed to either infrastructure restoration or economic revitalization.

     Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and Enhance
                                     Infrastructure

    Table 11: Infrastructure Restoration and Improvement, as of June 30, 2003
                                  Dollars in millions

                 Activity            Funding agency   Total     Total       Total
                                                    committed obligated disbursed
        Restoring and enhancing the
                   lower
         Manhattan transportation     FEMA/DOT/HUD     $5,006      $238       $54
                  system
             Permanent utility            HUD             500         0
          infrastructure repairs
        Short-term capital projects       HUD              68         0
                   Total                               $5,574      $238       $54

    Source: GAO analysis of agency-provided data.

    Notes: Numbers may not add due to rounding. Due to the expedited
    close-out, FEMA data are reflected as of July 31, 2003.

    Projects Planned to A wide variety of transportation restoration and
    enhancement projects for

    lower Manhattan have begun or are in the planning process. DOT is the
    Restore and Enhance lead agency in administering funds to restore improve
    the transportation the Lower Manhattan system in lower Manhattan, but
    agencies at all levels of government are

    involved in the decision making process. The various types of projects
    andTransportation their funding information can be seen in table 12.

    System Total $5.01

    Billion

     Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and Enhance
                                     Infrastructure

    Table 12: Lower Manhattan Transportation System Restoration and Enhancement, as
                          of June 30, 2003 Dollars in millions

                    Activity                Agency      Total   Total       Total
                                                    committed obligated disbursed
                Transit projects           DOT/FEMA    $4,550       $50        $0
        Long-term transportation planning    HUD           14         0
             Street resurfacing and          DOT          242       100
                 reconstruction
                 Ferry projectsa             DOT          100        11
              Rail safety projects           DOT          100        77
                      Total                            $5,006      $238       $54

    Source: GAO analysis of agency-provided data.

    Notes: Numbers may not add due to rounding. Due to the expedited
    close-out, FEMA data are reflected as of July 31, 2003.

    aAfter June 30, 2003, Federal Transit Administration awarded grants
    totaling $36 million for the Hoboken Ferry Terminal and $5 million for a
    New York State Energy Research and Development Authority grant for a study
    of environmental mitigation of ferry emissions. These data are not
    reflected in the table.

    Planning for $4.55 Billion Committed for Lower Manhattan Transit Projects
    Continues

    Of the total amount the Congress appropriated to this disaster, $4.55
    billion has been committed for transit projects in lower Manhattan. Of
    this amount, the Congress appropriated $1.80 billion to Federal Transit
    Administration (FTA) to replace, rebuild, or enhance the public
    transportation systems serving Manhattan.1 In addition, FEMA committed
    $2.75 billion for lower Manhattan transit projects for a total federal
    commitment of $4.55 billion. In an August 2002 memorandum of agreement
    between FEMA and FTA, FTA was identified as the lead federal agency
    responsible for administration and management of the combined $4.55
    billion in federal funds. In February 2003, the Governor of New York
    identified nine potential projects to be funded out of the $4.55 billion
    in federal aid, noting that projects are in different stages of
    development. The Governor specifically identified three projects-the Port
    Authority Trans-Hudson (PATH) Terminal, the Fulton Street Transit Center,
    and the South Ferry Subway Station-totaling up to $2.85 billion in federal
    funds. FTA is working with the Port Authority and the Metropolitan
    Transportation Authority (MTA) on project development issues and
    implementing an oversight program before disbursement of funds for these
    projects. FTA has not received any formal correspondence from New York
    requesting any portion of the remaining federal assistance.

    1 P.L. 107-206.

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

    PATH Terminal

    Fulton Street Transit Center

    The original PATH terminal located underneath the World Trade Center site
    was completely destroyed in the terrorist attacks. As part of the initial
    response, a temporary PATH terminal, funded through insurance payments and
    FEMA funds, is under construction and is scheduled for completion in
    November 2003.2 The Port Authority is requesting an additional $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. According to plans, this terminal
    will serve PATH commuter trains and four subway lines with concourses
    linking the terminal to the Fulton Street Transit Center and the ferry
    terminal at the World Financial Center. Portions of the temporary PATH
    terminal will be retained in the construction of this permanent terminal.
    FTA officials report that the Port Authority estimates the majority of the
    project to be completed in 2007, while some of the passenger concourses
    connecting to other developments at the World Trade Center site will be
    completed in 2009.

    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 serving nine subway lines that serve 250,000
    passengers entering, exiting, and transferring at these stations daily.
    The complex was not damaged on September 11, but according to MTA
    officials it is difficult to navigate and not easily accessible. According
    to these officials, the complex has crowded corridors and mezzanines, poor
    connections between platforms, and entrances with little visibility from
    the street. In addition, three neighboring subway stations that provide
    access to different subway lines have no underground connections to the
    complex.

    The MTA is planning a $750 million project to improve the existing Fulton
    Street-Broadway Nassau Subway Station Complex to create a Fulton Street
    Transit Center. According to plans, the project will create a visible
    street level entrance pavilion to serve as a focal point for the four
    subway stations. These renovations will include new and expanded platforms
    and mezzanines, efficient connections between platforms, linkage to the
    restored PATH terminal and neighboring subway stations, a new underground
    pedestrian concourse, and upgraded station entrances for

    2 Details of the temporary PATH terminal-for which FEMA provided $140
    million in public assistance funds-are described in chapter 2.

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

                               South Ferry Subway Station

    better access for all users. FTA has issued a $50 million grant to MTA for
    environmental review work and preliminary engineering for this project.3
    MTA is planning to complete the final environmental impact statement by
    July 2004 and the final project in December 2007.

    The South Ferry Subway Station, which is located a half mile from the
    World Trade Center site, serves the southern tip of lower Manhattan and
    provides linkage to the Staten Island Ferry terminal and express busses.
    The station-the final point on the 1 and 9 subway lines that also run
    through the World Trade Center site-was not damaged on September 11.
    However, according to MTA officials, the South Ferry Subway Station is
    outmoded: only five cars of a 10-car subway train can open onto 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 has proposed to
    improve the station so that it would accommodate the length of a standard
    10-car subway train and would provide connection to the Whitehall Street
    Subway Station that serves two other subway lines. According to an FTA
    official, the project will undergo an environmental assessment in fall
    2003 that will determine whether an environmental impact statement is
    necessary. The estimated cost of the project is $400 million, and the
    estimated completion date is 2007 or 2008. Figure 18 shows the current
    South Ferry Subway Station layout and plans for the renovated station.

    3 The National Environmental Policy Act of 1969 directs federal agencies,
    when planning projects or issuing permits, to conduct environmental
    reviews to consider the potential impacts on the environment by their
    proposed actions.

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

    The permanent PATH terminal, the Fulton Street Transit Center, and the
    South Ferry Subway Station would account for $2.55 billion to $2.85
    billion of the $4.55 billion designated for lower Manhattan transit
    projects- projects to be funded with the remaining $1.7 billion to $2
    billion have yet to be determined. A February 2003 letter from the
    Governor of New York to FTA identified nine potential projects to be
    funded out of the $4.55 billion in federal aid, noting that projects are
    in different stages of development. The Governor specifically identified
    the permanent PATH terminal and improvements to the Fulton Street and
    South Ferry subway stations totaling up to $2.85 billion in federal funds.
    In April 2003, various

                                      Source: GAO.

    Long-Term Transportation Planning for Remaining Funds

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

    New York City and state agencies4 released a report entitled Lower
    Manhattan Transportation Strategies that identified priority
    transportation projects. 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. However, FTA has not received any
    formal correspondence requesting any portion of the remaining federal
    assistance for any other projects. LMDC has committed $14 million in HUD
    funds to assist in the planning of these projects and has provided funds
    to study alternatives to improve transportation to airports, West Street
    planning (as discussed in the next section), and other studies to address
    rebuilding efforts and their effect on economic revitalization of lower
    Manhattan. In addition, a portion of the remaining $1.16 billion in HUD
    funds may be directed to infrastructure improvement activities depending
    on the results of on-going studies. To date no decisions have been made on
    which of these projects will be funded. For more information on the
    transportation projects highlighted in the Lower Manhattan Transportation
    Strategies report, see appendix II.

    $242 Million Committed for Resurfacing and Reconstructing of Lower
    Manhattan Streets; More Funding Possible

    Street Resurfacing and Reconstruction

    The Federal Highway Administration (FHWA) is overseeing New York State DOT
    and New York City DOT plans for resurfacing and reconstructing lower
    Manhattan streets through its 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 debris removal activities and from emergency
    telecommunications repairs. Of the $242 million appropriated for the
    Emergency Relief Program to New York, $132 million has been committed for
    New York City street repair and the remaining $110 million has been
    committed for the reconstruction of West Street.5

    In addition to FEMA funds for local road repairs as part of initial
    response efforts, FHWA has committed $132 million to resurface and
    reconstruct about 400 city blocks of New York City streets. As of June
    2003, over $100

    4 LMDC, the Port Authority, MTA, the New York State DOT, and the city of
    New York.

    5 Since initial estimates only reflected surface damage and since several
    additional projects have been planned, FHWA has raised the total estimated
    cost of street repairs to over $251 million, exceeding the authorized
    funds. FHWA officials emphasized that the estimated total costs could
    shift higher or lower than $251 million as the projects progress and if
    costs exceed available funds, other highway funds or New York City or New
    York State funding could be used.

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

    million had been obligated to the Emergency Relief Program, more than $9
    million had been disbursed and 95 blocks had been repaved. FHWA and New
    York State DOT officials anticipate that repairs will continue through
    2007. Figure 19 shows workers conducting street repairs in lower
    Manhattan, and figure 20 shows a map of planned Emergency Relief Program
    road repairs for lower Manhattan streets.

    Source: GAO.

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

    Figure 20: New York City Department of Transportation Map of Planned
    Emergency Relief Program Road Repairs (excluding West Street)

    Local road repairs planned for lower Manhattan. Color of roads denotes
    year in which repairs are planned.

    Source: New York State DOT and GAO.

    West Street (Route 9A) 	West Street, also known as Route 9A, is a key
    regional and local transportation corridor for Lower Manhattan and a major
    utility corridor. Prior to September 11, it served 170,000 people per day
    walking, biking, and riding in vehicles. Falling debris from the collapse
    of the World Trade Center buildings destroyed the roadway, including two
    northbound lanes that crossed part of the World Trade Center site. The
    street was further damaged from wear and tear from numerous heavy vehicles
    used in

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

    response and recovery efforts as well as from emergency utility repairs to
    restore power and communications. As discussed in chapter 2, FEMA provided
    $6 million for interim repairs to West Street; however, significantly more
    funds are projected to be needed to permanently repair West Street and to
    improve pedestrian movement around the roadway.

    FHWA estimates the cost to simply replace West Street to pre-disaster
    conditions to be $110 million. However, New York State DOT is considering
    a more extensive renovation and enhancement of West Street. Planners hope
    to permanently restore the functionality of the roadway while also
    improving pedestrian movements, enhancing green areas, and supporting
    economic recovery and development. Four options for enhancing the street
    are under consideration:

    1. 	An improved at-grade roadway with pedestrian bridges that would cost
    an estimated $185 million and would be completed in 2005.

    2. 	A pedestrian deck over the highway crossing to the World Trade Center
    site that would cost an estimated $700 million and be completed in 2006.

    3. 	An 1,100-foot short bypass with two lanes in each direction above
    ground and four lanes below ground that would cost an estimated $850
    million with a completion date of 2007.

    4. 	A long bypass that would cost an estimated $2.90 billion with a
    completion date of 2011.

    Figure 21 shows the present West Street and the design concept for an
    improved West Street intersection with belowground lanes.

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

    Left: Present West Street intersection with Morris Street. Right: Design
    concept of same intersection with landscaped promenade.

    In an April 2003 speech, the Governor of New York announced that enhancing
    West Street was one of his top priorities for the remaining $1.7 billion
    to $2 billion of the $4.55 billion under FTA control and his support for
    the $850 million short bypass alternative. For the environmental review
    process, all four options will be considered as well as additional options
    that may arise in the public scoping meeting. As options are planned and
    considered by New York State DOT and other officials, LMDC will use HUD
    funds to reimburse some costs associated with planning efforts.
    Specifically, LMDC has committed funds to assist New York State DOT's
    technical services related to the repair and restoration of West Street,
    including planning for future enhancements.

    $100 Million for Ferry The ferry system is an integral part of lower
    Manhattan's transportation Terminals in New York and system. FHWA was
    appropriated $100 million in Miscellaneous Highway New Jersey funds for
    ferry and ferry facility construction projects in New York and

    New Jersey.6 FHWA transferred administration of most of this money to

    FTA, which worked with a task force of representatives from New York

    6 P.L. 107-117.

     Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and Enhance
                                     Infrastructure

    and New Jersey to identify ferry projects for funding. As of June 30,
    2003, FTA has disbursed $11 million for the West Midtown (Manhattan)
    Terminal, and has committed funds for the renovation of the Hoboken (New
    Jersey) terminal and the Colgate/Sussex Pier (New Jersey). FTA plans
    disbursement of $5 million to support efforts by the New York State Energy
    Research and Development Authority and Rutgers University to research,
    demonstrate, and implement mitigation of pollution from ferry boats in New
    York Harbor. FHWA will administer $22 million for administration of two of
    the projects-the Weehawken Intermodal Ferry Terminal (New Jersey) and the
    South Amboy Ferry Terminal (New Jersey).

    Safety Projects for New York Rail Tunnels Totaled $100 Million

    Permanent Utility Infrastructure Repairs and Improvements Total $500
    Million

    As part of the effort to enhance the New York area transportation system,
    the Federal Railroad Administration was appropriated $100 million to
    enhance the fire and life safety in New York rail tunnels. In June 2002,
    the Federal Railroad Administration and Amtrak entered into a grant
    agreement for $77 million to do this work. The funds will be used 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. As of July 2003, almost $34 million of the grant funds have
    been disbursed to Amtrak for the safety projects that will be completed in
    2006 or 2007. The remaining $23 million will be obligated and disbursed to
    Amtrak once it completes the design of anticipated improvements in the New
    York City rail tunnels.

    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. These funds will go to
    LMDC, which will work with ESDC to administer $250 million for emergency
    repairs, as previously discussed. In addition, $500 million has been
    committed for for permanent repairs and rebuilding, including $15 million
    for program administration. The goals of the permanent repair program,
    according to LMDC, 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.
    LMDC officials worked with utility firms, businesses, 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.
    Specific categories of reimbursable projects include:

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

    1. 	$330 million for costs incurred to permanently replace, restore, and
    enhance infrastructure to deliver service;

    2. 	$50 million to construct a carrier neutral lateral conduit to enhance
    telecommunications diversity and competition;

    3. 	$20 million for the provision of fully redundant telecommunications
    services to critical businesses and government facilities to enhance
    public safety;

    4. 	$22 million to compensate providers for new regulatory mandates due to
    increased security measures; and

    5. 	$60 million for utilities and the city or state to pay for service
    interference costs as a result of reconstruction of local roads.

    Eligible businesses include investor-owned utility service providers with
    service areas in lower Manhattan that incurred expenditures related to
    damage from the disaster, excluding any funds from insurance and other
    federal assistance for reimbursement for lost revenues. Applicants will
    have until December 31, 2007, to apply for certain programs.7

    LMDC worked with community groups, local businesses, and city and state
    governments to select $68 million in short-term capital projects for HUD
    funding as part of their effort to improve accessibility and the
    appearance of lower Manhattan. In addition, a portion of these funds has
    been committed by LMDC to conduct an outreach campaign to keep residents
    informed of rebuilding efforts. These projects are also part of the
    Governor's priorities for the overall lower Manhattan rebuilding effort,
    including:

    o  	Parks and Open Space Enhancements. LMDC has proposed several projects
    to improve and expand parks along the Hudson River and East River, as well
    as other neighborhood parks, as part of a larger effort to attract
    residents and revitalize the area. LMDC has committed an estimated $29
    million for these projects.

    o  	West Street Pedestrian Connections. LMDC plans to fund construction of
    a temporary pedestrian bridge and enhance an existing pedestrian

    Short-term Capital Projects Total $68 Million

                      7 HUD approved the plan September 15, 2003.

    Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and
    Enhance Infrastructure

    bridge in an effort to aid foot traffic flow once the temporary PATH
    terminal is opened. The original bridge was destroyed during the disaster,
    and due to increased pedestrian traffic, LMDC has committed an estimated
    $21 million to complete the projects.

    o  	Building and Streetscape Improvements. LMDC, in cooperation with the
    Alliance for Downtown New York, a community group, has identified several
    areas that continue to be affected by recovery efforts and will provide
    funds to repave sidewalks, improve signs and lighting, and provide new
    benches. The total cost of the project is estimated to be $20 million, of
    which LMDC has committed $4 million. Other particular areas of focus
    include the New York Stock Exchange, where LMDC has committed $10 million
    to the Downtown Alliance to install security barriers to secure pedestrian
    and vehicular paths and to beautify the area, and the Liberty Street area,
    where LMDC has committed $2 million to building owners to improve the
    exterior facades of damaged buildings.

    o  	Millennium High School. LMDC has committed an estimated $3 million of
    HUD funds to renovate space for a new Millennium High School. The school
    will be the only open-admission public high school for lower Manhattan
    residents and is intended to attract families to the area.

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

    The terrorist attacks of September 11 disrupted New York City's economy
    and resulted in billions in lost 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 Committee on
    Taxation to result in $5.03 billion in lost federal revenue, and
    appropriated funds to HUD, of which $515 million will aid in revitalizing
    the lower Manhattan economy. The tax benefits are generally targeted to a
    defined area of lower Manhattan-the "Liberty Zone." Estimates vary
    regarding what the ultimate usage of the Liberty Zone tax benefits will be
    and the ultimate benefit amount is unlikely to be known. In addition, the
    Empire State Development Corporation (ESDC) and the Lower Manhattan
    Development Corporation (LMDC) are coordinating to administer HUD funds
    for business assistance programs designed to attract and retain thousands
    of jobs in lower Manhattan.1 LMDC has also undertaken multiple planning
    efforts to revitalize lower Manhattan, including the coordination and
    planning of the rebuilding design and memorial competitions. Figure 22
    shows a breakdown of economic revitalization assistance, and table 13
    shows the amount of assistance committed for economic revitalization.

    1 In chapter 3, we discussed LMDC's $281 million Residential Grant Program
    funded by HUD to retain and attract residents to lower Manhattan. While we
    have categorized this program as primarily compensation for losses, it is
    clearly also contributing to lower Manhattan's economic revitalization.

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

                       Total funds committed to specific purposes

    HUD - $0.52 billion

    Liberty Zone - $5.03 billion

    Source: GAO analysis of agency-provided data.

    Note: Numbers do not add due to rounding.

    aThe Lower Manhattan Development Corporation's plans for $1.16 billion in
    HUD funds have not been finalized, as of June 30, 2003. These funds are
    not included in the graphic and, according to HUD, will mostly likely be
    directed to either infrastructure restoration or economic revitalization.

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

    Table 13: Economic Revitalization Efforts, as of June 30, 2003 Dollars in
                                        millions

    Total committed/ Activity Funding agency estimated benefits Total
    obligated Total disbursed Tax benefits

                    Liberty Zone tax benefits IRS $5,029a N/Ab N/Ab

                              Other revitalization efforts

            Job creation and retention grants        HUD       320   320
        Small firm attraction and retention grants   HUD       155   155
                  Other planning efforts             HUD        40   39
                         Subtotal                             $515  $514     $173
                     Estimated total                       $5,544   $514b   $173b

    Source: GAO analysis of agency-provided data.

    aRevenue estimate by the Joint Committee on Taxation.

    bTax benefits are neither obligated nor disbursed.

    Further, additional funds may be made available for revitalization
    efforts. There is $1.16 billion in HUD funds not yet committed to specific
    activities, and LMDC is undertaking several studies and working groups to
    identify and prioritize transportation and economic revitalization efforts
    for these remaining funds.

    Liberty Zone Tax In Title III of the Job Creation and Worker Assistance
    Act of 2002,2 the

    Congress instituted tax benefits primarily targeted to the Liberty Zone,
    the Benefits Focus on area of New York City severely impacted by the
    terrorist attacks defined Economic as the area south of Canal Street, East
    Broadway (east of its intersection

    with Canal Street), or Grand Street (east of its intersection with East
    Revitalization Broadway) in lower Manhattan. Figure 23 shows a map of the
    Liberty Zone boundaries.

    2 Job Creation and Worker Assistance Act of 2002 (P.L. 107-147).

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

    may be issued to finance the acquisition, construction, reconstruction,
    and renovation of commercial and residential real property as well as
    utilities primarily inside the Liberty Zone. The Mayor of New York City is
    responsible for approving bonds totaling up to $4 billion, and the
    Governor of New York is responsible for approving the same amount. As much
    as one-fourth of the bonds can be used for commercial projects in New York
    City but in areas outside the Liberty Zone. The bonds must be issued by
    December 31, 2004. As of May 2003, $876 million in Liberty Bonds had been
    issued. For details on Liberty Bonds that have been issued, see appendix
    V.

    o  	One additional refunding for certain bonds that were previously
    refunded. Until December 31, 2004, the Mayor of New York City and the
    Governor of New York State may designate issuance of federal tax-exempt
    bonds to pay principal, interest, or redemption price on municipal bonds
    previously issued and refunded for facilities in New York City. For
    advanced refunding bonds, the Mayor and the Governor are responsible for
    designating $4.5 billion each for a total of $9 billion through December

    31. As of June 2003, New York State had released $3.68 billion and New
    York City had issued $1.64 billion of these bonds. For details on
    refunding that have occurred, see appendix V.

    o  	Increased expensing. Taxpayers may expense an increased amount of
    qualifying property used in the New York Liberty Zone. This benefit is
    available through December 31, 2006.

    o  	Extension of replacement period for certain property involuntarily
    converted in New York Liberty Zone. Taxpayers have an extended period in
    which they do not have to recognize gain on involuntarily converted
    Liberty Zone property, such as gain resulting from insurance
    reimbursements for property damaged or destroyed in the terrorist attacks
    that exceed the property's replacement value to 5 years instead of the
    standard 2 years.

    o  	Five-year life for leasehold improvements in the Liberty Zone.
    Qualified improvements to leased nonresidential property in Liberty Zone
    can be depreciated over a 5-year period instead of the standard 39-year
    period through December 31, 2006.

    Amount of Liberty Zone The amount of benefits to New York that will result
    from the Liberty Zone Benefits Unclear and tax provisions is unclear and
    likely to remain unknown. Before the Job Likely to Remain Unknown Creation
    and Worker Assistance Act was passed, the Joint Committee on

    Taxation estimated the amount of revenue projected to be lost to the U.S.

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

    Treasury from the Liberty Zone provisions. However, an estimate of lost
    revenue is not necessarily the same as an estimate of the benefits
    received by taxpayers. Furthermore, uncertainties exist with any estimate.
    For example, the actual usage of the benefits before authority expires,
    such as in the case of the New York Liberty Bonds, is uncertain. Also the
    Internal Revenue Service (IRS) is not tracking actual use of the Liberty
    Zone benefits and, consequently, little data will be available on the
    value of the tax benefits to the Liberty Zone. Further, even if IRS were
    to collect data, it would at best only be able to make an estimate, not a
    verifiable measure of the tax benefits.

    Estimates of the revenue impact and the benefits to taxpayers of the New
    York Liberty Zone tax provisions differ. The Joint Committee on Taxation
    estimates the revenue effects of all tax legislation considered by the
    Congress. Following its standard estimating conventions, the Joint
    Committee estimated that all seven of the Liberty Zone benefits, combined,
    would reduce federal revenues by almost $5.03 billion over the
    2002-2012-time period. A study commissioned by the New York City Economic
    Development Corporation to estimate the benefit to taxpayers of the
    Liberty Zone Provisions determined that the size of the benefit would be
    considerably less than the Joint Committee's estimate of the revenue cost.
    However, this tax benefits study analyzed only four of the benefits (the
    special depreciation allowance, the increase in expensing treatment for
    business property, the extension of the replacement period for
    involuntarily converted property, and special treatment of qualified
    leasehold improvements) and used assumptions and analyses that differed
    from those of the Joint Committee. For example, the study discounted the
    value of revenue effects in future years and extended the timeframe for
    assessing the financial impact by over 40 years.3

    As with many tax benefits, usage of the Liberty Zone tax benefits will
    depend on a variety of difficult to predict economic factors. 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. For one component of the Liberty Zone tax benefits, the Liberty
    Bonds, it is unclear whether all of the bonds will be used

    3 The Joint Committee compares the revenue projected to be collected if a
    particular legislative change is enacted to the revenue projected to be
    collected under present law. The Committee's standard practice is not to
    discount the value of future revenue effects, nor to consider any effects
    of the legislation after a 10-year time period.

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

    before the December 31, 2004, sunset date for the bond authority. The New
    York City Economic Development Corporation and ESDC reported that
    commercial bond issuers do not expect to be able to fully utilize the $6.4
    billion nonresidential portion of the Liberty Bonds by the sunset date.
    These officials said that the bonds might not be fully utilized due to
    continued weakness in the New York commercial real estate market, major
    insurance litigation affecting resources to rebuild, and uncertainty
    regarding development plans for the World Trade Center site. Further, the
    officials cited zoning changes and environmental reviews as reasons for
    delays. The New York State Department of Taxation and Finance reports that
    the state is still assessing potential projects and expects to seek a
    congressional extension to the December 31, 2004, sunset to ensure its
    ability to issue future Liberty Bonds. In contrast, officials from both
    the New York Housing Finance Authority and the New York Housing
    Development Corporation report that they expect to issue all residential
    Liberty Bonds before the sunset date.

    Most Liberty Zone tax benefit usage is not being monitored by federal,
    state, or local agencies, and the total amount of the benefits accruing to
    New York is likely to remain unknown. We recently reported that IRS plans
    to collect little information related to the number of taxpayers using the
    Liberty Zone benefits.4 Typically, IRS would only collect these data if it
    would help the service administer the tax laws or if it was legislatively
    mandated to do so, neither of which is the case with most of the Liberty
    Zone benefits. IRS is nevertheless collecting some data on the Business
    Employee Credit and the two bond benefits, but to collect more information
    on the use of the benefits, IRS would need to change forms, processing
    procedures, and computer programming, all of which would add to taxpayer
    burden and IRS's workload. Further, the earliest IRS could make these
    changes would be for tax year 2004 returns. As a result, IRS would not
    have information for 2 of the years that the benefits were in effect,
    which is significant because most of the benefits expire by the end of
    2006. Finally, if IRS were to collect data on the use of the Liberty Zone
    benefits, it could not produce a verifiable measure of the revenue loss
    due to the benefits, but only be able to make an estimate. This is because
    the IRS would have to make assumptions about how taxpayers would have
    behaved in the absence of the benefits. Because the Liberty Zone benefits

    4 U.S. General Accounting Office, Tax Administration: Information not
    Available to Determine Whether $5Billion in LibertyZoneTax Benefits will
    be Realized,GAO-03-1102 (Washington, D.C.: Sept. 2003).

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

    are federal benefits, New York City and New York State are not tracking
    them, though they do collect and record data regarding the bonds issued
    under the Liberty Zone provisions.

    $515 Million of HUD Funds Committed for Business Assistance and Other
    Projects to Revitalize Lower Manhattan

    In addition to the Liberty Zone tax benefits, the Congress appropriated
    funds to HUD to revitalize lower Manhattan. ESDC and LMDC 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, ESDC is
    administering $475 million to provide incentives for existing small and
    large businesses to remain in the area and to attract new businesses to
    lower Manhattan. LMDC has also committed $40 million to help plan and
    coordinate rebuilding and revitalization efforts and to determine how to
    prioritize remaining funds for future projects. In addition, LMDC may
    provide a portion of the $1.16 billion remaining HUD funds for other
    economic revitalization efforts.

    Job Creation and Retention Grants Total $320 Million

    ESDC designed the $320 million Job Creation and Retention Grant Program to
    target businesses with at least 200 employees that need assistance to
    maintain or establish a business in lower Manhattan. ESDC's goal is to
    help retain or create 80,000 jobs with the program. In addition to grants,
    eligible businesses can receive loan guarantees and low cost loans, and
    all applications are evaluated as part of a multistage review and approval
    process.5 To determine whether to provide assistance and how much to
    offer, ESDC considers criteria such as the risk of the company leaving
    lower Manhattan, location, and economic impact for the New York City area.
    Companies granted funds must maintain a workforce in New York City for a
    minimum of 7 years and penalties for not meeting the terms of agreement
    are stiff to maximize impact.

    5 A review committee comprised of ESDC and New York City Economic
    Development Corporation staff considers proposals and authorizes a level
    of financial assistance to offer an eligible company, based on a number of
    criteria. Once a company accepts the offer, they complete an application
    and the project is submitted to the ESDC Board of Directors for approval.
    If approved, then a Grant Disbursement Agreement is executed, and, after a
    payment requisition with supporting documents is submitted, the grant is
    disbursed to the company.

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

    As of June 30, 2003, 72 businesses accepted retention grant offers from
    ESDC for a total value of $251 million and, of this, $130 million had been
    disbursed to 34 businesses. ESDC reports that if all accepted grant offers
    are approved, the program will retain or create more than 70,000 jobs in
    New York City. ESDC anticipates that businesses will continue to apply for
    the program as they evaluate the commitment requirements. ESDC officials
    also expect program demand may exceed available funds, and reported that
    they would request additional allocations from LMDC of noncommitted funds
    if needed. The program will be available until December 2004.

    Small Firm Attraction and Retention Grants Total $155 Million

    ESDC is also administering a similar program that targets attraction and
    retention of smaller firms. ESDC has committed $155 million in HUD funds
    for its Small Firm Attraction and Retention Program. Businesses with fewer
    than 200 employees can receive up to $5,000 per employee if they were
    located in the restricted area around the World Trade Center or $3,500 in
    other lower Manhattan locations. Firms are provided assistance in two
    payments, one upon approval, and the second 18 months after approval date.
    Through this program, firms must meet certain conditions based on their
    location and lease. For example, to receive a grant, businesses must renew
    their lease or enter a new one for at least 5 years beyond their existing
    commitment. Businesses that have a long-term lease that does not expire by
    December 31, 2004, are not eligible for this program, and as we reported
    in November 2002, business advocacy groups have criticized the program for
    excluding these businesses.6 Business advocates argue that those
    businesses also had a demonstrated commitment to the area, which should
    make them eligible and not place them at a disadvantage relative to new
    businesses. ESDC officials replied that the program was designed to
    provide incentives to businesses at risk of leaving, not for those that
    already had long-term commitments to the area.

    As of June 30, 2003, 951 businesses received $31 million through the Small
    Firm Attraction and Retention Grant Program, as part of their first
    installment of assistance. ESDC officials report that the progress of the
    program is reflective of the complexity of small businesses' decisions to

    6 U.S. General Accounting Office, September11: Small BusinessAssistance
    Providedin Lower Manhattan inResponseto the Terrorist Attacks, GAO-03-88
    (Washington, D.C.: Nov. 1, 2002).

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

    commit to the area, and accordingly, they expected the pace of this
    program to be slower than their other programs. The program will continue
    to accept applications through December 31, 2004.7

    $40 Million Committed for Other Planning Efforts

    LMDC's primary role is to help plan and coordinate rebuilding and
    revitalization of lower Manhattan, and as of June 30, 2003, LMDC had
    committed about $40 million of HUD funds to planning activities.8 LMDC has
    launched several public awareness campaigns to promote its programs that
    provide information on the progress of rebuilding and allow public input
    in rebuilding and revitalization efforts. LMDC has also funded a
    summer-long festival and a cultural campaign to bring people to the area
    and has conducted environmental, economic impact, and other planning
    studies. For example, as part of the $10 million congressional requirement
    to promote tourism in the area, LMDC has begun a $5 million joint
    initiative with museums located in lower Manhattan to promote the area as
    a "cultural destination." In addition, LMDC has announced a tourism and
    marketing campaign to attract visitors to Chinatown, a neighborhood in
    lower Manhattan. However, the most prominent public awareness and planning
    initiatives undertaken by LMDC involve the organization of the World Trade
    Center site rebuilding and memorial selection competitions.

    o  	Design competition to rebuild the World Trade Center site. LMDC's main
    focus throughout several stages of the rebuilding design selection process
    was to encourage public involvement and comment. In total, LMDC received
    406 design submissions and used funds to embark on an outreach campaign,
    which included exhibits of the seven finalist plans, townhall style
    meetings, public hearings, and a mailing to all families who lost members
    in the disaster. The competition culminated with the selection of the
    Studio Daniel Libeskind's Memory Foundations for design of the new site
    plan as shown in figure 24.

    7 Except for those applicants who enter into new leases between September
    1, 2004, and December 31, 2004, who will have until April 2005 to submit a
    completed application.

    8 A portion of these funds is for administrative purposes.

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

    Source: archimation for Studio Daniel Libeskind.

    o  	Memorial selection process. LMDC has reported that the selection of a
    permanent memorial and integration of the plan with the World Trade Center
    rebuilding efforts is its primary mission. The search for a design for the
    memorial was open to anyone worldwide that wished to apply. LMDC received
    over 5,000 designs for the memorial, and a jury will evaluate entries. The
    jury consists of 13 members with a wide range of backgrounds and
    experience, including a victim's family member, a lower Manhattan business
    owner/resident, artists and architects, and representatives from the Mayor
    and the Governor of New York. LMDC coordinated an outreach campaign and a
    public forum to allow family members and the public to

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

    provide input into the decision making process for selecting a final plan.
    A decision is scheduled to be announced in the fall of 2003, and a
    rendering of the proposed location of the permanent memorial is shown in
    figure 25.

    In addition, LMDC may direct a portion of remaining HUD funds, $1.16
    billion, to other economic revitalization programs and is coordinating
    several efforts to develop plans to prioritize and spend the funds. LMDC
    officials said that the remaining funds would most likely be directed to
    cultural activities, transportation improvements, and affordable housing
    initiatives, although the allocation of funds has not been finalized.9 In
    order to gain public input on how to prioritize plans to spend the
    remaining funds, LMDC organized a series of community workshops where over
    a 100 stakeholders from neighborhoods in lower Manhattan will present city
    representatives and LMDC officials with proposals for

    9 LMDC may use a portion of remaining funds for infrastructure projects,
    including proposals from on-going transportation planning studies, as
    discussed in chapter 4.

    Chapter 5: Efforts to Revitalize the New York Economy Include Tax Benefits
    and Assistance to Businesses

    future projects. In addition, LMDC told us that it will analyze the
    results of several on-going studies, including an affordable housing
    study, and could possibly fund proposed initiatives. Finally, in June
    2003, LMDC published a request for proposals from cultural institutions
    around the world to gauge their interest on locating at the World Trade
    Center site as part of the new facilities. As part of this effort, LMDC
    also solicited their input for creating an interpretive museum of the
    events of September 11 and the 1993 World Trade Center bombing. With the
    information obtained through this request, LMDC will determine if it will
    provide a portion of remaining funds to support the proposals.

    Chapter 6: Designation of a Specific Level of Assistance Led to a Distinct
    Federal Government Response for this Disaster

    The most significant difference in the federal government's response to
    this disaster was the upfront 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 a target level for the total
    amount of federal disaster assistance was set early in the response and
    recovery efforts. FEMA, in response to the designation of a specific level
    of funding and greater authority from the Congress, changed its approach
    to administering disaster funds. With the specific level of funding
    functioning as a floor or minimum level of assistance, FEMA may have been
    unable to fully disburse the targeted level of assistance through
    traditionally eligible projects-despite FEMA's efforts to broaden its
    traditional eligibility guidelines. With congressional authorization, FEMA
    reimbursed the City and State of New York for "associated costs" that it
    could not have otherwise funded within the provisions of the Stafford Act
    to ensure that the entirety of FEMA's appropriated funds for the disaster
    would be spent for the New York City area. At the same time, the target
    level of funding functioned as a cap, requiring the city and state to
    establish priorities for newly authorized reimbursement of associated
    costs, which led FEMA to establish an expedited close-out process. In
    addition to the flexibilities given FEMA, this specific level of funding
    for the entire disaster also prompted congressional authorization of
    numerous forms of nontraditional assistance to be provided by other
    agencies. For example, the Congress passed legislation authorizing the
    Liberty Zone tax benefits- the first geographically targeted tax program
    in response to a disaster. Further, the Congress both authorized and
    appropriated several billion dollars to be administered by DOT for
    transportation infrastructure improvements beyond replacement of damaged
    facilities. In addition, the Congress authorized new forms of compensation
    with HUD funds to businesses for disaster-related losses.

    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 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

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

    Chapter 6: Designation of a Specific Level of Assistance Led to a Distinct
    Federal Government Response for this Disaster

    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
    traditionally takes many years to fully reconcile how much assistance was
    provided for certain disasters.1

    In responding to September 11, however, this traditional practice was not
    followed, as the President pledged at least $20 billion in federal
    assistance to the New York City area, and subsequent to that pledge, the
    Congress, in authorizing this specific level of federal assistance,
    appropriated over $8.80 billion to FEMA. This was the first time that a
    specified amount of funds had been designated to FEMA to respond to a
    disaster.2 FEMA officials administered programs accordingly, within the
    capped amount of funding, to ensure that all funds were provided to the
    New York City area.

    In order to respond to the new types and the amount of damage resulting
    from the attacks and to ensure that the entire amount appropriated for
    this disaster was expended, FEMA expanded eligibility guidelines for many
    of its programs. FEMA officials said that they broadly interpreted the
    Stafford Act to provide assistance for several projects. For example, FEMA
    partnered with EPA to implement a program to clean the interior of private
    residences-the first of its kind-and determined these costs 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 expand
    the eligibility guidelines of certain programs due to the unique
    circumstances of the disaster.3 For example, nearly a year after September
    11, the 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

    1 For example, as of June 2003, the Northridge, California, earthquake was
    still an open FEMA disaster 9 years after it occurred due to large and
    long-term reconstruction efforts.

    2 In the past, direct congressional appropriations are not made for a
    specific disaster, but rather to supplement funds in FEMA's Disaster
    Relief Fund.

    3 Further discussion and additional examples of public assistance projects
    that we identified as nontraditional can be seen in GAO-03-926.

    Chapter 6: Designation of a Specific Level of Assistance Led to a Distinct
    Federal Government Response for this Disaster

    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.4 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, it still appeared that
    there were 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, in
    February 2003, 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 associated costs that it otherwise could not have funded, such
    as reimbursing the city and state for costs to provide increased security
    and for cost of living adjustments for pension benefits of deceased police
    and fire staff. 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
    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
    deobligated funds for eligible Stafford Act projects in order to determine
    how much was available to reimburse the city and state for incurred costs
    associated with the disaster. FEMA recently completed the close-out
    process and disbursed $1.24 billion to the city and state for associated
    costs. Since these funds were provided for costs already incurred, the
    city and state have the discretion to ultimately redirect the

    4 P.L. 108-7.

    Chapter 6: Designation of a Specific Level of Assistance Led to a Distinct
    Federal Government Response for this Disaster

    funds, including determining whether to fully fund projects that were
    incomplete at the end of the close-out process. The expedited close-out
    process, developed to maximize the early availability of funds to New
    York, 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
    2003.5 Members included FEMA public assistance and research and evaluation
    staff and state program managers. 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-managed program and a capped funding amount per disaster. The
    working group plans to develop a basic design concept for revising the
    program by September 30, 2003.

    The specific level of funding that was targeted by the President and
    passed by the Congress also spurred congressional authorization of other
    forms of nontraditional assistance for the New York City area. The
    Congress passed an estimated $5.03 billion in Liberty Zone tax
    benefits-the first geographically targeted tax program in response to a
    disaster. The Congress also authorized DOT to fund transportation projects
    to improve the overall transportation system substantially beyond
    pre-disaster condition, not just to restore infrastructure directly
    impacted by the disaster. Further, the Congress eliminated the state and
    local matching requirement for transportation funding for the entire
    relief effort. The Congress also directed HUD to use Community Development
    Block Grant

    Designation of a Specific Level of Assistance Spurred Congressional
    Appropriation and Authorization of Nontraditional Assistance

    5 GAO-03-926.

    Chapter 6: Designation of a Specific Level of Assistance Led to a Distinct
    Federal Government Response for this Disaster

    (CDBG) funds to compensate businesses for economic losses-the first time
    CDBG funds have been used for this purpose.

    Congress Passed First Tax Benefit Package in Response to a Disaster

    To address the economic impact of the September 11 attacks on New York,
    the Congress passed the estimated $5.03 billion New York Liberty Zone tax
    benefit package.6 This was a unique way for the Congress to provide
    assistance for the area affected by the disaster. According to IRS
    officials, never before has the Congress 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. IRS
    officials told us that tax plans typically target individuals or
    businesses on the basis of classifications such as income level rather
    than on the basis of the geographic location of the individuals or
    businesses. (See chapter 5 for a detailed discussion of Liberty Zone tax
    benefits.)

    Congress Authorized DOT to Rebuild Damaged Infrastructure and Improve
    Transportation Systems

    In most disasters, DOT is only authorized to provide funds to rebuild or
    restore damaged infrastructure back to its pre-disaster condition. For
    example, if part of a highway were damaged in a disaster, the amount of
    assistance provided would be restricted to the estimate of the cost to
    rebuild the highway to its pre-disaster condition, rather than funding
    improvements to the highway. However, in response to September 11, the
    Congress authorized DOT to not only restore transportation infrastructure
    directly damaged in the disaster, but also to enhance the overall lower
    Manhattan transportation system. As a result, the Congress has
    appropriated funds that are being used to not only rebuild the directly
    damaged PATH terminal, but to redesign and renovate two other subway
    stations that were not damaged by the disaster. Additionally, the Congress
    appropriated funds that are being used for ferry terminal improvements,
    including the construction of new stations in New Jersey. Figure 26 shows
    the sites of three large transit projects: the permanent PATH terminal at
    the World Trade Center site that is being built to replace the damaged
    PATH terminal, and the Fulton Street Transit Center and South Ferry Subway
    Station improvements that are enhancements of parts of the transportation
    system not directly damaged by the disaster. (See chapter 4 for a detailed
    discussion of infrastructure restoration and improvement projects.)

    6 Job Creation and Worker Assistance Act of 2002 (P.L.107-147)

    Chapter 6: Designation of a Specific Level of Assistance Led to a Distinct
                     Federal Government Response for this Disaster

    Congress Eliminated the The Congress eliminated the state and local
    matching requirement for State and Local Matching DOT assistance for the
    entire disaster relief effort, by passing the 2002 Requirements for DOT
    Supplemental Appropriations Act, which stipulated 100 percent federal
    Assistance share for all DOT funded projects with no time limit on
    federal-aid

    highway projects related to the New York City terrorist attacks. The DOT

    assistance included $242 million of Federal Highway Administration

    Chapter 6: Designation of a Specific Level of Assistance Led to a Distinct
                     Federal Government Response for this Disaster

    (FHWA) funds and $1.80 billion in FTA funds for capital investment grants
    with no state and local matching requirement.7 Historically, DOT funding
    has required a state and local cost share; for FHWA projects this share
    has ranged from 80 percent to 90 percent and for FTA projects it has
    ranged from 50 percent to 80 percent. By the Congress authorizing all DOT
    funding be provided with no state and local matching requirement, New York
    achieved significant savings.

    Congress Authorized HUD Funds to Compensate Losses and Promote Tourism

    In previous disasters, HUD funds were typically provided to address
    long-term effects of the disaster, including economic, infrastructure, and
    housing redevelopment efforts. HUD funds have been used in the past to
    provide funds for some emergency relief efforts, if they are not already
    provided for by FEMA, such as debris removal, reconstruction of damaged
    property posing an immediate threat to public safety, and emergency
    reconstruction of essential utilities.

    However, after September 11, the Congress directed HUD to focus on
    different aspects of relief efforts than in previous disasters. For
    example, programs to compensate for economic losses, such as the Business
    Recovery Grant Program and to retain and attract residents, such as the
    Residential Grant Program, are a unique use of CDBG funds, according to
    HUD officials. In addition, HUD officials explained that although funds
    have been used for business incentive programs in the past, attraction and
    retention efforts have not been attempted on such a large scale. HUD
    officials said that over 20,000 businesses have been helped through the
    Business Recovery Grant Program and nearly 40,000 applications have been
    received for the Residential Grant Program that closed May 31, 2003.
    Furthermore, the Lower Manhattan Development Corporation is administering
    additional HUD funds to promote tourism initiatives in lower Manhattan,
    some aspects of which have previously been ineligible.

    7 Capital investment grants provide funding for mass transportation and
    other high-occupancy vehicles.

    Appendix I: Objectives, Scope, and Methodology

    In a May 2, 2002, letter, the Chairman and Ranking Minority Member of the
    Senate Committee on Environment and Public Works and Senators Hillary
    Rodham Clinton and George V. Voinovich requested us to assess the federal
    government's response and recovery efforts to the New York City area. They
    requested that we determine how much federal assistance has been delivered
    to the New York City area, and for what purposes; and how the federal
    government's response to this disaster differed from previous disasters.

    To determine how much federal assistance has been designated to the New
    York City area, we reviewed relevant legislation. We also obtained and
    reviewed appropriate budget documents, funding plans, status reports, and
    other documents including, executive orders, presidential correspondence,
    and OMB and CBO reports. We also interviewed OMB and CRS officials to get
    their perspectives on the budgetary data.

    To determine for what purposes federal assistance has been and will be
    used, we interviewed officials from FEMA, HUD, FTA, FHWA, the Federal
    Railroad Administration, and IRS. We also interviewed New York State and
    New York City officials, including officials from the Lower Manhattan
    Development Corporation (LMDC), the Empire State Development Corporation
    (ESDC), the New York State Department of Transportation, the Metropolitan
    Transit Administration, and Port Authority of New York and New Jersey.
    These officials told us for what purposes and through what programs
    federal assistance is being provided. We also interviewed officials from
    nonprofit planning and research organizations to gain their perspectives
    on use of the funding in the New York redevelopment process. We reviewed
    relevant agency documentation of program plans and execution including
    budget documents and databases.

    Though federal assistance was administered through 18 agencies in total,
    we focused on the primary sources of federal assistance-the Federal
    Emergency Management Agency (FEMA), the Department of Housing and Urban
    Development (HUD), the Department of Transportation (DOT), and the Liberty
    Zone tax benefits-that targeted different aspects of the recovery efforts
    in the New York City area. We collected agency financial data through June
    30, 2003, though we do footnote significant items that arose during the
    report processing period. To illustrate the wide spectrum of federal
    disaster assistance being delivered to the New York City area, we
    categorized the recovery efforts into four broad purposes: initial
    response efforts, compensation for disaster-related costs and losses,
    infrastructure restoration, and economic revitalization. We also focused
    on the progress of recovery efforts but did not evaluate the
    administration

    Appendix I: Objectives, Scope, and Methodology

    or impact of recovery funds; however, we identified our related reports
    and other agencies' Inspector General reports and reported on those
    findings. While we reported on the differences between response to this
    disaster and previous disasters, we did not evaluate the implications of
    these differences.

    To determine how the federal government's response to this disaster
    differed from the established process for responding to disasters, we
    interviewed federal, state, and local officials; and nonprofit planning
    and research groups. We also compared agency historical data to
    documentation from the New York response and recovery.

    We experienced several limitations while attempting to collect financial
    data for the four primary sources of federal assistance. First, it was
    difficult to coordinate a final date for our data collection period due to
    the expedited close-out implemented by FEMA. We decided to reflect FEMA
    data as of July 31, 2003, in order to provide information on funds made
    available by the expedited close-out for disaster-related costs as
    authorized by the Consolidated Appropriations Resolution. In addition, due
    to the expedited close-out, we were not able to review projects in FEMA's
    National Emergency Management Information System (NEMIS), FEMA's primary
    information system that manages disaster grant funding. Instead, we relied
    on published FEMA reports, which are compiled using information from
    NEMIS, as well as the knowledge of public assistance program managers of
    funding for specific projects. Neither of these limitations led to a
    material weakness in our efforts to conduct this work. We conducted our
    work from June 1, 2002, through September 30, 2003, in accordance with
    generally accepted government auditing standards.

    Appendix II: Proposed Transportation Infrastructure Improvements for Lower
    Manhattan

                                  Dollars in millions

    Projects under consideration for remaining lower Manhattan
    transit funds ($1.7 billion to $2.0 billion) New York cost estimate

                     JFK airport/ Long Island access $2,000-$5,300

    West Street $400-$900

                 Tour bus facility and WTC subgrade infrastructure $500

    Commuter ferries $150-$200

                       Street configuration and circulation $100

    Other lower Manhattan projects which may require additional funds

                               Newark Airport access $525

              Linking metro-north to 4/5 at Grand Central Station $50-$75

                             LaGuardia Airport ferry $3-$6

      Source: Lower Manhattan Transportation Strategies, April 24, 2003, LMDC, the
                     Port Authority, MTA, New York State DOT, NYC.

    Appendix III: Joint Committee on Taxation Estimated Revenue Effects of the
    Liberty Zone Tax Benefits

                                  Dollars in millions

    JCT estimate of revenue effect 2002-Liberty Zone benefit 2012 Termination
    date

    1. Expansion of Work Opportunity Tax Credit to -$631 12/31/03 eligible
    Liberty Zone employees

    2. 30% bonus depreciation for property placed in -1,568
    service in the Liberty Zone

    3. Authorize issuance of tax-exempt private -1,228
    activity bonds for rebuilding the portion of New
    York City damaged in the September 11, 2001
    terrorist attack

    4. Allow one additional refunding for certain -937
    previously refunded bonds for facilities located in
    New York City

    12/31/06

                (12/31/09 for nonresidential real property and residential rental
                                                                        property)

    12/31/04

    12/31/04

    5. Increase expensing for business property used -37 12/31/06 in the
    Liberty Zone by $35,000

    6. Extension of replacement period for certain property involuntarily
    converted in New York Liberty Zone

                                        -318 N/A

    7. 5-year life for leasehold improvements in the

                         -310 12/31/06 (leasehold improvements)

    Liberty Zone and interaction with general business tax provisions

                                     Total -$5,029

                    Source: Joint Committee on Taxation (JCX-13-02).

    Appendix IV: Description of Liberty Zone Tax Benefits1

    Liberty Zone
    tax benefita Benefit summary

    Business The work opportunity tax credit (WOTC) was expanded to

    employee credit	include a new targeted group for employees who perform
    substantially all their services for a business in the Liberty Zone or for
    a business that relocated from the Liberty Zone elsewhere within New York
    City due to the physical destruction or damage of their workplaces by the
    September 11, 2001, terrorist attacks.

    The New York Liberty Zone business employee credit allows eligible
    businesses with an average of 200 or fewer employees to take a maximum
    credit of 40 percent of the first $6,000 in wages paid or incurred for
    work performed by each qualified employee during calendar years 2002 and
    2003. Unlike the other targeted groups under WOTC, the credit for the new
    group is available for wages paid to both new hires and existing
    employees.

    Example of the benefit Effective dates

    An employee works at a Wages paid or incurred
    small company located in for qualified employees
    the Liberty Zone from June during calendar years
    1, 2002, to October 31, 2002 and 2003
    2002, and receives $3,000
    in wages a month. The
    company can claim a credit
    for 40 percent of the first
    $6,000 in wages paid
    ($2,400).

    Special depreciation allowance The special depreciation allowance provides
    an additional deduction for eligible properties. Eligible Liberty Zone
    properties include new tangible property (e.g., new office equipment),
    used tangible property (e.g., used office equipment), and residential
    rental property (e.g., an apartment complex) and nonresidential real
    property (e.g., an office building) if it rehabilitates real property
    damaged or replaces real property destroyed or condemned as a result of
    the September 11, 2001, terrorist attacks.

    For property inside the Liberty Zone, the special depreciation allowance
    allows taxpayers to deduct 30 percent of the adjusted basis of qualified
    property acquired by purchase after September 10, 2001, and placed in
    service on or before December 31, 2006 (December 31, 2009, in the case of
    nonresidential real property and residential rental property). For
    property outside the Liberty Zone, a special depreciation allowance is
    available for taxpayers but only with regard to qualified property-such as
    new tangible property and non-Liberty Zone leasehold improvement
    property-that is acquired after September 10, 2001, and before September
    11, 2004, and is placed in service on or before December 31, 2004.
    However, recent legislation (the Jobs and Growth Tax Relief Reconciliation
    Act of 2003, P.L. 108-27) has increased the deduction to 50 percent for
    qualified property both within and outside the Liberty Zone that is
    acquired after May 5, 2003, and placed in service on or before December
    31, 2004.

    On December 1, 2002, a real estate development firm purchases an office
    building in the New York Liberty Zone that costs $10 million and places it
    in service on June 1, 2003. The building replaces real property damaged as
    a result of the September 11, 2001, terrorist attacks. Under the
    provision, the taxpayer is allowed an additional first-year depreciation
    deduction of 30 percent ($3 million).

    Residential rental property and nonresidential real property: Acquired by
    purchase after September 10, 2001, and placed in service on or before
    December 31, 2009

    New and used tangible property:

    Acquired by purchase after September 10, 2001, and placed in service on or
    before December 31, 2006

    1 GAO-03-1102.

    Appendix IV: Description of Liberty Zone Tax Benefits

    Liberty Zone
    tax benefita Benefit summary Example of the benefit Effective dates

    Section 179 expensing Taxpayers with a sufficiently small investment in
    qualified section 179 business property in the Liberty Zone can elect to
    deduct rather than capitalize the amount of their investment and are
    eligible for an increased amount over other taxpayers. For qualified
    Liberty Zone property placed in service during 2001 and 2002, under
    section 179 taxpayers could deduct up to $59,000 ($24,000 under the
    general provision plus an additional $35,000) of the cost. The investment
    limit (phase-out range) in the property was $200,000. For qualified
    Liberty Zone property placed in service after 2002 and before 2007,
    taxpayers could deduct $60,000 ($25,000 under the general provision plus
    the additional $35,000) of the cost.

    However, recent legislation (P.L. 108-27) has further increased the
    maximum deduction for qualified Liberty Zone property placed in service
    after 2002 and before 2006 to $135,000 and has increased the investment
    limit to $400,000. For 2006, the maximum section 179 deduction allowed for
    qualified Liberty Zone property returns to $60,000 and the investment
    limit is $200,000. To calculate the available expensing treatment
    deduction amount for qualified Liberty Zone property, every dollar for
    which 50 percent of the cost of the property exceeds the investment limit
    is subtracted from the maximum deduction allowed.

    Taxpayers outside of the Liberty Zone may also expense qualified property
    under section 179. However, the maximum deduction for non-Liberty Zone
    property is $35,000 less than the maximum deduction allowed for Liberty
    Zone property. The investment limits for Liberty Zone and non-Liberty Zone
    property are similar. However, in contrast, in calculating the available
    expensing treatment deduction amount for non-Liberty Zone properties,
    every dollar invested in the property that exceeds the investment limit is
    subtracted from the maximum deduction allowed.

    In 2002, a taxpayer purchases and places in service in his or her Liberty
    Zone business several qualified items of equipment costing a total of
    $260,000. Because 50 percent of the cost of the property ($130,000) is
    less than $200,000, the investment limit, the section 179 deduction of
    $59,000 is not reduced, and the taxpayer can deduct this amount.

    Effective for section 179 property placed in service after September 10,
    2001, and on or before December 31, 2006

    Appendix IV: Description of Liberty Zone Tax Benefits

    Liberty Zone
    tax benefita Benefit summary Example of the benefit Effective dates

    Leasehold Qualified Liberty Zone leasehold improvement property can
    improvement be depreciated over a 5-year period using the straight-line
    property method of depreciation. The term "qualified Liberty Zone

    leasehold property" means property as defined in section 168(k)(3) and may
    include items such as additional walls and plumbing and electrical
    improvements made to an interior portion of a building that is
    nonresidential real property. Qualified Liberty Zone leasehold
    improvements must be placed in service in a nonresidential building that
    is located in the Liberty Zone after September 10, 2001, and on or before
    December 31, 2006. The class life for qualified New York Liberty Zone
    leasehold improvement property is 9 years for purposes of the alternative
    depreciation system.

    Taxpayers can also depreciate leasehold improvements outside of the
    Liberty Zone. These taxpayers can depreciate an addition or improvement to
    leased nonresidential real property using the straight-line method of
    depreciation over 39 years. Qualified leasehold improvement properties
    outside the Liberty Zone can qualify for both the 39-year depreciation
    deduction and the special depreciation allowance. However, leasehold
    improvements inside the Liberty Zone do not qualify for the special
    depreciation allowance.

    Replacement A taxpayer may elect not to recognize gain with respect to
    period for property that is involuntarily converted if the taxpayer
    involuntarily acquires qualified replacement property within an applicable
    converted period. The replacement period for property that was property
    involuntarily converted in the Liberty Zone as a result of the In 2004, a
    taxpayer buys and places in service $100,000 in additional walls for a
    leased office building in the Liberty Zone. For each tax year from 2004
    through 2008, the taxpayer can deduct up to one-fifth of the cost of the
    property.

    A taxpayer held a truck for productive use in a Liberty Zone business, but
    it was destroyed in the September 11, 2001, terrorist attacks. Several
    years ago, the taxpayer paid $50,000 for the truck and, over time,
    depreciated the basis in the truck to $30,000. If the insurance company
    paid $35,000 in reimbursement for the truck and the taxpayer used the
    $35,000 to purchase replacement property of any type that is held for
    productive use in a trade or business within 5 years after the close of
    the tax year of payment by the insurance company, the taxpayer would not
    recognize a gain.

    Effective for property placed in service after September 10, 2001, and on
    or before December 31, 2006

    Effective for involuntary conversions in the Liberty Zone occurring on or
    after September 11, 2001, as a result of the terrorist attacks on that
    date September 11, 2001, terrorist attacks is 5 years after the end of the
    taxable year in which a gain is realized provided that substantially all
    of the use of the replacement property is in New York City. The
    involuntarily converted Liberty Zone property can be replaced with any
    tangible property held for product use in a trade or business because
    taxpayers in presidentially declared disaster areas such as the Liberty
    Zone can use any tangible, productive use property to replace property
    that was involuntarily converted.

    Outside of the Liberty Zone, the replacement period for involuntarily
    converted property is 2 years (3 years if the converted property is real
    property held for the productive use in a trade or business or for
    investment), and the converted property must be replaced with replacement
    property that is similar in service or use.

    Appendix IV: Description of Liberty Zone Tax Benefits

    Liberty Zone
    tax benefita Benefit summary Example of the benefit Effective dates

    Private activity An aggregate of $8 billion of tax-exempt private activity
    The Mayor of New York City Effective for bonds

    bonds 	bonds, called qualified New York Liberty bonds, are designates $120
    million of issued after March 9, authorized to finance the acquisition,
    construction, qualified New York Liberty 2002 (the date of reconstruction,
    and renovation of certain property that is bonds to finance the enactment
    of the Job primarily located in the Liberty Zone. Qualified New York
    construction of an office Creation and Worker Liberty bonds must finance
    nonresidential real property, building in the Liberty Zone. Assistance Act
    of residential rental property, or public utility property and must 2002),
    and on or before also satisfy certain other requirements. The Mayor of New
    December 31, 2004 York City and the Governor of New York State may each
    designate up to $4 billion in qualified New York Liberty bonds.

    Advance An aggregate of $9 billion of advance refunding bonds may The
    Governor of New York Effective for advance

    refunding bonds	be issued to pay principal, interest, or redemption price
    on State designates $70 million refunding bonds issued certain prior
    issues of bonds issued for facilities located in of advance refunding
    bonds after March 9, 2002, New York City (and certain water facilities
    located outside of to refinance bonds that and on or before New York
    City). Under this benefit, certain qualified bonds, financed the
    construction of December 31, 2004 which were outstanding on September 11,
    2001, and had hospital facilities in New exhausted existing advance
    refunding authority before York City. September 12, 2001, are eligible for
    one additional advance refunding. The Mayor of New York City and the
    Governor of New York State may each designate up to $4.5 billion in
    advance refunding bonds.

    Sources: P.L. 107-147, IRS, and GAO.

    Note: GAO-03-1102.

    aThe Liberty Zone tax benefits were enacted as part of the Job Creation
    and Worker Assistance Act of 2002, P.L. 107-147.

    Appendix V: Liberty Zone Tax Benefits Bond Authority

    For advanced refunding bonds, the Mayor of New York City and the Governor
    of New York State are responsible for designating nearly $4.50 billion
    each for a total of $9 billion in advance refunding bonds through December
    31, 2004. As of June 2003, New York State had released $3.55 billion
    through the Metropolitan Transit Administration and $138 million through
    the Dormitory Authority of the state of New York and New York City had
    issued $1.64 billion of general obligation bonds with the New York City
    Water Authority releasing $190 million and the New York State
    Environmental Facilities Corporation releasing $236 million.

    For Liberty Bonds, up to $8 billion may be issued. The Governor is
    responsible for $4 billion of these bonds and the Mayor is responsible for
    $4 billion. Up to $2 billion of these bonds can be used for projects in
    New York City but in areas outside the Liberty Zone. Up to $800 million
    may be issued for Liberty Zone retail development and up to $1.6 billion
    can be used for residential rental projects in the Liberty Zone. The bonds
    are available through December 31, 2004. The Joint Committee on Taxation
    has estimated that the provision will reduce federal receipts by $1.23
    billion, which represents tax revenue lost when tax-exempt bonds are sold
    instead of taxable bonds. Table 14 shows approved Liberty Bond projects
    implemented by both the city and state of New York.

    Table 14: Approved Liberty Bond Projects Dollars in millions Project Type Amount

                                     New York City

                          7 World Trade Center Commercial $400

    Atlantic Terminal, Brooklyn Commercial

                                     New York State

    Fulton Market Commercial

    Front Street Block Commercial/ Residential

                      Battery Park City Site 19b         Residential          110
                                20 River Terrace         Residential          100
                               10 Liberty Street         Residential           95
                                           Total                             $876

                       Source: May 29, 2003, Liberty Bond Report.

    Appendix VI: GAO Contacts and Staff Acknowledgments

    GAO Contacts 	JayEtta Z. Hecker (202) 512-2834
    Jack Schulze (202) 512-4390

    Acknowledgments 	Leo Barbour, Kevin Copping, Matthew Ebert, Colin Fallon,
    Kara Finnegan Irving, and John McGrail made significant contributions to
    this report.

    Glossary

    Committed Funds 	Administrative reservation of an allotment of funds in
    anticipation of their obligation (i.e., a projected budget/spending plan).

    Disbursed Funds Funds are provided to the state/grantee.

    Obligated Funds Funds have been set aside for use as part of a
    contract/purchase order.

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    Disaster Assistance: Information on FEMA's Post 9/11 PublicAssistance to
    the New York City Area. GAO-03-926. August 31, 2003.

    Small Business Administration: Response to September 11 Victims and
    Performance Measures for DisasterLending. GAO-03-385. January 29, 2003.

    Major Management Challenges andProgramRisks: Federal Emergency Management
    Agency. GAO-03-113. January 2003.

    September 11: More Effective Collaboration Could Enhance Charitable
    Organizations' Contributions in Disasters. GAO-03-259. December 19, 2002.

    September 11: Small Business Assistance Provided in Lower Manhattan in
    Response to the Terrorist Attacks. GAO-03-88. November 1, 2002.

    September 11: Interim Report on the Response of Charities. GAO-02-1037.
    September 3, 2002.

    Review of the Estimates for the Impact of the September 11, 2001,
    Terrorist Attacks on New York Tax Revenues. GAO-02-882R. July 26, 2002.

    Review of Studies of theEconomicImpact of the September 11, 2001,
    Terrorist Attacks on theWorld Trade Center.GAO-02-700R. May 29, 2002.

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