Gulf Coast Rebuilding: Preliminary Observations on Progress to Date and Challenges for the Future
Released: 2007-04-12T00:00:00

Letter

A Relatively Small Portion of Federal Gulf Coast Assistance Is Targeted to Long- Term Rebuilding, While Estimates of Loss Suggest Great Need

To respond to the Gulf Coast devastation, the federal government has committed an historically high level of resources—over $110 billion— through an array of grants, loan subsidies, and tax relief and incentives. The bulk of this assistance was provided between September 2005 and June 2006 through four emergency supplemental appropriations. A substantial portion of this assistance was directed to emergency assistance and meeting short-term needs arising from these hurricanes, such as relocation assistance, emergency housing, immediate levee repair, and debris removal efforts. Consequently, a relatively small portion of federal assistance is available for longer-term rebuilding activities such as the restoration of the region’s housing and infrastructure. Later in this statement, I will discuss in greater detail the two programs that the federal government has used so far to provide assistance to the Gulf Coast for longer-term rebuilding.

It is useful to view the federal assistance provided to the Gulf Coast within the context of the overall costs of the damages incurred by the region and the resources necessary to rebuild. Although there are no definitive or authoritative estimates of these costs, the various estimates of aspects of these costs offer a sense of their magnitude. For example, early damage estimates from the Congressional Budget Office (CBO) put capital losses from Hurricanes Katrina and Rita at a range of $70 billion to $130 billion while another estimate put losses solely from Hurricane Katrina— including capital losses—at over $150 billion. Further, the state of Louisiana has estimated that the economic impact on its state alone could reach $200 billion. While the exact costs of damages and rebuilding the Gulf Coast may never be known, they will likely surpass those from the three other costliest disasters in recent history—Hurricane Andrew, the September 2001 terrorist attacks, and the 1994 Northridge earthquake. These estimates raise important questions regarding additional assistance that will be needed to help the Gulf Coast rebuild in the future—including how the assistance will be provided and by whom.

Two Key Federal Programs That Provide Long-Term Rebuilding Resources Use Different Approaches

The federal government has so far used two key programs—FEMA’s Public Assistance and the Department of Housing and Urban Development’s (HUD) CDBG programs—to provide long-term rebuilding assistance to the Gulf Coast states. These two programs follow different funding models. Public Assistance provides funding on a project-by- project basis—involving an assessment of specific proposals to determine eligibility, while CDBG—a block grant—affords broad discretion and flexibility to states and localities.

Public Assistance Grants

FEMA’s Disaster Relief Fund (DRF) supports a range of grant programs in providing federal assistance to state and local governments, nongovernment organizations, and individuals when a disaster occurs. One of its largest programs—Public Assistance—provides assistance primarily to state and local governments to repair and rebuild damaged public infrastructure and includes activities such as removing debris, repairing roads, and reconstructing government buildings, and utilities. Pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), this assistance is limited to either a fixed-dollar amount or a percentage of costs for restoring damaged facilities. Specifically, applicants submit requests for work which is considered for eligibility and subsequent funding. FEMA obligates funds for approved projects, providing specific amounts to complete discrete work segments on projects, while state and local governments pay the remainder based on the state’s cost share agreement with FEMA. As of March 16, 2007, FEMA has obligated about $4.6 billion to Louisiana and about $2 billion to Mississippi through its Public Assistance program.

Community Development Block Grants

HUD’s Community Development Block Grant program—so far, the largest federal provider of long-term rebuilding assistance—received $16.7 billion in supplemental appropriations to help the Gulf Coast states rebuild damaged housing and other infrastructure. As shown in figure 1, Louisiana and Mississippi were allocated the largest shares of the CDBG appropriations, with $10.4 billion allocated to Louisiana, and another $5.5 billion allocated to Mississippi. Florida, Alabama, and Texas received the remaining share of CDBG funds.

These formula-based grants afford states and local governments a great deal of discretion in designing directed neighborhood revitalization, housing rehabilitation, and economic development activities. In some instances, Congress has provided even greater flexibility when allocating additional CDBG funds to affected communities and states to help them recover from presidentially declared disasters, such as the Gulf Coast hurricanes. The Federal Coordinator for Gulf Coast Rebuilding has said that the CDBG program allows state leaders “who are closest to the issues” to make decisions regarding how the money should be spent.

To receive CDBG funds, HUD required that each state submit an action plan describing how the funds would be used, including how the funds would address long-term “recovery and restoration of infrastructure.” This process afforded the states broad discretion in deciding how to allocate their funding and for what purposes. To coordinate and oversee the state’s rebuilding efforts, Louisiana created the Louisiana Recovery Authority (LRA) within the state’s executive branch. As part of its responsibility, the LRA was also charged with establishing spending priorities and plans for the state’s share of CDBG funds, subject to the approval of Louisiana’s state legislature. Mississippi developed its spending plans through the Mississippi Development Authority (MDA)—the state’s lead economic and community development agency within its executive branch—and the Governor’s Office of Recovery and Renewal. In contrast to Louisiana, Mississippi’s state legislature was not involved in the approval process for these state funding decisions. Consistent with HUD requirements, both Louisiana and Mississippi published their action plans to solicit public input within their state regarding the planned use of CDBG funds.

As shown in figure 2, each state allocated the majority of its share of CDBG funding to housing priorities. The remaining funds were allocated primarily to economic development and infrastructure priorities.

Louisiana and Mississippi Target the Majority of Their CDBG Funds to Homeowners, but Differ in Policies and Procedures

With the vast number of homes that sustained damage in Louisiana and Mississippi, each state had opted to direct the vast majority of their housing allocations to homeowners, although each state tailored its program to address the particular conditions in its state. A portion of these allocations also was directed to other housing programs such as rental housing and public housing, as well as to projects that will alleviate costs associated with housing, such as utility and insurance costs. Louisiana and Mississippi homeowner assistance programs are similar in that each is designed to compensate homeowners whose homes were damaged or destroyed by the storms. In each program, the amount of compensation that homeowners receive depends on the value of their homes before the storms and the amount of damage that was not covered by insurance or other forms of assistance. However, these programs differ in their premise and eligibility requirements.

Louisiana’s Homeowner Assistance Program Aims to Restore a Displaced Population

Louisiana witnessed a significant population loss in the wake of the Gulf Coast hurricanes, with many residents living in other states and debating whether to return to Louisiana. The LRA, in consultation with state and federal agencies, developed a program to restore the housing infrastructure in Louisiana, using CDBG funds from supplemental appropriations, as described earlier. Referred to as the Road Home, this program is designed to encourage homeowners to return to Louisiana and begin rebuilding. Under the program, homeowners who decide to stay in the state and rebuild in Louisiana are eligible for the full amount of grant assistance—up to $150,000—while those leaving the state will receive a lesser share. Accordingly, aside from the elderly, residents who choose to sell their homes and leave the state will have their grant awards reduced by 40 percent. Residents who do not have insurance will have their grant awards reduced by 30 percent. Further, to receive compensation, homeowners must comply with applicable code and zoning requirements and FEMA advisory base flood elevations when rebuilding and agree to use their home as a primary residence at some point during a 3-year period after closing.

As of March 28, 2007, the Road Home program had received 119,945 applications, of which 60,675 had been verified and an award amount had been calculated. Applicants were then asked to decide how they wanted to proceed (for example, whether to rebuild or sell). As of that date, 25,597 applicants notified the program of their decision. Of those, the program awarded payments to 4,808 homeowners with an average award amount of $74,250.

Mississippi’s Homeowner Assistance Program Aims to Compensate Losses

In Mississippi, Katrina’s storm surge destroyed tens of thousands of homes, many of which were located outside FEMA’s designated flood plain and not covered by flood insurance. Mississippi developed a two- phase program to target homeowners who suffered losses due to the storm surge. Accordingly, Phase I of the program is designed to compensate homeowners whose properties were located outside the floodplain and were otherwise fully insured. Eligible for up to $150,000 in compensation, these homeowners are not subject to a requirement to rebuild. Phase II of the program, on the other hand, is designed to award grants to uninsured and underinsured homeowners with incomes at or below 120 percent of the Area Median Income (AMI). Eligible for up to $100,000 in grant awards, these homeowners must demonstrate that they meet current building codes and standards as a condition to receiving their grants. While they are required to rebuild in south Mississippi, they are not required to stay in their homes once they have been rebuilt. In addition, homeowners who do not have insurance will have their grant reduced by 30 percent, although this penalty does not apply to the “special needs” populations as defined by the state (i.e., elderly, disabled, and low income).

As of March 28, 2007, Mississippi had received 18,465 applications for Phase I of its program, of which 14,974 were determined eligible for consideration. Of those, Mississippi awarded payments to 11,894 homeowners with an average award amount of $69,669. Mississippi has yet to complete processing applications for any of the more than 10,000 uninsured and underinsured homeowners in Phase II of the program.

It is clear that Louisiana’s and Mississippi’s homeowner assistance programs are proceeding at different paces. While we did not assess the causes for these differences, we have begun work as requested by the Senate Homeland Security and Governmental Affairs Committee to examine particular aspects of the CDBG program that may provide important insights into these issues.

Louisiana and Mississippi Are Engaged in Planning Activities, While the Federal Government Has Assumed a Coordination Role

Restoring the region’s housing and infrastructure is taking place in the context of broader planning and coordination activities; in Louisiana and Mississippi, state and local governments are engaged in both short- and long-term planning efforts. The federal government—specifically, the Coordinator of Federal Support for the Recovery and Rebuilding of the Gulf Coast Region—is responsible for coordinating the activities of the numerous federal departments and agencies involved in rebuilding as well as supporting rebuilding efforts at the state and local level. Based on our preliminary work, I would like to describe some of these activities being undertaken in Louisiana and Mississippi as well as the activities of the federal government.

Planning Activities in Louisiana

What will be rebuilt in many areas of Louisiana remains uncertain, as a number of planning efforts at the state and local levels are still evolving. At the state level, the LRA has coordinated a statewide rebuilding planning effort that included retaining professional planners and moving towards a comprehensive rebuilding plan. To facilitate this effort, the LRA endorsed Louisiana Speaks—a multifaceted process for helping the LRA develop a comprehensive rebuilding plan for Southern Louisiana and for providing rebuilding planning resources to homeowners, businesses, communities, and parishes. For example, Louisiana Speaks developed and distributed a pattern book for homeowners, architects, and permitting officials about how to redesign and rebuild commercial and residential buildings. Through this process, local design workshops—called charrettes—have been developed to guide neighborhood planning efforts in the impacted areas, while teams of professional planners, FEMA officials, and LRA officials and representatives work with affected local parishes to develop long-term parish recovery plans. Through extensive public input, Louisiana Speaks also seeks to develop a regional plan for Southern Louisiana, focusing on a number of critical challenges for the state’s redevelopment. The regional plan will evaluate economic, environmental, and social issues that affect Southern Louisiana and explore alternative ways that growth and development can be accommodated in the context of varying environmental, economic, and cultural changes. The state of Louisiana will then use the regional plan to help direct rebuilding policy and Louisiana’s long-term spending over the next 30 years.

Given the central importance of the city to Louisiana’s overall economy, I would like to highlight planning efforts in New Orleans. After several attempts to develop a rebuilding plan for New Orleans—including the Bring New Orleans Back Commission, efforts initiated by the city council, Urban Land Institute, and others—in August 2006, New Orleans embarked on a comprehensive rebuilding planning process, which continues to date. Referred to as the Unified New Orleans Plan (UNOP), this effort was designed as a grassroots approach to planning to incorporate the vision of neighborhoods and districts into multiple district-level plans and one citywide plan that establishes goals and priorities for rebuilding the city. In particular, the citywide plan will include priority programs and projects for repairing and rebuilding the city over a 5- to 10-year period and will help to inform critical funding and resource allocation decisions by state and federal agencies. The citywide plan is currently under review by the New Orleans Planning Commission.

Planning Activities in Mississippi

Mississippi created an overall plan to serve as a framework for subsequent planning efforts in affected areas of the state. More specifically, in September 2005—within days of the hurricanes’ landfall—Governor Barbour created the Governor’s Commission on Recovery, Rebuilding and Renewal to identify rebuilding and redevelopment options for the state. Comprised of over 20 committees, the Commission held numerous public forums across multiple counties in an effort to solicit input and public participation from residents throughout the state. In December 2005, the commission’s work culminated in a final report containing 238 policy recommendations aimed at addressing a range of rebuilding issues and concerns across the state, from infrastructure and economic development to human services and finance. The report also addressed potential financing mechanisms identifying state, local, private, and federal sources. Further, the recommendations identified parties responsible for implementing the recommendations, including the creation of new state and regional entities to oversee selected recommendations. In addition, Governor Barbour created the Office of Recovery and Renewal to oversee and coordinate implementation of these recommendations. Also charged with identifying funding for rebuilding projects, the office continues to work with public and private entities as well as state and local governments.

Local governments in south Mississippi are also engaged in rebuilding planning activities. For example, modeled after the Governor’s Commission on Renewal and Recovery, the city of Biloxi established a volunteer steering committee to develop a rebuilding plan for the city. Biloxi’s final rebuilding plan resulted in 162 recommendations to address core issues affecting the city, such as infrastructure, economic development, human services, and finance. In addition, the steering committee commissioned a separate rebuilding plan for East Biloxi—a low-lying area that had been heavily damaged by Hurricane Katrina—that included 27 recommendations for addressing this area of the city. A number of other impacted communities in south Mississippi have undertaken planning initiatives as well.

Coordination at the Federal Level

In light of the magnitude of the Gulf Coast hurricanes, the administration recognized the need to provide a mechanism to coordinate with—and support rebuilding activities at—the federal, state, and local levels. More specifically, in November 2005, the President issued executive orders establishing two new entities to help provide a governmentwide response to federal rebuilding efforts. The first of these orders created the position of Coordinator of Federal Support for the Recovery and Rebuilding of the Gulf Coast Region within the Department of Homeland Security. Accordingly, the Federal Coordinator is responsible for developing principles and goals, leading the development of federal recovery activities, and monitoring the implementation of designated federal support. The Coordinator also serves as the administration’s focal point for managing information flow, requests for actions, and discussions with Congress, state, and local governments, the private sector, and community leaders.

Our discussions with state and local officials in Louisiana revealed a largely positive disposition towards the Federal Coordinator and his role in support of the Gulf Coast. During our field work, for example, Louisiana state and local officials said the Coordinator had played an integral role in helping to identify and negotiate an appropriate level of CDBG funding for the state.

The second executive order established a Gulf Coast Recovery and Rebuilding Council within the Executive Office of the President for a period of 3 years. Chaired by the Assistant to the President for Economic Policy, the council includes most members of the Cabinet and is charged with examining issues related to the furtherance of the President’s policy on recovery and rebuilding of the Gulf Coast.

Selected Questions for Congressional Oversight of Gulf Coast Rebuilding

Rebuilding efforts in the Gulf Coast are at a critical turning point—a time when decisions now being made in community rooms, city halls, and state houses will have a significant impact on the complexion and future of the Gulf Coast. As states and localities begin to assume responsibility for developing plans for rebuilding, there are difficult policy decisions Congress will need to make about the federal government’s contribution to the rebuilding effort and the role it might play over the long-term in an era of competing priorities. Based on the preliminary work I have discussed today, the Subcommittee way wish to consider the following questions as it continues to carry out its critical oversight function in reviewing Gulf Coast rebuilding efforts: How much will it cost to rebuild the Gulf Coast and how much of this cost should the federal government bear?

How effective are current funding delivery mechanisms—such as Public Assistance and CDBG—and should they be modified or supplemented by other mechanisms?

How can the federal government further partner with state and local governments and the nonprofit and private sectors to leverage the public investment in rebuilding?

Madam Chair and Members of the Subcommittee, this concludes my statement. I would be happy to respond to any questions you or other members of the Subcommittee may have at this time.

GAO Contacts and Staff Acknowledgments

For information about this testimony, please contact Stanley J. Czerwinski, Director, Strategic Issues, at (202) 512-6806 or Czerwinskis@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Individuals making key contributions to this testimony include Charlesetta Bailey, Dean Campbell, Roshni Davé, Peter Del Toro, Laura Kunz, Brenda Rabinowitz, Michael Springer, and Diana Zinkl.

Related GAO Products

Hurricanes Katrina and Rita Recovery

Hurricane Katrina: Allocation and Use of $2 Billion for Medicaid and Other Health Care Needs. GAO-07-67. February 28, 2007.

Disaster Assistance: Better Planning Needed for Housing Victims of Catastrophic Disasters. GAO-07-88. February 28, 2007.

Small Business Administration: Additional Steps Needed to Enhance Agency Preparedness for Future Disasters. GAO-07-114. February 14, 2007.

Small Business Administration: Response to the Gulf Coast Hurricanes Highlights Need for Enhanced Disaster Preparedness. GAO-07-484T. February 14, 2007.

Hurricanes Katrina and Rita: Federal Actions Could Enhance Preparedness of Certain State-Administered Federal Support Programs. GAO-07-219. February 7, 2007.

Hurricanes Katrina and Rita Disaster Relief: Prevention is the Key to Minimizing Fraud, Waste, and Abuse in Recovery Effort. GAO-07-418T. January 29, 2007.

Hurricane Katrina: Status of Hospital Inpatient and Emergency Departments in the Greater New Orleans Area. GAO-06-1003. September 29, 2006.

Catastrophic Disasters: Enhanced Leadership, Capabilities, and Accountability Controls Will Improve the Effectiveness of the Nation’s Preparedness, Response, and Recovery System. GAO-06-618. September 6, 2006.

Disaster Relief: Governmentwide Framework Needed to Collect and Consolidate Information to Report on Billions in Federal Funding for the 2005 Gulf Coast Hurricanes. GAO-06-834. September 6, 2006.

Coast Guard: Observations on the Preparation, Response, and Recovery Missions Related to Hurricane Katrina. GAO-06-903. July 31, 2006.

Hurricane Katrina: Improving Federal Contracting Practices in Disaster Recovery Operations. GAO-06-714T. May 4, 2006.

Hurricane Katrina: Planning for and Management of Federal Disaster Recovery Contracts. GAO-06-622T. April 10, 2006.

Hurricane Katrina: Status of the Health Care System in New Orleans and Difficult Decisions Related to Efforts to Rebuild It Approximately 6 Months after Hurricane Katrina. GAO-06-576R. March 28, 2006.

Hurricane Katrina: GAO’s Preliminary Observations Regarding Preparedness, Response, and Recovery. GAO-06-442T. March 8, 2006.

Hurricanes Katrina and Rita: Preliminary Observations on Contracting for Response and Recovery Efforts. GAO-06-246T. November 8, 2005.

Hurricanes Katrina and Rita: Contracting for Response and Recovery Efforts. GAO-06-235T. November 2, 2005.

Hurricane Katrina: Providing Oversight of the Nation’s Preparedness, Response, and Recovery Activities. GAO-05-1053T. September 28, 2005.

Other Domestic Disaster Recovery

Biscuit Fire Recovery Project: Analysis of Project Development, Salvage Sales, and Other Activities. GAO-06-967. September 18, 2006.

September 11: Overview of Federal Disaster Assistance to the New York City Area. GAO-04-72. October 31, 2003.

Disaster Assistance: Information on FEMA’s Post 9/11 Public Assistance to the New York City Area. GAO-03-926. August 29, 2003.

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

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

Los Angeles Earthquake: Opinions of Officials on Federal Impediments to Rebuilding. GAO/RCED-94-193. June 17, 1994.

Hurricane Iniki Expenditures. GAO/RCED-94-132R. April 18, 1994.

Time-Critical Aid: Disaster Reconstruction Assistance—A Better Delivery System Is Needed. GAO/NSIAD-87-1. October 16, 1986.

Guidelines for Rescuing Large Failing Firms and Municipalities. GAO/GGD-84-34. March 29, 1984.

International Disaster Recovery

Rebuilding Iraq: More Comprehensive National Strategy Needed to Help Achieve U.S. Goals. GAO-06-788. July 11, 2006.

Foreign Assistance: USAID Completed Many Caribbean Disaster Recovery Activities, but Several Challenges Hampered Efforts. GAO-06- 645. May 26, 2006.

Foreign Assistance: USAID Has Begun Tsunami Reconstruction in Indonesia and Sri Lanka, but Key Projects May Exceed Initial Cost and Schedule Estimates. GAO-06-488. April 14, 2006.

Foreign Assistance: USAID’s Earthquake Recovery Program in El Salvador Has Made Progress, but Key Activities Are Behind Schedule. GAO-03-656. May 15, 2003.

Foreign Assistance: Disaster Recovery Program Addressed Intended Purposes, but USAID Needs Greater Flexibility to Improve Its Response Capability. GAO-02-787. July 24, 2002.

Foreign Assistance: Implementing Disaster Recovery Assistance in Latin America. GAO-01-541T. March 21, 2001.

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