Disaster Assistance: Federal Assistance for Permanent Housing Primarily Benefited Homeowners; Opportunities Exist to Better Target Rental Housing Needs
Released: 2010-02-16T00:00:00

Letter

Background

After major disasters, various federal agencies provide a range of assistance to individual victims; state, territorial, and local governments; and nongovernmental entities. This assistance is administered through various federal programs, and is generally made available after the President issues a disaster declaration under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act). While the federal government provides significant financial assistance after major disasters, the federal role is primarily to assist state and local governments, which have the central role in recovery efforts. State and local governments have the main responsibility of applying for, receiving, and implementing federal assistance. Further, they make decisions about what priorities and projects the community will undertake for recovery.

The Stafford Act also specifies that federal agencies providing financial assistance after a major disaster cannot provide assistance to an individual for the same loss for which another federal program or private insurance company has provided compensation. Therefore, homeowners that sustained damages from the 2005 Gulf Coast hurricanes must first seek assistance from their homeowner insurance or National Flood Insurance Program policies. Homeowners in the Gulf Coast area had varying levels of hazard and flood insurance coverage. Of the 331,070 homeowner units that sustained minor, major, or severe damage in Louisiana, 126,007 (38 percent) had hazard insurance only, and 118,928 (36 percent) had both hazard and flood insurance. Of the 157,914 homeowner units that sustained damage in Mississippi, 94,792 (60 percent) had hazard insurance only, and 11,481 (7 percent) had hazard and flood insurance. Insurance industry estimates indicate that homeowners in Louisiana and Mississippi received average payments of nearly $16,000 in each state for personal property claims related to Hurricane Katrina and average payments of $13,000 and $3,500, respectively, for personal property claims related to Hurricane Rita. For both Hurricanes Katrina and Rita, our analysis shows that $9.7 billion was paid out through the National Flood Insurance Program to homeowners in Louisiana and Mississippi, with a median claim payment of $74,000. Less is known about the extent to which rental property owners had hazard and flood insurance coverage and the amounts paid out in claims after the 2005 hurricanes because data are not readily available. In addition, data are not available to determine the extent to which insurance settlements made to both homeowners and rental property owners addressed their damages.

Through executive orders, the authority to provide disaster relief assistance has been delegated to FEMA. FEMA provides various forms of temporary housing assistance, such as direct financial assistance or a temporary housing unit after a disaster, typically for a period no longer than 18 months, as directed by the Stafford Act. HUD is the recognized federal authority for housing assistance (including permanent housing) and has provided assistance such as rental housing vouchers and grants for federally declared major disasters in the past and prior to FEMA’s creation in 1979. Over the years, Congress has provided several mechanisms for disaster assistance, including HUD’s CDBG program funds for recovery. After the 2005 hurricanes, HUD was responsible for providing assistance to clients that it had already been assisting and for providing CDBG funds. Through the Small Business Act as amended, SBA has the authority to provide home and business loans to repair or replace damaged or destroyed real estate not fully covered by insurance.

According to FEMA’s National Disaster Housing Strategy, which was issued in January 2009, throughout the Hurricane Katrina response, responsibilities and roles that had seemed clear in previous events became less clear as FEMA and other federal departments and agencies provided increasing levels of support to state and local officials. For example, FEMA typically does not provide housing assistance for more than 18 months, and generally does not lead efforts to coordinate and deliver permanent housing assistance. However, in response to the 2005 Gulf Coast hurricanes, FEMA led the coordination with states and local communities and implemented many of the housing options, including permanent housing. According to a congressional study on deficiencies in post-disaster housing assistance, there was a lack of clarity in the long- term post-disaster housing-related responsibilities of HUD and FEMA, and concerns have been raised regarding HUD’s limited housing role after Hurricane Katrina and its role in future disasters. The National Disaster Housing Strategy states that HUD is uniquely positioned to assist those affected by a disaster and will be given lead responsibility for permanent housing when such assistance is needed in the future.

After the 2005 Gulf Coast hurricanes, a variety of federal programs was made available to homeowners and rental property owners for the repair or replacement of permanent housing (see table 1). Four federal agencies have responsibility for these programs: DHS, HUD, SBA, and Treasury. DHS administers three different grant programs that can be used to repair or replace disaster-damaged housing and mitigate damages after disasters. HUD provides funding for two grant programs, including the CDBG program, through which states can develop post-disaster programs that benefit both homeowners and renters. The CDBG program has often been relied upon as a convenient source of flexible funding that can be applied to disaster situations to help states rebuild their communities. The SBA provides two different types of loans for homeowners and owners of residential rental properties. Both loan products can fund the repair or replacement of disaster-damaged properties. Finally, Treasury has responsibility for three programs that provide additional tax incentives to the states affected by Hurricanes Katrina and Rita to encourage both housing and economic development. Congress established the Gulf Opportunity Zone Act of 2005 to provide tax incentives to individuals and businesses in certain presidentially declared disaster areas. In contrast with grant programs, where funds come directly from the government, GO Zone incentives provide investors with relief from certain tax liabilities.

Affordable housing challenges existed for both homeowners and renters in Louisiana and renters in Mississippi before the 2005 Gulf Coast hurricanes, particularly in the areas most damaged by these storms. According to HUD, the generally accepted definition of “affordable” is for a household to pay no more than 30 percent of its income on housing. Families who pay more than 30 percent of their annual income for housing are considered cost burdened. Like renters nationwide, renters in Louisiana and Mississippi were generally more cost burdened prior to Hurricanes Katrina and Rita than homeowners. For example, according to the 2004 American Community Survey, for the areas most damaged by the hurricanes, in the New Orleans metropolitan area (St. Charles, Orleans, St. Tammany, St. Bernard, and Plaquemines parishes) 48 percent of renters and 24 percent of homeowners spent 30 percent or more of their income on housing costs, compared with 50 percent of renters and 21 percent of homeowners statewide. In the Gulfport-Biloxi-Pascagoula metropolitan area in Mississippi—which includes Hancock, Harrison, and Jackson counties—48 percent of renters and 21 percent of homeowners spent 30 percent or more of their income on housing costs compared to 50 percent of the renters and 24 percent of homeowners statewide (see fig. 1).

Hurricanes Katrina and Rita increased the need for affordable housing in both Louisiana and Mississippi. For example, of the 82,000 rental units that were damaged or destroyed in Louisiana, about 54,000 were affordable to individuals earning less than 80 percent of the area median income, according to state officials. Similarly, in Mississippi nearly one-fourth of the 25,000 affordable rental units in three Mississippi coastal counties were damaged, with Hancock and Harrison counties sustaining the most damage to their affordable rental housing stock.

Federal Assistance for Permanent Housing after the 2005 Storms Included Grants, Loans, and Tax Incentives, and States Designed Programs to Award the Majority of This Assistance

After Hurricanes Katrina and Rita, federal assistance for the repair or replacement of permanent housing was made available to homeowners and rental property owners in three forms: grants, loans, and tax incentives. The largest source of assistance was the CDBG program. The majority of federal assistance was administered by the states, which designed the programs and used their discretion to prioritize beneficiaries. These programs made assistance available to applicants at different times, depending on the structure and requirements of each program.

Grants, Loans, and Tax Incentives for the Repair or Replacement of Permanent Housing Were Available to Homeowners and Rental Property Owners

Ten federal programs that we reviewed provided grants, loans, and tax incentives after the 2005 Gulf Coast hurricanes for the repair or replacement of housing. Grants were made available through five different programs to assist with the repair of disaster-damaged housing; to fund hazard mitigation projects, such as the elevation of housing; and to repair or replace public housing or other housing owned by a public housing agency (PHA). Loans were made available through three programs (including one program that also provides grants) for the repair of disaster-damaged housing for homeowners and renters. Finally, three different tax incentive programs were made available to encourage the redevelopment of housing in the GO Zone for both homeowners and renters. While all of these programs could potentially be used to repair, replace, or develop housing structures, some could also be used for other activities, such as economic development.

Of the programs we reviewed, two were available to homeowners only— the Individual and Households Program (IHP): Repair or Replacement Assistance and the Home Disaster Loan Program (see table 2). Several programs could have potentially served either homeowners or renters, including the CDBG program, the Hazard Mitigation Grant Program (HMGP), and some tax incentives. Finally, four of the programs we reviewed could have assisted renters by funding or providing incentives for the repair or replacement of rental housing.

Some programs made assistance available for housing-related activities only. For example, Home Disaster Loans, IHP Repair or Replacement Assistance, and GO Zone Low-Income Housing Tax Credits (LIHTC) could only be used for housing-related activities. However, most of the programs we reviewed could be used for other activities as well. For example, CDBG funds could be used flexibly by states and were made available for economic development, infrastructure, historic preservation, and demolition. Similarly, GO Zone Private Activity Bonds could be used for the development of private facilities, such as hotels and retail facilities.

Until recently, vouchers were made available to disaster victims to subsidize rents in existing housing as a temporary source of housing assistance. According to some housing experts, vouchers, specifically Housing Choice Vouchers, which are permanent, should have been provided to disaster victims, especially low-income renters, more quickly after the Gulf Coast hurricanes. Congress first made Housing Choice Vouchers available for families affected by the hurricanes in September 2008.

State Agencies Administered the Majority of Available Funds

State agencies administered the majority of federal assistance available for the repair or replacement of permanent housing, including nearly $19 billion in CDBG disaster relief recovery funds, over $13 billion in tax incentives, and nearly $2 billion in HMGP funds (see fig. 2). Louisiana and Mississippi created new state offices to design and administer the programs funded with the supplemental CDBG funds, including housing programs. In Louisiana, the Louisiana Recovery Authority was created and charged with establishing spending priorities and policies related to the state’s use of the supplemental CDBG funds. In addition, a Disaster Recovery Unit was created within the state’s Office of Community Development, which has managed the state’s CDBG program over the past two decades, to administer the funds. In Mississippi, the Governor’s Office of Recovery and Renewal was established and given primary responsibility for designing housing recovery programs funded with supplemental CDBG funds. The Mississippi Development Authority’s Disaster Recovery Division was responsible for managing Mississippi’s share of CDBG disaster relief funds.

State agencies were responsible for administering two of the three tax incentive programs that we reviewed. For the GO Zone Private Activity Bond and LIHTC Programs, states were authorized to allocate additional tax-exempt bond financing and low-income housing tax credits. Each eligible state was responsible for setting up an application process and selecting qualified projects to receive allocations up to each state’s allocation authority under the GO Zone Act. As we previously reported, Louisiana and Mississippi generally allocated the GO Zone bond provisions on a first-come, first-served basis, and did not consistently target the allocations to assist recovery in the most damaged areas, although Louisiana did set aside some of its allocation authority for the most damaged parishes. In contrast, in allocating funds for the GO Zone LIHTC program, the state housing finance agencies in Louisiana and Mississippi gave priority to the GO Zone counties with the most hurricane-related damage.

State agencies also administered FEMA’s HMGP. According to FEMA officials, state agencies in Louisiana and Mississippi accepted applications from local jurisdictions for the funds, and forwarded applications to FEMA for review and funding. State mitigation plans document the state’s priorities for the use of HMGP funds, and states are required to update an administrative plan for implementing HMGP funds after every disaster. Plans for the use of HMGP funds should include mitigation activities that are cost effective, environmentally sound, and either statewide or property specific.

Federal agencies directly administered six of the sources of post-disaster housing assistance we reviewed, which accounted for approximately $5 billion in available funds and $1 billion in available tax incentives (see fig. 2). For example, the Community Development Financial Institutions Fund within Treasury administers the New Markets Tax Credit program, which competitively allocated tax credit authority—the amount of investment for which investors can claim a 39 percent tax credit over 7 years—to Community Development Entities. FEMA administers both the IHP Repair or Replacement Assistance and the Public Assistance for Permanent Work programs. For the IHP Repair or Replacement Assistance Program, FEMA reviewed applications and awarded funds to homeowners for losses that were not covered by insurance. Through the Public Assistance for Permanent Work Program, FEMA reviewed applications for assistance from PHAs and could award assistance to PHAs for damages to PHA-owned rental housing that was not funded with HUD funds (i.e., public housing could not be funded). HUD was responsible for awarding Capital Fund/Emergency Natural Disaster funds to PHAs on a first-come, first-served basis for the repair or replacement of a public housing development damaged as a result of a natural disaster. PHAs that experienced an emergency situation or a natural disaster were eligible to apply for and receive funds from the reserve provided that they complied with certain requirements. For example, according to HUD’s Grant Handbook, funds provided because of a disaster were only available to the extent that needed repairs were in excess of payments from insurance claims and other federal sources, such as FEMA funds for disaster-related emergency work (but not permanent work). SBA was responsible for administering the Home Disaster and Physical Disaster Business Loan Programs. SBA reviewed applications for assistance and provided loans to eligible applicants. (See app. V for additional information about these programs.)

States Created New Programs to Deliver CDBG Funds to Homeowners and Rental Property Owners and Used Their Discretion in Prioritizing Beneficiaries and Designing Programs

Congress provided states broad discretion and flexibility in deciding how to allocate CDBG funds and for what purposes. The CDBG program is the federal government’s most widely available source of financial assistance to support state- and local government-directed neighborhood revitalization, housing rehabilitation, and economic development activities. Congress provided states with supplemental CDBG funding to help them recover from the Gulf Coast hurricanes, beginning in December 2005. To provide the states additional flexibility in delivering disaster relief, many of the statutory and regulatory provisions governing the use of the funds were waived or modified. HUD issued guidance in February 2006 stating that the funds should be used toward unmet housing needs in areas of concentrated distress. In addition, in June 2006 Congress required states to use at least $1 billion for the repair, rehabilitation, and reconstruction of affordable rental housing, including public and other HUD-assisted housing. This requirement was intended to ensure that states were not only investing in homeownership but also in the housing needs of all affected residents.

To make CDBG funds available for the repair or replacement of permanent housing, both Louisiana and Mississippi created new programs for homeowners and small rental property owners (owners of rental properties with up to four units). As we recently reported, Louisiana created the Road Home Homeowner Program, through which funds were made available to homeowners to rebuild homes on their own property, sell their properties and relocate within the state, or sell their homes and relocate outside the state. Mississippi created the Homeowner Assistance Program for homeowners that sustained flood damage. The first round of funding was limited to homeowners that did not have flood insurance because they were located outside of a federally designated flood zone. (See app. II for additional information about these programs.)

Louisiana also created the Road Home Small Rental Property Program for owners of small rental properties in the most damaged parishes and made forgivable loans available in two funding rounds. Property owners had to independently finance needed repairs and rent out their units to income- eligible tenants. Once the units were ready for occupancy, the state would conduct inspections and authorize the disbursement of the loan. In December 2008 the state announced an additional option for program participants, designed to provide up-front financing. According to program administrators, this option was created to increase the production of rental housing with CDBG funds and to accelerate the distribution of funds to small rental property owners. According to program administrators, as of November 2009, 1,024 property owners had agreed to participate in this option.

Mississippi created the Small Rental Assistance Program for owners of small rental properties in four counties (Hancock, Harrison, Jackson, and Pearl River) and made forgivable loans available in two funding rounds. The program was designed to offer four types of assistance: (1) rental income subsidy, (2) repair or reconstruction of a Katrina-damaged property, (3) reconstruction or conversion reimbursement of a non- Katrina-damaged property, or (4) new construction reimbursement. The state of Mississippi generally disbursed loans in two installments, half when the property owner provided a building permit and the remainder when the property owner provided a certificate of occupancy.

In addition, Mississippi used CDBG funds to address the need for workforce housing and public housing. Mississippi created a Long Term Workforce Housing Program to provide grants and loans to local units of government, nonprofits, and for-profit organizations to provide long-term affordable housing in Hancock, Harrison, Jackson, and Pearl River counties. This program was designed to benefit households that earned 120 percent of area median income or less. The program could be used to develop or repair housing for homeowners or renters. The state also designated CDBG funds for the repair or replacement of public housing units that were damaged by Hurricane Katrina. Using these funds, the state created a Public Housing Program to make grants available to five PHAs that sustained damage.

Other Assistance Was Made Available through Existing Programs and Processes

Generally, the federal and state administrators of programs other than CDBG that we reviewed used existing processes to make post-disaster housing assistance available to homeowners and renters. For example, FEMA used its existing, but streamlined, processes to make IHP Repair or Replacement Assistance and Public Assistance for Permanent Work available to eligible homeowners and PHAs, respectively. FEMA accepted applications for IHP Repair or Replacement Assistance via phone and the Internet. Applicants who were awarded housing assistance, but who had remaining unmet housing needs because damages exceeded the maximum award, were referred to SBA for a disaster home loan application. Similarly, SBA used its existing processes to make Home Disaster and Physical Disaster Business Loans available to eligible homeowners. Consistent with its existing processes, SBA made loan applications available to applicants after they registered with FEMA and used its existing loan underwriting criteria to evaluate loan applications. The administrators of these programs did not create new programs to make post-disaster housing assistance available. As we have previously reported, SBA encountered challenges processing the large volume of applications after Hurricanes Katrina and Rita but has since taken steps to more effectively process large increases in application volume.

Similarly, state agencies generally used existing procedures to award GO Zone LIHTCs and HMGP funds. Specifically, in both Louisiana and Mississippi, the state housing finance agencies announced the availability of the additional credits through qualified allocation plans, reviewed and scored the applications received, and awarded the credits to the highest scoring applicants. Likewise, the state administrators of HMGP funds in Louisiana stated they did not make changes to their normal application processes after Hurricanes Katrina and Rita. In contrast, Mississippi changed its HMGP application process by developing a Web-based system to accept applications. This system allowed applicants to submit a pre- application for HMGP funds online.

Programs Made Federal Funds and Tax Incentives Available at Different Times after the Storms

Federal disaster assistance is generally authorized after a disaster declaration. Thus after Hurricanes Katrina and Rita were declared as disasters, HMGP funds, IHP Repair or Replacement Assistance, and Public Assistance for Permanent Work were made available from FEMA and Home Disaster Loans and Physical Disaster Business Loans were made available from SBA. HUD’s Capital Fund Emergency/Natural Disaster Funding does not require a presidential disaster declaration to become available; this program was available to PHAs that were affected by the hurricanes.

CDBG-funded assistance for homeowners and small rental property owners did not become available until HUD accepted the program designs. Each state had to submit an Action Plan to HUD detailing the plans for the uses of its supplemental CDBG funds, and each had to submit amendments to these plans for substantial changes. HUD accepted Louisiana’s Action Plan for the Road Home Homeowner and Small Rental Assistance Programs in May 2006, and the state began accepting applications for the homeowner program in August 2006 and the small rental program in January 2007 (see fig. 3). According to an administrator of Louisiana’s CDBG-funded programs, the homeowner program was initiated first because homeowners lost real property, homeowners are less transient than renters, and the state perceived rental property owners as having other federal resources for recovery, such as tax credits and SBA loans. HUD accepted Mississippi’s Action Plan for the Homeowner Assistance Program in April 2006 and the Small Rental Assistance Program in July 2007. The state began accepting applications for the homeowner and small rental programs in April 2006 and September 2007, respectively. According to officials from the Mississippi Governor’s office, one of the reasons that the homeowner program was implemented first was because there were more homeowners than renters in the coastal counties. In addition, according to state officials, it was possible for the state to implement a compensation program for homeowners more quickly, because funds could be provided directly to homeowners without the requirement for environmental review assessments. In contrast, the officials stated that programs that are established as construction programs, like their Small Rental Assistance Program, trigger environmental review assessments, which take time to address. Delays in the availability of CDBG funding for homeowners and renters will be discussed later in this report.

Federal Disaster Housing Assistance Addressed the Repair and Replacement Needs of More Homeowner Units than Rental Units, and Progress in Completing Rental Units Has Been Limited

Federal programs we reviewed addressed the repair and replacement needs of more homeowner units than rental units. In both states, more homeowner units were damaged than rental units, but the proportional damage to the rental stock was generally greater. A comparison of the number of units damaged to the number of units funded shows that federal assistance addressed the repair and replacement needs of about 62 percent of damaged homeowner units and about 18 percent of damaged rental units. The difference in the level of assistance for homeowner and rental units was largely due to states’ decisions to allocate most of their CDBG funds to programs for homeowners. States used their broad discretion under CDBG to decide what proportion of the funds went to homeowners and rental property owners. Of the rental units that have received funding, a limited number have been completed, and data are generally not available for the completion status of homeowner units.

More Homeowner Units Were Damaged than Rental Units, but a Greater Proportion of the Rental Housing Stock Sustained Damage

As a result of Hurricanes Katrina and Rita, an estimated 489,000 homeowner and 247,000 rental units sustained minor, major, or severe damage in Louisiana and Mississippi. Specifically, in Louisiana an estimated 331,070 homeowner units and 184,179 rental units sustained damage, and in Mississippi 157,914 homeowner units and 62,470 rental units sustained damage. Most of the damage was concentrated in specific areas in Louisiana and Mississippi. In eight parishes in Louisiana (Calcasieu, Cameron, Jefferson, Orleans, Plaquemines, St. Bernard, St. Tammany, and Vermillion), an estimated 220,225 homeowner units and 139,249 rental units sustained damage. In Mississippi, an estimated 60,344 homeowner units and 33,964 rental units were damaged in three counties (Hancock, Harrison, and Jackson) (see fig. 4).

A greater number of homeowner units were damaged compared to rental units in both Louisiana and Mississippi. However, in Louisiana a greater proportion of rental units were damaged. For example, in Louisiana, 35 percent of the rental housing stock sustained damage, compared with 29 percent of the homeowner stock. In Mississippi, the proportions of damaged homeowner and rental units were more similar: 22 percent of the rental housing stock damaged, compared to 21 percent of the homeowner stock. In the three counties in Mississippi that sustained the most damage, 80 percent of the rental stock and 64 percent of the homeowner stock sustained damage. In the eight Louisiana parishes with the most damage, 66 percent of the rental stock and 63 percent of the homeowner stock was damaged (see fig. 5).

While available damage estimates indicate the need for housing in Louisiana and Mississippi in the immediate period after Hurricanes Katrina and Rita, the housing markets in these states have changed over the past several years as a result of displacement and other demographic changes.

For example, a recent study noted that while the New Orleans metropolitan area is home to a population that is equal to about 90 percent of the pre-Katrina households receiving mail, school enrollment across the metropolitan area has slowed, suggesting that the population that has returned is different than the pre-storm population. A November 2008 HUD report states that while the demand for affordable rental units is less than before Katrina, it is difficult to assess how much this population will grow—and therefore difficult to determine the demand for affordable rental housing.

Federal Assistance Addressed the Repair and Replacement Needs of More Homeowners than Rental Property Owners

For the programs we reviewed for which data were available, federal assistance was provided to repair or replace more homeowner units than rental units in Louisiana and Mississippi (see table 3). Specifically, federal programs provided assistance to about 303,000 homeowner units compared to over 43,000 rental units. CDBG, IHP Repair or Replacement Assistance, and the Home Disaster Loan Program were the key federal sources of assistance for homeowners. Homeowners can be eligible to receive assistance from multiple federal programs, and we identified about 115,000 units that received funding from two or more programs we reviewed. Of the programs that provided assistance to rental property owners, GO Zone LIHTC funded the largest number of rental units (about 23,000).

When the estimated number of funded units is compared to the estimated number of damaged units in Louisiana and Mississippi, we found that federal programs funded about 62 percent of the estimated number of the damaged homeowner units and about 18 percent of the estimated number of damaged rental units in both states combined (see fig. 6). In Louisiana, federal assistance from the programs we reviewed funded about 65 percent of the damaged homeowner units and 15 percent of the damaged rental units, while in Mississippi federal assistance funded about 56 percent and 26 percent of homeowner and rental units, respectively.

While the Housing Choice Voucher Program was not in our scope, this program is the federal government’s major program for assisting very low- income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market. For fiscal years 2008 through 2009 Congress appropriated $185 million to fund various types of vouchers for areas impacted by Hurricanes Katrina and Rita and for families that were assisted under the Disaster Housing Assistance Program. These funds would support over 20,000 vouchers.

The difference in the levels of assistance to homeowner and rental units is reflected in the amounts of funding awarded. Although the proportional damage to rental units was greater, more federal dollars were awarded for homeowner units through the programs we reviewed. Specifically, federal and state agencies awarded around $13 billion for homeowner units and around $1.8 billion for rental units, with the majority of funding awarded through the CDBG program (see table 4). Of the CDBG funds that Louisiana and Mississippi awarded for housing-related activities, the majority was awarded through homeowner programs. According to state officials, both states created homeowner programs first because more homeowner units were damaged than rental units. In addition, Louisiana officials stated that CDBG funds were not intended to assist rental property owners with their business investments, and the state did not want to duplicate FEMA’s efforts in assisting displaced renters. Mississippi officials stated that many homeowners that sustained flood damage were not located in a flood zone because the federal government did not accurately identify flood zones, and as a result, these homeowners did not have flood insurance through the National Flood Insurance Program. Mississippi officials further stated that by providing CDBG funds to these homeowners (excluding those sustaining wind damage), the state helped the homeowners with the greatest need.

A Limited Number of Rental Units Are Complete, and the Completion Status of Homeowner Units Is Generally Not Tracked

A limited number of rental units have been completed through programs we reviewed that provided assistance for the repair or replacement of rental housing. Progress in the completion of CDBG-funded rental units has been limited. For example, through the CDBG-funded small rental housing programs, 14 percent of the 10,115 rental units funded in Louisiana and 25 percent of the 4,242 rental units funded in Mississippi were completed as of July and August 2009, respectively. Progress in the completion of rental units funded with GO Zone LIHTCs has also been limited. For example, approximately 36 percent of the 13,888 rental units funded in Louisiana and 51 percent of the 9,252 units funded in Mississippi were complete as of June 2009. Units funded with GO Zone LIHTCs are required to be placed in service by January 2011; otherwise the credits cannot be used. Information on the extent to which rental units were funded and completed through the other programs we reviewed can be found in appendix VII.

The construction status of individual homeowner units was generally not readily available for the programs we reviewed. For example, according to administrators of the CDBG-funded homeowner programs in Louisiana and Mississippi, the states are not required to track the completion status of units funded because the programs provide compensation grants. Similarly, administrators of the Home Disaster Loan, IHP Repair or Replacement Assistance, and GO Zone Tax-Exempt Private Activity Bond programs do not track the completion status of homeowner units.

Homeowners and Rental Property Owners Faced Challenges in Applying for and Using Federal Assistance, but Options Exist for Reducing These Challenges after Future Disasters

Both homeowners and rental property owners have faced challenges in applying for and using federal assistance. These challenges include gaps in financing needed to complete repairs and delays in the availability of funds. Homeowners and rental property owners have also faced adverse economic conditions, including high insurance premiums and construction costs and tightening credit markets. These challenges have contributed to the slow pace of recovery in the Gulf Coast region. Options for addressing these challenges include changing the allocation of assistance between homeowners and rental property owners, improving guidance intended to help states in designing programs, and reconsidering which programs are used to deliver permanent-housing assistance after a disaster.

Homeowners and Small Rental Property Owners Faced Gaps in Financing Repairs

Some homeowners in Louisiana and Mississippi did not receive enough funding from insurance and federal assistance to complete repairs to their homes after the 2005 Gulf Coast hurricanes, and some were ineligible for key sources of federal assistance. A review of Louisiana’s Road Home Homeowner Program found that some homeowners received insufficient grant amounts to repair the damage caused by Hurricanes Katrina and Rita, and were challenged from resulting funding gaps. These gaps in funding may have resulted from Louisiana’s decision to use pre-storm home values to determine grant amounts (as opposed to using the cost of repairs), incorrect grant calculations, and increasing construction and insurance costs, according to various researchers. In Mississippi, the state reduced the amount available under its homeowner program when it decided to dedicate $600 million from this program to a Port Restoration Program. While this change appears to reduce the amount of CDBG funds available for homeowners, according to state officials, all eligible applications for the homeowner program were funded. Program administrators in Louisiana stated that their CDBG-funded homeowner program was not intended to make homeowners “whole.”

Other program requirements likely resulted in challenges to homeowners in obtaining program funds. For example, in Mississippi, homeowners with wind-only damage were ineligible for the first phase of the Homeowner Assistance Program. In addition, for the first funding round, only homeowners that sustained flood damage (in selected counties) were eligible for Mississippi’s Homeowner Assistance Program. According to state officials, this program was intended to assist homeowners that lacked flood insurance because they were not in a federally designated flood zone. State officials stated they targeted homeowners that were outside of a flood zone due to concerns about the reliability of FEMA’s flood zone designations. In addition, both states required homeowners to prove they had clear property titles. According to state officials, researchers, and organizations that worked with disaster victims, many Louisiana and Mississippi homeowners with damaged properties faced considerable difficulty in establishing clear title because their properties had been informally passed down through generations.

Owners of rental properties also faced challenges in obtaining program financing due in part to decisions by the states of Louisiana and Mississippi to set aside a small portion of their supplemental CDBG funds for the repair of rental housing. While Louisiana and Mississippi allocated nearly $11 billion of their CDBG funds to homeowner programs, they targeted fewer funds (approximately $1 billion) to the owners of small rental properties. In Louisiana, demand for the Road Home Small Rental Property Program was seven or eight times what the funding would support, according to state officials. Mississippi officials said they initially had twice the demand for their small rental program than expected, representing 10,000 rental housing units.

Availability of financing has also been a challenge for developers of larger rental housing developments, including recipients of GO Zone LIHTCs. Some recipients of GO Zone LIHTCs have encountered financing gaps due to the declining value of the credits. More specifically, some developers were receiving less equity from investors in exchange for the tax credits awarded, which has resulted in large financing gaps and made some planned developments not feasible. In some cases, state housing finance agencies pulled GO Zone LIHTCs back from projects that could not secure additional funds to finance the project, or accepted the credits back from developers, and awarded the credits to other projects.

PHAs have also faced limited available funding to make repairs to public housing that was damaged by Hurricanes Katrina and Rita. Public housing agencies have faced considerable challenges in obtaining funding for the recovery of public housing units. Public housing is an important source of affordable housing for low-income households in the Gulf Coast region. The Gulf Coast states experienced a decline in the number of available units as a result of the storms, especially in the New Orleans area. For example, prior to Hurricane Katrina, the Housing Authority of New Orleans managed over 7,000 units of public housing in 10 different developments. Hurricane Katrina damaged about 80 percent of these units (approximately 5,600 units). Less than $30 million was available in 2005 for damage to all PHAs nationwide through HUD’s Capital Fund Emergency/Natural Disaster Funding Program. HUD acknowledged that these funds were not sufficient to repair the public housing that was damaged by the 2005 Gulf Coast hurricanes.

Homeowners and Small Rental Property Owners Faced Delays in Availability of Key Recovery Funds

In the wake of the 2005 storms, both homeowners and owners of rental properties faced significant challenges in receiving assistance from key federal programs as quickly as possible. For instance, homeowners in Louisiana waited a year for the Road Home Homeowner program, the state’s CDBG-funded homeowner program, to begin accepting applications, and then encountered application processing times that were a median of 245 days. Although there were no specific time requirements for how quickly CDBG-funded programs should be implemented, federal disaster policy, as described in the Stafford Act, states that disaster funds and special measures must help to expedite the reconstruction and rehabilitation of devastated areas. In January 2009, FEMA issued a National Disaster Housing Strategy that included six goals related to post- disaster housing. One of the goals states that housing assistance should help individuals and households in returning to self-sufficiency as quickly as possible, including obtaining permanent housing. As required by the supplemental appropriations acts, states submitted plans to HUD detailing their proposed use of CDBG funds and the design of their programs. After acceptance of the plans, each state issued descriptions of their programs, including eligibility requirements and application deadlines. As shown in figure 7, Mississippi opened its homeowner program to applicants 8 months after Hurricane Katrina, and Louisiana opened its program 1 year after the storm.

Owners of small rental properties in Louisiana and Mississippi faced longer delays than homeowners in the availability of CDBG funds to repair or replace properties. Louisiana began accepting applications for its Road Home Small Rental Property Program 17 months after Hurricane Katrina and Mississippi began accepting applications for its Small Rental Assistance Program about 2 years after the storm.

As indicated in our prior work, delays in the initial dates that states began accepting applications for their CDBG-funded homeowner and small rental housing programs may be due in part to the states’ lack of staffing capacity to suddenly manage CDBG programs of such unprecedented size. In addition, as previously noted, both states decided to implement programs for homeowners first, which delayed the initial dates states began accepting applications for the small rental housing programs. Furthermore, according to Mississippi officials, it took time to obtain HUD’s acceptance of plans for its Small Rental Assistance Program, in part because the state had to reach agreement with other entities, including state historic preservation offices, regarding the potential impacts of this program on the environment and other concerns.

Application Processing Times for CDBG Funds Further Delayed Assistance

After submitting their applications for CDBG funds, some homeowners and small rental property owners faced significant delays in the processing of their applications, with rental property owners typically facing longer delays than homeowners. For example, homeowners in Louisiana and Mississippi waited a median of 245 and 240 days, respectively, from the date their application was received by the state until the date that they received grant funds. These processing times ranged from 32 to 948 days in Louisiana and from to 70 to 945 days in Mississippi (see fig. 8). For the small rental housing programs, successful applicants had a closing, at which point the terms by which forgivable loans would be disbursed to the owners were agreed upon. Small rental property owners in Louisiana and Mississippi waited a median of 494 and 405 days, respectively, from the date that their application was received by the state until the date of closing. This processing time ranged from 280 to 686 days in Louisiana and from to 75 to 799 days in Mississippi.

Several factors may have contributed to delays in the processing of applications for each state’s homeowner and small rental housing programs, including program design changes, a lack of specific performance goals, and complex application processes.

Program design changes. Louisiana’s homeowner and small rental programs may have experienced delays in processing applications because of changes to the programs’ design after they were first established. For example, HUD ordered the state to cease operations for the homeowner program in March 2007. According to an e-mail from the HUD Assistant Secretary to key HUD staff involved in Gulf Coast recovery, there was an “apparent inconsistency” between Road Home Homeowner program operations and the approved action plan. While the state continued to accept and process homeowner applications after they were ordered to cease and desist the program, individual covenants had to be revised, homeowner grant awards had to be recalculated, and scheduled house closings were postponed. The state redesigned the program to provide lump-sum compensation grants, and HUD accepted the new design in May 2007. Also, in 2009 Louisiana created an additional option for property owners that had applied to the small rental property program but had not been able to secure up-front financing. Under the new option, the state will pay “advances” of funds to some rental property owners through a housing rehabilitation program.

Absence of performance goals. Neither Louisiana nor Mississippi initially established specific performance goals for processing homeowner or small rental program applications. According to state officials from both states, immediately after the storms it was difficult to determine what such performance goals should be. While each state’s initial plans for its homeowner programs indicated that applications should be processed in a timely manner or a manner that recognizes the urgency of the need for assistance, the plans did not quantify goals for processing complete applications. In March 2007 Louisiana established performance indicators to encourage the timely processing of homeowner grants and established similar performance indicators for the small rental program in April 2008. There were no documented performance goals for processing applications for Mississippi’s Homeowner Assistance or Small Rental Assistance Programs until March 2008.

Complexity of application process. According to both researchers and organizations that assisted disaster victims, the application processes for the CDBG-funded homeowner and small rental programs were complex, which made it difficult for some applicants to complete applications correctly. A 2008 report on Louisiana’s CDBG-funded post-disaster housing programs stated that both the homeowners and applicants for the small rental program faced rule changes, which caused confusion for applicants and likely contributed to delays.

Adverse Economic Conditions Following the Storms Hampered Rebuilding Efforts

Homeowners and small rental property owners affected by Hurricanes Katrina and Rita have also experienced challenges in their rebuilding efforts as a result of local market conditions, particularly high insurance premiums and construction costs. For example, according to a report by the Louisiana Housing Finance Agency, premiums for homeowners insurance escalated to four times their pre-Katrina level for some areas of Louisiana that were severely impacted by the storm. Such increases have likely made it difficult for some homeowners to rebuild. Researchers have stated that rising construction costs in both Louisiana and Mississippi pose challenges for redevelopment.

The current national economic climate has also made it more difficult for both homeowners and developers of rental housing to secure adequate financing. Due to the tightening credit markets and storm-related credit issues, many homeowners in the area affected by the 2005 storms are finding it extremely difficult to access credit to cover repair costs. According to an organization that has researched recovery efforts in New Orleans, tightened credit markets are one of the key reasons that many homeowners in New Orleans have been unable to fully recover their homes. Also, as we have previously reported, as investors’ interest in tax credit projects declines, developers must seek additional funding sources to make up for the equity shortfall. According to state administrators of the GO Zone LIHTC programs in Louisiana and Mississippi, given the financial crisis, it is increasingly difficult to find investors for tax credit projects, and it will be a challenge to meet the December 2010 deadline for units to be placed in service.

Challenges Have Contributed to Several Negative Effects, Including Slowed Recovery of Housing

Both homeowners and renters have been negatively affected by financing gaps, delays in the availability of federal resources, and adverse economic conditions. Cumulatively, these and other issues have contributed to slow progress in repairing and replacing housing in the Gulf Coast. This slow progress is putting additional pressure on the already strained housing market. Slow redevelopment also contributes to neighborhood blight. According to a recent Brookings report, New Orleans had 65,888 vacant or blighted residential addresses as of March 2009, and nearly 59,000 of these addresses were blighted or empty lots. This was a slight decrease from 69,727 as of September 2008.

Another negative impact of these challenges is a lack of affordable housing, especially for rental households. HUD’s fair market rent for a two-bedroom unit in the New Orleans-Metairie-Kenner metropolitan area increased from $676 to $1,030 or about 52 percent, between fiscal years 2005 and 2009. As a result of such rent increases, low- and moderate- income renters who could afford housing in New Orleans before the storm may no longer be able to find affordable housing. In Mississippi’s coastal counties, both for-sale and rental housing are estimated to be less affordable than before Hurricane Katrina, according to a 2009 study. HUD’s fair market rent for a two-bedroom unit in the Gulfport-Biloxi metropolitan area increased from $592 to $844, or about 43 percent, while the general price level for rent nationwide increased about 15 percent over the same time period. While it is projected that there will be more than a full recovery of subsidized rental housing units in Mississippi’s coastal counties, it is also estimated that there will be an increased need for additional rental assistance in these counties, such as housing choice vouchers, to make available units more affordable.

Finally, some of the residents who were displaced from their communities have not returned, especially lower-income renters. As previously noted, while the New Orleans metropolitan area is home to a population that is equal to about 90 percent of the pre-Katrina population, school enrollment across the metropolitan area has slowed, suggesting that the characteristics of the population that has returned are different than those of the pre-storm population. According to the Urban Institute, the slow recovery of housing—especially moderately priced rental housing—in the greater New Orleans region prevents many families from returning.

Options for Addressing Challenges Include Better Allocating Assistance for Homeowners and Renters

We reviewed prior GAO work and reports by agencies and research groups and identified four sets of options that may help address the challenges faced by homeowners and rental property owners in using program funds. First, to address the challenges related to the gaps in funding available to repair and replace damaged housing—specifically rental housing—federal funds for permanent post-disaster housing could be allocated between homeowners and rental property owners based on need, and take into account all of the programs and resources that are available. For example, Congress could provide more direction to states on how to allocate appropriations for the CDBG program. Directing how grantees allocate CDBG funds would entail trade-offs. For example, states may have less discretion in designing post-disaster housing programs and deciding how much funding is to be made available for rebuilding units occupied by homeowners and renters and for economic development activities. While such trade-offs exist, Congress has previously provided specific direction to recipients of CDBG funds. For example, Congress provided direction to recipients of funds under the Neighborhood Stabilization Program, which is based on the CDBG program and focuses on redevelopment of abandoned and foreclosed homes. Congress directed recipients of these funds to focus on areas of greatest need, including areas with high concentrations of foreclosed homes. Without specific direction on how to better target disaster-related CDBG funds for the redevelopment of homeowner and rental units after future disasters, states’ allocation of assistance to homeowners and rental property owners may again result in significant differences in the level of assistance provided.

To address the financing gaps faced by homeowners, larger amounts of assistance could be made available to households. Several of the reports we reviewed indicated that additional funds should be provided to homeowners that did not receive sufficient CDBG funds to recover from the storms. For example, one private research organization recommends that the federal government allocate funds to close the gaps created by the formula for the Road Home Homeowner Program, the CDBG-funded homeowner program in Louisiana. In addition, this organization has stated that grants should have been calculated based upon either the higher of the assessed value or the damage estimate repair costs rather than the pre-storm estimated value of homes. For future disasters, basing grant amounts on repair costs rather than property values may be helpful to households in closing financing gaps—especially those households that live in distressed or less desirable communities where property values are less than the cost of repairs and replacement. However, in providing larger amounts of assistance to individual households, fewer households may be served with the same amount of overall program funding.

To help reduce delays in delivering funds for the recovery of housing, guidance could be developed, eligible uses of funds could be clarified, states could design programs to provide funds up front, and application processes could be simplified. We previously recommended that HUD issue guidance for CDBG disaster-assistance programs that provides information on acceptable program designs and discusses program elements that trigger federal environmental reviews. We also recommended that HUD coordinate with FEMA to clarify options and limits of using CDBG funds with other disaster-related federal funds. Such guidance could help states in the future by clearly articulating applicable legal and financial requirements, as well as the types of activities that may trigger federal environmental review requirements. State officials in Louisiana have acknowledged that delays in making CDBG funds available to small rental property owners could have been minimized by designing a program that provided funds up front, rather than after property owners independently financed repairs. Such program designs for the use of CDBG funds after future disasters could potentially reduce delays. Furthermore, organizations that represented disaster victims have stated that complex application processes contributed to delays in Louisiana, suggesting that for future disasters, delays could be minimized if application processes are clear and transparent.

Decision makers could also reconsider what federal programs should deliver assistance for permanent housing. A report by the Office of the Federal Coordinator indicated that the CDBG program should be re- evaluated to determine whether it should be the primary funding vehicle for replacing housing stock following a disaster. The Office of the Federal Coordinator also indicated that experts should convene to discuss how challenges associated with the current federal funding vehicles for post- disaster recovery and rebuilding—such as CDBG, Public Assistance, Individual Assistance, and HMGP—could be addressed and to explore ideas for potential new vehicles and/or frameworks. According to HUD officials, the CDBG program is not one of the federal government’s official disaster recovery programs. However, to date the supplemental CDBG funds that have gone to the Gulf Coast have been the largest amount of CDBG disaster relief provided to one area in the history of the program. A previous GAO report stated that HUD should continue to work with the administration to determine what role the CDBG program should have in disaster recovery. HUD officials have also stated that a permanently authorized disaster CDBG program may be more effective in delivering post-disaster housing assistance. HUD officials have stated that if a disaster-specific CDBG program is given a permanent role, they would issue permanent regulations and program guidance. In addition, there would be less need after each disaster for HUD to consider the use of waivers and write federal notices to guide the use of CDBG funds.

Conclusions

The response to Hurricanes Katrina and Rita highlights the need to re- evaluate how housing assistance for homeowners and rental property owners is delivered after a disaster. If the federal government adopts a similar approach in the future, it will likely encounter many of the same challenges, including gaps in available financing for permanent housing and delays in the availability of program funds to victims. The state programs, funded under the CDBG program, the largest single source of federal assistance for permanent housing after the 2005 Gulf Coast hurricanes, focused much of their resources on addressing the needs of homeowners. Our analysis shows that recovery funds addressed a substantially larger percentage of the rebuilding needs of homeowners compared to rental property owners and that state-designed programs have not fully accounted for the needs of renters in their decisions regarding how to allocate funds. As a result, there continues to be an acute need for affordable rental housing in the Gulf Coast area, and many displaced residents may not be able to return to their communities. States, which had broad flexibility in their use of CDBG funds, did not prioritize the repair or replacement of rental housing for several reasons, including their decisions to rely on other sources of federal funding for rental housing, such as SBA loans and GO Zone LIHTCs. However, the GO Zone LIHTC program addressed only a small part of the repair and replacement needs of rental properties and furthermore, according to program administrators, investors’ demand for tax credits in the current economy has been weak. In the event of a future disaster, the lack of specific direction to states on how to target disaster-related CDBG funds may again result in a significant difference in the amounts of assistance for the redevelopment of homeowner and rental property units. Within the programs, administrative improvements could be made. In fact, we have previously recommended that HUD issue guidance for CDBG disaster assistance that provides information on acceptable program designs and that HUD coordinate with FEMA to clarify options and limits of using CDBG funds with other disaster-related federal funds. We believe that implementing these recommendations would help minimize delays in making CDBG funds available for homeowners and rental property owners after future disasters. Furthermore, we continue to believe that HUD should work with the administration to determine what role the CDBG program should have in disaster recovery.

Matters for Congressional Consideration

To the extent that the CDBG program continues to be the primary vehicle used to provide post-disaster assistance for permanent housing, Congress may wish to consider providing more specific direction regarding the distribution of disaster-related CDBG assistance that states are to provide for homeowners and renters. If Congress wishes to change the proportion of assistance directed to homeowners and rental property owners in future recovery efforts, Congress could, for example, require states to demonstrate to HUD that they are adequately addressing the needs of both homeowners and renters with their CDBG allocation and other resources as a condition for receiving funds. Alternatively, Congress could direct HUD to develop a formula that accounts for the housing needs of both homeowners and renters. Such a formula could be used by states to determine the proportions of their disaster CDBG funds that should be used for housing, specifically rental housing. Further, the formula could also reflect the anticipated production levels of other programs that provide permanent housing assistance, such as the Low-Income Housing Tax Credit program.

Agency Comments

We provided a draft of this report to the Department of Housing and Urban Development, the Department of Homeland Security, the Department of the Treasury, and the Small Business Administration. We received technical comments from all of the agencies and incorporated them as appropriate. We also provided relevant sections of this report to state officials in Louisiana and Mississippi, and incorporated their technical comments as appropriate.

As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to interested congressional committees, the Secretary of the Department of Housing and Urban Development, the Secretary of the Department of Homeland Security, the Secretary of the Treasury, and the Administrator of the Small Business Administration. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions on matters discussed in this report or would like additional information, please contact me at (202) 512-8678 or sciremj@gao.gov. Major contributors to this report are acknowledged in appendix VIII.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) describe how federal disaster-related assistance for permanent housing has been provided to homeowners and rental property owners affected by the 2005 Gulf Coast hurricanes; (2) evaluate the extent to which federally funded programs responded to the needs of homeowners and rental property owners in repairing or replacing units damaged by these hurricanes; and (3) describe the challenges that homeowners and rental property owners have faced in applying for and using federal assistance, and potential options for addressing these challenges.

In reviewing post-disaster assistance for permanent housing provided after Hurricanes Katrina and Rita, we focused on Louisiana and Mississippi because these two states sustained the most damage of the five states affected by these hurricanes. To identify federal programs that provided this assistance, we reviewed statutes and regulations, studies and reports by government agencies and research organizations, and agency Web sites. In addition, we interviewed officials from the Department of Housing and Urban Development (HUD), Department of Homeland Security (DHS), Department of the Treasury (Treasury), and the Small Business Administration (SBA); state and local housing agencies in Baton Rouge and New Orleans, Louisiana, and Biloxi, Gulfport, and Jackson, Mississippi; and various housing groups. We selected programs that were disaster-related and provided funds or tax incentives to encourage the development of permanent housing, which included repairing or replacing housing. We defined assistance for permanent housing as assistance for housing that is intended for long-term occupancy. Given our methodology, we did not include every program that provides post-disaster housing assistance. The programs in our review include the following: Capital Fund Emergency/Natural Disaster Funding (HUD)

Community Development Block Grant Program (HUD)

GO Zone Low-Income Housing Tax Credits (Treasury)

GO Zone Tax-Exempt Private Activity Bonds (Treasury)

Home Disaster Loan and Physical Disaster Business Loan (SBA)

Individuals and Households Program: Repair or Replacement Assistance (DHS)

GO Zone New Markets Tax Credits (Treasury)

Public Assistance for Permanent Work (DHS)

For each of the programs identified, we determined whether homeowners, rental property owners, or both were potentially eligible to benefit from the program; whether the assistance was in the form of a grant, loan, or tax incentive; the types of activities that could be funded; and the program’s purpose. We also identified whether the program was administered by a federal or state agency, the amount of funds available, and how the administering agency awarded funds. For most programs, we used the amount appropriated by Congress as the amount available. However, for programs that were funded through the Disaster Relief Fund (Individuals and Households Program: Repair or Replacement Assistance and Public Assistance for Permanent Work), we used the amounts awarded in Louisiana and Mississippi. More specifically, for the Public Assistance for Permanent Work Program, we reported the amount awarded to public housing authorities. We generally used the date that the initial application period opened, if applicable, to describe the dates that the programs we reviewed became available. For the Gulf Opportunity (GO) Zone Tax-Exempt Private Activity Bond Program, we reported the dates that states made either the first final approval or the first allocation. For Mississippi’s Public Housing Program, which was funded through the Community Development Block Grant Program (CDBG), we reported the date that HUD approved the program design.

To determine the extent to which the programs we reviewed responded to the needs of homeowners and rental property owners in repairing or replacing homeowner and rental units, we compared the available data on units funded to the estimated number of units damaged for homeowner and rental units. We first obtained data on the number of homeowner and rental units with minor, major, and severe damage in Louisiana and Mississippi from the Federal Emergency Management Agency’s (FEMA) published estimates. We used this information as an indicator of housing need at the time of the disaster. We also used this information to highlight the Louisiana parishes and Mississippi counties that sustained the most damage. Based on available data for damaged homeowner and rental units, we determined that eight parishes accounted for 70 percent of the total homeowner and rental units damaged in Louisiana and that three counties accounted for 43 percent of the total homeowner and rental units damaged in Mississippi. To determine the proportion of homeowner and rental units that sustained damage in each state and in the most damaged areas, we compared the estimated number of homeowner and rental units damaged to the number of occupied homeowner and rental units statewide and in the most damaged areas from the 2000 Decennial Census.

We obtained data from program administrators on the numbers of homeowner and/or rental housing units that were funded. For each program, we requested data on the number of units funded as of December 2008, although for some programs, program administrators could not provide data as of this date. Specifically, data for Mississippi’s Small Rental Assistance and Long Term Workforce Housing Programs were available as of April 2009; data for the Home Disaster Loan Program were available as of July 2009; data for the Capital Fund Emergency/Natural Disaster Funding Program for Mississippi and the Physical Disaster Business Loan Program were available as of August 2009; and data for the New Markets Tax Credits (GO Zone) Program were available for activities that were undertaken through December 2008. We do not believe that the different dates for the count of units funded under these programs will have a material impact on the results, as month-to- month unit count changes have been small for the key programs. For Louisiana’s Road Home Homeowner Program and Mississippi’s Homeowner Assistance Program, we counted awards to homeowners as homeowner units funded, although homeowners are not required to use their grant funds to repair their homes. We were not able to include data on the number of rental units funded through the Physical Disaster Business Loan Program because SBA did not have readily available information on the number of rental units funded. To determine the number and amount of Physical Disaster Business Loans for the repair of residential rental properties, we obtained data categorized by the North American Industry Classification System. We included approved loans for real estate repairs only. Due to data limitations, we may not have included all physical disaster business loans that were provided for real estate repairs to residential rental properties. While we did not include a $15 million appropriation for the repair of rental housing damaged by Hurricanes Katrina and Rita as one of the programs in our review, we included these funds as well as data on the number of rental units funded with this appropriation as a part of our analysis because it is an additional source of funding for permanent rental housing. With available data, we compared the total number of homeowner units funded to the total number of homeowner units damaged in each state.

Because some funded units may have received assistance from multiple programs, we took steps to avoid double counting. We compared the addresses of homeowner units funded by Louisiana’s Road Home Homeowner Assistance Program, Mississippi’s Homeowner Assistance Program, Individuals and Households Program: Repair or Replacement Assistance, and the Physical Home Disaster Loan Program for both Louisiana and Mississippi. This comparison allowed us to determine whether a unit was funded by only one program or by multiple programs. In order to ensure that an address was counted only once, we converted the addresses of the homeowner units funded by each of the programs we reviewed into a consistent format and applied standardization rules (for example, “Street” was consistently changed to “St.”). This allowed us to look for double counting for over 99 percent of the addresses we compared. We could not compare addresses for homeowner units funded by the HMGP, Long Term Workforce Housing Program, and New Markets Tax Credits (GO Zone) Program, because unit-level data on rental property street addresses were not readily available.

In addition, we summarized the amounts of assistance awarded (and loans approved) to homeowners and rental property owners through the programs we reviewed as of December 2008, unless program administrators could not provide funding data as of this date. For example, administrators of Mississippi’s Small Rental Assistance and Long Term Workforce Housing Programs did not have archival data for December 2008, and thus they provided data as of April 2009. For the New Markets Tax Credit Program (GO Zone), funding data were available for activities that were undertaken through December 2008. However, while we could determine funding amounts for homeowner units, we could not determine funding amounts for rental units for this program because rental units are funded as a part of mixed-use projects (that is, projects with both commercial and residential uses). It was not possible to determine the amounts funded only for the rental units associated with mixed-use projects.

We also obtained and analyzed data from program administrators to determine the extent to which funded homeowner and rental units were complete as of summer 2009. We were unable to determine the extent to which homeowner units were complete because either program administrators were not required to collect data or the data were not readily available. For most of the programs that funded rental units, data were available on the extent to which they were complete as of June, July, and August 2009 (see app. VII). Data on the extent to which rental units funded through the New Markets Tax Credit Program (GO Zone) were complete were not readily available.

To assess the reliability of agency data on the numbers and location of homeowner and rental units funded as well as the amount of assistance provided, we (1) performed electronic testing for obvious errors in accuracy and completeness; (2) reviewed related documentation, including audit reports on data verification for some programs we reviewed; and (3) worked with agency officials or contractors to identify any data problems. When we found discrepancies, such as unpopulated fields or data entry errors, we notified agency officials or contractors and worked with these officials to correct the discrepancies before conducting our analysis. We determined that the data were sufficiently reliable for the purposes of our report.

To identify challenges to homeowners and rental property owners, we reviewed studies and reports about housing recovery in the areas affected by the hurricanes, interviewed the administrators of the programs we reviewed, interviewed organizations that worked with disaster victims to obtain permanent housing, and analyzed data on the timeliness of funding availability and application processing. To describe the timeliness of funding availability, we interviewed program administrators, reviewed prior GAO and other reports, and obtained documentation of the dates on which HUD accepted plans for CDBG-funded programs. Also, in examining application processing times for CDBG-funded programs, we obtained data from program administrators on each loan or grant awarded. We determined the median number of days between the date the application was received by the state and the date funds were awarded (for the homeowner programs) or the closing occurred (for the small rental programs). We excluded outliers and records with missing data to determine the median number of days elapsed between these points. Further, we summarized available information from program administrators and other reports on factors that may have contributed to processing delays.

To identify potential options for mitigating the challenges we identified, we reviewed recommendations in studies and reports, suggestions from program administrators and organizations that worked with disaster victims to obtain permanent housing, and information on the congressional intent of post-disaster housing assistance, including the Stafford Act and FEMA’s Disaster Housing Strategy. We discussed these options and their potential limitations.

Appendix II: Homeowner Programs Funded through the Community Development Block Grant Program

Road Home Homeowner Program (Louisiana)

The Louisiana Road Home Homeowner Program was designed to provide a one-time compensation grant payment, up to a maximum of $150,000, to eligible homeowners whose primary residence was damaged by the 2005 Gulf Coast hurricanes and who wished to (1) repair or rebuild their home, (2) purchase another home in Louisiana, or (3) sell their home and relocate outside of the state. After the 2005 Gulf Coast hurricanes, Congress made $13.4 billion available to Louisiana for disaster recovery. Louisiana allocated $11.5 billion of these funds to the Road Home Homeowner Program. To award assistance, the Office of Community Development (OCD) reviewed applications to determine and verify program eligibility. After an application was received and determined to be preliminarily eligible, the OCD conducted an on-site evaluation. After this evaluation, grant calculations were conducted based on the lesser of either the property’s pre-storm value or the estimated cost of damage to the property. A final determination of eligibility was also made. Other assistance received—such as insurance proceeds or assistance from the Federal Emergency Management Agency (FEMA) or the Small Business Administration (SBA)—was deducted from the final grant amount awarded.

The OCD also offered an Additional Compensation Grant up to a maximum of $50,000 to eligible homeowners who had a household income of 80 percent of the parish median income or less. The Additional Compensation Grant was intended to assist with any gap between the estimated cost of damage and the amount(s) the homeowner received from the Road Home compensation grant and other assistance.

Homeowner Assistance Program (Mississippi)

The Mississippi Homeowner Assistance Program was designed to provide a one-time grant payment, up to a maximum of $150,000, to eligible homeowners who lived outside of the flood plain and suffered flood damage to their primary residence as a result of Hurricane Katrina. After the 2005 Gulf Coast hurricanes, Congress made $5.5 billion available to Mississippi for disaster recovery. Mississippi allocated $1.96 billion for this program. To award assistance, the Mississippi Development Authority accepted applications during its open application period to determine program eligibility. Once eligibility was established, grant calculations were conducted based on the largest of the following values: (1) the pre- Katrina insured value adjusted by an inflation factor of 35 percent; (2) the damage amount estimated by SBA, not to exceed 135 percent of the insurable value; or (3) the Mississippi Development Authority damage assessment cost to repair. Once the homeowner was determined to be eligible, funds were made available to the homeowner through a closing process using a mortgage lender or escrow or closing agent, or potentially by electronic funds transfer. In exchange for the grant payment, a qualifying homeowner had to agree to a covenant on their property that established building code, flood insurance, and elevation requirements for them or any future owner of the land.

The Mississippi Development Authority later expanded the Homeowner Assistance Program applicant pool by implementing a second phase (Phase II). Phase II offered up to a maximum of $100,000 in grant assistance to homeowners who resided inside or outside of the flood plain and who had a household income at or below 120 percent of the area median income.

Appendix III: Small Rental Housing Programs Funded through the Community Development Block Grant Program

Road Home Small Rental Property Program (Louisiana)

The Louisiana Road Home Small Rental Property Program was designed to provide gap financing to small rental property owners in the form of forgivable loans for the repair of rental units. The restored units must be offered at affordable rents to income eligible renters. After the 2005 Gulf Coast hurricanes, $751 million was made available through the small rental program. To award assistance, the Office of Community Development (OCD) accepted and reviewed applications during two rounds of funding. OCD verified basic eligibility information and then scored and ranked eligible applications. OCD then conditionally awarded loan assistance to applicants with the highest scores. Applicants who ranked below the cut- off point could apply for a later round of funding. After an applicant was conditionally awarded assistance, OCD completed verification of eligibility and issued a loan commitment letter to the applicant. OCD disbursed the award at closing, after the units were repaired and income eligible tenants were identified. Only owner occupants of three- and four-unit properties who received compensation for their home were required to deduct other benefits—including insurance payments, assistance from the Federal Emergency Management Agency (FEMA), assistance or funds from the Small Business Administration (SBA)—from their award.

In December 2008, OCD announced an additional option for program participants, which provided up-front financing. The option was created to increase the production of rental housing with Community Development Block Grant (CDBG) funds and to accelerate the distribution of funds to owners. In exchange for up-front financing, owners must provide affordable housing once the property is repaired. According to OCD, program participants were sent letters informing them of this option in 2009.

Small Rental Assistance Program (Mississippi)

Mississippi’s Small Rental Assistance Program was designed to provide forgivable loans to small rental property owners in Hancock, Harrison, Jackson, and Pearl River Counties for the repair of rental units as an incentive to provide affordable rental housing to income-eligible renters. After the 2005 Gulf Coast hurricanes, about $263 million was made available through the small rental program. To award assistance, the Mississippi Development Authority (MDA) accepted and reviewed applications during two rounds of funding. MDA offered four types of loan assistance: (1) rental income subsidy assistance, (2) repair or reconstruction reimbursement for Katrina-damaged property, (3) reconstruction or conversion reimbursement for non-Katrina damaged property, and (4) new construction reimbursement. To apply for loan assistance, applicants were required to complete an application, choosing one of the four types of assistance. Once applicant eligibility was determined, MDA contacted the applicant to schedule the closing. Upon closing, applicants were given 24 months to complete all work on the structure and obtain a certificate of occupancy. The loan was awarded in two installments: half when the property owner provided a building permit, and the remainder when the owner provided a certificate of occupancy.

Appendix IV: Programs Funded through Tax Incentives

The Gulf Opportunity Zone (GO Zone) Act of 2005 included tax incentives to assist recovery and economic revitalization for individuals and businesses in designated areas in several states, including Louisiana and Mississippi, following Hurricanes Katrina and Rita in 2005. The tax incentives included in this review are extensions of existing federal tax incentives, including low-income housing tax credits, tax-exempt private activity bonds, and new markets tax credits.

GO Zone Low-Income Housing Tax Credits

The GO Zone Low-Income Housing Tax Credit (LIHTC) program was designed to provide tax incentives to encourage the development of affordable rental housing between 2006 and 2008 in the areas affected by the 2005 Gulf Coast hurricanes. A $170 million allocation was made available to Louisiana and $106 million was made available to Mississippi to fund the development of affordable rental housing. To award the tax incentives, the state housing finance agencies in Louisiana and Mississippi used their existing procedures; they announced the availability of the credits through qualified allocation plans, processed applications, and competitively awarded credits in multiple funding rounds. During some funding rounds, each state gave priority to projects proposed in the most damaged counties.

Recipients of credits use them or sell them through an investment vehicle to investors to obtain equity for the development of rental housing. Investors receive a direct reduction in their tax liability. They can claim GO Zone LIHTCs for eligible projects each year for 10 years from the time the housing developments are placed in service. All of the GO Zone LIHTC- funded units must be in service before January 1, 2011.

GO Zone Tax-Exempt Private Activity Bonds

GO Zone Tax-Exempt Private Activity Bonds were made available to governmental entities after the 2005 Gulf Coast hurricanes to help finance the development of private facilities and activities, including single-family and multifamily rental housing. Louisiana received $7.8 billion in GO Zone Tax-Exempt Private Activity Bond allocation authority, and Mississippi received $4.9 billion. In accordance with the GO Zone Act of 2005, in Louisiana, the bond commission had the final authority to award GO Zone bonds, and in Mississippi, which did not have a bond commission, the final authority rested with the Governor. To award allocation authority, the states of Louisiana and Mississippi accepted and reviewed applications and allocated bond authority on a first-come, first-served basis. Governmental entities issue the bonds, which are repaid by the borrowers’ payments on their loans. The GO Zone bonds allowed states to exceed their annual state volume caps and could be used for a broader range of facilities than tax-exempt private activity bonds, which are subject to annual state volume caps. GO Zone Tax-Exempt Private Activity Bonds must be used between 2006 and 2010.

Data on the number of homeowner units funded through GO Zone Tax- Exempt Private Activity Bonds were not readily available from either state program administrator. In Louisiana, 216 rental units were funded as of December 2008, and GO Zone Tax-Exempt Private Activity Bonds were not used to fund rental housing in Mississippi.

New Markets Tax Credits for the GO Zone

The New Markets Tax Credit program is designed to provide a tax incentive to investors (including financial institutions, individuals, and corporations) to invest in Community Development Entities, which then reinvest the funds in qualified low-income community investments. Such investments include, but are not limited to, residential projects. The GO Zone Act of 2005 authorized $1 billion of special allocation authority to be used for the recovery and redevelopment of the GO Zone. To award assistance, the Community Development Financial Institutions Fund in the Department of the Treasury evaluated applications for credit allocations from Community Development Entities proposing activities in the GO Zone. The Community Development Financial Institutions Fund also allocated tax credit authority in 2006 and 2007.

According to our analysis of Community Development Financial Institutions Fund data, 217 homeowner units and 493 rental units had been funded with GO Zone New Markets Tax Credit allocation authority through 2008. While about $28 million in authority was awarded for homeowner units, it is not possible to determine the amount of authority awarded for rental units that are funded as a part of mixed-use projects.

Appendix V: Home Disaster and Physical Disaster Business Loan Programs

The Small Business Administration (SBA) provides federal long-range recovery funding after a presidentially declared or SBA-declared disaster through the Disaster Loan Program. After the 2005 hurricanes, homeowners could apply to this program for a Home Disaster Loan up to a maximum of $200,000 for real estate repairs. Business owners (including rental property owners) could apply for a Physical Disaster Business Loan up to a maximum of $2 million for real estate and personal property. Homeowners and business owners could use loan funds to repair or replace damaged or destroyed real estate not covered by insurance or other assistance. Business owners could also use loan funds for inventory, supplies, machinery and equipment, and other business assets owned by the business and not covered by insurance or other assistance. After the hurricanes, SBA sent a loan application package to homeowners and business owners that first registered with the Federal Emergency Management Agency (FEMA) and met initial income eligibility criteria.

To make a disaster loan, SBA reviewed the loan application package, and applicants were approved or denied based on their ability to repay the loan and other criteria, such as credit history. After the application was approved, SBA began the loan process, which included loss verification, underwriting (which includes the decision to loan funds), approval, closing for loan authorization and agreement, and initial disbursement. SBA loan applications became available after the hurricanes occurred and incremental application deadlines were determined for each state. For Louisiana and Mississippi, the application period for Hurricane Katrina was October 2005 through April 2006. For Louisiana, the application period for Hurricane Rita was November 2005 through April 2006.

Appendix VI: Other Programs Reviewed

Capital Fund Emergency/Natural Disaster Funding

The Capital Fund Emergency/Natural Disaster Funding Program is administered by the Department of Housing and Urban Development (HUD) and is designed to provide grants to public housing authorities (PHA) for the repair or replacement of public housing that is damaged or destroyed by emergencies or natural phenomena, such as hurricanes, flooding, or earthquakes. Congress appropriates funds to this program each year. For 2005, a total of $29.7 million was appropriated for the Capital Fund reserve. To award assistance after the 2005 Gulf Coast hurricanes, HUD reviewed applications from PHAs and awarded grants on a first-come, first-served basis. Grant funds pay for a PHA’s needs that are in excess of its insurance coverage or other federal assistance, such as assistance provided by the Federal Emergency Management Agency (FEMA).

Hazard Mitigation Grant Program

The Hazard Mitigation Grant Program (HMGP) is administered by FEMA. The HMGP provides grants to states, local governments, and Indian tribes for long-term hazard mitigation projects following a major disaster declaration. The program is intended to reduce the loss of life and property in future disasters by funding mitigation measures. HMGP funding is calculated based on the percentage of the funds spent on Public and Individual Assistance for each presidentially declared disaster. Generally about 12 months after a disaster, FEMA determines the amount of HMGP funds to be allocated to each affected state.

To be eligible for HMGP assistance, a project must provide a long-term solution to a specific risk, such as elevating a flood-prone property or acquiring a flood-prone property for demolition or relocation. During the recovery phase of a disaster, local jurisdictions select projects that could reduce property damage from future disasters and submit grant applications to the state, and the state submits applications to FEMA.

FEMA conducts a final eligibility review to ensure compliance with federal regulations. FEMA generally requires states to submit their project applications within 12 months of the date the disaster was declared. However, after the 2005 Gulf Coast hurricanes, FEMA provided a number of deadline extensions for Louisiana and Mississippi, with the final deadline for Mississippi set at June 30, 2009, and at October 30, 2009, for Louisiana.

Individuals and Households Program: Repair or Replacement Assistance

The Individuals and Households Program (IHP) makes grants and direct services available to disaster victims. Several types of assistance are available through IHP, including Repair Assistance and Replacement Assistance. Repair and Replacement Assistance was available for the repair of homes to safe and sanitary living conditions, and to help replace disaster-damaged homes. Following Hurricanes Katrina and Rita, the maximum allowance for repair assistance was $5,200 and the maximum allowance for replacement assistance was $10,500.

FEMA reviews applications and conducts property inspections to determine eligibility and grant amounts. Generally, FEMA accepts applications for 60 days from the disaster date, but the application period was extended to April 2006 after Hurricanes Katrina and Rita. To be eligible for assistance, the applicant must be a U.S. citizen, a non-citizen national, or a qualified alien, and must have owned a home in a presidentially declared disaster area.

Long Term Workforce Housing (Mississippi)

The Long Term Workforce Housing Program was designed to provide grants and loans to local units of government, nonprofit organizations, and for-profit organizations to develop permanent affordable housing for homeowners and renters in Hancock, Harrison, Jackson, and Pearl River counties. For this program, housing must benefit those who earn 120 percent of area median income or less. The state of Mississippi made $350 million of its disaster Community Development Block Grant funds available for this program. To award the assistance, the Mississippi Development Authority reviewed proposals from applicants, evaluated them based on specific selection criteria, and awarded funds to the highest scoring applicants. The selected projects were projected to produce approximately 5,850 affordable homeowner and rental units.

Public Assistance for Permanent Work

FEMA’s Public Assistance for Permanent Work Program can be used to provide state and local governments, including PHAs, with grants to restore damaged facilities, through repair or restoration, to their pre- disaster condition. To award assistance, FEMA reviews requests for assistance and awards grants to states. Grant amounts are generally determined by evaluating repair costs and reducing grant amounts by the amount of funding awarded or anticipated to be awarded by other sources (such as assistance from other federal agencies or insurance settlements). States are then responsible for notifying applicants that funds are available and for disbursing those funds, generally on a reimbursement basis. While Public Assistance generally provides 75 percent of repair costs, the cost share for projects related to Hurricanes Katrina and Rita has been adjusted to provide 100 percent of federal funding.

PHAs that did not qualify for assistance for permanent restoration costs from HUD under the Housing Act of 1937 were able to apply directly to FEMA for permanent restoration work. Such work could include repairs to PHA-owned rental units.

Data on the number of units funded and completed with Public Assistance Funds for Permanent Work were not available from FEMA. According to the Housing Authority of New Orleans, which received the largest obligation of funds, no units had been funded or completed as of August 2009. According to the Region VIII Housing Authority in Mississippi, the only PHA in Mississippi that was awarded funds, 24 units were funded and completed in 2006.

Public Housing Program (Mississippi)

The Mississippi Public Housing Program was designed to provide grants to PHAs for the repair or replacement of public housing that was damaged by Hurricane Katrina. The state made $105 million of its disaster Community Development Block Grant funds available for this program. To award assistance, the Mississippi Development Authority reviewed applications from PHAs and determined award amounts based upon documentation of damage and funding the PHA received or expected to receive from insurance or from the Capital Fund for Emergency/Natural Disaster Funding Program. According to the Action Plan for this program, funds were to be made available to eligible PHAs when construction commenced, and would be paid on a “draw down” basis as the obligation to pay occurred. According to the Mississippi Development Authority, $48 million had been awarded to five PHAs for the funding of 1,594 public housing units as of December 2008. As of August 2009, 1,210 public housing units were complete and in service.

Appendix VII: Rental Units Funded and Completed

Apr. 2009 Aug. 2009 Apr. 2009 Aug. 2009 and complete as of August 2009.

This table includes units funded by a $15 million appropriation for the redevelopment of permanent housing damaged by Hurricane Katrina. HUD awarded these funds to the Housing Authority of New Orleans.

Appendix VIII: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

Major contributors to this report were Daniel Garcia-Diaz, Assistant Director; Vanessa Dillard; Shamiah Kerney; and Lisa Moore. Johnnie Barnes, Cindy Gilbert, Thomas Gilbert, John McGrail, John Mingus, and Jennifer Schwartz also made key contributions to this report.