Congress authorized billions to rebuild, but only half has been spent. Worrying about fraud
By CHRISTOPHER COOPER
Wall Street Journal
January 27, 2007
In August, 2005, Hurricane Katrina flattened two bridges, one for cars, one for trains, that span the two miles of water separating this city of 8,000 from the town of Pass Christian. Sixteen months later, the automobile bridge remains little more than pilings. The railroad bridge is busy with trains.
The difference: The still-wrecked bridge is owned by the U.S. government. The other is owned by railroad giant CSX Corp. of Jacksonville, Fla. Within weeks of Katrina's landfall, CSX dispatched construction crews to fix the freight line; six months later, the bridge reopened. Even a partial reopening of the road bridge, part of U.S. Highway 90, is at least five months away.
SPENDING CHOKES
• The Situation: President Bush touts $110 billion in federal money that's been sent to the Gulf Coast, but 17 months after the storm, not much has reached the streets.
• The Reason: A spool of federal red tape, abetted by states' antifraud regulations, is delaying building projects and aid handouts.
• What's next: Barring action in Washington to streamline the process, a full recovery could be years away.
"It shows the difference between the private sector and the public sector," says Harold "Buz" Olsen, chief administrative officer of Bay St. Louis, who displays a photograph of the train bridge in the city council chambers as a reminder. "By the time CSX was done with their bridge, we were just getting around to letting the contract on ours."
It's been almost 17 months since Hurricane Katrina pounded coastal Mississippi and southeast Louisiana, and about a year since Congress authorized the bulk of its rebuilding aid for the region. More than four months have passed since President Bush visited New Orleans on the anniversary of the storm and extolled the "amazing" reconstruction effort.
But a review of the devastated region shows that rebuilding is in a deep stall. Tens of thousands of residents remain displaced as authorities dither over how to disburse housing assistance. Many crucial infrastructure projects have yet to start. Of the tens of billions appropriated by Congress, half remains unspent.
There are many culprits. Among them: the size of the disaster, which continues to overwhelm agencies charged with rebuilding; the crush of competing bureaucracies, which has delayed many projects including the Bay St. Louis bridge; and weak local leadership.
In addition, many reconstruction efforts are ensnarled in spools of red tape spawned by a bevy of old and new government procedures. A prime example: an obscure set of 30-year-old Congressional rules designed to combat corruption known as the Stafford Act.
According to the White House, the federal government has provided $110 billion for the Gulf Coast region. But nowhere near that amount of actual cash has been made available. The total is spread over five states and covers damage done by three separate storms. Some of it consists of loans. A chunk comes from government insurance payouts that ultimately derived from premiums paid by homeowners themselves.
Of $42 billion given to the Federal Emergency Management Agency, the agency has spent only $25 billion, federal records show. Most of that went to temporary housing, debris removal and emergency operations in the early days of the disaster. It has spent more than $4 billion on administrative costs.
Louisiana says the Army Corps of Engineers has spent only about $1.3 billion of the $5.8 billion it received to repair the levees in and around New Orleans. Only about $1.7 billion of the $17 billion received by the Department of Housing and Urban Development has made its way to the streets, the agency says.
In New Orleans, officials say they have received only about 14% of the estimated $900 million in reconstruction money they estimate is needed to fix the ruined city. "We have lots of meetings," says Cynthia Sylvain-Lear, the city's liaison with FEMA.
The state and federal anti-corruption regulations offer a glimpse as to why reconstruction efforts are going so slowly.
The White House has kept in force a set of rules known as the Stafford Act. Under its guidance, rebuilding funds must be accompanied by a 10% match from local governments, on the theory that localities won't misspend if their money is also on the line. Similarly, FEMA will cover only 75% of a project's cost until the job is complete.
The requirement has delayed projects while cash-strapped towns in two of the U.S.'s poorest states try to rustle up financing.
Meanwhile, both Louisiana and Mississippi have been so keen to burnish their images that they created their own set of lumbering regulatory bureaus and antifraud audit shops. The Stafford Act has been waived in the past -- it didn't apply to Manhattan in September 2001 or South Florida following Hurricane Andrew in 1992 -- but it remains in place along the Gulf. President Bush dropped the Act for a time for certain projects, such as emergency repairs and debris removal, only to reinstate it later.
The region's reputation for corruption is one reason why. Influence peddling on the coast has a long history, from 1930s Louisiana Gov. Huey Long to Edwin Edwards, a three-term governor currently serving a 10-year prison sentence. Recently, Mississippi was named the most corrupt state in the nation by Corporate Crime Reporter, a Washington, D.C., publication.
"The question is not whether Congress should provide for those in need, but whether state and local officials who have been derelict in their duty should be trusted with that money," Rep. Tom Tancredo, a Colorado Republican, wrote in a 2005 letter to then-House Speaker Dennis Hastert. "Their record during Hurricane Katrina and the long history of public corruption in Louisiana convinces me that that they should not."
The result of this vigorous policing: In Louisiana, projects to rebuild a hospital along the western coast, a school-board building in suburban New Orleans and a prison south of the city remain suspended, the state says, as locals hunt for matching cash.
Meanwhile, a $7.5 billion pot intended for washed-out homeowners sits virtually untouched as applicants are forced to run a gauntlet of requirements, this time imposed by Louisiana. To prevent false claims, applicants must attend two personal meetings with state bureaucrats, provide fingerprint verification and mug shots, as well as supporting documentation, including letters from insurance companies and banks.
To date, Road Home, as the program is called, has drawn nearly 100,000 applicants. As of this week, it had disbursed only 258 grants for a total of $14.4 million. Mississippi, which operates a similar but far less restrictive grant program, has distributed $665 million to 11,827 homeowners.
In January 2006, Alan Rubin, a retired businessman, applied to Road Home on behalf of his elderlyparents, whose $200,000 house in New Orleans's fashionable Lakeview neighborhood took on 12 feet of water. They didn't have flood insurance.
After completing a 40-question questionnaire, Mr. Rubin had a four-hour interview with a screener in September, he recalls. Ten weeks later, a state-contracted appraiser visited the property. Eleven months after the initial application, the state came back with a compensation figure: $550.
Mr. Rubin complained to his local newspaper, the Time-Picayune, which chronicled his experience in late December. The day the story was published, Mr. Rubin received a call from an employee with ICF International Inc., the Arlington, Va., company that manages Road Home under a $750 million contract. He says the employee blamed a computer error -- his parents were in fact entitled to $150,000.
Carol Hector-Harris, a spokeswoman for ICF, declines to discuss Mr. Rubin's case other than to say the family "is very satisfied at this point." Mr. Rubin qualifies that: He's still waiting for the check. "I'm told that it's somewhere in the process."
Andy Kopplin, executive director of the Louisiana Recovery Authority, which promulgated rules governing the Road Home grants and other federal money pots, defends his state's antifraud procedures. "The subtext in Washington was, 'We couldn't trust folks in Louisiana to spend the rebuilding money wisely,'" Mr. Kopplin says. "One man's red tape is another man's accountability."
At the federal level, Bush administration officials defend their rules. "Some people see the Stafford Act as overly cumbersome, but the provisions of the act are there for a reason, and that reason is to ensure that taxpayer money is spent properly," says Taylor Beery, director of policy for Donald Powell, the administration's rebuilding czar, in a written statement.
Running against the tide is Louisiana Sen. Mary Landrieu, a Democrat, who has promised to try rejiggering Stafford Act rules to make them more flexible. She's now chairman of a Senate committee overseeing reconstruction. "I'm not saying we don't need oversight -- I'm saying we need common-sense oversight," Ms. Landrieu says.
There have been many complaints about misspending in Katrina's aftermath, but most finger the federal government, not state and local agencies. In October, Louisiana sued FEMA, contending that the federal agency had tried dunning Baton Rouge for $61 million in improper or undocumented expenses. Last month, the Government Accountability Office said FEMA had misspent nearly $1 billion in recovery money since Katrina struck. Local examples of fraud have been on a much smaller scale.
Aaron Walker, a FEMA spokesman, declines to comment on the lawsuit, but says in general, "we acknowledge there are business practices we can improve on." Mr. Walker also says the agency disputes the GAO's accounting.
It is in the small towns along the Mississippi Gulf Coast where the constipated spending system is most apparent. Bay St. Louis, a town once dotted with ancient oaks and antebellum homes, remains a museum of disaster. The city lost virtually its entire underground sewer system and much of its gas grid. It needs $100,000 in street signs and nearly $4 million in secondary road repairs.
Antifraud rules have slowed tasks as basic as ditch digging. Hurricane Katrina silted in most of Bay St. Louis's ditches, which once drained the town's streets. They were later filled with debris by cleanup crews.
In late 2005, the city hired an engineering firm to survey the ditch network and work up a cost estimate in the form of a "project worksheet," a FEMA requirement. The estimated cost to clean and regrade the ditches: $3.2 million. Bay St. Louis scrounged $320,000 as part of its obligations under the Stafford Act. After three months, FEMA blessed the project.
But before work could start, the city had to send the engineering report to the Mississippi Emergency Management Agency, which reviewed the job. State approval took a month. It took three more months to solicit bids and award the contract. Work started in mid-August 2006.
After the first crew started, the state began a full audit of the project. "They call it testing," says Les Fillingame, recovery director for Bay St. Louis. The oversight called for scrutinizing each individual invoice associated with the work. In the case of the ditch mucking, that included hundreds of bills known as "load tickets," paperwork that tallied each truck load of debris. Each load ticket passed through four levels of state bureaucracy before being approved for payment.
Sitting in his office, Mr. Fillingame pulled down a ditch-mucking file, four inches thick, from his bookshelf, and let it land on his desk with a thump. "That's every load ticket," he says.
Interspersed with the paperwork scrutiny were surprise inspections. Mr. Fillingame says the state and FEMA dropped in on ditch crews to ensure there was no featherbedding.
Start to finish, it took just over a year to complete a job that involved only about a month of actual shovel work. It's a process that will be repeated at least 56 more times; Bay St. Louis has that many projects on the drawing board, most of them more complex than ditch clearing.
Michael Womack, executive director of the Mississippi Emergency Management Agency, says the process is necessary. "The governor -- he knows what the perception is outside the state of Mississippi," Mr. Womack says. "It's a perception that there's a huge amount of corruption in local government."
Mr. Womack estimates that the state's freshly minted antifraud regime could soak up $100 million in reconstruction aid. "There are lots of contractors that are trying to rip the government off. Are we preventing $100 million in fraud? Unfortunately, I think that's the case."
Adding to the burdens of dealing with antifraud regulations, Bay St. Louis must also deal with an army of sometimes impenetrable federal agencies. The $50 million reconstruction of Beach Drive, the city's long-admired main drag, has yet to start, even though it has the attention of the state highway department, the state attorney general's office, the federal highway commission, FEMA and the Army Corps.
The street can't be rebuilt until an associated seawall and the adjacent pier are reconstructed. FEMA calculates the pier alone will cost exactly $1,370,256.22.
To the surprise of locals, the Corps didn't request a congressional appropriation until November, more than a year after the storm. Spokesman Patrick Robbins says the project was submitted to Congress as part of a package of other jobs, following agency policy.
"So here we are: The whole rebuilding of downtown Bay St. Louis is contingent on this seawall, and we don't even know if it'll be funded," says Mr. Fillingame. As for the nearby unfinished auto bridge, rebuilding was slowed by labor shortages, the need for public hearings and some local squabbles.
As he piloted his mud-spattered truck down what remains of Beach Road, Bay St. Louis Mayor Eddie Favre pointed out local landmarks. There's the once-gracious home of local Congressman Gene Taylor, now a slab of buckled concrete. Bouncing over the rutted berm, recently graveled by the state, more than a year after the storm, Mr. Favre passed his own homesite, also little more than slab. He now lives in a trailer near City Hall.
In the aftermath of Katrina, Mr. Favre promised constituents that until the city was rebuilt, he would forgo long pants and instead wear shorts, just as he had the day Katrina hit. Now on his fifth pair, and facing his second chilly winter, the mayor concedes he may have spoken rashly.
"At this rate, it looks like I'll be buried in my shorts," Mr. Favre says.
