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.
Related GAO Products
Tax Administration: Difficult for IRS to Determine if $5 Billion in
Liberty Zone Tax Benefits will be Realized Using IRS Data. GAO-03-1102.
September 30, 2003.
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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