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entitled 'September 11: Overview of Federal Disaster Assistance to the 
New York City Area' which was released on October 31, 2003.

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Report to Congressional Requesters:

United States General Accounting Office:

GAO:

October 2003:

September 11:

Overview of Federal Disaster Assistance to the New York City Area:

GAO-04-72:

GAO Highlights: 

Highlights of GAO-04-72, a report to congressional requesters 

Why GAO Did This Study: 

The federal government has been a key participant in the efforts to 
provide aid to the New York City area to help it respond to and 
recover from the September 11 terrorist attacks. The President 
pledged, and the Congress subsequently authorized, about $20 billion 
in federal aid. This federal aid was provided primarily through four 
sources: the Federal Emergency Management Agency (FEMA), the 
Department of Housing and Urban Development (HUD), the Department of 
Transportation (DOT), and the Liberty Zone tax benefits—a set of tax 
benefits targeted to lower Manhattan. These sources provided 96 
percent, or $19.63 billion, of the committed federal aid to the New 
York City area. 

It has been over 2 years since the attacks occurred, and many efforts 
have been undertaken to aid the New York City area to cope with the 
disaster and its many impacts. GAO was asked to describe how much and 
what type of federal assistance was provided to the New York City area 
through these four sources and how the federal government’s response 
to this disaster differed from previous disasters. 

We provided a draft of this report to FEMA, DOT, HUD, and Internal 
Revenue Service (IRS) for their review and comment, and all four 
agencies generally agreed with the information presented. 

www.gao.gov/cgi-bin/getrpt?GAO-04-72. 

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact JayEtta Z. Hecker at 
(202) 512-2834 or heckerj@gao.gov. 


What GAO Found: 

An estimated $20 billion of federal assistance has been committed to 
the New York City area through FEMA, HUD, DOT and the Liberty Zone tax 
benefits. While plans for use of $1.16 billion in HUD funds have not 
been finalized, $18.47 billion have been committed for the following 
four purposes: 
Initial response efforts, which includes search and rescue operations, 
debris removal, emergency transportation, and utility system repairs, 
totaled $2.55 billion. The largest single amount—$1 billion—has been 
set aside for the establishment of an insurance company to cover 
claims resulting from debris removal operations. 

Compensation for disaster-related costs and losses, which includes aid 
to individuals for housing costs, loans to businesses to cover 
economic losses, and funding to the city and state for disaster-
related costs, totaled about $4.81 billion. 

Infrastructure restoration and improvement, which includes 
restoration and enhancement of the lower Manhattan transportation 
system and permanent utility repair and improvement, totals $5.57 
billion. 

Economic revitalization, which includes the Liberty Zone tax benefits 
and business attraction and retention programs, is estimated to total 
$5.54 billion. The amount of this funding is estimated, and will 
likely remain so, because the tax benefit amounts are not being 
tracked. 

The designation of $20 billion to assist the New York City area was the first 
time in which the amount of federal disaster assistance to be provided 
was set early in the recovery effort; normally, the level of 
assistance is determined as needs are assessed against established 
eligibility criteria. FEMA, in response to the designation of a 
specific level of funding and enhanced authority from the Congress, 
changed its traditional approach to administering disaster funds by 
expanding eligibility guidelines, initiating an early close-out 
process, and reimbursing New York City and state for nontraditional 
costs. Further, the designation of a specific level of assistance 
prompted congressional authorization of numerous forms of 
nontraditional assistance to be provided. 

[End of section]

Contents:

Letter:

Executive Summary:

Purpose:

Background:

Results in Brief:

GAO Analysis:

Agency Comments:

Chapter 1: Introduction:

Many Agencies Play Significant Roles in Responding to Disasters:

Federal Disaster Assistance to the New York City Area Set at about $20 
Billion:

Federal Response Provided to the New York City Area Represents Four 
Broad Purposes of Assistance:

Chapter 2: Initial Response Assistance Totaled $2.55 Billion:

Search and Rescue Operations Totaled $22 Million:

Debris Removal Operations Totaled $1.70 Billion, Including Liability 
Insurance Coverage:

Emergency Transportation Measures Totaled $299 Million:

Emergency and Temporary Utility Repairs Total $250 Million:

Testing and Cleaning Efforts Totaled $53 Million:

Other Initial Response Services Totaled $232 Million:

Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled 
$4.81 Billion:

Compensation of the City, State, and Other Organizations Totaled $3.32 
Billion:

Assistance to Individuals and Families Totaled $807 Million:

Assistance to Businesses Totaled $683 Million:

Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and 
Enhance Infrastructure:

Projects Planned to Restore and Enhance the Lower Manhattan 
Transportation System Total $5.01 Billion:

Permanent Utility Infrastructure Repairs and Improvements Total $500 
Million:

Short-term Capital Projects Total $68 Million:

Chapter 5: Efforts to Revitalize the New York Economy Include Tax 
Benefits and Assistance to Businesses:

Liberty Zone Tax Benefits Focus on Economic Revitalization:

$515 Million of HUD Funds Committed for Business Assistance and Other 
Projects to Revitalize Lower Manhattan:

Chapter 6: Designation of a Specific Level of Assistance Led to a 
Distinct Federal Government Response for this Disaster:

Designation of a Specific Level of Funding Altered the Traditional FEMA 
Disaster Assistance Approach:

Designation of a Specific Level of Assistance Spurred Congressional 
Appropriation and Authorization of Nontraditional Assistance:

Appendix I: Objectives, Scope, and Methodology:

Appendix II: Proposed Transportation Infrastructure Improvements for 
Lower Manhattan:

Appendix III: Joint Committee on Taxation Estimated Revenue Effects of 
the Liberty Zone Tax Benefits:

Appendix IV: Description of Liberty Zone Tax Benefits:

Appendix V; Liberty Zone Tax Benefits Bond Authority:

Appendix VI: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

Acknowledgments:

Glossary:

Related GAO Products:

Tables:

Table 1: Initial Response Assistance, as of June 30, 2003:

Table 2: Compensation for Disaster-Related Costs and Losses, as of June 
30, 2003:

Table 3: Infrastructure Restoration and Improvement, as of June 30, 
2003:

Table 4: Economic Revitalization Efforts, as of June 30, 2003:

Table 5: Emergency Supplemental Funds for New York Disaster Relief 
Appropriated, by Agency:

Table 6: Initial Response Assistance, as of June 30, 2003:

Table 7: Compensation for Disaster-Related Costs and Losses, as of June 
30, 2003:

Table 8: Assistance for the City, State, and Other Organizations, as of 
July 31, 2003:

Table 9: Assistance to Individuals and Families, as of June 30, 2003:

Table 10: Assistance to Businesses, as of June 30, 2003:

Table 11: Infrastructure Restoration and Improvement, as of June 30, 
2003:

Table 12: Lower Manhattan Transportation System Restoration and 
Enhancement, as of June 30, 2003:

Table 13: Economic Revitalization Efforts, as of June 30, 2003:

Table 14: Approved Liberty Bond Projects:

Figures:

Figure 1: Primary Purpose and Amount of Disaster Assistance Committed 
by FEMA, HUD, DOT, and Liberty Zone Tax Benefits:

Figure 2: Timeline of Supplemental Appropriations and Other Related 
Legislation Enacted by the Congress That Provided Assistance to the New 
York City Area:

Figure 3: Allocation of Federal Assistance to the New York City Area by 
the Federal Government:

Figure 4: Costliest Disasters for FEMA, HUD, and DOT:

Figure 5: Primary Purpose and Amount of Disaster Assistance Committed 
by FEMA, HUD, DOT, and Liberty Zone Tax Benefits:

Figure 6: Amount of Assistance Committed to Initial Response 
Activities, by Agency:

Figure 7: Urban Search and Rescue Teams Assist in Searching for 
Survivors at the World Trade Center Site:

Figure 8: FEMA-Funded Debris Removal Operations Were a Major Component 
of Initial Response Assistance:

Figure 9: FEMA Funded Interim Repairs to West Street:

Figure 10: FEMA Funded Efforts to Remove Debris from the PATH Tunnel:

Figure 11: FEMA Provided Funds to Build the Temporary PATH Terminal 
Currently under Construction:

Figure 12: Buildings Needing Cleaning after September 11, 2001:

Figure 13: Amount of Assistance Committed to Compensate Disaster-
Related Costs and Losses, by Agency:

Figure 14: Map of LMDC Residential Grant Program Zones in Lower 
Manhattan:

Figure 15: LMDC Published Its "It Pays to Live Downtown" in Multiple 
Languages:

Figure 16: Areas of Lower Manhattan Assisted by ESDC Business Recovery 
Grant Program:

Figure 17: Amount of Assistance Committed for Infrastructure 
Restoration and Improvement, by Agency:

Figure 18: Current and Proposed South Ferry Subway Station Layout:

Figure 19: Workers Conducting Street Repairs in Lower Manhattan:

Figure 20: New York City Department of Transportation Map of Planned 
Emergency Relief Program Road Repairs (excluding West Street):

Figure 21: Present West Street and West Street Design Concept with 
Belowground Lanes:

Figure 22: Estimated Amount of Assistance Committed for Economic 
Revitalization, by HUD and Liberty Zone Tax Benefits:

Figure 23: New York Liberty Zone:

Figure 24: Studio Daniel Libeskind's Memory Foundations Winning Design 
for Rebuilding the World Trade Center Site Was Selected as Part of an 
International Design Competition:

Figure 25: The World Trade Center Rebuilding Plans Include Recognition 
of the Footprints of the Original Twin Towers:

Figure 26: Lower Manhattan Transportation Projects--Restoration and 
Enhancement:

Abbreviations:

CDBG: Community Development Block Grant:

DOT: Department of Transportation:

EPA: Environmental Protection Agency:

ESDC: Empire State Development Corporation:

FEMA: Federal Emergency Management Agency:

FHWA: Federal Highway Administration:

FTA: Federal Transit Administration:

IG: Office of Inspector General:

HUD: Department of Housing and Urban Development:

IRS: Internal Revenue Service:

LMDC: Lower Manhattan Development Corporation:

MTA: Metropolitan Transportation Authority:

PATH: Port Authority Trans-Hudson:

SBA: Small Business Administration:

United States General Accounting Office:

Washington, DC 20548:

October 31, 2003:

The Honorable James M. Inhofe 
Chairman 
The Honorable James M. Jeffords 
Ranking Minority Member 
Committee on Environment and Public Works 
United States Senate:

The Honorable George V. Voinovich 
The Honorable Hillary Rodham Clinton 
United States Senate:

In response to your request, this report discusses how much and for 
what purposes federal assistance was provided to the New York City area 
in response to the terrorist attacks of September 11, 2001. In 
addition, this report describes the differences in the federal 
government's response to this disaster as compared with previous 
disasters.

If you, or your staffs, have any questions about this report, please 
call me at (202) 512-2834. Major contributors to this report are listed 
in appendix VI.

JayEtta Z. Hecker 
Director, Physical Infrastructure Issues:

Signed by JayEtta Z. Hecker:  

[End of section]

Executive Summary:

Purpose:

The terrorist attacks of September 11, 2001, resulted in one of the 
largest catastrophes this country has ever experienced. The attacks and 
their aftermath caused the loss of thousands of lives, billions of 
dollars of property, untold numbers of jobs, and the displacement of 
many individuals and businesses. In the New York City area, the attacks 
killed nearly 3,000 people, injured thousands, and dislocated thousands 
of workers and residents. The World Trade Center towers collapsed, 
destroying or damaging numerous other buildings on and around the World 
Trade Center site, and disabling major electrical, communications, and 
transportation infrastructure in lower Manhattan.

The federal government has played a key role in the efforts to provide 
aid after the attacks and has been providing the New York City area 
with funds and other forms of assistance. The magnitude of the disaster 
and the size and scope of the federal government's response in aiding 
the city has generated significant interest in the nature and progress 
of the federal assistance provided the New York City area. 
Consequently, in a May 2, 2002, letter the Chairman and Ranking 
Minority Member of the Senate Committee on Environment and Public Works 
and Senators Hillary Rodham Clinton and George V. Voinovich asked GAO 
to assess the federal government's response and recovery efforts to the 
New York City area. They requested GAO to determine (1) how much 
federal assistance has been delivered to the New York City area and for 
what purposes and (2) how the federal government's response to this 
disaster differed from previous disasters.

In performing its work, GAO focused on the primary sources of federal 
assistance--the Federal Emergency Management Agency (FEMA), the 
Department of Housing and Urban Development (HUD), the Department of 
Transportation (DOT), and the Liberty Zone tax benefits[Footnote 1]--
that targeted different aspects of the recovery efforts in the New York 
City area. To provide information on the amount and purpose of federal 
assistance, GAO categorized the recovery efforts into four broad 
purposes:

* Initial response efforts.

* Compensation for disaster-related costs and losses.

* Infrastructure restoration and improvement.

* Economic revitalization.

GAO briefed your staffs previously on the preliminary results of its 
work and provided testimony summarizing these results in a September 
24, 2003, hearing.[Footnote 2] GAO also issued a separate report on one 
aspect of the response, FEMA's public assistance program.[Footnote 3]

Background:

After a disaster, the federal government, in accordance with provisions 
of the Robert T. Stafford Disaster Relief and Emergency Assistance Act 
(the Stafford Act),[Footnote 4] assists state and local governments 
with costs associated with response and recovery efforts that exceed a 
state or locale's capabilities. FEMA is the agency responsible for 
coordinating federal disaster response efforts under the Federal 
Response Plan, a signed agreement by 27 agencies and the Red Cross to 
deliver federal disaster assistance. As a result, FEMA provides 
assistance, through a variety of programs to state and local 
governments. However, at times, the Congress directly funds agencies to 
conduct specialized activities in response to particular disasters, 
such as HUD's Community Development Block Grants for economic 
development.

After the attacks on September 11, 2001, the New York City area was 
faced with significant human and economic losses, over a million tons 
of debris, and severely damaged infrastructure. In the days immediately 
following the attacks, the President pledged at least $20 billion in 
federal assistance to the New York City area to address these impacts. 
Subsequently, over the next 11 months, the Congress enacted several 
pieces of legislation to provide an estimated $20 billion in direct 
funding and tax benefits[Footnote 5]. Of the assistance authorized by 
the Congress, 96 percent is provided through four primary sources; 
FEMA, HUD, and DOT--for funds directly appropriated to assistance for 
the New York City area--and the Liberty Zone tax benefits--seven 
provisions that provide specific federal tax benefits for businesses in 
lower Manhattan damaged by the terrorist attacks.

Results in Brief:

About $18.47 billion in federal assistance has been committed to 
specific projects for the New York City area primarily through FEMA, 
HUD, DOT and the Liberty Zone tax benefits for: (1) initial response 
efforts, (2) compensation for disaster-related costs and losses, (3) 
infrastructure restoration and improvement, and (4) economic 
revitalization. An additional $1.16 billion in HUD funds that have not 
been committed to a specific purpose will most likely be directed to 
infrastructure restoration and/or economic revitalization. Figure 1 
shows the amount of assistance committed to the primary purposes.

Figure 1: Primary Purpose and Amount of Disaster Assistance Committed 
by FEMA, HUD, DOT, and Liberty Zone Tax Benefits:

[See PDF for image]

[A] The Lower Manhattan Development Corporation's plans for $1.16 
billion in HUD funds have not been finalized, as of June 30, 2003. 
These funds are not included in the graphic and, according to HUD, will 
mostly likely be directed to either infrastructure restoration or 
economic revitalization.

[End of figure]

* Initial response activities totaled $2.55 billion. FEMA, DOT, and HUD 
assistance funded many activities, including search and rescue 
operations, debris removal operations, emergency transportation 
measures, and emergency utility service repair. In addition, funds were 
provided for environmental cleaning and testing in a widespread area of 
lower Manhattan.

* Assistance to compensate for disaster-related costs and losses 
equaled $4.81 billion. This funding, provided by FEMA and HUD, 
compensated state and local organizations, individuals, and businesses 
for disaster-related costs. Such compensation included funds to New 
York City and State to rebuild damaged facilities, to individuals for 
rental and mortgage assistance and for crisis counseling, and to 
businesses for days of lost revenue and recovery loans.

* Funding to restore and improve infrastructure totaled $5.57 billion. 
The majority of this assistance is a combination of FEMA and DOT funds 
designated to rebuild and enhance the lower Manhattan transportation 
system, including the construction or repair of transit terminals, 
streets, and ferry stations. New York is currently evaluating projects 
for which to use these funds. Planning studies evaluating 
transportation improvement options are underway, and a portion of the 
$1.16 billion of the remaining HUD funds may be committed for these 
efforts. HUD has also committed funds to improve utility infrastructure 
and to complete a variety of short-term capital projects.

* Efforts to revitalize the economy in lower Manhattan are underway and 
are estimated to total $5.54 billion. The revitalization efforts 
include an estimated $5.03 billion Liberty Zone tax benefit plan. The 
tax benefits have several provisions, such as special depreciation 
deductions, to reduce tax burdens and spur economic development in 
lower Manhattan. The total amount of assistance provided by the tax 
benefits will depend on benefit usage; however, the IRS does not track 
the usage of these benefits, and consequently, the total amount of this 
benefit will remain unclear. In addition, the Congress appropriated HUD 
funds that made available $515 million to revitalize the lower 
Manhattan economy, including incentives for existing businesses to 
remain in the area and as well as to attract new businesses to lower 
Manhattan. A portion of the $1.16 billion of the remaining HUD funds 
may also be used for revitalization efforts.

The designation of $20 billion to assist the New York City area was the 
first time in which the amount of federal disaster assistance to be 
provided was set early in the response and recovery efforts and 
resulted in two major changes in the federal approach to this disaster. 
FEMA, in response to the designation of a specific level of funding, 
changed its traditional approach to administering disaster funds, and 
with congressional authorization, FEMA reimbursed the city and state 
for "associated costs" that it could not have otherwise funded within 
provisions of the Stafford Act to ensure that the entire amount of 
funds appropriated to FEMA for this disaster would be spent for the New 
York City area. In addition to the flexibility given FEMA, this 
specific level of funding for the entire disaster prompted 
congressional authorization of numerous forms of nontraditional 
assistance to be provided by other agencies, including the first 
geographically targeted tax program in response to a disaster.

We provided a draft of this report to FEMA, DOT, HUD, and the Internal 
Revenue Service (IRS) for their review and comment, and all four 
agencies generally agreed with the information presented.

GAO Analysis:

Initial Response Efforts Totaled $2.55 Billion:

Initial response assistance totaled $2.55 billion for activities, such 
as search and rescue operations, debris removal operations, emergency 
transportation measures, temporary utility repairs, testing and 
cleaning efforts. FEMA activated 20 of its 28 urban search and rescue 
teams from across the country to conduct search and rescue operations 
immediately following the collapse of the World Trade Center towers. 
Debris removal operations funded by FEMA included costs to recover and 
identify the remains of victims. These activities included screening, 
sorting, and disposing of nearly 1.6 million tons of debris from the 
World Trade Center. As part of the $2.55 billion for initial response 
efforts, FEMA has established a $1 billion insurance company to cover 
the city and its contractors for claims resulting from debris removal 
work at the World Trade Center site. FEMA and DOT funded emergency 
measures to restore operation to the transportation systems, such as 
temporary repairs to local roads. In addition, HUD funds have been 
committed to reimburse utilities for costs associated with emergency 
repairs to the utility infrastructure. FEMA also provided funds to 
clean buildings in the lower Manhattan area damaged by debris and fires 
and to monitor air quality. Table 1 shows how much each agency 
committed, obligated, and disbursed for initial response efforts.

Table 1: Initial Response Assistance, as of June 30, 2003:

Dollars in millions: 

Activity: Search and rescue operations; Funding 
agency: FEMA; Total committed: $22; Total obligated: $22; Total 
disbursed: $22.

Activity: Debris removal operations[A]; Funding 
agency: FEMA; Total committed: 1,698; Total obligated: 698; Total 
disbursed: 695.

Activity: Emergency transportation measures; 
Funding agency: FEMA/DOT; Total committed: 299; Total obligated: 298; 
Total disbursed: 298.

Activity: Temporary utility repairs; Funding 
agency: HUD; Total committed: 250; Total obligated: 0; Total disbursed: 
0.

Activity: Testing and cleaning efforts; Funding 
agency: FEMA; Total committed: 53; Total obligated: 53; Total 
disbursed: 42.

Activity: Other initial response services; Funding 
agency: FEMA; Total committed: 232; Total obligated: 232; Total 
disbursed: 114.

Activity: Total; Total committed: $2,554; Total obligated:  $1,303; 
Total disbursed:  $1,170.

Source: GAO analysis of agency-provided data.

Notes: Numbers may not add due to rounding. Due to the expedited close-
out, FEMA data are reflected as of July 31, 2003.

[A] FEMA obligated $1 billion for its debris removal insurance program 
to New York on September 3, 2003, which is not reflected in the table. 
None of these funds have been disbursed yet.

[End of table]

Compensation for Disaster-Related Costs and Losses Totaled $4.81 
Billion:

Approximately $4.81 billion in federal assistance has been committed to 
compensate state and local organizations, individuals, and businesses 
for disaster-related costs and losses. FEMA reimbursed the city and 
state of New York and other organizations for a multitude of projects 
through its public assistance program. In addition, the Congress 
authorized FEMA to provide funding to the city and state for expenses 
associated with the disaster but not reimbursable under the Stafford 
Act, such as costs for heightened security throughout the area. FEMA 
and HUD provided assistance to individuals and families that included 
funds to lower Manhattan residents for mortgage and rental assistance, 
crisis counseling, and family grants to cover disaster-related expenses 
not covered through other programs. In addition, HUD funds were used 
for a variety of business assistance programs, such as recovery grants 
and loans, to compensate for economic losses and recovery efforts. 
Table 2 shows how much each agency committed, obligated, and disbursed 
to compensate for disaster-related costs and losses.

Table 2: Compensation for Disaster-Related Costs and Losses, as of June 
30, 2003:

Activity: Assistance for state, city, and other 
organizations; Funding agency: FEMA; Total committed: $3,319; Total 
obligated: $1,857; Total disbursed: $1,593.

Activity: Assistance for individuals and families; 
Funding agency: FEMA/HUD; Total committed: 807; Total obligated: 729; 
Total disbursed: 546.

Activity: Assistance for businesses; Funding 
agency: HUD; Total committed: 683; Total obligated: 574; Total 
disbursed: 510.

Activity: Total; Funding agency:  ; Total 
committed: $4,809; Total obligated: $3,160; Total disbursed: $2,649.

Source: GAO analysis of agency-provided data.

Notes: Numbers may not add due to rounding. Due to the expedited close-
out, FEMA data are reflected as of July 31, 2003.

[End of table]

About $5.57 Billion Has Been Committed for Projects to Restore and 
Enhance Infrastructure:

About $5.57 billion has been committed for projects to restore and 
enhance infrastructure in lower Manhattan. The majority of this 
financial assistance, $5.01 billion, is a combination of FEMA and DOT 
funds to restore and enhance elements of the transportation system 
supporting lower Manhattan. These efforts include a permanent 
replacement for the destroyed Port Authority Trans-Hudson (PATH) 
terminal and enhancements to the Fulton Street Transit Center and the 
South Ferry Subway Station, although these latter two facilities were 
not damaged in the attacks. New York is currently considering other 
projects to fund with the allotted transit funds. At this point, a 
small percentage of funding has been obligated for transportation 
projects. HUD has funded several planning studies to determine whether 
to commit funds to transportation improvement efforts. The attacks and 
subsequent recovery efforts also heavily damaged utility infrastructure 
in lower Manhattan, and HUD has committed $568 million to rebuild and 
enhance utility infrastructure and to fund other short-term capital 
projects for infrastructure improvements to the areas around the World 
Trade Center site. As shown in table 3, most funds committed for 
infrastructure restoration and improvement projects remain to be 
obligated and disbursed, due to the long-term nature of such projects.

Table 3: Infrastructure Restoration and Improvement, as of June 30, 
2003:

Dollars in Millions: 

Activity: Rebuilding and improving lower Manhattan 
transportation system; Agency: FEMA/DOT/HUD; Total committed: $5,006; 
Total obligated: $238; Total disbursed: $54.

Activity: Permanent utility infrastructure 
repairs; Agency: HUD; Total committed: 500; Total obligated: 0; Total 
disbursed: 0.

Activity: Short-term capital projects; Agency: 
HUD; Total committed: 68; Total obligated: 0; Total disbursed: 0.

Activity: Total; Agency: [Empty]; Total committed: 
$5,574; Total obligated: $238; Total disbursed: $54.

Source: GAO analysis of agency-provided data.

Notes: Numbers may not add due to rounding. Due to the expedited close-
out, FEMA data are reflected as of July 31, 2003. This table does not 
include $24 million appropriated to DOT for formula grants.

[End of table]

Efforts to Revitalize the New York Economy Include Tax Benefits and 
Assistance to Businesses:

In an effort to revitalize the New York City area economy, the Congress 
enacted the Liberty Zone tax benefits--estimated by the Joint Committee 
on Taxation to be $5.03 billion--and appropriated $515 million to HUD 
for revitalization programs. Estimates vary regarding what the ultimate 
usage of the Liberty Zone tax benefits will be and IRS is not 
collecting--nor is it required to collect--data on the Liberty Zone tax 
benefit usage and financial impact. As a result, the actual financial 
benefit of the tax provisions to the New York City area will remain 
unclear. HUD is providing funds to revitalize the lower Manhattan 
economy to attract and retain businesses through job creation and 
retention grants. These funds will also supplement multiple planning 
efforts to revitalize lower Manhattan, including coordinating the World 
Trade Center site rebuilding and memorial design competition. In 
addition to the $5.54 billion, the Lower Manhattan Development 
Corporation has not yet committed $1.16 billion in HUD funds to 
specific activities that will likely fund a mix of economic 
revitalization efforts and transportation improvements. Table 4 shows 
the amount of assistance committed for economic revitalization.

Table 4: Economic Revitalization Efforts, as of June 30, 2003:

Activity: Tax benefits:

Activity: Liberty Zone tax benefits; Funding 
agency: IRS; Total committed/estimated benefits: $5,029[A]; Total 
obligated: [B]; Total disbursed: [B].

Activity: Other revitalization efforts: 

Activity: Job creation and retention grants; 
Funding agency: HUD; Total committed/estimated benefits: 320; Total 
obligated: 320; Total disbursed: 130.

Activity: Small firm attraction and retention 
grants; Funding agency: HUD; Total committed/estimated benefits: 155; 
Total obligated: 155; Total disbursed: 31.

Activity: Other planning efforts; Funding agency: 
HUD; Total committed/estimated benefits: 40; Total obligated: 39; 
Total disbursed: 12.

Activity: Subtotal; Total 
committed/estimated benefits: 515; Total obligated: 514; Total 
disbursed: 173.

Activity: Estimated total; Total committed/estimated benefits: $5,544; 
Total obligated: $514[B]; Total disbursed: $173[B].

Source: GAO analysis of agency-provided data.

Note: Numbers may not add due to rounding.

[A] Revenue estimate by the Joint Committee on Taxation.

[B] Tax benefits are not obligated or disbursed.

[End of table]

Designation of a Specific Level of Assistance Led to a Distinct Federal 
Government Response for this Disaster:

The $20 billion to assist the New York City area differed from previous 
disaster response efforts in that it was the first time in which the 
amount of federal disaster assistance to be provided was set early in 
the response and recovery efforts, which altered the federal approach 
to this disaster. FEMA, in response to the designation of a specific 
level of funding for this disaster and enhanced authority from the 
Congress, revised its historic approach to administering FEMA funds. In 
an effort to ensure that all FEMA funds appropriated for this disaster 
were spent for the New York City area, FEMA broadly interpreted its 
provisions within the Stafford Act, and the Congress authorized FEMA to 
compensate the city and state for "associated costs," such as increased 
security, that it could not otherwise have funded within provisions of 
the Stafford Act. In addition to the flexibility given to FEMA, the 
Congress appropriated and authorized numerous forms of nontraditional 
assistance, such as the Liberty Zone tax benefit plan and improvements 
to the transportation infrastructure that exceeded normal replacement 
cost.

Agency Comments:

We provided a draft of this report to FEMA, DOT, HUD, and IRS for their 
review and comment, and all four agencies generally agreed with the 
information presented. In commenting on the draft report, FEMA, DOT, 
and HUD provided technical comments, which we incorporated into the 
report as appropriate.

[End of section]

Chapter 1: Introduction:

The terrorist attacks of September 11, 2001, caused tremendous 
emotional, physical, and economic damage in the New York City area. 
Nearly 3,000 people--including passengers aboard the hijacked 
aircrafts, individuals in and around the World Trade Center buildings 
at the time of the disaster, and emergency workers responding to the 
disaster--lost their lives in the disaster, and countless more were 
devastated and disrupted by this human tragedy. In the aftermath of the 
attacks, New York was faced with over a million tons of debris, 
severely damaged utilities, and damaged and destroyed transportation 
infrastructure.

The attacks had a substantial negative impact on the lower Manhattan 
economy as well, strongly affecting businesses, both large and small. 
Some businesses were destroyed, some were displaced, and others were 
unable to conduct business due to street closures and the lack of 
utility services. The New York City area lost about 83,000 private 
sector jobs from September 11, 2001, through the end of December 2001 
as well as the tax revenues that those jobs would have generated. The 
damage or destruction of buildings by the terrorist attacks will result 
in lower property-related tax revenues losses in 2003 and beyond. The 
attacks seriously disrupted the entire New York City area 
transportation network and continue to impact hundreds of thousands of 
commuters.

Many Agencies Play Significant Roles in Responding to Disasters:

In accordance with provisions of the Robert T. Stafford Disaster Relief 
and Emergency Assistance Act (the Stafford Act),[Footnote 6] when a 
major natural catastrophe, fire, flood, or explosion occurs that is 
beyond the capabilities of a state and local government response, the 
President may declare that a major disaster exists. This declaration 
activates the federal response plan for the delivery of federal 
disaster assistance. The response plan is an agreement signed by 27 
federal departments and agencies as well as the American Red Cross. The 
plan supplements other federal emergency operation plans to address 
specific hazards by providing a mechanism for coordinating delivery of 
federal assistance and resources to augment efforts of state and local 
governments overwhelmed by a major disaster or emergency. The Federal 
Emergency Management Agency (FEMA) is responsible for coordinating the 
federal and private response efforts. The Congress may also fund 
specific agencies to assist disaster relief efforts for areas in which 
they retain expertise, including the Department of Housing and Urban 
Development (HUD) to administer funds for economic redevelopment and 
infrastructure restoration, the Department of Transportation (DOT) to 
provide assistance for road restoration, and other agencies for 
activities such as providing small businesses disaster assistance loans 
and public health or medical service that may be needed in the affected 
area. Listed below is a description of the roles of specific agencies:

* FEMA. The disaster declaration from the President triggers FEMA's 
role as coordinator of the federal response plan and initiates FEMA's 
responsibility to deliver assistance through several programs it 
administers. These programs include individual assistance to victims 
affected by a disaster and hazard mitigation funds to state and local 
governments to reduce the risk of damage from future disasters. In 
addition, FEMA's public assistance program is typically the largest 
disaster assistance effort. It is designed to provide grants to 
eligible state and local governments and specific types of private 
nonprofit organizations that provide services of a governmental nature, 
such as utilities, fire departments, emergency and medical facilities, 
and educational institutions, to help cover the costs of emergency 
response efforts and work associated with recovering from the disaster. 
The Stafford Act sets the federal share for the public assistance 
program at no less than 75 percent of eligible costs of a disaster, 
with state and local governments paying for the remaining portions.

* DOT. The Federal Highway Administration (FHWA), an agency of DOT, has 
existing authority to assist in disaster relief. FHWA can provide up to 
$100 million in emergency relief funding to a state for each natural 
disaster or catastrophic failure event that is found eligible for 
funding under its Emergency Relief Program. For a large disaster that 
exceeds the $100 million per-state legislative cap, the Congress can 
pass special legislation to increase the amount FHWA can provide to an 
affected area. The Emergency Relief funds are available for permanent 
repairs and for work accomplished more than 180 days after an event at 
the pro rata federal-aid share that would normally apply to the 
federal-aid facility damaged. For interstate highways, the federal 
share is 90 percent. For all other highways, the federal share is 80 
percent. Emergency repair work to restore essential traffic, minimize 
the extent of damage, or protect the remaining facilities, accomplished 
in the first 180 days after the occurrence of the disaster, may be 
reimbursed at 100 percent federal share. Other agencies within DOT, 
such as the Federal Transit Administration (FTA) and the Federal 
Railroad Administration, have had limited roles in previous disaster 
relief efforts.

* HUD. HUD has been provided authority to assist in disaster relief 
efforts at different times in the last few decades, primarily through 
its Community Development Block Grant (CDBG) program. Although the CDBG 
program's primary purpose is community development, not disaster 
assistance, supplemental CDBG appropriations have been made to provide 
recovery assistance from past natural disasters, usually severe 
hurricanes, earthquakes, or floods. Typically, HUD awards funds to the 
affected state or local government, and then the funds are administered 
at the state or local level.[Footnote 7]

* Other agencies and organizations. Many other agencies play active 
roles in federal disaster relief. For example, the Small Business 
Administration provides disaster loans to businesses for physical 
damage and economic injury and to homeowners to help those with 
disaster losses. The Department of Health and Human Services provides 
critical services, such as health and medical care; preventive health 
services; mental health care; veterinary services; mortuary services; 
and any other public health or medical service, that may be needed in 
the affected area. The Department of Agriculture and Forest Service, 
among other things, are responsible for managing and coordinating 
firefighting activities on federal lands and providing personnel, 
equipment, and supplies in support of state and local agencies.

Federal Disaster Assistance to the New York City Area Set at about $20 
Billion:

In the days immediately following the terrorist attacks in New York on 
September 11, the President pledged to commit at least $20 billion to 
help the New York City area recover from the terrorist attacks. The 
President sent a letter to the Speaker of the House requesting that the 
Congress pass emergency appropriations to provide immediate resources 
to respond to the terrorist attacks. Over the next 11 months, the 
Congress enacted three emergency supplemental appropriation acts that 
provided more than $15 billion in direct federal assistance as well as 
an estimated $5 billion tax benefit plan for the New York City area. 
Figure 2 shows a time-line of the legislative actions to assist the New 
York City area.

Figure 2: Timeline of Supplemental Appropriations and Other Related 
Legislation Enacted by the Congress That Provided Assistance to the New 
York City Area:

[See PDF for image]

[End of figure]

In addition, the Congress passed legislation providing details on how 
appropriated funds could be spent. The Consolidated Appropriations 
Resolution, enacted February 20, 2003, allowed FEMA to provide already 
appropriated funds to the city and state of New York for costs 
associated with the disaster that are unreimbursable under the Stafford 
Act. In addition, the legislation required FEMA to provide $90 million 
from existing appropriations to administer screening and long-term 
health monitoring of emergency services personnel. FEMA was also 
directed to provide up to $1 billion from existing appropriations to 
establish an insurance company or other appropriate insurance mechanism 
for claims arising from debris removal, including claims made by city 
employees.

The funds appropriated to FEMA, HUD, and DOT, along with the Liberty 
Zone tax benefits, constitute about 96 percent of all assistance 
designated to the New York City area, as shown in figure 3.

Figure 3: Allocation of Federal Assistance to the New York City Area by 
the Federal Government:

[See PDF for image]

[A] HUD funds include the $1.16 billion yet to be committed to a 
specific purpose.

[End of figure]

In total, FEMA was appropriated $8.80 billion to its Disaster Relief 
Fund for the New York City area. Of this amount, FEMA's public 
assistance-related funds totaled approximately $7.4 billion for 
activities such as debris removal and infrastructure restoration, while 
the remainder of the funding was committed for individual assistance 
and other nonpublic assistance. The Congress appropriated HUD $3.48 
billion of CDBG assistance to provide the New York City area through 
the Empire State Development Corporation (ESDC) and its subsidiary, the 
Lower Manhattan Development Corporation (LMDC), to aid businesses and 
individuals and spur economic revitalization. DOT received a total of 
$2.37 billion to assist in the restoration and enhancement of the 
transit system in the New York City area.

Other agencies also received funding as part of the emergency 
appropriations; however, throughout the report we will focus on FEMA, 
DOT, and HUD, as funds to these agencies constitute about 95 percent of 
all appropriated funding provided to the New York City area. Table 5 
provides a breakdown of all funds appropriated for recovery efforts in 
the New York City area by agency.

Table 5: Emergency Supplemental Funds for New York Disaster Relief 
Appropriated, by Agency:

Agency: Federal Emergency Management Agency; Appropriation: $8,799.

Agency: Department of Housing and Urban Development; Appropriation: 
3,483.

Agency: Department of Transportation; Appropriation: 2,366.

Agency: Small Business Administration; Appropriation: 250.

Agency: Department of Labor; Appropriation: 249.

Agency: Department of Health and Human Services; Appropriation: 120.

Agency: Department of Justice; Appropriation: 75.

Agency: General Services Administration; Appropriation: 32.

Agency: Department of Treasury; Appropriation: 26.

Agency: Securities and Exchange Commission; Appropriation: 21.

Agency: Commodity Futures Trading Commission; Appropriation: 17.

Agency: Department of Education; Appropriation: 10.

Agency: Department of Commerce; Appropriation: 8.

Agency: Social Security Administration; Appropriation: 4.

Agency: Federal Drug Control Programs; Appropriation: 2.

Agency: Equal Employment Opportunity Commission; Appropriation: 1.

Agency: Department of Housing and Urban Development Office of 
Inspector General; Appropriation: 1.

Agency: Export-Import Bank; Appropriation: [A].

Agency: Total[B]; Appropriation: $15,464.

Source: CRS, Congressional Budget Office, and GAO analysis.

Note: Numbers may not add due to rounding.

[A] This agency received less than $1 million in emergency supplemental 
funds for recovery efforts in the New York City area.

[B] These figures represent direct appropriations, therefore, do not 
include the $5.03 billion Liberty Zone tax benefits, the September 11 
Victim Compensation Fund, or tax deferrals.

[End of table]

Not only were FEMA, HUD, and DOT the primary sources of assistance to 
the New York City area, but each of these agencies provided more 
assistance for the September 11 disaster than it had for any other 
single disaster. For example, prior to September 11, FEMA disaster 
assistance exceeded $1 billion in six other disasters, the largest of 
them being the Northridge Earthquake in California in 1994. The $3.48 
billion appropriated to HUD for the New York City area is nearly seven 
times the amount of assistance HUD has provided for any other single 
disaster. DOT was also appropriated more funds for recovery efforts 
after September 11 than in any other disaster. Figure 4 displays 
several large disaster relief efforts and how much of these efforts the 
three agencies funded.

Figure 4: Costliest Disasters for FEMA, HUD, and DOT:

[See PDF for image]

[End of figure]

Federal Response Provided to the New York City Area Represents Four 
Broad Purposes of Assistance:

Federal assistance provided to the New York City area for response and 
recovery activities covered a wide spectrum of efforts and various 
types of direct and indirect aid. To organize this discussion of the 
overall funding provided to New York, we identified four broad purposes 
of assistance. The first purpose includes initial response efforts to 
save lives, recover victims, remove debris, and restore basic 
functionality to city services, among other things. The second purpose 
consists of government actions to compensate state and local 
organizations, individuals, and businesses for losses of income and 
housing resulting from the attacks. The third purpose of assistance is 
the restoration and enhancement of the lower Manhattan transportation 
and utility infrastructure that was severely destroyed by the 
buildings' collapse and the subsequent response efforts. The last 
purpose is the provision of federal aid to help revitalize the lower 
Manhattan economy that was impacted by the disaster. Figure 5 shows the 
amount of funds provided by the four primary sources--FEMA, DOT, HUD, 
and the Liberty Zone tax benefits--for each purpose of assistance. The 
remaining portion of HUD funds is in the planning stages and will most 
likely be directed to infrastructure restoration and/or economic 
revitalization activities.

Figure 5: Primary Purpose and Amount of Disaster Assistance Committed 
by FEMA, HUD, DOT, and Liberty Zone Tax Benefits:

[See PDF for image]

[A] The Lower Manhattan Development Corporation's plans for $1.16 
billion in HUD funds have not been finalized, as of June 30, 2003. 
These funds are not included in the graphic and, according to HUD, will 
mostly likely be directed to either infrastructure restoration or 
economic revitalization.

[End of figure]

This report assesses the federal government's response and recovery 
efforts to the New York City area by determining how much federal 
assistance has been committed for specific purposes, and how the 
federal government's response to this disaster differed from previous 
disasters. To respond to our objectives, we reviewed relevant 
legislation, budget documents, funding plans, status reports, program 
plan documents, and databases. Though federal assistance was 
administered through 18 agencies in total, we focused on the primary 
sources of federal assistance--FEMA, HUD, DOT, and the Liberty Zone tax 
benefits--that targeted different aspects of the recovery efforts in 
New York. Accordingly, we interviewed FEMA, DOT, HUD, and IRS 
officials, as well as state and local officials and officials from 
nonprofit planning and research organizations. All data are recorded as 
of June 30, 2003, unless otherwise noted. We provided a detailed 
description of the federal government's response and recovery efforts, 
but did not evaluate the administration or impact of recovery funds. 
While we reported on the differences between response to this disaster 
and previous disasters, we did not evaluate the implications of these 
differences. We conducted our work from June 1, 2002, through September 
30, 2003, in accordance with generally accepted government auditing 
standards. See appendix I for complete details on our objectives, 
scope, and methodology.

[End of section]

Chapter 2: Initial Response Assistance Totaled $2.55 Billion:

Initial response assistance to the New York City area began immediately 
after the hijacked aircraft collided with the World Trade Center towers 
and totaled $2.55 billion. Efforts to search for and rescue victims and 
clear more than a million tons of debris began immediately after the 
disaster, as part of the initial response effort that was funded by the 
Federal Emergency Management Agency (FEMA). In addition, the Department 
of Transportation (DOT), Department of Housing and Urban Development 
(HUD), and FEMA took measures to provide funds to restore operation to 
utilities, transportation systems, and to monitor poor air quality 
resulting from the debris and fires. Figure 6 shows the amount each 
agency funded in this category of assistance, and table 6 shows how 
much each agency committed, obligated, and disbursed to perform initial 
response activities.

Figure 6: Amount of Assistance Committed to Initial Response 
Activities, by Agency:

[See PDF for image]

[A] The Lower Manhattan Development Corporation's plans for $1.16 
billion in HUD funds have not been finalized, as of June 30, 2003. 
These funds are not included in the graphic and, according to HUD, will 
mostly likely be directed to either infrastructure restoration or 
economic revitalization.

[End of figure]

Table 6: Initial Response Assistance, as of June 30, 2003:

[See PDF for image]

Source: GAO analysis of agency-provided data.

Notes: Numbers may not add due to rounding. Due to the expedited close-
out, FEMA data are reflected as of July 31, 2003.

[A] FEMA obligated $1 billion for its debris removal insurance program 
to New York on September 3, 2003, although none of these funds have 
been disbursed yet. This information is not reflected in this table.

[End of table]

Search and Rescue Operations Totaled $22 Million:

The terrorist attacks on September 11 prompted the largest Urban Search 
and Rescue operation in U.S. history, a $22 million effort. FEMA 
oversees 28 national Urban Search and Rescue Task Forces across the 
country, and 20 were activated to respond to the attacks in New York. 
The teams operate under FEMA authority and were deployed as part of the 
National Urban Search and Rescue Response System. Almost 1,300 members 
of the Urban Search and Rescue teams and 80 dogs worked at the World 
Trade Center site. Representatives from the rescue teams at the World 
Trade Center site are shown in figure 7.

Figure 7: Urban Search and Rescue Teams Assist in Searching for 
Survivors at the World Trade Center Site:

[See PDF for image]

[End of figure]

The rescue teams worked closely with officials from the Department of 
Agriculture's Forest Service Incident Management Team. The Forest 
Service Team members are activated by FEMA, as part of the Federal 
Response Plan, to manage large emergency situations. The Forest Service 
Team managed the rescue operation providing support for federal, state, 
local, and voluntary workers busy at Ground Zero.

Debris Removal Operations Totaled $1.70 Billion, Including Liability 
Insurance Coverage:

Immediately after the World Trade Center towers collapsed, the debris 
removal operation began in order to help workers look for survivors. 
Debris removal operations--including funds to establish an insurance 
company to cover the city and its contractors for debris removal claims 
resulting from work at the World Trade Center site--totaled $1.70 
billion. New York City's Department of Design and Construction and 
Department of Sanitation, with support from FEMA, the Federal Highway 
Administration, and the U.S. Army Corps of Engineers, completed the 
daunting task of removing debris piled 11 stories aboveground and 
extended seven stories below street level and weighing nearly 1.6 
million tons. FEMA provided $630 million to reimburse the city for the 
costs associated with the 9 month operation to remove the debris from 
the World Trade Center site and barge it to a landfill on Staten 
Island, New York, for screening, sorting, and disposal--much less than 
initial estimates that the operation would take 2 years and cost $7 
billion. Figure 8 shows debris removal operations.

Figure 8: FEMA-Funded Debris Removal Operations Were a Major Component 
of Initial Response Assistance:

[See PDF for image]

[End of figure]

As part of the debris removal operation, FEMA assigned the U.S. Army 
Corps of Engineers to manage the sorting and disposal of debris at the 
city landfill; FEMA paid $68 million for this service. The sorting 
activities were an intense, meticulous effort to recover remains and 
personal belongings of victims and to gather criminal evidence of the 
terrorist attacks. The Corps of Engineers provided labor, heavy 
equipment, conveyer belts, and screening equipment. It also provided 
temporary buildings for the storage of supplies and to shelter workers, 
worker decontamination facilities, and food service facilities.

As directed by the Congress, FEMA also committed $1 billion for an 
unprecedented project to establish an insurance company to protect 
contractors and New York City against liability claims resulting from 
debris removal operations.[Footnote 8] According to New York City 
officials, private contractors came to Ground Zero to do search and 
rescue, recovery, and debris removal work in the immediate aftermath of 
the terrorist attacks before entering into formal contract agreements 
with New York City. Contractors and city officials were unable to reach 
a final agreement on compensation for debris removal work because they 
had not secured liability insurance coverage. City officials said that 
liability insurance could not be obtained from a private insurance 
company because of the unknown long-term risks and potentially large 
number of liability claims. On the basis of input from insurance 
experts, city officials and FEMA determined that the best solution was 
to establish an insurance company with $1 billion in federal funds to 
provide coverage for a period of up to 25 years. The insurance company 
will cover debris removal contractors and New York City.[Footnote 9]

Emergency Transportation Measures Totaled $299 Million:

The collapse of the World Trade Center buildings and subsequent 
recovery efforts wreaked havoc on lower Manhattan's transportation 
system: subway stations and the PATH terminal, located under the World 
Trade Center site were destroyed, sections of local roads were 
impassable due to damage or recovery efforts, and subways and ferries 
were overcrowded as commuters returned to work using different means or 
routes of transportation. FEMA and DOT coordinated as part of several 
work groups, which included a variety of transportation, public works, 
public safety, and utility providers, to plan emergency/interim 
projects to address shifts in travel demand after September 11, 
capacity issues, and delays associated with revised travel patterns. 
Another bi-state, interagency task force met regularly to discuss 
ferry-related issues. Overall, FEMA and DOT funds for emergency 
transportation measures totaled $299 million. Primary examples of the 
emergency efforts to restore transportation around lower Manhattan are 
described below.

* Clean-up and emergency repair of local roads and tunnels. During the 
initial response after September 11, officials were focused on removing 
debris quickly to look for survivors and victims and on restoring vital 
utilities to the area. Many of the local roads around the World Trade 
Center were damaged by the heavy truck traffic and emergency utility 
work. FEMA provided $5 million to the New York City Department of 
Transportation to repair local roads. Additionally, FEMA provided $6 
million for interim repairs to West Street (Route 9A), a major 
thoroughfare in lower Manhattan. West Street was damaged by the 
collapse of the World Trade Center towers and surrounding buildings; 
the interim repairs were completed in March 2002. Figure 9 shows the 
interim West Street under construction.

Figure 9: FEMA Funded Interim Repairs to West Street:

[See PDF for image]

Note: West Street was damaged by the collapse of the World Trade Center 
towers. FEMA funded interim repairs to the road that are highlighted in 
yellow. Plans for permanent repairs to the street have not yet been 
finalized.

[End of figure]

FEMA also provided assistance to the Port Authority of New York and New 
Jersey (Port Authority) to remove debris and repair the PATH tunnels 
that were extensively damaged and flooded after the collapse of the 
World Trade Center buildings. The Port Authority had to repair the 
tunnels to curb the flooding before workers could begin to clear away 
debris, as shown in figure 10.

Figure 10: FEMA Funded Efforts to Remove Debris from the PATH Tunnel:

[See PDF for image]

Left: A view of PATH tunnels that suffered extensive damage and 
flooding. Right: Port Authority workers completing repairs to allow the 
tunnels to be used again; a FEMA-funded operation.

[End of figure]

* Construction of a temporary PATH terminal. The collapse of the World 
Trade Center towers also destroyed the World Trade Center PATH terminal 
located under the buildings. Prior to September 11, more than 67,000 
passengers boarded the PATH system at the World Trade Center station 
every day. FEMA provided $140 million to the Port Authority, which will 
construct a temporary PATH terminal with these funds along with 
insurance proceeds from the original terminal. The temporary terminal 
is scheduled for completion in November 2003. Planners intend to use 
portions of this temporary terminal, pictured in figure 11, as a basis 
for the construction of an enhanced, state-of-the-art, permanent PATH 
terminal that will be integrated with other portions of the New York 
City transit system.

Figure 11: FEMA Provided Funds to Build the Temporary PATH Terminal 
Currently under Construction:

[See PDF for image]

Note: The original PATH terminal was located under the World Trade 
Center towers and was destroyed by the collapse of the buildings. The 
temporary PATH terminal, highlighted in gray, is expected to be 
operational in November 2003.

[End of figure]

* Expansion of ferry service. The private ferry fleet operating in New 
York Harbor is the largest in the United States, with lower Manhattan 
being the prime destination. To address commuter capacity that was 
dramatically reduced by the cessation of lower Manhattan PATH service 
and subway services near the World Trade Center site as well as vehicle 
restrictions, FEMA also provided $48 million for emergency ferry 
service. These FEMA funds reimbursed the Port Authority and other city 
agencies for costs associated with operating additional ferries.

* Capital projects to improve commuter transportation. Recognizing the 
importance of transit to millions of commuters in the New York City 
area, FTA has committed almost $99 million for various transit capital 
projects in New Jersey and New York. These projects include nearly $25 
million for acquisition of five high-powered electric locomotives and 
about $56 million for accelerated construction of modifications to New 
Jersey Transit's main rail maintenance facility to meet increased 
demand on the New Jersey transit system due to transit traffic that 
could not access lower Manhattan following September 11. Additional 
funds went toward other projects to upgrade infrastructure and to 
improve passenger facilities.

Emergency and Temporary Utility Repairs Total $250 Million:

The collapse of the World Trade Center buildings and subsequent debris 
removal efforts resulted in widespread damage to the energy and 
telecommunications utility infrastructure. Utility firms worked 
quickly to provide service for rescue operations in the days 
immediately following the disaster and to stabilize delivery of service 
to lower Manhattan, including the reopening of the New York Stock 
Exchange 6 days after the attacks. The Congress appropriated funds to 
HUD for the Lower Manhattan Development Corporation (LMDC) to reimburse 
utility companies for uncompensated costs associated with restoring 
service. The primary objective of this assistance was to prevent 
consumers from bearing the burden of these costs in the form of rate 
increases. LMDC and the Empire State Development Corporation (ESDC) 
worked with utility providers, New York State Department of Public 
Service, and transportation agencies to develop a program that will 
provide reimbursement for emergency and temporary repair 
costs.[Footnote 10] Eligible firms will be reimbursed up to 100 percent 
of actual, incurred, uncompensated, and documented costs. The amount 
awarded to each applicant will be considered based on various criteria 
and requests will be subject to a multiagency review process to 
validate costs.[Footnote 11] It is estimated that this reimbursement 
will total $250 million. LMDC has designated ESDC to administer the 
program, which will coordinate with New York State and city agencies to 
avoid duplication of other federally funded programs.[Footnote 12]

Testing and Cleaning Efforts Totaled $53 Million:

The collapse of the World Trade Center buildings created a large cloud 
of dust and debris that enveloped many buildings in lower Manhattan, 
and covered an extensive area--up to a mile beyond the center of the 
attacks. The Environmental Protection Agency (EPA) advised rescue 
workers and lower Manhattan residents about the possible release of 
asbestos and other dangerous contaminants from the collapsed buildings 
and fires. As a result, concern about air quality prompted demand for 
federal assistance in testing and cleaning the interiors of buildings 
and residences in lower Manhattan. In addition, numerous other 
buildings required exterior cleaning after the disaster, as shown in 
figure 12.

Figure 12: Buildings Needing Cleaning after September 11, 2001:

[See PDF for image]

[End of figure]

FEMA worked with EPA officials to conduct clean-up efforts that 
included vacuuming streets, parks, and other areas covered by dust from 
debris and fires; washing vehicles used in the debris removal efforts; 
and providing protective gear to workers. In addition, FEMA reimbursed 
the New York City Board of Education for air quality testing and 
cleaning public schools. Officials from FEMA, EPA, the Occupational 
Safety and Health Administration, and New York City coordinated and 
participated in a task force to complete residential cleaning efforts. 
FEMA provided funds for the interior cleaning program, which was led by 
the New York City Department of Environmental Protection and EPA--the 
first program of its kind. Overall, environmental cleaning and testing 
efforts cost $53 million.

In a December 2002 report, FEMA's Inspector General (IG) found that the 
division of responsibilities between FEMA and EPA were not specific 
enough so that either agency could determine when to deliver services, 
noting that the program to test and clean residences began months after 
the disaster.[Footnote 13] Specifically, after a disaster occurs, FEMA 
relies on the expertise of EPA to provide air quality evaluations, and 
EPA must confirm that a problem exists before FEMA can provide funds to 
respond. Although EPA made announcements concerning possible 
contaminants in the air, it did not identify any specific danger; 
therefore, FEMA did not request EPA to perform any extensive studies. 
The FEMA IG report recommended that in future disasters, FEMA enlist 
the expertise of EPA earlier in the recovery effort so that it can 
conduct necessary testing to determine if a threat exists so that 
cleaning efforts can begin sooner.

Other Initial Response Services Totaled $232 Million:

FEMA committed an additional $232 million for initial response 
assistance through the use of mission assignments and interagency 
agreements. As part of its role in responding to disasters, FEMA may 
assign work to or enter into agreements with other federal agencies to 
handle aspects of the relief effort within their area of expertise. 
These agreements are called mission assignments and interagency 
agreements. Mission assignments were widely used in the first few 
months after the World Trade Center disaster to provide assistance for 
short-term projects. Typically, mission assignments are used for three 
purposes: (1) to fund support of FEMA's response and recovery efforts, 
such as funding for the General Services Administration, to provide 
supplies and office equipment; (2) to fund provision of technical 
assistance to a jurisdiction, such as funding for the U.S. Army Corps 
of Engineers to provide assistance in maintaining water supply; or (3) 
to fund a response activity that the state or locality cannot perform, 
such as funding for the Department of Health and Human Services to 
provide medical teams to the affected area. In this disaster, FEMA also 
used interagency agreements for long-term projects, which are similar 
to mission assignments in that they are funding agreements among 
agencies to provide goods and services on a reimbursable basis. For 
example, as authorized by the Congress, FEMA entered into an 
interagency agreement with the Department of Health and Human Services 
to conduct a $90 million project to screen and monitor emergency 
services personnel for long-term health effects of work at the World 
Trade Center site.[Footnote 14]

[End of section]

Chapter 3: Compensation for Disaster-Related Costs and Losses Totaled 
$4.81 Billion:

Approximately $4.81 billion in federal assistance has been committed to 
compensate state and local organizations, individuals, and businesses 
for disaster-related costs and losses. During the months following the 
disaster, the city and state of New York incurred significant costs to 
replace damaged equipment, rebuild damaged facilities, and provide 
increased security. In addition, thousands of businesses and 
individuals were disrupted by the emergency response, debris removal, 
and rebuilding efforts surrounding the World Trade Center site. 
Residential occupancy rates dropped significantly in the area, and 
about 18,000 businesses in New York City, representing approximately 
563,000 employees, were disrupted or forced to relocate as a result of 
the terrorist attacks. To address the costs and losses of those 
affected by the disaster, the Federal Emergency Management Agency 
(FEMA) and the Department of Housing and Urban Development (HUD) 
committed funds to (1) reimburse state and local organizations for 
disaster-related costs; (2) assist individuals and families, including 
funds for rental assistance, crisis counseling, and family grants for 
lower Manhattan residents; and (3) compensate businesses and nonprofits 
for economic losses and recovery efforts as shown in figure 13 and 
table 7.

Figure 13: Amount of Assistance Committed to Compensate Disaster-
Related Costs and Losses, by Agency:

[See PDF for image]

[A] The Lower Manhattan Development Corporation's plans for $1.16 
billion in HUD funds have not been finalized, as of June 30, 2003. 
These funds are not included in the graphic and, according to HUD, will 
mostly likely be directed to either infrastructure restoration or 
economic revitalization.

Note: Numbers may not add due to rounding. In this section, HUD funds 
include business assistance programs and funds for the Residential 
Grant Program, most of which were for retention and attraction.

[End of figure]

Table 7: Compensation for Disaster-Related Costs and Losses, as of June 
30, 2003:

Dollars in millions: 

Activity: Assistance for state, city, and other 
organizations; Funding agency: FEMA; Total committed: $3,319; Total 
obligated: $1,857; Total disbursed: $1,593.

Activity: Assistance for individuals and families; 
Funding agency: FEMA/HUD; Total committed: 807; Total obligated: 729; 
Total disbursed: 546.

Activity: Assistance for businesses; Funding 
agency: HUD; Total committed: 683; Total obligated: 574; Total 
disbursed: 510.

Activity: Total; Total 
committed: $4,809; Total obligated: $3,160; Total disbursed: $2,649.

Source: GAO analysis of agency-provided data.

Notes: Numbers may not add due to rounding. Due to the expedited close-
out, FEMA data are reflected as of July 31, 2003.

[End of table]

Compensation of the City, State, and Other Organizations Totaled $3.32 
Billion:

From the initial days of the disaster recovery effort, FEMA officials 
worked closely with officials from the New York City Office of 
Management and Budget and the New York State Emergency Management 
Office to reimburse the city and state through its public assistance 
program.[Footnote 15] This program is designed to reimburse state and 
local organizations for disaster-related costs of repairing, replacing, 
or restoring disaster-damaged facilities as authorized by the Stafford 
Act. In addition, at the direction of the Congress, FEMA committed 
funds to compensate the city and state for expenses that were 
associated with the disaster, but not reimbursable within the 
provisions of the Stafford Act--the first time that FEMA has been 
granted such broad authority. Finally, FEMA committed funds for hazard 
mitigation grants to help lessen the effects of future disasters. Table 
8 reflects the amount of assistance FEMA has committed, obligated, and 
disbursed to compensate the city, state, and other organizations for 
disaster-related costs and losses.

Table 8: Assistance for the City, State, and Other Organizations, as of 
July 31, 2003:

Dollars in millions: 

Activity: Assistance for the city, state, and 
other organizations[A]; Funding agency: FEMA; Total committed: $1,486; 
Total obligated: $1,486; Total disbursed: $1,486.

Activity: Reimbursement of associated costs 
authorized by the Congress[A]; Funding agency: FEMA; Total committed: 
1,241; Total obligated: 68; Total disbursed: 0.

Activity: Hazard mitigation grants; Funding 
agency: FEMA; Total committed: 377; Total obligated: 169; Total 
disbursed: 2.

Activity: Other administrative costs[B]; Funding 
agency: FEMA; Total committed: 215; Total obligated: 133; Total 
disbursed: 105.

Activity: Total; Funding agency: Total 
committed: $3,319; Total obligated: $1,857; Total disbursed: $1,593.

Source: GAO analysis of agency-provided data.

Note: Numbers may not add due to rounding.

[A] As our report was being finalized, FEMA obligated and disbursed and 
additional $56 million to the city, state, and other organizations 
through the public assistance program and $1.24 billion in September 
2003 to the city and state for congressionally authorized activities 
not reflected in this table. These funds are in addition to FEMA 
assistance for initial response activities discussed in ch.1 of this 
report.

[B] Administrative costs include grantee costs, contractor costs 
associated with FEMA's public assistance program, and costs associated 
with on-going programs.

[End of table]

Assistance for New York City, State, and Other Organizations Totaled 
$1.49 Billion:

FEMA disbursed $1.49 billion to reimburse New York City, state, and 
other organizations through its public assistance program to compensate 
for disaster-related costs and losses. Of this funding, $643 million 
was provided to the New York City Police and Fire Departments to pay 
benefits and wages to emergency workers during response and recovery 
efforts and to replace vehicles and other equipment. As first 
responders, these departments suffered heavy casualties and damages and 
received compensation for overtime costs, death benefits, and funeral 
costs. FEMA also reimbursed costs to the city to relocate several 
agencies' offices; establish a Family Assistance Center; reschedule 
elections that were being held on September 11; and replace damaged 
voting equipment.[Footnote 16]

FEMA also reimbursed other entities, including the Port Authority, 
counties, and private nonprofit organizations; it also provided funds 
to the state of New Jersey. Among the applicants receiving some of the 
largest amounts was the Port Authority, which sustained substantial 
losses of lives and property as a result of the terrorist attacks. The 
Port Authority was reimbursed for costs to replace equipment it lost 
when its World Trade Center facilities were destroyed and to reimburse 
for office relocation costs. Additional funds were provided to all New 
York counties for cancelled election costs and to private nonprofits, 
such as Pace University for temporary relocation costs. FEMA also 
provided $88 million to New Jersey for emergency protective measures.

Reimbursements of Associated Costs to the City and State Total $1.24 
Billion:

In addition to the traditional public assistance FEMA provided to city 
and state agencies, the Congress authorized FEMA to provide funding to 
the city and state of New York for expenses associated with the 
disaster that were unreimbursable within the provisions of the Stafford 
Act. The Consolidated Appropriations Resolution enabled FEMA to depart 
from the Stafford Act criteria. The legislation ensured that FEMA would 
be authorized to spend the entirety of the appropriated assistance for 
the New York City area recovery efforts--$8.80 billion--by allowing the 
city and state to be provided reimbursement for associated costs that 
FEMA otherwise could not have funded.

As a result of the Consolidated Appropriations Resolution, FEMA 
implemented an expedited close-out process to determine how much of the 
$8.80 billion appropriated to FEMA remained available to reimburse the 
city and state for disaster-related expenses. To do this, FEMA reviewed 
each on-going public assistance project with appropriate New York 
officials to deobligate any funds not expended as of April 30, 2003, 
and set aside these funds to provide to the city and state as 
reimbursement for associated costs authorized by Congress under the 
Consolidated Appropriations Resolution. In addition, FEMA officials 
reconciled how much they expected to disburse in its other programs--
including individual assistance and hazard mitigation--with the amount 
of obligated funds and identified additional funds that could be 
deobligated. FEMA reimbursed the city and state for associated costs 
with the funds that were deobligated from unfinished projects and 
remaining funds from other programs--approximately $1.24 billion. To 
receive reimbursement for these associated costs, FEMA officials 
required the city and State prepare grant applications for incurred 
costs. Since FEMA provided the funds for projects already completed and 
paid for, city and state officials will ultimately have discretion to 
redirect as they deem suitable.

As of July 31, 2003, FEMA approved several proposals to reimburse 
associated costs that were otherwise ineligible for reimbursement under 
the Stafford Act and is discussing other proposals with city and state 
officials. For example, FEMA provided funds to reimburse the state-
funded "I Love New York" campaign[Footnote 17] and costs incurred to 
provide heightened security across the area. Other costs that are under 
consideration include reimbursing the state for cost of living 
allowances that the state has to pay on pensions of deceased police and 
fire staff and New York State's cost share of the Individual and Family 
Grant Program.[Footnote 18]

Hazard Mitigation Grants Totaled $377 Million:

FEMA has also committed $377 million in hazard mitigation grants to New 
York State. Created in 1988 by the Stafford Act, the Hazard Mitigation 
Grant Program provides funds to states affected by major disasters to 
undertake mitigation measures.[Footnote 19] At the time of the 
disaster, FEMA could provide mitigation grants to New York State in an 
amount up to 15 percent above the total amount of other assistance 
provided.[Footnote 20] However, in the New York City area recovery 
effort, the President limited mitigation funds to 5 percent of the 
funds appropriated within the total amount of funds. According to FEMA 
officials, the agency recommended reducing the percentage of hazard 
mitigation grant funds available to New York initially because it was 
unclear how much the disaster would cost. FEMA officials told us that 
New York officials requested less funds for the Hazard Mitigation Grant 
Program than they were eligible so that they could use funds to 
reimburse other associated costs.

Assistance to Individuals and Families Totaled $807 Million:

Not only were thousands of people unable to return to work or their 
homes due to the damage and debris, the economic effect of the disaster 
resulted in further job losses and increased vacancy rates. About $807 
million in federal assistance was provided to individuals and families 
through residential grants, mortgage and rental assistance, crisis 
counseling, individual and family grants, and other assistance. Table 9 
shows the amount of assistance committed, obligated, and disbursed by 
FEMA and HUD to compensate individuals and families for disaster-
related costs and losses.

Table 9: Assistance to Individuals and Families, as of June 30, 2003:

Dollars in millions: 

Activity: Residential grants; Funding agency: HUD; 
Total committed: $281; Total obligated: $281; Total disbursed: $106.

Activity: Mortgage and rental assistance; Funding 
agency: FEMA; Total committed: 200; Total obligated: 195; Total 
disbursed: 194.

Activity: Crisis counseling; Funding agency: FEMA; 
Total committed: 166; Total obligated: 99; Total disbursed: 99.

Activity: Individual and family grants; Funding 
agency: FEMA; Total committed: 110; Total obligated: 104; Total 
disbursed: 97.

Activity: Other individual assistance; Funding 
agency: FEMA; Total committed: 51; Total obligated: 50; Total 
disbursed: 49.

Activity: Total; Total 
committed: $807; Total obligated: $729; Total disbursed: $546.

Source: GAO analysis of agency-provided data.

Notes: Numbers may not add due to rounding. Due to the expedited close-
out, FEMA data are reflected as of July 31, 2003.

[End of table]

Residential Grants Made Available $281 Million:

Access to residential communities in lower Manhattan was restricted for 
months after September 11 due to continued recovery efforts. The Lower 
Manhattan Development Corporation (LMDC) reported that occupancy rates 
in neighborhoods near the World Trade Center site fell to approximately 
60 percent after September 11. To provide compensation to those 
affected by the disaster who remained in the area, address the vacancy 
rate increases, and maintain a stable residential population, LMDC 
developed and administered the Residential Grant Program with $281 
million in HUD funds to provide incentives to attract residents to the 
area.[Footnote 21] LMDC's program consisted of three different grants-
-a 2-year commitment-based grant, a September 11 residents grant, and a 
family grant. Applicants could apply for all three types of grants; 
each grants' value depended on the applicant's location and housing/
rental costs, as shown in figure 14.

Figure 14: Map of LMDC Residential Grant Program Zones in Lower 
Manhattan:

[See PDF for image]

[End of figure]

* The 2-Year Commitment-Based Grant. LMDC provided grants of up to 
$12,000 over 2 years to attract and retain renters and homeowners to 
lower Manhattan. Renters who signed at least a 2-year lease on or 
before May 31, 2003, were eligible for up to 30 percent of monthly 
rent, and homeowners who purchased a home on or before the same date 
and agreed to remain in the area for at least 2 years were eligible for 
30 percent of monthly housing costs--although the grant amount varied 
depending on zone. Corporations, universities, and other institutions 
that purchased or rented residential housing in lower Manhattan were 
also eligible for the grant.

* September 11 Residents Grant and Family Grant. LMDC provided a one-
time September 11 Residents Grant of $1,000 per household for those 
individuals residing in lower Manhattan on September 11 that remained 
in the area through the date of award to compensate for the expenses 
they may have incurred as a result of the disaster. LMDC officials 
expected that these grants may also provide an incentive for residents 
to stay in the area. In addition, LMDC provided a one-time Family Grant 
between $750 and $1,500 per household with children under 18 that make 
a 1-year commitment to live in lower Manhattan.

LMDC officials said that, in administering the Residential Grant 
Program, they attempted to be flexible in determining eligibility and 
advertising the program given the multiplicity of housing arrangements 
and diverse populations in lower Manhattan. There are many types of 
buildings where individuals reside in New York City, and before 
approving a grant, LMDC officials had to determine if an applicant's 
reported home was a residential property and met all appropriate 
housing standards. LMDC officials reported that to determine 
eligibility for this program they had to verify the habitability of all 
buildings in lower Manhattan. Their effort resulted in a collection of 
current property information, such as the classification of buildings 
that met current housing code that the city had not previously 
recorded. Another useful side benefit of the program was the large 
number of housing units repaired and brought up to housing code by 
landlords seeking to get their properties eligible for the grants. In 
addition, LMDC developed alternative applications to address the needs 
of the applicants who lived in eligible areas but did not have 
traditional lease agreements. To spread the word about the program, 
LMDC organized "It Pays to Live Downtown" day where over 100 volunteers 
visited every residential building in lower Manhattan to encourage 
participation in the program. LMDC also conducted a publicity campaign 
across New York City advertising the program in multiple languages with 
posters like those in figure 15.

Figure 15: LMDC Published Its "It Pays to Live Downtown" in Multiple 
Languages:

[See PDF for image]

[End of figure]

LMDC officials report that the occupancy rate of Battery Park City, a 
lower Manhattan neighborhood, has risen from 60 percent to 95 percent 
and that 50 percent of residents in "zone 1" are new to the area since 
September 11. The Residential Grant Program closed May 31, 2003, but 
LMDC extended the program deadline to June 14, 2003, for applicants 
providing alternative lease documentation. As of June 30, 2003, LMDC 
had approved over 31,000 applications totaling $177 million and had 
disbursed $106 million in grants. According to LMDC officials, 
applications surged in the last 2 weeks of the program; many 
applications were still under review as of June 30, 2003.[Footnote 22]

Mortgage and Rental Assistance Totaled $200 Million:

Individuals suffering financial hardships as a result of September 11 
could obtain mortgage and rental assistance from FEMA. Prior to 
September 11, FEMA had provided a total of $18 million in mortgage and 
rental assistance grants in all previous disasters, which provided rent 
or mortgage payments to individuals in danger of losing their homes 
through foreclosure or eviction as a result of a major disaster. After 
September 11, FEMA committed $200 million through this program. 
Eligible applicants received up to 18 months of assistance as part of 
this program.[Footnote 23] Initially, applicants were eligible if they 
resided in certain zones around the World Trade Center site and lost 29 
percent or more of their income as a result of the disaster. FEMA, as 
directed by the Congress, extended assistance to those who lost 25 
percent of their income working anywhere in Manhattan, to those whose 
employers were not located in Manhattan but were economically dependent 
on a Manhattan firm; and to anyone living in Manhattan who commuted off 
the island and who suffered financially because of post-September 11 
travel restrictions.

In a December 2002 report that examined this program, FEMA's Office of 
Inspector General (IG) noted that the unique nature of the disaster and 
its economic impact required FEMA officials to expand eligibility 
guidelines more broadly than ever before.[Footnote 24] This resulted in 
FEMA having to re-evaluate applications, reverse previous 
determinations to deny benefits, and attempt to contact applicants 
initially denied but now eligible under the expanded guidelines. 
Additionally, the report stated that FEMA was challenged to provide 
outreach to the large, diverse population of Manhattan. To accomplish 
this, FEMA translated all program information into seven languages, 
promoted the program in 26 non-English papers, and set up a toll free 
number where individuals could ask questions in 157 different 
languages. FEMA's IG recommended that FEMA implement a broader, more 
flexible program in order to respond to any future disasters that have 
a widespread effect on the economy and result in large-scale individual 
needs.[Footnote 25]

In a December 2002 report on charitable organizations' contributions 
after September 11, we noted, among other things, that coordination 
among charities--of which some provided rental assistance--and FEMA 
could be enhanced.[Footnote 26] We reported that both charities and 
individuals who were indirectly affected by the disaster (e.g., by job 
loss) were confused about what aid might be available. We recommended 
that FEMA convene a working group with involved parties to take steps 
to implement strategies for future disasters that build on the lessons 
learned in the aftermath of September 11. FEMA agreed with this 
recommendation, noting that such a working group would foster enhanced 
coordination and potentially lead to improvements in service to those 
affected by disasters.

The deadline to apply for the Mortgage and Rental Assistance Program in 
the New York City area was January 31, 2003, and as of July 31, 2003, 
$194 million had been disbursed of the $200 million available. Even 
though the period to apply for the program has passed, FEMA officials 
expect all funds to be disbursed as applicants continue to receive 
monthly assistance.[Footnote 27]

Crisis Counseling Assistance Totaled $166 Million:

The Crisis Counseling Assistance and Training Program, funded by FEMA, 
led to the creation of "Project Liberty." Project Liberty is 
administered by the New York State Office of Mental Health and provides 
short-term outreach, education, and referrals to mental health 
services, and other programs for long-term care. In the past, only 
individuals from a declared disaster area were eligible to receive 
counseling services; however, because of the broad impact of the 
disaster, grants for this program were also provided to eligible 
individuals in New Jersey, Connecticut, Massachusetts, and 
Pennsylvania.

In addition to Project Liberty, the Department of Justice's Office for 
Victims of Crime and various charities, such as the American Red Cross, 
offered counseling services after September 11.[Footnote 28] In its 
December 2002 report, FEMA's IG found that the availability of 
counseling services from multiple agencies was confusing for victims. 
In the event of a disaster that is also a criminal activity, FEMA and 
the Department of Justice cooperate to provide services. However, the 
IG recommended that more detailed and comprehensive guidance be 
developed to minimize duplication and ensure victims obtain appropriate 
services. Specifically, the IG recommended that a memorandum of 
understanding officially detail the relationship and responsibilities 
of FEMA and the Department of Justice and time frames in administering 
crisis counseling assistance.[Footnote 29]

FEMA committed more than $166 million in grants to Project Liberty; 
this sum is more than all previous counseling grants since 1974 
combined. Of these funds, $99 million has been obligated and disbursed. 
As of July 31, 2003, the program was still available and remaining 
funds will continue to be disbursed until the program deadline, March 
31, 2004.[Footnote 30]

Individual and Family Grants Totaled $110 Million:

FEMA is authorized by the Stafford Act to provide individual and family 
grants for necessary expenses related to disasters that were not 
covered through insurance, other federal assistance, or voluntary 
programs. For the September 11 disaster, FEMA's Individual and Family 
Grant Program provided eligible residents of New York City assistance 
for home repairs, replacement of personal property, reimbursement for 
air quality products, and repair or replacement of air conditioners. 
The New York State Department of Labor was tasked with implementing and 
administering the program.

In its December 2002 report on Individual Assistance, FEMA's IG 
reported that the state program officials faced few challenges in 
providing individual and family grants until a jump in applications 
resulted in delays and required the New York State Department of Labor 
and FEMA to dedicate additional staff to manage the program.[Footnote 
31] The New York State Department of Labor officials experienced a 
surge in grant applications in June 2002, particularly for air quality 
product assistance. Applications do not typically increase at this 
point in the recovery phase. FEMA officials reported that the increase 
in applications occurred around the same time that EPA released reports 
on air quality in lower Manhattan. The IG reported that although FEMA 
officials could not have anticipated this surge of applications, they 
could use lessons learned in this disaster and work with states to 
develop contingency plans that can be implemented quickly to avert a 
similar situation in future disasters.

The report also noted that the lack of inspections to verify property 
damage, and the relaxed requirements to document whether an applicant 
was eligible for advance payment of grant, may have increased the 
likelihood of fraud in the Individual and Family Grant Program. The IG 
reported that FEMA officials did not perform the typical inspections to 
verify property damage because they determined it would not be cost-
effective for inspectors to examine damage to a single property item. 
Instead, state officials established a self-certification process 
requiring applicants to document damage and provide receipts for 
purchases, or if an applicant self-certified that they were unable to 
pay for equipment up front, FEMA provided advanced payment and 
requested that receipts be provided after the purchase. These issues, 
combined with the large number of applications, may have increased the 
likelihood of fraud and abuse.

The application deadline for the Individual and Family Grant Program 
was November 30, 2002. As of July 31, 2003, $97 million had been 
disbursed of the $110 million available through this program.

Other Individual Assistance Totaled $51 Million:

In addition to Mortgage and Rental Assistance and Individual and Family 
Grants, FEMA also committed other funds for temporary housing 
assistance, including $34 million for programs that address short-term 
needs such as lodging expenses and temporary housing repairs. In 
addition, the Stafford Act authorizes FEMA to provide unemployment 
assistance to individuals, as a result of the disaster, who are not 
eligible for regular state Unemployment Insurance. For the New York 
City area, FEMA provided $17 million for disaster unemployment 
insurance administered by the state of New York.

Assistance to Businesses Totaled $683 Million:

Almost 18,000 businesses in New York City, representing approximately 
563,000 employees, were disrupted or forced to relocate as a result of 
the terrorist attacks. Approximately 30 million square feet of 
commercial space was damaged or destroyed. Businesses near the World 
Trade Center site suffered physical damage, but businesses all across 
the city experienced the economic impact of the disaster. The Empire 
State Development Corporation (ESDC), as a grantee of HUD funds, 
administered a variety of assistance programs in cooperation with New 
York City to compensate businesses for economic losses and to assist in 
their recovery. Businesses could apply for multiple programs. Table 10 
shows the amount of assistance committed, obligated, and disbursed by 
HUD for businesses assistance.

Table 10: Assistance to Businesses, as of June 30, 2003:

Activity: Business recovery grants[A]; Funding 
agency: HUD; Total committed: $578; Total obligated: $503; Total 
disbursed: $488.

Activity: Business recovery loans; Funding agency: 
HUD; Total committed: 41; Total obligated: 41; Total disbursed: 12.

Activity: Compensation to businesses for 
disproportionate loss of workforce; Funding agency: HUD; Total 
committed: 33; Total obligated: 0; Total disbursed: 0.

Activity: Bridge loans; Funding agency: HUD; Total 
committed: 7; Total obligated: 7; Total disbursed: b.

Activity: Technical assistance grants; Funding 
agency: HUD; Total committed: 5; Total obligated: 5; Total disbursed: 
2.

Activity: Other administrative costs; Funding 
agency: HUD; Total committed: 19; Total obligated: 19; Total disbursed: 
9.

Activity: Total; Total committed: $683; Total obligated: $574; Total 
disbursed: $510.

Source: GAO analysis of agency-provided data.

Note: Numbers may not add due to rounding.

[A] Business recovery grants include funds to small and large 
businesses. HUD approved obligation and disbursement of all remaining 
business recovery grants August 6, 2003.

[B] Although no funds have been disbursed for this program, $7 million 
in other city and state funds have been provided in loan loss reserves 
to private banks and nonprofit lenders. ESDC plans to reimburse these 
funds in the future.

[End of table]

Business Recovery Grants Totaled $578 Million:

The Congress required that at least $500 million of the HUD funds to 
compensate small businesses, not-for-profits, and individuals in New 
York for their economic losses--the first time HUD funds have been used 
for this purpose.[Footnote 32] ESDC estimates that businesses with 
fewer than 200 employees account for 99 percent of all businesses 
affected by September 11 and about 50 percent of all affected 
employees. Accordingly, ESDC developed the Business Recovery Grant 
Program, which offers grants to small businesses and nonprofits to 
compensate for economic losses. As part of this program, businesses 
with fewer than 500 employees in lower Manhattan, south of 14th Street, 
were eligible for reimbursement of a number of days of lost revenue 
depending on their proximity to the World Trade Center site. In 
addition to small businesses, ESDC provided recovery grants to 
businesses that have more than 500 employees outside of lower 
Manhattan, but have facilities with fewer than 200 in lower Manhattan. 
Firms receiving these grants include McDonalds, XEROX, and Starbucks. 
The areas of lower Manhattan eligible for business recovery grants are 
shown in figure 16.

Figure 16: Areas of Lower Manhattan Assisted by ESDC Business Recovery 
Grant Program:

[See PDF for image]

[End of figure]

Prior to September 11, ESDC had never administered such a large HUD-
funded endeavor. ESDC officials worked closely with HUD officials to 
efficiently provide services to businesses in the weeks following the 
disaster and meet HUD's requirements for the Community Development 
Block Grant (CDBG) program. HUD officials and its IG conducted several 
reviews of ESDC's programs and issued various letters and 
reports.[Footnote 33] Although the reviews generally concluded ESDC was 
handling funds appropriately, HUD's IG and ESDC officials reported 
challenges in providing assistance to affected businesses while 
avoiding duplication of benefits from other federal programs, such as 
the Small Business Administration (SBA) Disaster Assistance 
Loans.[Footnote 34] HUD officials and its IG determined that ESDC did 
not have adequate controls in place to avoid duplication of benefits 
and HUD worked with ESDC officials to implement these procedures. ESDC 
had to reevaluate previously approved applications to account for this 
requirement. Another challenge ESDC officials encountered was that the 
amount of eligible grant funds applied for in business recovery grants 
exceeded the amount of committed funds due to a surge in applications 
in the last 2 days of the program. Businesses could apply for the 
program from January 25, 2002, through December 31, 2002. Over 19 
percent of all applications were received in the last 2 days of the 
program. As of June 30, 2003, ESDC reported that 2,166 businesses had 
not yet received their approved grants.

To address this shortfall, ESDC redirected funds from other programs 
and LMDC requested that HUD approve transfer of additional funds for 
LMDC to transfer to ESDC in order to meet program commitments. Once the 
transfer of funds is approved, $578 million will have been disbursed to 
compensate businesses in lower Manhattan with $558 million provided 
through business recovery grants for small and large businesses. As of 
June 30, 2003, ESDC reported $475 million disbursed in recovery grants 
to small businesses and $13 million for large firms--a total of $488 
million. According to LMDC, the Business Recovery Grant Program will 
have directly impacted more than 141,000 jobs when all grants have been 
disbursed.

Business Recovery Loans Available Up to $41 Million:

The Business Recovery Loan Program provides funding to community-based 
lending organizations, which in turn provide low-cost working capital 
loans to businesses that were adversely affected by the terrorist 
attacks and to businesses that have subsequently located or will locate 
new operations in lower Manhattan. Funds may be used for payroll, rent, 
utilities, inventory, and, in certain circumstances, refinancing 
existing debt. Loans are available to businesses based on their 
location in lower Manhattan or economic relationship with a business in 
that area.[Footnote 35] The program enhanced access to capital for 
businesses, particularly to those that do not meet SBA credit or 
eligibility criteria for disaster loans. The $41 million committed to 
this program provided funds to eight community-based lenders. As of 
June 30, 2003, ESDC had disbursed $12 million in program funds to 
participating lenders, and the lenders have closed 201 loans.

Up to $33 Million Committed for Businesses with Disproportionate Loss 
of Workforce:

As part of the federal assistance to the New York City area, the 
Congress appropriated funds to HUD to compensate businesses that 
suffered a disproportionate loss of employees due to the 
disaster.[Footnote 36] LMDC provided $33 million for the program, which 
will be developed and administered by ESDC.[Footnote 37] The program 
targets firms in the World Trade Center or in the immediate surrounding 
area that lost (1) at least 6 permanent employees, representing at 
least 20 percent of the firm's workforce or 50 percent of its New York 
City employees or (2) at least 50 percent of its New York City 
workforce. To be eligible, firms must maintain 50 percent of an agreed 
upon level of employment in New York City for 3 years. All funds will 
be divided among eligible firms, and the amount for each business will 
be based on the magnitude and proportionality of employee loss. As of 
June 30, 2003, no funds have been requested, obligated, or disbursed 
for this program.

About $7 Million Available for Lenders to Make Bridge Loans to 
Businesses:

Through the Bridge Loan Program, ESDC provided loan loss reserve 
subsidies to lenders that made bridge loans to businesses awaiting SBA 
loan approvals.[Footnote 38] Eligible businesses are New York City-
based, commercial, industrial, retail, and not-for-profit 
organizations that were affected by September 11 and applied for SBA 
loans. Participating banks and community-based lenders offered bridge 
loans to provide interim capital to businesses until the SBA loan was 
approved. Upon approval of a SBA loan, the business paid off the bridge 
loan with the SBA loan proceeds and if the loan was not approved, the 
lender had the option to restructure the bridge loans as term 
loans.[Footnote 39] The program closed January 31, 2003, as the SBA 
loan stopped accepting applications for disaster loans. As of June 30, 
2003, the loan loss reserve fund totaled $7 million to support the $33 
million in loans provided by the lenders.

Technical Assistance Grants Totaled $5 Million:

The Technical Assistance Program provided grants to community-based 
organizations and other technical service providers to allow them to 
provide additional assistance to businesses affected by the disaster. 
ESDC committed $5 million to this program and allowed for a maximum 
grant of $250,000 per organization. Services may include help with 
strategic planning, finance, insurance, and legal issues; and basic 
business management such as marketing, member development, and 
attraction efforts. Businesses took part in a variety of services, 
including direct assistance, on-line activities, and workshops or 
training seminars on various business recovery and marketing topics. To 
apply for technical assistance, businesses must have fewer than 200 
employees, have been:

affected by the disaster, and currently be located in lower Manhattan. 
As of June 30, 2003, ESDC had 23 technical service providers under 
contract that have assisted over 3,000 small businesses, representing 
over 30,633 employees, and a total of $2 million has been disbursed 
through this program.

[End of section]

Chapter 4: Almost $5.57 Billion Committed for Projects to Restore and 
Enhance Infrastructure:

The terrorist attacks at the World Trade Center severely damaged the 
public transportation system that was used by more than 85 percent of 
commuters to lower Manhattan--the highest percentage of people 
commuting to work by public transit of any commercial district in the 
nation. About $5.57 billion has been committed for projects to restore 
as well as enhance transportation and other infrastructure in lower 
Manhattan. The majority of this financial assistance, $5.01 billion, is 
a combination of FEMA, DOT, and HUD funds to restore and enhance 
elements of the transportation system supporting lower Manhattan. The 
attacks and subsequent recovery efforts also heavily damaged utility 
infrastructure in lower Manhattan, and $568 million in HUD funds have 
been committed to rebuild utility infrastructure and to fund other 
short-term capital projects for infrastructure improvements to the 
areas around the World Trade Center. The amount of assistance each 
agency has committed is shown in figure 17. Since the infrastructure 
restoration and improvement projects are in planning stages, most funds 
remain to be obligated and disbursed as shown in table 11.

Figure 17: Amount of Assistance Committed for Infrastructure 
Restoration and Improvement, by Agency:

[See PDF for image]

[A] The Lower Manhattan Development Corporation's plans for $1.16 
billion in HUD funds have not been finalized, as of June 30, 2003. 
These funds are not included in the graphic and, according to HUD, will 
mostly likely be directed to either infrastructure restoration or 
economic revitalization.

[End of figure]

Table 11: Infrastructure Restoration and Improvement, as of June 30, 
2003:

Dollars in Millions: 

Activity: Restoring and enhancing the lower 
Manhattan transportation system; Funding agency: FEMA/DOT/HUD; Total 
committed: $5,006; Total obligated: $238; Total disbursed: $54.

Activity: Permanent utility infrastructure 
repairs; Funding agency: HUD; Total committed: 500; Total obligated: 0; 
Total disbursed: 0.

Activity: Short-term capital projects; Funding 
agency: HUD; Total committed: 68; Total obligated: 0; Total disbursed: 
0.

Activity: Total; Total committed: $5,574; Total obligated: $238; Total 
disbursed: $54.

Source: GAO analysis of agency-provided data.

Notes: Numbers may not add due to rounding. Due to the expedited close-
out, FEMA data are reflected as of July 31, 2003.

[End of table]

Projects Planned to Restore and Enhance the Lower Manhattan 
Transportation System Total $5.01 Billion:

A wide variety of transportation restoration and enhancement projects 
for lower Manhattan have begun or are in the planning process. DOT is 
the lead agency in administering funds to restore improve the 
transportation system in lower Manhattan, but agencies at all levels of 
government are involved in the decision making process. The various 
types of projects and their funding information can be seen in table 
12.

Table 12: Lower Manhattan Transportation System Restoration and 
Enhancement, as of June 30, 2003:

Dollars in millions: 

Activity: Transit projects; Agency: DOT/FEMA; 
Total committed: $4,550; Total obligated: $50; Total disbursed: $0.

Activity: Long-term transportation planning; 
Agency: HUD; Total committed: 14; Total obligated: 0; Total disbursed: 
0.

Activity: Street resurfacing and reconstruction; 
Agency: DOT; Total committed: 242; Total obligated: 100; Total 
disbursed: 9.

Activity: Ferry projects[A]; Agency: DOT; Total 
committed: 100; Total obligated: 11; Total disbursed: 11.

Activity: Rail safety projects; Agency: DOT; Total 
committed: 100; Total obligated: 77; Total disbursed: 34.

Activity: Total; Total committed: 
$5,006; Total obligated: $238; Total disbursed: $54.

Source: GAO analysis of agency-provided data.

Notes: Numbers may not add due to rounding. Due to the expedited close-
out, FEMA data are reflected as of July 31, 2003.

[A] After June 30, 2003, Federal Transit Administration awarded grants 
totaling $36 million for the Hoboken Ferry Terminal and $5 million for 
a New York State Energy Research and Development Authority grant for a 
study of environmental mitigation of ferry emissions. These data are 
not reflected in the table.

[End of table]

Planning for $4.55 Billion Committed for Lower Manhattan Transit 
Projects Continues:

Of the total amount the Congress appropriated to this disaster, $4.55 
billion has been committed for transit projects in lower Manhattan. Of 
this amount, the Congress appropriated $1.80 billion to Federal Transit 
Administration (FTA) to replace, rebuild, or enhance the public 
transportation systems serving Manhattan.[Footnote 40] In addition, 
FEMA committed $2.75 billion for lower Manhattan transit projects for a 
total federal commitment of $4.55 billion. In an August 2002 memorandum 
of agreement between FEMA and FTA, FTA was identified as the lead 
federal agency responsible for administration and management of the 
combined $4.55 billion in federal funds. In February 2003, the Governor 
of New York identified nine potential projects to be funded out of the 
$4.55 billion in federal aid, noting that projects are in different 
stages of development. The Governor specifically identified three 
projects--the Port Authority Trans-Hudson (PATH) Terminal, the Fulton 
Street Transit Center, and the South Ferry Subway Station--totaling up 
to $2.85 billion in federal funds. FTA is working with the Port 
Authority and the Metropolitan Transportation Authority (MTA) on 
project development issues and implementing an oversight program before 
disbursement of funds for these projects. FTA has not received any 
formal correspondence from New York requesting any portion of the 
remaining federal assistance.

PATH Terminal:

The original PATH terminal located underneath the World Trade Center 
site was completely destroyed in the terrorist attacks. As part of the 
initial response, a temporary PATH terminal, funded through insurance 
payments and FEMA funds, is under construction and is scheduled for 
completion in November 2003.[Footnote 41] The Port Authority is 
requesting an additional $1.4 billion to $1.7 billion to build a 
permanent PATH terminal that Port Authority officials report will be a 
substantial improvement over the destroyed World Trade Center terminal. 
According to plans, this terminal will serve PATH commuter trains and 
four subway lines with concourses linking the terminal to the Fulton 
Street Transit Center and the ferry terminal at the World Financial 
Center. Portions of the temporary PATH terminal will be retained in the 
construction of this permanent terminal. FTA officials report that the 
Port Authority estimates the majority of the project to be completed in 
2007, while some of the passenger concourses connecting to other 
developments at the World Trade Center site will be completed in 2009.

Fulton Street Transit Center:

The current Fulton Street-Broadway Nassau Subway Station Complex 
provides access to the most heavily used subway lines in lower 
Manhattan and lies one block east of the World Trade Center site. The 
complex is comprised of four separate subway stations serving nine 
subway lines that serve 250,000 passengers entering, exiting, and 
transferring at these stations daily. The complex was not damaged on 
September 11, but according to MTA officials it is difficult to 
navigate and not easily accessible. According to these officials, the 
complex has crowded corridors and mezzanines, poor connections between 
platforms, and entrances with little visibility from the street. In 
addition, three neighboring subway stations that provide access to 
different subway lines have no underground connections to the complex.

The MTA is planning a $750 million project to improve the existing 
Fulton Street-Broadway Nassau Subway Station Complex to create a Fulton 
Street Transit Center. According to plans, the project will create a 
visible street level entrance pavilion to serve as a focal point for 
the four subway stations. These renovations will include new and 
expanded platforms and mezzanines, efficient connections between 
platforms, linkage to the restored PATH terminal and neighboring subway 
stations, a new underground pedestrian concourse, and upgraded station 
entrances for better access for all users. FTA has issued a $50 million 
grant to MTA for environmental review work and preliminary engineering 
for this project.[Footnote 42] MTA is planning to complete the final 
environmental impact statement by July 2004 and the final project in 
December 2007.

South Ferry Subway Station:

The South Ferry Subway Station, which is located a half mile from the 
World Trade Center site, serves the southern tip of lower Manhattan and 
provides linkage to the Staten Island Ferry terminal and express 
busses. The station--the final point on the 1 and 9 subway lines that 
also run through the World Trade Center site--was not damaged on 
September 11. However, according to MTA officials, the South Ferry 
Subway Station is outmoded: only five cars of a 10-car subway train can 
open onto the platform at one time; the tunnel is curved in such a 
fashion that trains have to slow down substantially to negotiate it; 
and it has no direct passenger connections to nearby subway stations. 
MTA has proposed to improve the station so that it would accommodate 
the length of a standard 10-car subway train and would provide 
connection to the Whitehall Street Subway Station that serves two other 
subway lines. According to an FTA official, the project will undergo an 
environmental assessment in fall 2003 that will determine whether an 
environmental impact statement is necessary. The estimated cost of the 
project is $400 million, and the estimated completion date is 2007 or 
2008. Figure 18 shows the current South Ferry Subway Station layout and 
plans for the renovated station.

Figure 18: Current and Proposed South Ferry Subway Station Layout:

[See PDF for image]

[End of figure]

Long-Term Transportation Planning for Remaining Funds:

The permanent PATH terminal, the Fulton Street Transit Center, and the 
South Ferry Subway Station would account for $2.55 billion to $2.85 
billion of the $4.55 billion designated for lower Manhattan transit 
projects--projects to be funded with the remaining $1.7 billion to $2 
billion have yet to be determined. A February 2003 letter from the 
Governor of New York to FTA identified nine potential projects to be 
funded out of the $4.55 billion in federal aid, noting that projects 
are in different stages of development. The Governor specifically 
identified the permanent PATH terminal and improvements to the Fulton 
Street and South Ferry subway stations totaling up to $2.85 billion in 
federal funds. In April 2003, various New York City and state 
agencies[Footnote 43] released a report entitled Lower Manhattan 
Transportation Strategies that identified priority transportation 
projects. High-priority projects highlighted in the report include 
access to JFK Airport and Long Island, enhancement of West Street, 
construction of a tour bus facility, and construction of World Trade 
Center underground infrastructure. However, FTA has not received any 
formal correspondence requesting any portion of the remaining federal 
assistance for any other projects. LMDC has committed $14 million in 
HUD funds to assist in the planning of these projects and has provided 
funds to study alternatives to improve transportation to airports, West 
Street planning (as discussed in the next section), and other studies 
to address rebuilding efforts and their effect on economic 
revitalization of lower Manhattan. In addition, a portion of the 
remaining $1.16 billion in HUD funds may be directed to infrastructure 
improvement activities depending on the results of on-going studies. To 
date no decisions have been made on which of these projects will be 
funded. For more information on the transportation projects highlighted 
in the Lower Manhattan Transportation Strategies report, see appendix 
II.

$242 Million Committed for Resurfacing and Reconstructing of Lower 
Manhattan Streets; More Funding Possible:

The Federal Highway Administration (FHWA) is overseeing New York State 
DOT and New York City DOT plans for resurfacing and reconstructing 
lower Manhattan streets through its Emergency Relief Program. These 
streets were damaged by the direct impact of the collapsed World Trade 
Center buildings as well as wear and tear from debris removal 
activities and from emergency telecommunications repairs. Of the $242 
million appropriated for the Emergency Relief Program to New York, $132 
million has been committed for New York City street repair and the 
remaining $110 million has been committed for the reconstruction of 
West Street.[Footnote 44]

Street Resurfacing and Reconstruction:

In addition to FEMA funds for local road repairs as part of initial 
response efforts, FHWA has committed $132 million to resurface and 
reconstruct about 400 city blocks of New York City streets. As of June 
2003, over $100 million had been obligated to the Emergency Relief 
Program, more than $9 million had been disbursed and 95 blocks had been 
repaved. FHWA and New York State DOT officials anticipate that repairs 
will continue through 2007. Figure 19 shows workers conducting street 
repairs in lower Manhattan, and figure 20 shows a map of planned 
Emergency Relief Program road repairs for lower Manhattan streets.

Figure 19: Workers Conducting Street Repairs in Lower Manhattan:

[See PDF for image]

[End of figure]

Figure 20: New York City Department of Transportation Map of Planned 
Emergency Relief Program Road Repairs (excluding West Street):

[See PDF for image]

[End of figure]

West Street (Route 9A):

West Street, also known as Route 9A, is a key regional and local 
transportation corridor for Lower Manhattan and a major utility 
corridor. Prior to September 11, it served 170,000 people per day 
walking, biking, and riding in vehicles. Falling debris from the 
collapse of the World Trade Center buildings destroyed the roadway, 
including two northbound lanes that crossed part of the World Trade 
Center site. The street was further damaged from wear and tear from 
numerous heavy vehicles used in response and recovery efforts as well 
as from emergency utility repairs to restore power and communications. 
As discussed in chapter 2, FEMA provided $6 million for interim repairs 
to West Street; however, significantly more funds are projected to be 
needed to permanently repair West Street and to improve pedestrian 
movement around the roadway.

FHWA estimates the cost to simply replace West Street to pre-disaster 
conditions to be $110 million. However, New York State DOT is 
considering a more extensive renovation and enhancement of West Street. 
Planners hope to permanently restore the functionality of the roadway 
while also improving pedestrian movements, enhancing green areas, and 
supporting economic recovery and development. Four options for 
enhancing the street are under consideration:

1. An improved at-grade roadway with pedestrian bridges that would cost 
an estimated $185 million and would be completed in 2005.

2. A pedestrian deck over the highway crossing to the World Trade 
Center site that would cost an estimated $700 million and be completed 
in 2006.

3. An 1,100-foot short bypass with two lanes in each direction above 
ground and four lanes below ground that would cost an estimated $850 
million with a completion date of 2007.

4. A long bypass that would cost an estimated $2.90 billion with a 
completion date of 2011.

Figure 21 shows the present West Street and the design concept for an 
improved West Street intersection with belowground lanes.

Figure 21: Present West Street and West Street Design Concept with 
Belowground Lanes:

[See PDF for image]

[End of figure]

Left: Present West Street intersection with Morris Street. Right: 
Design concept of same intersection with landscaped promenade.

In an April 2003 speech, the Governor of New York announced that 
enhancing West Street was one of his top priorities for the remaining 
$1.7 billion to $2 billion of the $4.55 billion under FTA control and 
his support for the $850 million short bypass alternative. For the 
environmental review process, all four options will be considered as 
well as additional options that may arise in the public scoping 
meeting. As options are planned and considered by New York State DOT 
and other officials, LMDC will use HUD funds to reimburse some costs 
associated with planning efforts. Specifically, LMDC has committed 
funds to assist New York State DOT's technical services related to the 
repair and restoration of West Street, including planning for future 
enhancements.

$100 Million for Ferry Terminals in New York and New Jersey:

The ferry system is an integral part of lower Manhattan's 
transportation system. FHWA was appropriated $100 million in 
Miscellaneous Highway funds for ferry and ferry facility construction 
projects in New York and New Jersey.[Footnote 45] FHWA transferred 
administration of most of this money to FTA, which worked with a task 
force of representatives from New York and New Jersey to identify ferry 
projects for funding. As of June 30, 2003, FTA has disbursed $11 
million for the West Midtown (Manhattan) Terminal, and has committed 
funds for the renovation of the Hoboken (New Jersey) terminal and the 
Colgate/Sussex Pier (New Jersey). FTA plans disbursement of $5 million 
to support efforts by the New York State Energy Research and 
Development Authority and Rutgers University to research, demonstrate, 
and implement mitigation of pollution from ferry boats in New York 
Harbor. FHWA will administer $22 million for administration of two of 
the projects--the Weehawken Intermodal Ferry Terminal (New Jersey) and 
the South Amboy Ferry Terminal (New Jersey).

Safety Projects for New York Rail Tunnels Totaled $100 Million:

As part of the effort to enhance the New York area transportation 
system, the Federal Railroad Administration was appropriated $100 
million to enhance the fire and life safety in New York rail tunnels. 
In June 2002, the Federal Railroad Administration and Amtrak entered 
into a grant agreement for $77 million to do this work. The funds will 
be used to modernize ventilation systems, install communication 
systems, improve emergency exits from the tunnels, and structurally 
rehabilitate four East River tunnels, two Hudson River tunnels, and the 
subterranean section of Penn Station. As of July 2003, almost $34 
million of the grant funds have been disbursed to Amtrak for the safety 
projects that will be completed in 2006 or 2007. The remaining $23 
million will be obligated and disbursed to Amtrak once it completes the 
design of anticipated improvements in the New York City rail tunnels.

Permanent Utility Infrastructure Repairs and Improvements Total $500 
Million:

The Congress also appropriated HUD funds to provide assistance to 
utility firms as they complete permanent repairs and improvements to 
the damaged infrastructure around the World Trade Center site. These 
funds will go to LMDC, which will work with ESDC to administer $250 
million for emergency repairs, as previously discussed. In addition, 
$500 million has been committed for for permanent repairs and 
rebuilding, including $15 million for program administration. The goals 
of the permanent repair program, according to LMDC, are to prevent 
businesses and residences from bearing the cost of rebuilding and to 
enhance the redevelopment of lower Manhattan by supporting investment 
in energy and telecommunication infrastructure. LMDC officials worked 
with utility firms, businesses, and state and local agencies to develop 
the program in order to help utility firms while developing an improved 
system to attract new businesses to the area. Specific categories of 
reimbursable projects include:

5. $330 million for costs incurred to permanently replace, restore, and 
enhance infrastructure to deliver service;

6. $50 million to construct a carrier neutral lateral conduit to 
enhance telecommunications diversity and competition;

7. $20 million for the provision of fully redundant telecommunications 
services to critical businesses and government facilities to enhance 
public safety;

8. $22 million to compensate providers for new regulatory mandates due 
to increased security measures; and:

9. $60 million for utilities and the city or state to pay for service 
interference costs as a result of reconstruction of local roads.

Eligible businesses include investor-owned utility service providers 
with service areas in lower Manhattan that incurred expenditures 
related to damage from the disaster, excluding any funds from insurance 
and other federal assistance for reimbursement for lost revenues. 
Applicants will have until December 31, 2007, to apply for certain 
programs.[Footnote 46]

Short-term Capital Projects Total $68 Million:

LMDC worked with community groups, local businesses, and city and state 
governments to select $68 million in short-term capital projects for 
HUD funding as part of their effort to improve accessibility and the 
appearance of lower Manhattan. In addition, a portion of these funds 
has been committed by LMDC to conduct an outreach campaign to keep 
residents informed of rebuilding efforts. These projects are also part 
of the Governor's priorities for the overall lower Manhattan rebuilding 
effort, including:

* Parks and Open Space Enhancements. LMDC has proposed several projects 
to improve and expand parks along the Hudson River and East River, as 
well as other neighborhood parks, as part of a larger effort to attract 
residents and revitalize the area. LMDC has committed an estimated $29 
million for these projects.

* West Street Pedestrian Connections. LMDC plans to fund construction 
of a temporary pedestrian bridge and enhance an existing pedestrian 
bridge in an effort to aid foot traffic flow once the temporary PATH 
terminal is opened. The original bridge was destroyed during the 
disaster, and due to increased pedestrian traffic, LMDC has committed 
an estimated $21 million to complete the projects.

* Building and Streetscape Improvements. LMDC, in cooperation with the 
Alliance for Downtown New York, a community group, has identified 
several areas that continue to be affected by recovery efforts and will 
provide funds to repave sidewalks, improve signs and lighting, and 
provide new benches. The total cost of the project is estimated to be 
$20 million, of which LMDC has committed $4 million. Other particular 
areas of focus include the New York Stock Exchange, where LMDC has 
committed $10 million to the Downtown Alliance to install security 
barriers to secure pedestrian and vehicular paths and to beautify the 
area, and the Liberty Street area, where LMDC has committed $2 million 
to building owners to improve the exterior facades of damaged 
buildings.

* Millennium High School. LMDC has committed an estimated $3 million of 
HUD funds to renovate space for a new Millennium High School. The 
school will be the only open-admission public high school for lower 
Manhattan residents and is intended to attract families to the area.

[End of section]

Chapter 5: Efforts to Revitalize the New York Economy Include Tax 
Benefits and Assistance to Businesses:

The terrorist attacks of September 11 disrupted New York City's economy 
and resulted in billions in lost income and tax revenues. The attacks 
caused tens of thousands of job losses and severely impacted lower 
Manhattan's commercial and retail sectors. In response, the Congress 
enacted the Liberty Zone tax benefits, estimated by the Joint Committee 
on Taxation to result in $5.03 billion in lost federal revenue, and 
appropriated funds to HUD, of which $515 million will aid in 
revitalizing the lower Manhattan economy. The tax benefits are 
generally targeted to a defined area of lower Manhattan--the "Liberty 
Zone." Estimates vary regarding what the ultimate usage of the Liberty 
Zone tax benefits will be and the ultimate benefit amount is unlikely 
to be known. In addition, the Empire State Development Corporation 
(ESDC) and the Lower Manhattan Development Corporation (LMDC) are 
coordinating to administer HUD funds for business assistance programs 
designed to attract and retain thousands of jobs in lower 
Manhattan.[Footnote 47] LMDC has also undertaken multiple planning 
efforts to revitalize lower Manhattan, including the coordination and 
planning of the rebuilding design and memorial competitions. Figure 22 
shows a breakdown of economic revitalization assistance, and table 13 
shows the amount of assistance committed for economic revitalization.

Figure 22: Estimated Amount of Assistance Committed for Economic 
Revitalization, by HUD and Liberty Zone Tax Benefits:

[See PDF for image]

Note: Numbers do not add due to rounding.

[A] The Lower Manhattan Development Corporation's plans for $1.16 
billion in HUD funds have not been finalized, as of June 30, 2003. 
These funds are not included in the graphic and, according to HUD, will 
mostly likely be directed to either infrastructure restoration or 
economic revitalization.

[End of figure]

Table 13: Economic Revitalization Efforts, as of June 30, 2003:

Activity: Tax benefits: 

Activity: Liberty Zone tax benefits; Funding 
agency: IRS; Total committed/estimated benefits: $5,029[A]; Total 
obligated: N/A[B]; Total disbursed: N/A[B].

Activity: Other revitalization efforts: 

Activity: Job creation and retention grants; 
Funding agency: HUD; Total committed/estimated benefits: 320; Total 
obligated: 320; Total disbursed: 130.

Activity: Small firm attraction and retention 
grants; Funding agency: HUD; Total committed/estimated benefits: 155; 
Total obligated: 155; Total disbursed: 31.

Activity: Other planning efforts; Funding agency: 
HUD; Total committed/estimated benefits: 40; Total obligated: 39; 
Total disbursed: 12.

Activity: Subtotal; Total 
committed/estimated benefits: $515; Total obligated: $514; Total 
disbursed: $173.

Activity: Estimated total; Total committed/estimated benefits: $5,544; 
Total obligated: $514[B]; Total disbursed: $173[B].

Source: GAO analysis of agency-provided data.

[A] Revenue estimate by the Joint Committee on Taxation.

[B] Tax benefits are neither obligated nor disbursed.

[End of table]

Further, additional funds may be made available for revitalization 
efforts. There is $1.16 billion in HUD funds not yet committed to 
specific activities, and LMDC is undertaking several studies and 
working groups to identify and prioritize transportation and economic 
revitalization efforts for these remaining funds.

Liberty Zone Tax Benefits Focus on Economic Revitalization:

In Title III of the Job Creation and Worker Assistance Act of 
2002,[Footnote 48] the Congress instituted tax benefits primarily 
targeted to the Liberty Zone, the area of New York City severely 
impacted by the terrorist attacks defined as the area south of Canal 
Street, East Broadway (east of its intersection with Canal Street), or 
Grand Street (east of its intersection with East Broadway) in lower 
Manhattan. Figure 23 shows a map of the Liberty Zone boundaries.

Figure 23: New York Liberty Zone:

[See PDF for image]

[End of figure]

The act contained seven provisions that provide specific federal tax 
benefits designed to assist New York. A detailed description of these 
seven provisions is contained in appendix IV; the general parameters of 
each tax provision are discussed below.

* Business Employee Credit. Businesses in the Liberty Zone--or 
relocated from that area to elsewhere in New York City due to physical 
damage to their workplace--that employ 200 or fewer workers can receive 
federal tax credits of up to $2,400 per qualified employee during 
calendar years 2002 and 2003.

* Special depreciation allowance. In the Liberty Zone, qualified 
property is allowed an additional first-year depreciation deduction of 
30 percent of the adjusted basis of the property, thereby permitting 
taxpayers to more quickly deduct the cost of the property. This benefit 
extends through 2006 for personal property and through 2009 for real 
property.

* Tax-exempt private activity bonds (termed Liberty Bonds.) Up to $8 
billion in bonds on which the interest income is exempt from federal 
taxes may be issued to finance the acquisition, construction, 
reconstruction, and renovation of commercial and residential real 
property as well as utilities primarily inside the Liberty Zone. The 
Mayor of New York City is responsible for approving bonds totaling up 
to $4 billion, and the Governor of New York is responsible for 
approving the same amount. As much as one-fourth of the bonds can be 
used for commercial projects in New York City but in areas outside the 
Liberty Zone. The bonds must be issued by December 31, 2004. As of May 
2003, $876 million in Liberty Bonds had been issued. For details on 
Liberty Bonds that have been issued, see appendix V.

* One additional refunding for certain bonds that were previously 
refunded. Until December 31, 2004, the Mayor of New York City and the 
Governor of New York State may designate issuance of federal tax-exempt 
bonds to pay principal, interest, or redemption price on municipal 
bonds previously issued and refunded for facilities in New York City. 
For advanced refunding bonds, the Mayor and the Governor are 
responsible for designating $4.5 billion each for a total of $9 billion 
through December 31. As of June 2003, New York State had released $3.68 
billion and New York City had issued $1.64 billion of these bonds. For 
details on refunding that have occurred, see appendix V.

* Increased expensing. Taxpayers may expense an increased amount of 
qualifying property used in the New York Liberty Zone. This benefit is 
available through December 31, 2006.

* Extension of replacement period for certain property involuntarily 
converted in New York Liberty Zone. Taxpayers have an extended period 
in which they do not have to recognize gain on involuntarily converted 
Liberty Zone property, such as gain resulting from insurance 
reimbursements for property damaged or destroyed in the terrorist 
attacks that exceed the property's replacement value to 5 years instead 
of the standard 2 years.

* Five-year life for leasehold improvements in the Liberty Zone. 
Qualified improvements to leased nonresidential property in Liberty 
Zone can be depreciated over a 5-year period instead of the standard 
39-year period through December 31, 2006.

Amount of Liberty Zone Benefits Unclear and Likely to Remain Unknown:

The amount of benefits to New York that will result from the Liberty 
Zone tax provisions is unclear and likely to remain unknown. Before the 
Job Creation and Worker Assistance Act was passed, the Joint Committee 
on Taxation estimated the amount of revenue projected to be lost to the 
U.S. Treasury from the Liberty Zone provisions. However, an estimate of 
lost revenue is not necessarily the same as an estimate of the benefits 
received by taxpayers. Furthermore, uncertainties exist with any 
estimate. For example, the actual usage of the benefits before 
authority expires, such as in the case of the New York Liberty Bonds, 
is uncertain. Also the Internal Revenue Service (IRS) is not tracking 
actual use of the Liberty Zone benefits and, consequently, little data 
will be available on the value of the tax benefits to the Liberty Zone. 
Further, even if IRS were to collect data, it would at best only be 
able to make an estimate, not a verifiable measure of the tax benefits.

Estimates of the revenue impact and the benefits to taxpayers of the 
New York Liberty Zone tax provisions differ. The Joint Committee on 
Taxation estimates the revenue effects of all tax legislation 
considered by the Congress. Following its standard estimating 
conventions, the Joint Committee estimated that all seven of the 
Liberty Zone benefits, combined, would reduce federal revenues by 
almost $5.03 billion over the 2002-2012-time period. A study 
commissioned by the New York City Economic Development Corporation to 
estimate the benefit to taxpayers of the Liberty Zone Provisions 
determined that the size of the benefit would be considerably less than 
the Joint Committee's estimate of the revenue cost. However, this tax 
benefits study analyzed only four of the benefits (the special 
depreciation allowance, the increase in expensing treatment for 
business property, the extension of the replacement period for 
involuntarily converted property, and special treatment of qualified 
leasehold improvements) and used assumptions and analyses that differed 
from those of the Joint Committee. For example, the study discounted 
the value of revenue effects in future years and extended the timeframe 
for assessing the financial impact by over 40 years.[Footnote 49]

As with many tax benefits, usage of the Liberty Zone tax benefits will 
depend on a variety of difficult to predict economic factors. For 
example, an economic downturn could slow rebuilding efforts in the New 
York City area, reducing the use of benefits such as depreciation 
allowances. Conversely, an economic upturn could increase benefit usage 
above existing estimates. For one component of the Liberty Zone tax 
benefits, the Liberty Bonds, it is unclear whether all of the bonds 
will be used before the December 31, 2004, sunset date for the bond 
authority. The New York City Economic Development Corporation and ESDC 
reported that commercial bond issuers do not expect to be able to fully 
utilize the $6.4 billion nonresidential portion of the Liberty Bonds by 
the sunset date. These officials said that the bonds might not be fully 
utilized due to continued weakness in the New York commercial real 
estate market, major insurance litigation affecting resources to 
rebuild, and uncertainty regarding development plans for the World 
Trade Center site. Further, the officials cited zoning changes and 
environmental reviews as reasons for delays. The New York State 
Department of Taxation and Finance reports that the state is still 
assessing potential projects and expects to seek a congressional 
extension to the December 31, 2004, sunset to ensure its ability to 
issue future Liberty Bonds. In contrast, officials from both the New 
York Housing Finance Authority and the New York Housing Development 
Corporation report that they expect to issue all residential Liberty 
Bonds before the sunset date.

Most Liberty Zone tax benefit usage is not being monitored by federal, 
state, or local agencies, and the total amount of the benefits accruing 
to New York is likely to remain unknown. We recently reported that IRS 
plans to collect little information related to the number of taxpayers 
using the Liberty Zone benefits.[Footnote 50] Typically, IRS would only 
collect these data if it would help the service administer the tax laws 
or if it was legislatively mandated to do so, neither of which is the 
case with most of the Liberty Zone benefits. IRS is nevertheless 
collecting some data on the Business Employee Credit and the two bond 
benefits, but to collect more information on the use of the benefits, 
IRS would need to change forms, processing procedures, and computer 
programming, all of which would add to taxpayer burden and IRS's 
workload. Further, the earliest IRS could make these changes would be 
for tax year 2004 returns. As a result, IRS would not have information 
for 2 of the years that the benefits were in effect, which is 
significant because most of the benefits expire by the end of 2006. 
Finally, if IRS were to collect data on the use of the Liberty Zone 
benefits, it could not produce a verifiable measure of the revenue loss 
due to the benefits, but only be able to make an estimate. This is 
because the IRS would have to make assumptions about how taxpayers 
would have behaved in the absence of the benefits. Because the Liberty 
Zone benefits are federal benefits, New York City and New York State 
are not tracking them, though they do collect and record data regarding 
the bonds issued under the Liberty Zone provisions.

$515 Million of HUD Funds Committed for Business Assistance and Other 
Projects to Revitalize Lower Manhattan:

In addition to the Liberty Zone tax benefits, the Congress appropriated 
funds to HUD to revitalize lower Manhattan. ESDC and LMDC are 
administering $515 million to provide programs to attract and retain 
businesses to the area and for other projects to revitalize lower 
Manhattan. Damage around the World Trade Center site displaced an 
estimated 1,025 firms employing more than 75,000 workers, and many more 
were displaced by subsequent recovery efforts. Of the $515 million 
committed for a variety of economic revitalization efforts, ESDC is 
administering $475 million to provide incentives for existing small and 
large businesses to remain in the area and to attract new businesses to 
lower Manhattan. LMDC has also committed $40 million to help plan and 
coordinate rebuilding and revitalization efforts and to determine how 
to prioritize remaining funds for future projects. In addition, LMDC 
may provide a portion of the $1.16 billion remaining HUD funds for 
other economic revitalization efforts.

Job Creation and Retention Grants Total $320 Million:

ESDC designed the $320 million Job Creation and Retention Grant Program 
to target businesses with at least 200 employees that need assistance 
to maintain or establish a business in lower Manhattan. ESDC's goal is 
to help retain or create 80,000 jobs with the program. In addition to 
grants, eligible businesses can receive loan guarantees and low cost 
loans, and all applications are evaluated as part of a multistage 
review and approval process.[Footnote 51] To determine whether to 
provide assistance and how much to offer, ESDC considers criteria such 
as the risk of the company leaving lower Manhattan, location, and 
economic impact for the New York City area. Companies granted funds 
must maintain a workforce in New York City for a minimum of 7 years and 
penalties for not meeting the terms of agreement are stiff to maximize 
impact.

As of June 30, 2003, 72 businesses accepted retention grant offers from 
ESDC for a total value of $251 million and, of this, $130 million had 
been disbursed to 34 businesses. ESDC reports that if all accepted 
grant offers are approved, the program will retain or create more than 
70,000 jobs in New York City. ESDC anticipates that businesses will 
continue to apply for the program as they evaluate the commitment 
requirements. ESDC officials also expect program demand may exceed 
available funds, and reported that they would request additional 
allocations from LMDC of noncommitted funds if needed. The program will 
be available until December 2004.

Small Firm Attraction and Retention Grants Total $155 Million:

ESDC is also administering a similar program that targets attraction 
and retention of smaller firms. ESDC has committed $155 million in HUD 
funds for its Small Firm Attraction and Retention Program. Businesses 
with fewer than 200 employees can receive up to $5,000 per employee if 
they were located in the restricted area around the World Trade Center 
or $3,500 in other lower Manhattan locations. Firms are provided 
assistance in two payments, one upon approval, and the second 18 months 
after approval date. Through this program, firms must meet certain 
conditions based on their location and lease. For example, to receive a 
grant, businesses must renew their lease or enter a new one for at 
least 5 years beyond their existing commitment. Businesses that have a 
long-term lease that does not expire by December 31, 2004, are not 
eligible for this program, and as we reported in November 2002, 
business advocacy groups have criticized the program for excluding 
these businesses.[Footnote 52] Business advocates argue that those 
businesses also had a demonstrated commitment to the area, which should 
make them eligible and not place them at a disadvantage relative to new 
businesses. ESDC officials replied that the program was designed to 
provide incentives to businesses at risk of leaving, not for those that 
already had long-term commitments to the area.

As of June 30, 2003, 951 businesses received $31 million through the 
Small Firm Attraction and Retention Grant Program, as part of their 
first installment of assistance. ESDC officials report that the 
progress of the program is reflective of the complexity of small 
businesses' decisions to commit to the area, and accordingly, they 
expected the pace of this program to be slower than their other 
programs. The program will continue to accept applications through 
December 31, 2004.[Footnote 53]

$40 Million Committed for Other Planning Efforts:

LMDC's primary role is to help plan and coordinate rebuilding and 
revitalization of lower Manhattan, and as of June 30, 2003, LMDC had 
committed about $40 million of HUD funds to planning 
activities.[Footnote 54] LMDC has launched several public awareness 
campaigns to promote its programs that provide information on the 
progress of rebuilding and allow public input in rebuilding and 
revitalization efforts. LMDC has also funded a summer-long festival and 
a cultural campaign to bring people to the area and has conducted 
environmental, economic impact, and other planning studies. For 
example, as part of the $10 million congressional requirement to 
promote tourism in the area, LMDC has begun a $5 million joint 
initiative with museums located in lower Manhattan to promote the area 
as a "cultural destination." In addition, LMDC has announced a tourism 
and marketing campaign to attract visitors to Chinatown, a neighborhood 
in lower Manhattan. However, the most prominent public awareness and 
planning initiatives undertaken by LMDC involve the organization of the 
World Trade Center site rebuilding and memorial selection competitions.

* Design competition to rebuild the World Trade Center site. LMDC's 
main focus throughout several stages of the rebuilding design selection 
process was to encourage public involvement and comment. In total, LMDC 
received 406 design submissions and used funds to embark on an outreach 
campaign, which included exhibits of the seven finalist plans, townhall 
style meetings, public hearings, and a mailing to all families who lost 
members in the disaster. The competition culminated with the selection 
of the Studio Daniel Libeskind's Memory Foundations for design of the 
new site plan as shown in figure 24.

Figure 24: Studio Daniel Libeskind's Memory Foundations Winning Design 
for Rebuilding the World Trade Center Site Was Selected as Part of an 
International Design Competition:

[See PDF for image]

[End of figure]

* Memorial selection process. LMDC has reported that the selection of a 
permanent memorial and integration of the plan with the World Trade 
Center rebuilding efforts is its primary mission. The search for a 
design for the memorial was open to anyone worldwide that wished to 
apply. LMDC received over 5,000 designs for the memorial, and a jury 
will evaluate entries. The jury consists of 13 members with a wide 
range of backgrounds and experience, including a victim's family 
member, a lower Manhattan business owner/resident, artists and 
architects, and representatives from the Mayor and the Governor of New 
York. LMDC coordinated an outreach campaign and a public forum to allow 
family members and the public to provide input into the decision making 
process for selecting a final plan. A decision is scheduled to be 
announced in the fall of 2003, and a rendering of the proposed location 
of the permanent memorial is shown in figure 25.

Figure 25: The World Trade Center Rebuilding Plans Include Recognition 
of the Footprints of the Original Twin Towers:

[See PDF for image]

[End of figure]

In addition, LMDC may direct a portion of remaining HUD funds, $1.16 
billion, to other economic revitalization programs and is coordinating 
several efforts to develop plans to prioritize and spend the funds. 
LMDC officials said that the remaining funds would most likely be 
directed to cultural activities, transportation improvements, and 
affordable housing initiatives, although the allocation of funds has 
not been finalized.[Footnote 55] In order to gain public input on how 
to prioritize plans to spend the remaining funds, LMDC organized a 
series of community workshops where over a 100 stakeholders from 
neighborhoods in lower Manhattan will present city representatives and 
LMDC officials with proposals for future projects. In addition, LMDC 
told us that it will analyze the results of several on-going studies, 
including an affordable housing study, and could possibly fund proposed 
initiatives. Finally, in June 2003, LMDC published a request for 
proposals from cultural institutions around the world to gauge their 
interest on locating at the World Trade Center site as part of the new 
facilities. As part of this effort, LMDC also solicited their input for 
creating an interpretive museum of the events of September 11 and the 
1993 World Trade Center bombing. With the information obtained through 
this request, LMDC will determine if it will provide a portion of 
remaining funds to support the proposals.

[End of section]

Chapter 6: Designation of a Specific Level of Assistance Led to a 
Distinct Federal Government Response for this Disaster:

The most significant difference in the federal government's response to 
this disaster was the upfront designation of a specific level of 
funding for disaster assistance. The designation of $20 billion to 
assist the New York City area was the first time in which a target 
level for the total amount of federal disaster assistance was set early 
in the response and recovery efforts. FEMA, in response to the 
designation of a specific level of funding and greater authority from 
the Congress, changed its approach to administering disaster funds. 
With the specific level of funding functioning as a floor or minimum 
level of assistance, FEMA may have been unable to fully disburse the 
targeted level of assistance through traditionally eligible projects--
despite FEMA's efforts to broaden its traditional eligibility 
guidelines. With congressional authorization, FEMA reimbursed the City 
and State of New York for "associated costs" that it could not have 
otherwise funded within the provisions of the Stafford Act to ensure 
that the entirety of FEMA's appropriated funds for the disaster would 
be spent for the New York City area. At the same time, the target level 
of funding functioned as a cap, requiring the city and state to 
establish priorities for newly authorized reimbursement of associated 
costs, which led FEMA to establish an expedited close-out process. In 
addition to the flexibilities given FEMA, this specific level of 
funding for the entire disaster also prompted congressional 
authorization of numerous forms of nontraditional assistance to be 
provided by other agencies. For example, the Congress passed 
legislation authorizing the Liberty Zone tax benefits--the first 
geographically targeted tax program in response to a disaster. Further, 
the Congress both authorized and appropriated several billion dollars 
to be administered by DOT for transportation infrastructure 
improvements beyond replacement of damaged facilities. In addition, the 
Congress authorized new forms of compensation with HUD funds to 
businesses for disaster-related losses.

Designation of a Specific Level of Funding Altered the Traditional FEMA 
Disaster Assistance Approach:

The specific level of funding that was targeted by the President and 
passed by the Congress changed the traditional approach taken to 
administer FEMA funds. Ordinarily, FEMA assistance has no dollar limit. 
When a qualifying disaster event occurs, the President declares that a 
major disaster or emergency exists. This declaration activates numerous 
FEMA disaster assistance programs. The funding for responding to a 
specific disaster is not set; instead, the only factor limiting the 
amount of assistance for response and recovery efforts is reimbursement 
eligibility under the Stafford Act. Historically, FEMA approves all 
applications for grants and other assistance if--and only if--the 
applications meet the program requirements under the act. For example, 
compensation to rebuild a public road would be an eligible project, but 
compensation to improve a public road would not be. Economic losses to 
a city from reduced tourism associated with a disaster would not be 
eligible. Further, as some projects can be long term and are reimbursed 
upon completion, it traditionally takes many years to fully reconcile 
how much assistance was provided for certain disasters.[Footnote 56]

In responding to September 11, however, this traditional practice was 
not followed, as the President pledged at least $20 billion in federal 
assistance to the New York City area, and subsequent to that pledge, 
the Congress, in authorizing this specific level of federal assistance, 
appropriated over $8.80 billion to FEMA. This was the first time that a 
specified amount of funds had been designated to FEMA to respond to a 
disaster.[Footnote 57] FEMA officials administered programs 
accordingly, within the capped amount of funding, to ensure that all 
funds were provided to the New York City area.

In order to respond to the new types and the amount of damage resulting 
from the attacks and to ensure that the entire amount appropriated for 
this disaster was expended, FEMA expanded eligibility guidelines for 
many of its programs. FEMA officials said that they broadly interpreted 
the Stafford Act to provide assistance for several projects. For 
example, FEMA partnered with EPA to implement a program to clean the 
interior of private residences--the first of its kind--and determined 
these costs were eligible for reimbursement under the Stafford Act. In 
this instance, FEMA determined that the dust associated with the 
collapse of the World Trade Center towers was a type of debris, and, 
therefore, costs associated with interior cleaning could be reimbursed.

Further, the Congress reinforced FEMA's flexible approach to 
eligibility for assistance in two ways. First, the Congress authorized 
FEMA to expand the eligibility guidelines of certain programs due to 
the unique circumstances of the disaster.[Footnote 58] For example, 
nearly a year after September 11, the Congress authorized FEMA to make 
the Mortgage and Rental Assistance Program more broadly available and 
directed FEMA to review applications that had been previously denied. 
With these new eligibility requirements, FEMA provided funds to 
individuals working anywhere in Manhattan and to those whose employers 
were not located in Manhattan, but who were economically dependent on a 
Manhattan firm. Further, the Congress authorized FEMA to establish an 
insurance company to manage a $1 billion insurance fund and to settle 
claims filed by, among others, city and contractor workers who suffered 
ill health effects as a result of working on debris removal 
operations.[Footnote 59] Although FEMA regularly reimburses applicants 
for insurance costs that are part of a contract for services, FEMA has 
never reimbursed for insurance to cover a city for suits brought by its 
own employees.

Second, despite FEMA's broadened eligibility guidelines interpretation 
and the Congress' authorization of certain activities, it still 
appeared that there were not enough projects eligible within the 
authority provided by the Stafford Act for which the New York City area 
could be reimbursed to reach the $8.80 billion target level for FEMA 
assistance. As a result, in February 2003, the Congress passed the 
Consolidated Appropriations Resolution that ensured that FEMA would 
spend the entirety of the FEMA-appropriated assistance for New York by 
authorizing the agency to reimburse associated costs that it otherwise 
could not have funded, such as reimbursing the city and state for costs 
to provide increased security and for cost of living adjustments for 
pension benefits of deceased police and fire staff. This is the first 
time that FEMA has been given such expansive authority to fund projects 
outside of provisions of the Stafford Act. New York officials believe 
this was necessary because the Stafford Act was too restrictive for 
responding to a major terrorist event, as it does not allow FEMA to 
reimburse affected communities for many costs related to the disaster.

With the authority granted by the Consolidated Appropriations 
Resolution, FEMA adapted its programs and conducted an expedited close-
out process that allowed for disbursement of remaining funds to New 
York years sooner than in past disasters. As part of the expedited 
closeout process, FEMA deobligated funds for eligible Stafford Act 
projects in order to determine how much was available to reimburse the 
city and state for incurred costs associated with the disaster. FEMA 
recently completed the close-out process and disbursed $1.24 billion to 
the city and state for associated costs. Since these funds were 
provided for costs already incurred, the city and state have the 
discretion to ultimately redirect the funds, including determining 
whether to fully fund projects that were incomplete at the end of the 
close-out process. The expedited close-out process, developed to 
maximize the early availability of funds to New York, resulted in FEMA 
reconciling the most expensive public assistance disaster in its 
history years before the process is typically accomplished.

As a result of the different approach taken to respond to this 
disaster, FEMA recently initiated an effort to develop a concept for 
redesigning its public assistance program. As we noted in our August 
2003 report on FEMA's public assistance program efforts in New York, a 
working group of the Public Assistance Program Redesign Project was 
formed at the request of the director of FEMA's Recovery Division and 
held its first meeting in May 2003.[Footnote 60] Members included FEMA 
public assistance and research and evaluation staff and state program 
managers. The project was established to suggest proposals to improve 
the public assistance program and make it more efficient and capable of 
meeting community needs for all types and sizes of disasters, including 
those resulting from terrorism. Among other things, the project seeks 
to transform the program to one that is flexible enough to meet the 
demands of disasters of all types and sizes and eliminate redundancies 
in decision-making and processes. The working group will examine 
potential options for redesigning the program that include an annual 
block grant program managed by the states, a disaster-based state-
managed program and a capped funding amount per disaster. The working 
group plans to develop a basic design concept for revising the program 
by September 30, 2003.

Designation of a Specific Level of Assistance Spurred Congressional 
Appropriation and Authorization of Nontraditional Assistance:

The specific level of funding that was targeted by the President and 
passed by the Congress also spurred congressional authorization of 
other forms of nontraditional assistance for the New York City area. 
The Congress passed an estimated $5.03 billion in Liberty Zone tax 
benefits--the first geographically targeted tax program in response to 
a disaster. The Congress also authorized DOT to fund transportation 
projects to improve the overall transportation system substantially 
beyond pre-disaster condition, not just to restore infrastructure 
directly impacted by the disaster. Further, the Congress eliminated the 
state and local matching requirement for transportation funding for the 
entire relief effort. The Congress also directed HUD to use Community 
Development Block Grant (CDBG) funds to compensate businesses for 
economic losses--the first time CDBG funds have been used for this 
purpose.

Congress Passed First Tax Benefit Package in Response to a Disaster:

To address the economic impact of the September 11 attacks on New York, 
the Congress passed the estimated $5.03 billion New York Liberty Zone 
tax benefit package.[Footnote 61] This was a unique way for the 
Congress to provide assistance for the area affected by the disaster. 
According to IRS officials, never before has the Congress passed a tax 
benefits package in response to a disaster. Further, this tax package 
was targeted to a geographic area, which has not generally occurred in 
the past. IRS officials told us that tax plans typically target 
individuals or businesses on the basis of classifications such as 
income level rather than on the basis of the geographic location of the 
individuals or businesses. (See chapter 5 for a detailed discussion of 
Liberty Zone tax benefits.):

Congress Authorized DOT to Rebuild Damaged Infrastructure and Improve 
Transportation Systems:

In most disasters, DOT is only authorized to provide funds to rebuild 
or restore damaged infrastructure back to its pre-disaster condition. 
For example, if part of a highway were damaged in a disaster, the 
amount of assistance provided would be restricted to the estimate of 
the cost to rebuild the highway to its pre-disaster condition, rather 
than funding improvements to the highway. However, in response to 
September 11, the Congress authorized DOT to not only restore 
transportation infrastructure directly damaged in the disaster, but 
also to enhance the overall lower Manhattan transportation system. As a 
result, the Congress has appropriated funds that are being used to not 
only rebuild the directly damaged PATH terminal, but to redesign and 
renovate two other subway stations that were not damaged by the 
disaster. Additionally, the Congress appropriated funds that are being 
used for ferry terminal improvements, including the construction of new 
stations in New Jersey. Figure 26 shows the sites of three large 
transit projects: the permanent PATH terminal at the World Trade Center 
site that is being built to replace the damaged PATH terminal, and the 
Fulton Street Transit Center and South Ferry Subway Station 
improvements that are enhancements of parts of the transportation 
system not directly damaged by the disaster. (See chapter 4 for a 
detailed discussion of infrastructure restoration and improvement 
projects.):

Figure 26: Lower Manhattan Transportation Projects--Restoration and 
Enhancement:

[See PDF for image]

[End of figure]

Congress Eliminated the State and Local Matching Requirements for DOT 
Assistance:

The Congress eliminated the state and local matching requirement for 
DOT assistance for the entire disaster relief effort, by passing the 
2002 Supplemental Appropriations Act, which stipulated 100 percent 
federal share for all DOT funded projects with no time limit on 
federal-aid highway projects related to the New York City terrorist 
attacks. The DOT assistance included $242 million of Federal Highway 
Administration (FHWA) funds and $1.80 billion in FTA funds for capital 
investment grants with no state and local matching 
requirement.[Footnote 62] Historically, DOT funding has required a 
state and local cost share; for FHWA projects this share has ranged 
from 80 percent to 90 percent and for FTA projects it has ranged from 
50 percent to 80 percent. By the Congress authorizing all DOT funding 
be provided with no state and local matching requirement, New York 
achieved significant savings.

Congress Authorized HUD Funds to Compensate Losses and Promote Tourism:

In previous disasters, HUD funds were typically provided to address 
long-term effects of the disaster, including economic, infrastructure, 
and housing redevelopment efforts. HUD funds have been used in the past 
to provide funds for some emergency relief efforts, if they are not 
already provided for by FEMA, such as debris removal, reconstruction of 
damaged property posing an immediate threat to public safety, and 
emergency reconstruction of essential utilities.

However, after September 11, the Congress directed HUD to focus on 
different aspects of relief efforts than in previous disasters. For 
example, programs to compensate for economic losses, such as the 
Business Recovery Grant Program and to retain and attract residents, 
such as the Residential Grant Program, are a unique use of CDBG funds, 
according to HUD officials. In addition, HUD officials explained that 
although funds have been used for business incentive programs in the 
past, attraction and retention efforts have not been attempted on such 
a large scale. HUD officials said that over 20,000 businesses have been 
helped through the Business Recovery Grant Program and nearly 40,000 
applications have been received for the Residential Grant Program that 
closed May 31, 2003. Furthermore, the Lower Manhattan Development 
Corporation is administering additional HUD funds to promote tourism 
initiatives in lower Manhattan, some aspects of which have previously 
been ineligible.

[End of section]

Appendix I: Objectives, Scope, and Methodology:

In a May 2, 2002, letter, the Chairman and Ranking Minority Member of 
the Senate Committee on Environment and Public Works and Senators 
Hillary Rodham Clinton and George V. Voinovich requested us to assess 
the federal government's response and recovery efforts to the New York 
City area. They requested that we determine how much federal assistance 
has been delivered to the New York City area, and for what purposes; 
and how the federal government's response to this disaster differed 
from previous disasters.

To determine how much federal assistance has been designated to the New 
York City area, we reviewed relevant legislation. We also obtained and 
reviewed appropriate budget documents, funding plans, status reports, 
and other documents including, executive orders, presidential 
correspondence, and OMB and CBO reports. We also interviewed OMB and 
CRS officials to get their perspectives on the budgetary data.

To determine for what purposes federal assistance has been and will be 
used, we interviewed officials from FEMA, HUD, FTA, FHWA, the Federal 
Railroad Administration, and IRS. We also interviewed New York State 
and New York City officials, including officials from the Lower 
Manhattan Development Corporation (LMDC), the Empire State Development 
Corporation (ESDC), the New York State Department of Transportation, 
the Metropolitan Transit Administration, and Port Authority of New York 
and New Jersey. These officials told us for what purposes and through 
what programs federal assistance is being provided. We also interviewed 
officials from nonprofit planning and research organizations to gain 
their perspectives on use of the funding in the New York redevelopment 
process. We reviewed relevant agency documentation of program plans and 
execution including budget documents and databases.

Though federal assistance was administered through 18 agencies in 
total, we focused on the primary sources of federal assistance--the 
Federal Emergency Management Agency (FEMA), the Department of Housing 
and Urban Development (HUD), the Department of Transportation (DOT), 
and the Liberty Zone tax benefits--that targeted different aspects of 
the recovery efforts in the New York City area. We collected agency 
financial data through June 30, 2003, though we do footnote significant 
items that arose during the report processing period. To illustrate the 
wide spectrum of federal disaster assistance being delivered to the New 
York City area, we categorized the recovery efforts into four broad 
purposes: initial response efforts, compensation for disaster-related 
costs and losses, infrastructure restoration, and economic 
revitalization. We also focused on the progress of recovery efforts but 
did not evaluate the administration or impact of recovery funds; 
however, we identified our related reports and other agencies' 
Inspector General reports and reported on those findings. While we 
reported on the differences between response to this disaster and 
previous disasters, we did not evaluate the implications of these 
differences.

To determine how the federal government's response to this disaster 
differed from the established process for responding to disasters, we 
interviewed federal, state, and local officials; and nonprofit planning 
and research groups. We also compared agency historical data to 
documentation from the New York response and recovery.

We experienced several limitations while attempting to collect 
financial data for the four primary sources of federal assistance. 
First, it was difficult to coordinate a final date for our data 
collection period due to the expedited close-out implemented by FEMA. 
We decided to reflect FEMA data as of July 31, 2003, in order to 
provide information on funds made available by the expedited close-out 
for disaster-related costs as authorized by the Consolidated 
Appropriations Resolution. In addition, due to the expedited close-out, 
we were not able to review projects in FEMA's National Emergency 
Management Information System (NEMIS), FEMA's primary information 
system that manages disaster grant funding. Instead, we relied on 
published FEMA reports, which are compiled using information from 
NEMIS, as well as the knowledge of public assistance program managers 
of funding for specific projects. Neither of these limitations led to a 
material weakness in our efforts to conduct this work. We conducted our 
work from June 1, 2002, through September 30, 2003, in accordance with 
generally accepted government auditing standards.

[End of section]

Appendix II: Proposed Transportation Infrastructure Improvements for 
Lower Manhattan:

Projects under consideration for remaining lower 
Manhattan transit funds ($1.7 billion to $2.0 billion): JFK airport/
Long Island access; New York cost estimate: $2,000-$5,300.

Projects under consideration for remaining lower 
Manhattan transit funds ($1.7 billion to $2.0 billion): West Street; 
New York cost estimate: $400-$900.

Projects under consideration for remaining lower 
Manhattan transit funds ($1.7 billion to $2.0 billion): Tour bus 
facility and WTC subgrade infrastructure; New York cost estimate: $500.

Projects under consideration for remaining lower 
Manhattan transit funds ($1.7 billion to $2.0 billion): Commuter 
ferries; New York cost estimate: $150-$200.

Projects under consideration for remaining lower 
Manhattan transit funds ($1.7 billion to $2.0 billion): Street 
configuration and circulation; New York cost estimate: $100.

Projects under consideration for remaining lower 
Manhattan transit funds ($1.7 billion to $2.0 billion): Other lower 
Manhattan projects which may require additional funds; New York cost 
estimate: [Empty].

Projects under consideration for remaining lower 
Manhattan transit funds ($1.7 billion to $2.0 billion): Newark Airport 
access; New York cost estimate: $525.

Projects under consideration for remaining lower 
Manhattan transit funds ($1.7 billion to $2.0 billion): Linking metro-
north to 4/5 at Grand Central Station; New York cost estimate: $50-$75.

Projects under consideration for remaining lower 
Manhattan transit funds ($1.7 billion to $2.0 billion): LaGuardia 
Airport ferry; New York cost estimate: $3-$6.

Source: Lower Manhattan Transportation Strategies, April 24, 2003, 
LMDC, the Port Authority, MTA, New York State DOT, NYC.

[End of table]

[End of section]

Appendix III: Joint Committee on Taxation Estimated Revenue Effects of 
the Liberty Zone Tax Benefits:

Liberty Zone benefit: 1. Expansion of Work 
Opportunity Tax Credit to eligible Liberty Zone employees; JCT estimate 
of revenue effect 2002-2012: -$631; Termination date: 12/31/03.

Liberty Zone benefit: 2. 30% bonus depreciation 
for property placed in service in the Liberty Zone; JCT estimate of 
revenue effect 2002-2012: -1,568; Termination date: 12/31/06; (12/31/09 
for nonresidential real property and residential rental property).

Liberty Zone benefit: 3. Authorize issuance of 
tax-exempt private activity bonds for rebuilding the portion of New 
York City damaged in the September 11, 2001 terrorist attack; JCT 
estimate of revenue effect 2002-2012: -1,228; Termination date: 12/31/
04.

Liberty Zone benefit: 4. Allow one additional 
refunding for certain previously refunded bonds for facilities located 
in New York City; JCT estimate of revenue effect 2002-2012: -937; 
Termination date: 12/31/04.

Liberty Zone benefit: 5. Increase expensing for 
business property used in the Liberty Zone by $35,000; JCT estimate of 
revenue effect 2002-2012: -37; Termination date: 12/31/06.

Liberty Zone benefit: 6. Extension of replacement 
period for certain property involuntarily converted in New York Liberty 
Zone; JCT estimate of revenue effect 2002-2012: -318; Termination date: 
N/A.

Liberty Zone benefit: 7. 5-year life for leasehold 
improvements in the Liberty Zone and interaction with general business 
tax provisions; JCT estimate of revenue effect 2002-2012: -310; 
Termination date: 12/31/06 (leasehold improvements).

Liberty Zone benefit: Total; JCT estimate of 
revenue effect 2002-2012: -$5,029.

Source: Joint Committee on Taxation (JCX-13-02).

[End of table]

[End of section]

Appendix IV: Description of Liberty Zone Tax Benefit[Footnote 63]s:

Liberty Zone tax benefit[A]: Business employee credit; Benefit summary: 
The work opportunity tax credit (WOTC) was expanded to include a new 
targeted group for employees who perform substantially all their 
services for a business in the Liberty Zone or for a business that 
relocated from the Liberty Zone elsewhere within New York City due to 
the physical destruction or damage of their workplaces by the September 
11, 2001, terrorist attacks.; The New York Liberty Zone business 
employee credit allows eligible businesses with an average of 200 or 
fewer employees to take a maximum credit of 40 percent of the first 
$6,000 in wages paid or incurred for work performed by each qualified 
employee during calendar years 2002 and 2003. Unlike the other targeted 
groups under WOTC, the credit for the new group is available for wages 
paid to both new hires and existing employees.; Example of the benefit: 
An employee works at a small company located in the Liberty Zone from 
June 1, 2002, to October 31, 2002, and receives $3,000 in wages a 
month. The company can claim a credit for 40 percent of the first 
$6,000 in wages paid ($2,400).; Effective dates: Wages paid or incurred 
for qualified employees during calendar years 2002 and 2003.

Liberty Zone tax benefit[A]: Special depreciation allowance; Benefit 
summary: The special depreciation allowance provides an additional 
deduction for eligible properties. Eligible Liberty Zone properties 
include new tangible property (e.g., new office equipment), used 
tangible property (e.g., used office equipment), and residential rental 
property (e.g., an apartment complex) and nonresidential real property 
(e.g., an office building) if it rehabilitates real property damaged or 
replaces real property destroyed or condemned as a result of the 
September 11, 2001, terrorist attacks.; For property inside the Liberty 
Zone, the special depreciation allowance allows taxpayers to deduct 30 
percent of the adjusted basis of qualified property acquired by 
purchase after September 10, 2001, and placed in service on or before 
December 31, 2006 (December 31, 2009, in the case of nonresidential 
real property and residential rental property). For property outside 
the Liberty Zone, a special depreciation allowance is available for 
taxpayers but only with regard to qualified property--such as new 
tangible property and non-Liberty Zone leasehold improvement property-
-that is acquired after September 10, 2001, and before September 11, 
2004, and is placed in service on or before December 31, 2004. However, 
recent legislation (the Jobs and Growth Tax Relief Reconciliation Act 
of 2003, P.L. 108-27) has increased the deduction to 50 percent for 
qualified property both within and outside the Liberty Zone that is 
acquired after May 5, 2003, and placed in service on or before December 
31, 2004.; Example of the benefit: On December 1, 2002, a real estate 
development firm purchases an office building in the New York Liberty 
Zone that costs $10 million and places it in service on June 1, 2003. 
The building replaces real property damaged as a result of the 
September 11, 2001, terrorist attacks. Under the provision, the 
taxpayer is allowed an additional first-year depreciation deduction of 
30 percent ($3 million).; Effective dates: Residential rental property 
and nonresidential real property: Acquired by purchase after September 
10, 2001, and placed in service on or before December 31, 2009; New and 
used tangible property:; Acquired by purchase after September 10, 2001, 
and placed in service on or before December 31, 2006.

Liberty Zone tax benefit[A]: Section 179 expensing; Benefit summary: 
Taxpayers with a sufficiently small investment in qualified section 179 
business property in the Liberty Zone can elect to deduct rather than 
capitalize the amount of their investment and are eligible for an 
increased amount over other taxpayers. For qualified Liberty Zone 
property placed in service during 2001 and 2002, under section 179 
taxpayers could deduct up to $59,000 ($24,000 under the general 
provision plus an additional $35,000) of the cost. The investment limit 
(phase-out range) in the property was $200,000. For qualified Liberty 
Zone property placed in service after 2002 and before 2007, taxpayers 
could deduct $60,000 ($25,000 under the general provision plus the 
additional $35,000) of the cost.; However, recent legislation (P.L. 
108-27) has further increased the maximum deduction for qualified 
Liberty Zone property placed in service after 2002 and before 2006 to 
$135,000 and has increased the investment limit to $400,000. For 2006, 
the maximum section 179 deduction allowed for qualified Liberty Zone 
property returns to $60,000 and the investment limit is $200,000. To 
calculate the available expensing treatment deduction amount for 
qualified Liberty Zone property, every dollar for which 50 percent of 
the cost of the property exceeds the investment limit is subtracted 
from the maximum deduction allowed.; Taxpayers outside of the Liberty 
Zone may also expense qualified property under section 179. However, 
the maximum deduction for non-Liberty Zone property is $35,000 less 
than the maximum deduction allowed for Liberty Zone property. The 
investment limits for Liberty Zone and non-Liberty Zone property are 
similar. However, in contrast, in calculating the available expensing 
treatment deduction amount for non-Liberty Zone properties, every 
dollar invested in the property that exceeds the investment limit is 
subtracted from the maximum deduction allowed.; Example of the benefit: 
In 2002, a taxpayer purchases and places in service in his or her 
Liberty Zone business several qualified items of equipment costing a 
total of $260,000. Because 50 percent of the cost of the property 
($130,000) is less than $200,000, the investment limit, the section 179 
deduction of $59,000 is not reduced, and the taxpayer can deduct this 
amount.; Effective dates: Effective for section 179 property placed in 
service after September 10, 2001, and on or before December 31, 2006.

Liberty Zone tax benefit[A]: Leasehold improvement property; Benefit 
summary: Qualified Liberty Zone leasehold improvement property can be 
depreciated over a 5-year period using the straight-line method of 
depreciation. The term "qualified Liberty Zone leasehold property" 
means property as defined in section 168(k)(3) and may include items 
such as additional walls and plumbing and electrical improvements made 
to an interior portion of a building that is nonresidential real 
property. Qualified Liberty Zone leasehold improvements must be placed 
in service in a nonresidential building that is located in the Liberty 
Zone after September 10, 2001, and on or before December 31, 2006. The 
class life for qualified New York Liberty Zone leasehold improvement 
property is 9 years for purposes of the alternative depreciation 
system.; Taxpayers can also depreciate leasehold improvements outside 
of the Liberty Zone. These taxpayers can depreciate an addition or 
improvement to leased nonresidential real property using the straight-
line method of depreciation over 39 years. Qualified leasehold 
improvement properties outside the Liberty Zone can qualify for both 
the 39-year depreciation deduction and the special depreciation 
allowance. However, leasehold improvements inside the Liberty Zone do 
not qualify for the special depreciation allowance.; Example of the 
benefit: In 2004, a taxpayer buys and places in service $100,000 in 
additional walls for a leased office building in the Liberty Zone. For 
each tax year from 2004 through 2008, the taxpayer can deduct up to 
one-fifth of the cost of the property.; Effective dates: Effective for 
property placed in service after September 10, 2001, and on or before 
December 31, 2006.

Liberty Zone tax benefit[A]: Replacement period for involuntarily 
converted property; Benefit summary: A taxpayer may elect not to 
recognize gain with respect to property that is involuntarily converted 
if the taxpayer acquires qualified replacement property within an 
applicable period. The replacement period for property that was 
involuntarily converted in the Liberty Zone as a result of the 
September 11, 2001, terrorist attacks is 5 years after the end of the 
taxable year in which a gain is realized provided that substantially 
all of the use of the replacement property is in New York City. The 
involuntarily converted Liberty Zone property can be replaced with any 
tangible property held for product use in a trade or business because 
taxpayers in presidentially declared disaster areas such as the Liberty 
Zone can use any tangible, productive use property to replace property 
that was involuntarily converted.; Outside of the Liberty Zone, the 
replacement period for involuntarily converted property is 2 years (3 
years if the converted property is real property held for the 
productive use in a trade or business or for investment), and the 
converted property must be replaced with replacement property that is 
similar in service or use.; Example of the benefit: A taxpayer held a 
truck for productive use in a Liberty Zone business, but it was 
destroyed in the September 11, 2001, terrorist attacks. Several years 
ago, the taxpayer paid $50,000 for the truck and, over time, 
depreciated the basis in the truck to $30,000. If the insurance company 
paid $35,000 in reimbursement for the truck and the taxpayer used the 
$35,000 to purchase replacement property of any type that is held for 
productive use in a trade or business within 5 years after the close of 
the tax year of payment by the insurance company, the taxpayer would 
not recognize a gain.; Effective dates: Effective for involuntary 
conversions in the Liberty Zone occurring on or after September 11, 
2001, as a result of the terrorist attacks on that date.

Liberty Zone tax benefit[A]: Private activity bonds; Benefit summary: 
An aggregate of $8 billion of tax-exempt private activity bonds, called 
qualified New York Liberty bonds, are authorized to finance the 
acquisition, construction, reconstruction, and renovation of certain 
property that is primarily located in the Liberty Zone. Qualified New 
York Liberty bonds must finance nonresidential real property, 
residential rental property, or public utility property and must also 
satisfy certain other requirements. The Mayor of New York City and the 
Governor of New York State may each designate up to $4 billion in 
qualified New York Liberty bonds.; Example of the benefit: The Mayor of 
New York City designates $120 million of qualified New York Liberty 
bonds to finance the construction of an office building in the Liberty 
Zone.; Effective dates: Effective for bonds issued after March 9, 2002 
(the date of enactment of the Job Creation and Worker Assistance Act of 
2002), and on or before December 31, 2004.

Liberty Zone tax benefit[A]: Advance refunding bonds; Benefit summary: 
An aggregate of $9 billion of advance refunding bonds may be issued to 
pay principal, interest, or redemption price on certain prior issues of 
bonds issued for facilities located in New York City (and certain water 
facilities located outside of New York City). Under this benefit, 
certain qualified bonds, which were outstanding on September 11, 2001, 
and had exhausted existing advance refunding authority before September 
12, 2001, are eligible for one additional advance refunding. The Mayor 
of New York City and the Governor of New York State may each designate 
up to $4.5 billion in advance refunding bonds.; Example of the benefit: 
The Governor of New York State designates $70 million of advance 
refunding bonds to refinance bonds that financed the construction of 
hospital facilities in New York City.; Effective dates: Effective for 
advance refunding bonds issued after March 9, 2002, and on or before 
December 31, 2004.

Sources: P.L. 107-147, IRS, and GAO.

Note: GAO-03-1102.

[A] The Liberty Zone tax benefits were enacted as part of the Job 
Creation and Worker Assistance Act of 2002, P.L. 107-147.

[End of table]

[End of section]

Appendix V: Liberty Zone Tax Benefits Bond Authority:

For advanced refunding bonds, the Mayor of New York City and the 
Governor of New York State are responsible for designating nearly $4.50 
billion each for a total of $9 billion in advance refunding bonds 
through December 31, 2004. As of June 2003, New York State had released 
$3.55 billion through the Metropolitan Transit Administration and $138 
million through the Dormitory Authority of the state of New York and 
New York City had issued $1.64 billion of general obligation bonds with 
the New York City Water Authority releasing $190 million and the New 
York State Environmental Facilities Corporation releasing $236 million.

For Liberty Bonds, up to $8 billion may be issued. The Governor is 
responsible for $4 billion of these bonds and the Mayor is responsible 
for $4 billion. Up to $2 billion of these bonds can be used for 
projects in New York City but in areas outside the Liberty Zone. Up to 
$800 million may be issued for Liberty Zone retail development and up 
to $1.6 billion can be used for residential rental projects in the 
Liberty Zone. The bonds are available through December 31, 2004. The 
Joint Committee on Taxation has estimated that the provision will 
reduce federal receipts by $1.23 billion, which represents tax revenue 
lost when tax-exempt bonds are sold instead of taxable bonds. Table 14 
shows approved Liberty Bond projects implemented by both the city and 
state of New York.

Table 14: Approved Liberty Bond Projects:

Dollars in millions: 

Project: New York City: 

Project: 7 World Trade Center; Type: Commercial; Amount: $400.

Project: Atlantic Terminal, Brooklyn; Type: Commercial; Amount: 114.

Project: New York State: 

Project: Fulton Market; Type: Commercial; Amount: 10.

Project: Front Street Block; Type: Commercial/Residential; Amount: 47.

Project: Battery Park City Site 19b; Type: Residential; Amount: 110.

Project: 20 River Terrace; Type: Residential; Amount: 100.

Project: 10 Liberty Street; Type: Residential; Amount: 95.

Project: Total; Amount: $876.

Source: May 29, 2003, Liberty Bond Report.


[End of table]

[End of section]

Appendix VI: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

JayEtta Z. Hecker (202) 512-2834 Jack Schulze (202) 512-4390:

Acknowledgments:

Leo Barbour, Kevin Copping, Matthew Ebert, Colin Fallon, Kara Finnegan 
Irving, and John McGrail made significant contributions to this report.

[End of section]

Glossary:

Committed Funds:

Administrative reservation of an allotment of funds in anticipation of 
their obligation (i.e., a projected budget/spending plan).

Disbursed Funds:

Funds are provided to the state/grantee.

Obligated Funds:

Funds have been set aside for use as part of a contract/purchase order.

[End of section]

Related GAO Products:

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

Disaster Assistance: Information on FEMA's Post 9/11 Public Assistance 
to the New York City Area. GAO-03-926. August 31, 2003.

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

Major Management Challenges and Program Risks: Federal Emergency 
Management Agency. GAO-03-113. January 2003.

September 11: More Effective Collaboration Could Enhance Charitable 
Organizations' Contributions in Disasters. GAO-03-259. December 19, 
2002.

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

September 11: Interim Report on the Response of Charities. GAO-02-1037. 
September 3, 2002.

Review of the Estimates for the Impact of the September 11, 2001, 
Terrorist Attacks on New York Tax Revenues. GAO-02-882R. July 26, 2002.

Review of Studies of the Economic Impact of the September 11, 2001, 
Terrorist Attacks on the World Trade Center. GAO-02-700R. May 29, 2002.

FOOTNOTES

[1] The Liberty Zone tax benefits are benefits targeted primarily at 
the area of New York City damaged on September 11, designated as the 
New York Liberty Zone. 

[2] See U.S. General Accounting Office, Disaster Assistance: Federal 
Aid to the New York City Area Following the Attacks of September 11th 
and Challenges Confronting FEMA, GAO-03-1174T (Washington, D.C.: Sept. 
24, 2003).

[3] See U.S. General Accounting Office, Disaster Assistance: 
Information on FEMA's Post-9/11 Public Assistance to the New York City 
Area, GAO-03-926 (Washington, D.C.: Aug. 29, 2003).

[4] P.L. 93-288, 88 Stat. 143 (1974), as amended. 

[5] The $20 billion federal assistance to New York does not include 
financial assistance to victims as part of the September 11 Victim 
Compensation Fund of 2001. It also does not include financial benefits 
being provided by the Internal Revenue Service providing administrative 
tax relief to individuals and businesses in the period following the 
terrorist attacks. 

[6] P.L. 93-288, 88 Stat. 143 (1974), as amended.

[7] The Empire State Development Corporation (ESDC) is the New York 
State entity designated by the Governor to administer the first of 
three CDBG appropriations for New York. ESDC is a corporate 
governmental agency of the state of New York and is currently engaged 
in housing and economic development and special projects throughout the 
state. In November 2001, ESDC's board of directors authorized the 
creation of the Lower Manhattan Development Corporation (LMDC) to 
assist in the economic recovery and revitalization of lower Manhattan, 
to develop programs and distribute assistance appropriated in the 
second and third CDBG appropriations for New York. 

[8] P.L. 108-7.

[9] As of September 3, 2003, FEMA obligated $1 billion for insurance 
coverage; however, no funds will be disbursed until details are 
finalized.

[10] A total of $750 million in HUD funds was authorized for 
infrastructure rebuilding. Other funds to improve and enhance 
infrastructure will be discussed in chapter 4. 

[11] Criteria include: (1) assurance of dollar benefit of funding on 
consumer rates, (2) the extent to which funds will be used to repair or 
replace equipment and infrastructure facilities that will provide a 
direct benefit to the public, and (3) consideration of pursuit of 
insurance claims to cover losses. 

[12] These funds have not been disbursed to utility companies; however, 
HUD approved LMDC's plan for distributing these funds on September 15, 
2003, and HUD officials expect the disbursement of these funds to begin 
shortly.

[13] FEMA, Office of Inspector General Inspections Division, FEMA's 
Delivery of Individual Assistance Programs: New York - September 11, 
2001, (Washington, D.C.: Dec. 2002).

[14] P.L. 108-7.

[15] For more details on FEMA's public assistance program, consult U.S. 
General Accounting Office, Disaster Assistance: Information on FEMA's 
Post 9/11 Public Assistance to the New York City Area, GAO-03-926 
(Washington, D.C.: Aug. 31, 2003).

[16] House Report 107-593.

[17] The "I Love New York" public awareness campaign was designed to 
attract visitors back to the city after the terrorist attacks. 

[18] As this report was being finalized, applications for these 
associated costs were approved and funds were obligated and disbursed 
to the city and state.

[19] Mitigation actions include activities such as elevating buildings 
in flood-prone areas or creating tornado-resistant structures.

[20] The Disaster Mitigation Act of 2000 increases this amount to 20 
percent of total estimated federal assistance for states that meet 
enhanced planning criteria. For states without an approved enhanced 
plan, the Consolidated Appropriations Resolution of 2003 reduces the 
amount available for mitigation grants to 7.5 percent of the other 
assistance provided. However, neither of these provisions were 
applicable on September 11, 2001. 

[21] Although the Residential Grant Program and its incentives helped 
to revitalize the economy of lower Manhattan, we categorized it as 
compensation for disaster-related losses because of its short-term 
nature and intended effect on the city in terms of restoring pre-
disaster occupancy rates. 

[22] As this report was finalized, LMDC announced that it planned to 
redirect $50 million originally committed to the Residential Grant 
Program for a program to develop affordable housing.

[23] In all disasters, self-employed or business-owner applicants are 
advised to apply first to the Small Business Administration (SBA) for 
an Economic Injury Disaster Loan before FEMA assistance can be 
provided. Assistance provided by SBA is part of the more than $20 
billion designated to New York, but is not a primary source and, 
therefore, not specifically discussed in this report. 

[24] FEMA, Office of Inspector General Inspections Division, FEMA's 
Delivery of Individual Assistance Programs: New York - September 11, 
2001 (Washington, D.C.: Dec. 2002).

[25] Because FEMA's Mortgage and Rental Assistance Program had been 
rarely used in past disasters, it was eliminated with the passage of 
the Disaster Mitigation Act of 2000, which made the nationwide program 
unavailable for disasters declared after May 1, 2002.

[26] GAO-03-259.

[27] Eligible applicants can receive up to 18 months of assistance.

[28] The Department of Justice's Office for Victims of Crime provided 
counseling assistance in this disaster since the attacks were criminal 
acts. Counseling assistance provided by the Department of Justice is 
part of the more than $20 billion designated to New York, but is not a 
primary source and, therefore, not specifically discussed in this 
report. 

[29] FEMA, Office of Inspector General Inspections Division, FEMA's 
Delivery of Individual Assistance Programs: New York - September 11, 
2001 (Washington, D.C.: Dec. 2002).

[30] FEMA officials told us that, although details have not been 
finalized, limited extensions for parts of the program may be granted.

[31] FEMA, Office of Inspector General Inspections Division, FEMA's 
Delivery of Individual Assistance Programs: New York - September 11, 
2001 (Washington, D.C.: Dec. 2002).

[32] P.L. 107-117.

[33] HUD staff have conducted a series of HUD Management Review 
Reports: May 2002, January 2003, and July 2003. HUD's IG has also 
released two audit reports: an interim report in May 2002 and a final 
report in March 2003. 

[34] As part of the about $20 billion in federal assistance designated 
to New York, the Congress made special appropriations to SBA for 
disaster assistance; however, since it was not a primary source of 
funds, we did not include specific information about the program in our 
review. For more information on SBA disaster assistance and other 
business assistance, see U.S. General Accounting Office, September 11: 
Small Business Assistance Provided in Lower Manhattan in Response to 
the Terrorist Attacks, GAO-03-88 (Washington, D.C.: Nov. 1, 2002).

[35] Eligible businesses could be (1) located on or south of 14th 
Street in Manhattan as of September 11, 2001; (2) located in the five 
boroughs of New York City, but outside of lower Manhattan, that were 
adversely affected because at least 10 percent of their revenues were 
derived from sales or services to other businesses located on or south 
of 14th Street in Manhattan; or (3) newly located on or south of 14th 
Street in Manhattan since September 11, 2001.

[36] P.L. 107-206.

[37] Although these funds will provide businesses with incentives to 
remain in the area, such as programs discussed in chapter 5, the 
primary objective of this program is to compensate businesses for 
losses. 

[38] A bridge loan is a short-term loan that is intended to provide 
financing until a more permanent arrangement is made.

[39] In the original Bridge Loan Program, New York City and state 
shared equally in providing participating lenders with a 20 percent 
loan loss reserve subsidy for approved bridge loans. ESDC will use HUD 
funds to reimburse the city and state for their loss reserve 
expenditures at a later date.

[40] P.L. 107-206.

[41] Details of the temporary PATH terminal--for which FEMA provided 
$140 million in public assistance funds--are described in chapter 2.

[42] The National Environmental Policy Act of 1969 directs federal 
agencies, when planning projects or issuing permits, to conduct 
environmental reviews to consider the potential impacts on the 
environment by their proposed actions. 

[43] LMDC, the Port Authority, MTA, the New York State DOT, and the 
city of New York.

[44] Since initial estimates only reflected surface damage and since 
several additional projects have been planned, FHWA has raised the 
total estimated cost of street repairs to over $251 million, exceeding 
the authorized funds. FHWA officials emphasized that the estimated 
total costs could shift higher or lower than $251 million as the 
projects progress and if costs exceed available funds, other highway 
funds or New York City or New York State funding could be used. 

[45] P.L. 107-117.

[46] HUD approved the plan September 15, 2003.

[47] In chapter 3, we discussed LMDC's $281 million Residential Grant 
Program funded by HUD to retain and attract residents to lower 
Manhattan. While we have categorized this program as primarily 
compensation for losses, it is clearly also contributing to lower 
Manhattan's economic revitalization.

[48] Job Creation and Worker Assistance Act of 2002 (P.L. 107-147). 

[49] The Joint Committee compares the revenue projected to be collected 
if a particular legislative change is enacted to the revenue projected 
to be collected under present law. The Committee's standard practice is 
not to discount the value of future revenue effects, nor to consider 
any effects of the legislation after a 10-year time period. 

[50] U.S. General Accounting Office, Tax Administration: Information 
not Available to Determine Whether $5 Billion in Liberty Zone Tax 
Benefits will be Realized, GAO-03-1102 (Washington, D.C.: Sept. 2003).

[51] A review committee comprised of ESDC and New York City Economic 
Development Corporation staff considers proposals and authorizes a 
level of financial assistance to offer an eligible company, based on a 
number of criteria. Once a company accepts the offer, they complete an 
application and the project is submitted to the ESDC Board of Directors 
for approval. If approved, then a Grant Disbursement Agreement is 
executed, and, after a payment requisition with supporting documents is 
submitted, the grant is disbursed to the company.

[52] U.S. General Accounting Office, September 11: Small Business 
Assistance Provided in Lower Manhattan in Response to the Terrorist 
Attacks, GAO-03-88 (Washington, D.C.: Nov. 1, 2002).

[53] Except for those applicants who enter into new leases between 
September 1, 2004, and December 31, 2004, who will have until April 
2005 to submit a completed application. 

[54] A portion of these funds is for administrative purposes.

[55] LMDC may use a portion of remaining funds for infrastructure 
projects, including proposals from on-going transportation planning 
studies, as discussed in chapter 4. 

[56] For example, as of June 2003, the Northridge, California, 
earthquake was still an open FEMA disaster 9 years after it occurred 
due to large and long-term reconstruction efforts.

[57] In the past, direct congressional appropriations are not made for 
a specific disaster, but rather to supplement funds in FEMA's Disaster 
Relief Fund.

[58] Further discussion and additional examples of public assistance 
projects that we identified as nontraditional can be seen in 
GAO-03-926.

[59] P.L. 108-7.

[60] GAO-03-926.

[61] Job Creation and Worker Assistance Act of 2002 (P.L.107-147)

[62] Capital investment grants provide funding for mass transportation 
and other high-occupancy vehicles.

[63] GAO-03-1102.

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