Gulf Coast Rebuilding: Observations on Federal Financial Implications
Published: 2007-08-02T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The devastation caused by the Gulf Coast hurricanes presents the nation with unprecedented challenges as well as opportunities to reexamine shared responsibility among all levels of government. All levels of government, together with the private and nonprofit sectors, will need to play a critical role in the process of choosing what, where, and how to rebuild. Agreeing on what the costs are, what federal funds have been provided, and who will bear the costs will be key to the overall rebuilding effort. This testimony (1) places federal assistance provided to date in the context of damage estimates for the Gulf Coast, and (2) discusses key federal programs that provide rebuilding assistance to the Gulf Coast states. In doing so, GAO highlights aspects of rebuilding likely to place continued demands on federal resources. GAO visited the Gulf Coast region, reviewed state and local documents, and interviewed federal, state, and local officials. GAO's ongoing work on these issues focuses on the use of federal rebuilding funds and administration of federal programs in the Gulf Coast region.
section_title: What GAO Found
paragraphs: To respond to the Gulf Coast devastation, the federal government has already committed a historically high level of resources--more than $116 billion--through an array of grants, loan subsidies, and tax relief and incentives. A substantial portion of this assistance was directed to emergency assistance and meeting short-term needs arising from the hurricanes, leaving a smaller portion for longer-term rebuilding. To understand the long-term financial implications of Gulf Coast rebuilding, it is helpful to view potential federal assistance within the context of overall estimates of the damages incurred by the region. Some estimates put capital losses at a range of $70 billion to more than $150 billion, while the state of Louisiana estimated that the economic effect on its state alone could reach $200 billion. These estimates raise questions regarding how much additional assistance may be needed to help the Gulf Coast continue to rebuild, and who should be responsible for providing the related resources. Demands for additional federal resources to rebuild the Gulf Coast are likely to continue. The bulk of federal rebuilding assistance provided to the Gulf Coast states funds two key programs--the Federal Emergency Management Agency's Public Assistance (PA) program and the Department of Housing and Urban Development's Community Development Block Grant (CDBG) program. In addition to funding PA and CDBG, the federal government's recovery and rebuilding assistance also includes payouts from the National Flood Insurance Program as well as funds for levee restoration and repair, coastal wetlands and barrier islands restoration, and benefits provided through Gulf Opportunity Zone tax expenditures. As states and localities continue to rebuild, there are difficult policy decisions that will confront Congress about the federal government's continued contribution to the rebuilding effort and the role it might play over the long-term in an era of competing priorities. GAO's ongoing and preliminary work on Gulf Coast rebuilding suggests the following questions: How much could it ultimately cost to rebuild the Gulf Coast and how much of this cost should the federal government bear? How effective are current funding delivery mechanisms--such as PA and CDBG--and should they be modified or supplemented by other mechanisms? What options exist to effectively build in federal oversight to accompany the receipt of federal funds, particularly as federal funding has shifted from emergency response to rebuilding? How can the federal government further partner with state and local governments and the nonprofit and private sectors to leverage public investment in rebuilding? What are the "lessons learned" from the Gulf Coast hurricanes, and what changes need to be made to help ensure a more timely and effective rebuilding effort in the future?

section_title: Letter
paragraphs: I appreciate the opportunity to participate in today’s hearing to discuss our  preliminary observations on the federal financial implications of Gulf  Coast rebuilding issues. The Gulf Coast and the nation continue to face  daunting rebuilding costs, uncertainty surrounding numerous decisions  linked to the availability of federal funds, and the complexity of integrating  multiple public and private decisions that will influence the future of the  region. The size and scope of the devastation caused by the Gulf Coast  hurricanes presents the nation with unprecedented rebuilding challenges  as well as opportunities to reexamine shared responsibility among all  levels of government. Wide swaths of housing, infrastructure, and  businesses were destroyed, leaving more than 1,500 people dead and  hundreds of thousands of others displaced without shelter and  employment. Our ongoing work in Mississippi, southern Louisiana, and  New Orleans confirms that some communities still lack fulfillment of basic  needs, such as schools, hospitals, and other infrastructure, while the doors  of many businesses remain closed. Almost 2 years since the hurricanes  made landfall, many Gulf Coast neighborhoods and communities still need  to be rebuilt—some from the ground up.
Major decisions still need to be made regarding infrastructure, housing,  levee protection, coastal restoration, and economic recovery, among other  issues. All levels of government, together with the private and nonprofit  sectors, will need to play a critical role in the process of choosing what,  where, and how to rebuild. Agreeing on what the costs are, what  rebuilding should be done and by whom, and who will bear the costs will  be key to the overall rebuilding effort.
My testimony today will offer some preliminary observations on the  federal financial implications of rebuilding efforts in the Gulf Coast. These  observations may assist you in your oversight of these activities—now and  over the longer term. I would like to: (1) place the federal assistance  provided to date in the context of varied damage estimates for the Gulf  Coast; and (2) discuss the key federal programs that provide rebuilding  assistance, with an emphasis on Public Assistance (PA) and Community  Development Block Grants (CDBG). In doing so, we will highlight aspects  of Gulf Coast rebuilding likely to place continued demands on federal  resources.
My statement is based largely on our completed and ongoing work in  Washington, D.C., as well as Louisiana and Mississippi—the two states  most directly affected by the Gulf Coast hurricanes. Specifically, we  analyzed state and local documentation related to funding for rebuilding  and interviewed state and local officials as well as representatives from  nongovernmental organizations in these two states. We also interviewed  various federal officials from the Federal Emergency Management Agency  (FEMA), the Department of Housing and Urban Development (HUD), and  the Coordinator of Federal Support for the Recovery and Rebuilding of the  Gulf Coast Region within the Department of Homeland Security (DHS)  and analyzed federal regulations and state policies regarding funding for  the Gulf Coast. We performed our work in accordance with generally  accepted government auditing standards.
subsections: section_title: Estimates Raise Questions Regarding Long-term Funding
paragraphs: The total long-term funding for helping the Gulf Coast recover from the  2005 hurricanes hinges on numerous factors including policy choices  made at all levels of government, knowledge of spending across the  federal government, and the multiple decisions required to transform the  region. To understand the long-term federal financial implications of Gulf  Coast rebuilding it is helpful to view potential federal assistance within the  context of overall estimates of the damages incurred by the region.  Although there are no definitive or authoritative estimates of the amount  of federal funds that could be invested to rebuild the Gulf Coast, various  estimates of aspects of rebuilding offer a sense of the long-term financial  implications. For example, early damage estimates from the Congressional  Budget Office (CBO) put capital losses from Hurricanes Katrina and Rita  at a range of $70 billion to $130 billion while another estimate put losses  solely from Hurricane Katrina—including capital losses—at more than  $150 billion. Further, the state of Louisiana has estimated that the  economic effect on its state alone could reach $200 billion. The exact costs  of damages from the Gulf Coast hurricanes may never be known, but will  likely far surpass those from the three other costliest disasters in recent  history—Hurricane Andrew in 1992, the 1994 Northridge earthquake, and  the September 2001 terrorist attacks. These estimates raise important  questions regarding how much additional assistance may be needed to  continue to help the Gulf Coast rebuild, and who should be responsible for  providing the related resources.
To respond to the Gulf Coast devastation, the federal government has  already committed a historically high level of resources—more than $116  billion—through an array of grants, loan subsidies, and tax relief and  incentives. The bulk of this assistance was provided between September  2005 and May 2007 through five emergency supplemental appropriations.  A substantial portion of this assistance was directed to emergency  assistance and meeting short-term needs arising from the hurricanes, such  as relocation assistance, emergency housing, immediate levee repair, and  debris removal efforts. The Brookings Institution has estimated that  approximately $35 billion of the federal resources provided supports  longer-term rebuilding efforts.
The federal funding I have mentioned presents an informative, but likely  incomplete picture of the federal government’s total financial investments  to date. Tracking total funds provided for federal Gulf Coast rebuilding  efforts requires knowledge of a host of programs administered by multiple  federal agencies. We previously reported that the federal government does  not have a governmentwide framework or mechanism in place to collect  and consolidate information from the individual federal agencies that  received appropriations in emergency supplementals for hurricane relief  and recovery efforts or to report on this information. It is important to  provide transparency by collecting and publishing this information so that  hurricane victims, affected states, and American taxpayers know how  these funds are being spent. Until such a system is in place across the  federal government, a complete picture of federal funding streams and  their integration across agencies will remain lacking.
section_title: Demand for Federal Rebuilding Resources Likely to Continue
paragraphs: Demands for additional federal resources to rebuild the Gulf Coast are  likely to continue, despite the substantial federal funding provided to date.  The bulk of federal rebuilding assistance provided to the Gulf Coast states  funds two key programs—FEMA’s Public Assistance (PA) program and  HUD’s Community Development Block Grant (CDBG) program. These two  programs follow different funding models. PA provides funding for  restoration of the region’s infrastructure on a project-by-project basis  involving an assessment of specific proposals to determine eligibility. In  contrast, CDBG affords broad discretion and flexibility to states and  localities for restoration of the region’s livable housing. In addition to  funding PA and CDBG, the federal government’s recovery and rebuilding  assistance also includes payouts from the National Flood Insurance  Program (NFIP) as well as funds for levee restoration and repair, coastal  wetlands and barrier islands restoration, and benefits provided through  Gulf Opportunity Zone (GO Zone) tax expenditures.
subsections: section_title: Public Assistance Program Faces Increased Costs
paragraphs: The PA Grant program provides assistance to state and local governments  and eligible nonprofit organizations on a project-by-project basis for  emergency work (e.g., removal of debris and emergency protective  measures) and permanent work (e.g., repairing roads, reconstructing  buildings, and reestablishing utilities). After the President declares a  disaster, a state becomes eligible for federal PA funds through FEMA’s  Disaster Relief Fund. Officials at the local, state, and federal level are  involved in the PA process in a variety of ways. The grant applicant, such  as a local government or nonprofit organization, works with state and  FEMA officials to develop a scope of work and cost estimate for each  project that is documented in individual project worksheets. In addition to  documenting scope of work and cost considerations, each project  worksheet is reviewed by FEMA and the state to determine whether the  applicant and type of facility are eligible for funding. Once approved, funds  are obligated, that is, made available, to the state. PA generally operates on  a reimbursement basis. Reimbursement for small projects (up to $59,700)  are made based on the project’s estimated costs, while large projects  (more than $59,700) are reimbursed based upon actual eligible costs when  they are incurred.
As of the middle of July 2007, FEMA had approved a total of 67,253 project  worksheets for emergency and permanent work, making available about  $8.2 billion in PA grants to the states of Louisiana, Mississippi, Texas, and  Alabama. A smaller portion of PA program funds are going toward longer- term rebuilding activities than emergency work. Of the approximately $8.2  billion made available to the Gulf Coast states overall, about $3.4 billion  (41 percent) is for permanent work such as repairing and rebuilding  schools and hospitals and reestablishing sewer and water systems, while  about $4.6 billion (56 percent) is for emergency response work such as  clearing roads for access and sandbagging low-lying areas. The remaining  amount of PA funds, about $0.2 billion (3 percent) is for administrative  costs. (See fig. 1.) Of the funds made available by FEMA to the states for  permanent rebuilding, localities have only received a portion of these  funds since many projects have not yet been completed. Specifically, in  Louisiana and Mississippi, 26 and 22 percent of obligated funds,  respectively, have been paid by the state to applicants for these projects.
The total cost of PA funding for the Gulf Coast hurricanes will likely  exceed the approximately $8.2 billion already made available to the states  for two reasons: (1) the funds do not reflect all current and future projects,  and (2) the cost of some of these projects will likely be higher than  FEMA’s original estimates. According to FEMA, as of the middle of July  2007, an additional 1,916 project worksheets were in process (these  projects are in addition to the 67,253 approved project worksheets  mentioned above). FEMA expects that another 2,730 project worksheets  will be written. FEMA expects these worksheets to increase the total cost  by about $2.1 billion, resulting in a total expected PA cost of about $10.3  billion.
Some state and local officials have also expressed concerns about  unrealistically low cost estimates contained in project worksheets, which  could lead to even higher than anticipated costs to the federal government.  A senior official within the Louisiana Governor’s Office of Homeland  Security and Emergency Preparedness recently testified that some of the  projects were underestimated by a factor of 4 or 5 times compared to the  actual cost. For example, the lowest bids on 11 project worksheets for  repairing or rebuilding state-owned facilities, such as universities and  hospitals, totaled $5.5 million while FEMA approved $1.9 million for these  projects.
The extent to which the number of new project worksheets and actual  costs that exceed estimated costs will result in demands for additional  federal funds remains unknown. In addition, PA costs may increase until a  disaster is closed, which can take many years in the case of a catastrophic  disaster. For instance, PA costs from the Northridge earthquake that hit  California in January 1994 have not been closed out more than 13 years  after the event. Our ongoing work on the PA program will provide insights  into efforts to complete infrastructure projects, the actual costs of  completed projects, and the use of federal funds to complete PA projects.
section_title: Additional Resource Demands Anticipated for CDBG Program
paragraphs: HUD’s CDBG program provides funding for neighborhood revitalization  and housing rehabilitation activities, affording states broad discretion and  flexibility in deciding how to allocate these funds and for what purposes.  Congress has provided even greater flexibility when allocating additional  CDBG funds to affected communities and states to help them recover from  presidentially-declared disasters, such as the Gulf Coast hurricanes. To  date, the affected Gulf Coast states have received $16.7 billion in CDBG  funding from supplemental appropriations—so far, the largest federal  provider of long-term Gulf Coast rebuilding funding. As shown in figure 2,  Louisiana and Mississippi were allocated the largest shares of the CDBG  appropriations, with $10.4 billion allocated to Louisiana, and another $5.5  billion allocated to Mississippi. Florida, Alabama, and Texas received the  remaining share of CDBG funds.
To receive CDBG funds for Gulf Coast rebuilding, HUD required that each  state submit an action plan describing how the funds would be used,  including how the funds would address long-term “recovery and  restoration of infrastructure.” Accordingly, the states had substantial  flexibility in establishing funding levels and designing programs to achieve  their goals. As shown in figure 3, Mississippi set aside $3.8 billion to  address housing priorities within the state while Louisiana dedicated $8  billion for its housing needs.
Each state also directed the majority of its housing allocations to owner- occupied homes and designed a homeowner assistance program to  address the particular conditions in their state. As discussed below, each  state used different assumptions in designing its programs, which in turn  affects the financial implications for each state.
subsections: section_title: Louisiana’s Homeowner Assistance Program Anticipates Shortfall
paragraphs: Using $8.0 billion in CDBG funding, the Louisiana Recovery Authority  (LRA) developed a housing assistance program called the Road Home to  restore the housing infrastructure in the state. As shown in figure 4,  Louisiana set aside about $6.3 billion of these funds to develop the  homeowner assistance component of the program and nearly $1.7 billion  for rental, low-income housing, and other housing-related projects.  Louisiana anticipated that FEMA would provide the homeowner  assistance component with another $1.2 billion in grant assistance.  Louisiana based these funding amounts on estimates of need within the  state. Accordingly, Louisiana estimated that $7.5 billion would be needed  to assist 114,532 homeowners with major or severe damage. Louisiana also  estimated these funds would provide an average grant award of $60,109  per homeowner.
The LRA launched the Road Home homeowner assistance program in  August 2006. Under the program, homeowners who decide to stay in  Louisiana and rebuild are eligible for the full amount of grant assistance— up to $150,000. Aside from the elderly, residents who choose to sell their  homes and leave the state will have their grant awards reduced by 40  percent, while residents who did not have insurance at the time of the  hurricanes will have their grant awards reduced by 30 percent. To receive  compensation, homeowners must comply with applicable code and zoning  requirements and FEMA advisory base flood elevations when rebuilding  and agree to use their home as a primary residence at some point during a  3-year period following closing. Further, the amount of compensation that  homeowners can receive depends on the value of their homes before the  storms and the amount of flood or wind damage that was not covered by  insurance or other forms of assistance.
As of July 16, 2007, the Road Home program had received 158,489  applications and had held 36,655 closings with an average award amount  of $74,216. With the number of applications exceeding initial estimates and  average award amounts higher than expected, recent concerns have been  raised about a potential funding shortfall and the Road Home program’s  ability to achieve its objective of compensating all eligible homeowners.  Concerns over the potential shortfall have led to questions about the Road  Home program’s policy to pay for uninsured wind damage instead of  limiting compensation to flood damage. In recent congressional hearings,  the Executive Director of the LRA testified that the Road Home program  will require additional funds to compensate all eligible homeowners, citing  a higher than projected number of homeowners applying to the program,  higher costs for homeowner repairs, and a smaller percentage of private  insurance payouts than expected.
According to the Federal Coordinator for Gulf Coast Rebuilding, CDBG  funds were allocated to Louisiana on the basis of a negotiation with the  state conducted between January and February 2006. That negotiation  considered the provision of federal funding for the state’s need to conduct  a homeowner assistance program covering homes that experienced major  or severe damage from flooding. The state requested the allocation of  federal funding at that time to expand the program to assist homeowners  who experienced only wind damage. That request to provide federal funds  to establish a homeowner program for homes which only experienced  wind damage was denied, as were similar requests from Gulf Coast states  such as Texas. The Administration requested the negotiated amount from  Congress on February 15, 2006. Congress approved that amount and it was  signed into law by the President on June 15, 2006. Subsequently, Louisiana  announced the expansion of the Road Home program to cover damage  exclusively from wind regardless of the stated intention of the federal  allocation, but fully within their statutory authority.
In addition, the Executive Director of the LRA testified that Louisiana had  not received $1.2 billion in funds from FEMA—assistance that had been  part of the Road Home program’s original funding design. Specifically, the  state expected FEMA to provide grant assistance through its Hazard  Mitigation Grant Program (HMGP)—a program that generally provides  assistance to address long-term community safety needs. Louisiana had  planned to use this funding to assist homeowners with meeting elevation  standards and other storm protection measures, as they rebuilt their  homes. However, FEMA has asserted that it cannot release the money  because the Road Home program discriminates against younger residents.  Specifically, the program exempts elderly recipients from the 40 percent  grant reduction if they choose to leave the state or do not agree to reside  in their home as a primary residence at some point during a 3-year period.
Although we have not assessed their assumptions, recent estimates from  the Road Home program and Louisiana’s state legislative auditor’s office  have estimated a potential shortfall in the range of $2.9 billion to $5 billion.
While these issues will not be immediately resolved, they raise a number  of questions about the potential demands for additional federal funding for  the states’ rebuilding efforts. Our ongoing work on various aspects of the  CDBG program—including a review of how the affected states developed  their funding levels and priorities—will provide insights into these issues.
section_title: Mississippi’s Homeowner Assistance Program Proceeding in Two Phases
paragraphs: In Mississippi, Katrina’s storm surge destroyed tens of thousands of  homes, many of which were located outside FEMA’s designated flood  plain and not covered by flood insurance. Using about $3 billion in CDBG  funds, Mississippi developed a two-phase program to target homeowners  who suffered losses due to the storm surge. Accordingly, Phase I of the  program was designed to compensate homeowners whose properties were  located outside the floodplain and had maintained hazard insurance at a  minimum. Eligible for up to $150,000 in compensation, these  homeowners were not subject to a requirement to rebuild. Phase II of the  program is designed to award grants to those who received flood surge  damage, regardless of whether they lived inside or outside the flood zone  or had maintained insurance on their homes. Eligible applicants must have  an income at or below 120 percent of the Area Median Income (AMI).  Eligible for up to $100,000 in grant awards, these homeowners are not  subject to a requirement to rebuild. In addition, homeowners who do not  have insurance will have their grant reduced by 30 percent, although this  penalty does not apply to the “special needs” populations as defined by the  state (i.e., elderly, disabled, and low-income).
As of July 18, 2007, Mississippi had received 19,277 applications for Phase  I of its program and awarded payments to 13,419 eligible homeowners  with an average award amount of $72,062. In addition, Mississippi had  received 7,424 applications for Phase II of its program and had moved an  additional 4,130 applications that did not qualify for Phase I assistance to  Phase II. The State had awarded 234 grants to eligible homeowners in  Phase II with an average award amount of $69,448.
section_title: Substantial Losses Affect National Flood Insurance Program Ability to Repay
paragraphs: The National Flood Insurance Program (NFIP) incurred unprecedented  storm losses from the 2005 hurricane season. NFIP estimated that it had  paid approximately $15.7 billion in flood insurance claims as of January  31, 2007, encompassing approximately 99 percent of all flood claims  received. The intent of the NFIP is to pool risk, minimize costs and  distribute burdens equitably among those who will be protected and the  general public. The NFIP, by design, is not actuarially sound.  Nonetheless, until recent years, the program was largely successful in  paying flood losses and operating expenses with policy premium  revenues—the funds paid by policyholders for their annual flood  insurance coverage. However, because the program’s premium rates have  been set to cover losses in an average year based on program experience  that did not include any catastrophic losses, the program has been unable  to build sufficient reserves to meet future expected flood losses.
Historically, the NFIP has been able to repay funds borrowed from the  Treasury to meet its claims obligations. However, the magnitude and  severity of losses from Hurricane Katrina and other 2005 hurricanes  required the NFIP to obtain borrowing authority of $20.8 billion from the  Treasury, an amount NFIP will unlikely be able to repay while paying  future claims with its current premium income of about $2 billion  annually.
In addition to the federal funding challenge created by the payment of  claims, key concerns raised from the response to the 2005 hurricane  season include whether or not some property-casualty insurance claims  for wind-related damages were improperly shifted to NFIP at the expense  of taxpayers. For properties subjected to both high winds and flooding,  determinations must be made to assess the damages caused by wind,  which may be covered through a property-casualty homeowners policy,  and the damages caused by flooding, which may be covered by NFIP.  Disputes over coverage between policyholders and property-casualty  insurers from the 2005 hurricane season highlight the challenges of  determining the appropriateness of claims for multiple-peril events. NFIP  may continue to face challenges in the future when servicing and  validating flood claims from disasters such as hurricanes that may involve  both flood and wind damages. Our ongoing work addresses insurance  issues related to wind versus flood damages, including a review of how  such determinations are made, who is making these determinations and  how they are regulated, and the ability of FEMA to verify the accuracy of  flood insurance claims payments based on the wind and flood damage  determinations.
section_title: Billions Appropriated for Gulf Coast Hurricane Protection Projects
paragraphs: Congress has appropriated more than $8 billion to the U.S. Army Corps of  Engineers (Corps) for hurricane protection projects in the Gulf Coast.  These funds cover repair, restoration and construction of levees and  floodwalls as well as other hurricane protection and flood control  projects. These projects are expected to take years and require billions of  dollars to complete. Estimated total costs for hurricane protection  projects are unknown because the Corps is also conducting a study of  flood control, coastal restoration, and hurricane protection measures for  the southeastern Louisiana coastal region as required by the 2006 Energy  and Water Development Appropriations Act and Department of Defense  Appropriations Act. The Corps must propose design and technical  requirements to protect the region from a Category 5 hurricane.  According to the Corps, alternatives being considered include a structural  design consisting of a contiguous line of earthen or concrete walls along  southern coastal Louisiana, a nonstructural alternative involving only  environmental or coastal restoration measures, or a combination of those  alternatives. The Corps’ final proposal is due in December 2007. Although  the cost to provide a Category 5 level of protection for the southeastern  Louisiana coastal region has not yet been determined, these costs would  be in addition to the more than $8 billion already provided to the Corps.
section_title: Restoring Louisiana’s Wetlands and Barrier Islands Will Likely Cost Billions
paragraphs: The Corps’ December 2007 proposal will also influence future federal  funding for coastal wetlands and barrier islands restoration. Since the  1930s, coastal Louisiana lost more than 1.2 million acres of wetlands, at a  rate of 25–35 square miles per year, leaving the Gulf Coast exposed to  destructive storm surge. Various preliminary estimates ranging from $15  billion to $45 billion have been made about the ultimate cost to complete  these restoration efforts. However, until the Corps develops its plans and  the state and local jurisdictions agree on what needs to be done, no  reliable estimate is available. We are conducting work to understand what  coastal restoration alternatives have been identified and how these  alternatives would integrate with other flood control and hurricane  protection measures, the challenges and estimated costs to restore  Louisiana’s coastal wetlands, and the opinions of scientists and engineers  on the practicality and achievability of large-scale, comprehensive plans  and strategies to restore coastal wetlands to the scale necessary to protect  coastal Louisiana.
section_title: GO Zone Tax Incentives Provide Assistance for Recovery
paragraphs: The Gulf Opportunity Zone Act of 2005 provides tax benefits to assist in  the recovery from the Gulf Coast hurricanes. From a budgetary  perspective, most tax expenditure programs, such as the GO Zones, are  comparable to mandatory spending for entitlement programs, in that  federal funds flow based on eligibility and formulas specified in  authorizing legislation. The 5-year cost of the GO Zones is estimated at $8  billion and the 10-year cost is estimated to be $9 billion. Since Congress  and the President must change substantive law to change the cost of these  programs, they are relatively uncontrollable on an annual basis. The GO  Zone tax benefits chiefly extend, with some modifications, existing tax  provisions such as expensing capital expenditures, the Low Income  Housing Tax Credit (LIHTC), tax exempt bonds, and the New Markets Tax  Credit (NMTC). The 2005 Act increases limitations in expensing provisions  for qualified GO Zone properties. The Act also increased the state  limitations in Alabama, Louisiana, and Mississippi on the amount of LIHTC  that can be allocated for low-income housing properties in GO Zones.  Further, the act allows these states to issue tax-exempt GO Zone bonds for  qualifying residential and nonresidential properties. Finally, the NMTC  limitations on the total amount of credits allocated yearly were also  increased for qualifying low-income community investments in GO Zones.
We have a congressional mandate to review the practices employed by the  states and local governments in allocating and utilizing the tax incentives  provided in the Gulf Opportunity Zone Act of 2005. We have also issued  reports on the tax provisions, such as LIHTC and NMTC, now extended to  the GO Zones by the 2005 Act.
section_title: Observations
paragraphs: Rebuilding efforts in the Gulf Coast continue amidst questions regarding  the total cost of federal assistance, the extent to which federal funds will  address the rebuilding demands of the region, and the many decisions left  to be made by multiple levels of government. As residents, local and state  leaders and federal officials struggle to respond to these questions, their  responses lay a foundation for the future of the Gulf Coast. As states and  localities continue to rebuild, there are difficult policy decisions that will  confront Congress about the federal government’s continued contribution  to the rebuilding effort and the role it might play over the long-term in an  era of competing priorities. Congress will be faced with many questions as  it continues to carry out its critical oversight function in reviewing funding  for Gulf Coast rebuilding efforts. Our ongoing and preliminary work on  Gulf Coast rebuilding suggests the following questions:    How much could it ultimately cost to rebuild the Gulf Coast and how  much of this cost should the federal government bear?
How effective are current funding delivery mechanisms—such as PA and  CDBG—and should they be modified or supplemented by other  mechanisms?
What options exist to effectively build in federal oversight to accompany  the receipt of federal funds, particularly as federal funding has shifted  from emergency response to rebuilding?
How can the federal government further partner with state and local  governments and the nonprofit and private sectors to leverage public  investment in rebuilding?
What are the “lessons learned” from the Gulf Coast hurricanes, and what  changes need to be made to help ensure a more timely and effective  rebuilding effort in the future?
Mr. Chairman and Members of the committee, this concludes my  statement. I would be happy to respond to any questions you may have at  this time.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For information about this testimony, please contact Stanley J.  Czerwinski, Director, Strategic Issues, at (202) 512-6806 or  czerwinskis@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this  statement. Individuals making key contributions to this testimony include  Kathleen Boggs, Peter Del Toro, Jeffrey Miller, Carol Patey, Brenda  Rabinowitz, Michelle Sager, and Robert Yetvin.
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