SPECIAL REPORT: After Katrina This special issue of National Journal examines the state of the ongoing recovery from Hurricane Katrina. Choose a related story here: Special Report Stories __________________ Struggling To Survive Stretchier Red Tape Uneasy Money Steely Magnolias The Eye Of The Storm [an error occurred while processing this directive]

By Paul Singer, National Journal
© National Journal Group Inc.
Friday, Aug. 11, 2006

WAVELAND, MISS. -- Mayor Tommy Longo will have to sell a lot of watches if he is going to achieve his goal of rebuilding City Hall. In the year since Hurricane Katrina's storm surge crushed almost every structure in this little coastal town 35 miles east of New Orleans, Congress has approved $125 billion for cleanup and reconstruction of the ravaged Gulf Coast. Huge sums have flowed into the region to pay for debris removal, levee repair, emergency food and shelter, and a giant federal relief operation. But reconstruction money is arriving much more slowly, and with many more strings attached.

Longo believes that Waveland will need $150 million to pay for reconstruction -- and not only for City Hall, but also for the fire station, the police station and other civic structures. Although federal money will ultimately pay about 90 percent of the tab, Waveland is still required under federal rules to provide a 10 percent match. Coming up with $15 million is tough when almost every commercial and residential structure in town is severely damaged and the population has shrunk from 7,800 to about 2,500 people.

That's why, Longo says, he lent his name to a New York City entrepreneur who is selling commemorative watches. The plain, gold-rimmed watch, bearing the mayor's name and the inscription "Time to Make a Difference" on the face, sells for $50. Half of the purchase price is a tax-deductible contribution to Longo's "disaster relief fund," which the mayor hopes to use to prime the pump of federal assistance that his town so desperately needs.

And it's not just watches. "We are doing the craziest things," Longo said in a July interview conducted in a temporary trailer a few hundred feet from the concrete slabs that were once the municipal complex. A North Carolina Cherokee Indian tribe "adopted us," Longo says, and sold glass etchings of Waveland's old City Hall at their Harrah's casino. A Florida company that makes water purification systems and sells them around the world for about $400 apiece is "giving us 10 percent" of the proceeds, he adds.

In essence, Longo is relying on a yard sale to rebuild his town, he says, because Waveland has not received any federal money for reconstruction since Dec. 2.

Local officials throughout the area echo Longo's story: Towns crushed by the most destructive hurricane in U.S. history have not been able to shake loose the federal money they need to rebuild, despite massive appropriations from Congress for that very task.

The locals are awaiting millions of dollars in promised relief, but bureaucratic hurdles have held up the money, stalling reconstruction and dissuading residents chased away by the storm from returning to their hometowns.

	Follow The Money Federal hurricane relief has traveled a convoluted path from Congress to the Gulf Coast. More than 70 federal agencies have handled a portion of the approximately $87 billion that has been doled out. Flow Chart [PDF]

To be sure, billions of dollars in federal assistance has poured into the region since Katrina roared through in late August 2005, followed by Hurricane Rita a month later. However, it is nearly impossible to track down where all the money has gone and how much has actually been spent, because the federal government does not have a routine process for compiling information from the disparate agencies involved in hurricane reconstruction.

Congress has provided the $125 billion in aid through four emergency appropriations bills. But the money has been divvied up among dozens of federal agencies, each with its own mission, rules and timeline for distributing the cash.

Instead of a single reconstruction bank account, there is "an intricate web of funds that go into this," said David Fukutomi, a former Federal Emergency Management Agency official who headed FEMA's infrastructure recovery unit in the early days of the Katrina relief effort.

First Things First
In a late July report to Congress, FEMA announced that it had provided about $37 billion for relief following three hurricanes: Katrina, Rita and Wilma, which struck Florida in October 2005. FEMA reported that its disaster relief fund had a balance of about $6 billion -- mostly from a cash infusion that Congress approved in June as part of the most recent emergency supplemental appropriation.

The report's fine print, however, makes clear that just a little more than half of the $37 billion was actually "spent." The rest had simply been set aside -- in budgetary terms, "allocated" -- for hurricane relief. In addition, the overwhelming majority of the cash that the agency distributed was for emergency-response activities having nothing to do with long-term reconstruction.

By July 26, FEMA had paid out about $7.2 billion for assistance to individuals, including for food, emergency shelter, housing, and the much-maligned emergency cash payouts that the agency has decided to scale back in future disasters to cut down on potential fraud. It set aside another $7.8 billion -- $4.9 billion of which has been spent -- for the equally maligned "manufactured housing" program, better known as travel trailers and mobile homes. As of July 26, FEMA had 128,000 trailers available for victims of the three storms, and it was picking up the tab for the manufacture, installation, and in some cases maintenance and pad rental of these trailers.

FEMA has also earmarked billions of dollars for other federal agencies through "mission assignments," which are essentially the government's way of allowing FEMA to hire the expertise it needs from within the government.

'Please Pay In Full' Before Katrina even made landfall last summer, FEMA was readying assistance, from temporary shelters to emergency rations to prescription medications to cash payments for those in harm's way. Once the three hurricanes were finished with the Gulf Coast -- Katrina in August, Rita in September, and Wilma in October -- FEMA was on the hook for more than $7 billion in direct assistance to individuals. Under federal law, FEMA can pick up 100 percent of the tab for sheltering evacuees, installing trailers or mobile homes, and performing limited repairs to damaged houses. But states are required to pay 25 percent of the "other needs assistance" provided by FEMA, including such things as emergency medical or dental care, transportation assistance, funeral expenses, or cash for clothing and household items. Beginning in late 2005, FEMA began billing Louisiana and other affected states for their share of this "other needs assistance." As of June 22, Louisiana's tab -- in several installments -- came to $339 million. Each of FEMA's bills to the state included a tear-off coupon to return with the payment, and the helpful reminder to "put the Bill for Collection [number] on your check to ensure proper crediting." But given a series of audits that have emerged, including one by the Government Accountability Office indicating that victims spent some of FEMA's disaster aid on football tickets and adult entertainment, Louisiana said it would not pay until it was able to audit FEMA's books to ensure that the payments were valid. In an exchange of letters, the federal government argued in essence that because it is giving money to the state, FEMA has the right to audit the state, but the state does not have the right to audit FEMA. Robbie Robinson, first assistant in the Louisiana Legislative Auditor's Office, which is handling the matter, said, "Before we agree to send the check, we'd like to see some of the documentation for these payments. We don't mind paying our share, but we don't want to pay for all the fraud." Robinson said he expects the state and FEMA to reach an agreement by the end of August on a process that would allow the state to review some of the documentation before it pays its bill. -- Paul Singer

Because FEMA knows nothing about handling hazardous wastes, it set aside $312 million to have the Environmental Protection Agency manage that and other environmental activities in Katrina's aftermath. FEMA allocated $4.4 billion to the Army Corps of Engineers to haul away debris, tear down buildings and install temporary roofs on damaged structures. The U.S. Maritime Administration received $61 million for allowing its training ships to be used as floating dormitories for emergency workers.

Although the emergency work is nearly completed, most of the FEMA money designated for this purpose has not been spent, in part because the projects cost less than anticipated and in part because it takes a while for FEMA to reconcile its bills with its federal partners. For instance, according to a Defense Department spokesman, the Pentagon's total hurricane-relief effort -- not including the Army Corps of Engineers -- was initially estimated at $2.1 billion, but "actual costs are now expected to be under $700 million." As of the end of July, FEMA reported that it had allocated $8.8 billion in mission assignments to other federal agencies for the 2005 hurricane season, but it listed only about $1.2 billion of that money as having been "expended."

A major chunk of the disaster relief money also paid FEMA's own expenses. At the end of July, FEMA was anticipating administrative costs of just over $4.7 billion, including travel, housing and office space for thousands of federal employees and contractors deployed to the Gulf Coast to help with the recovery effort. By comparison, the annual budget of the Commerce Department is a little over $6 billion, meaning that FEMA created what amounted to an entire federal agency to respond to the three hurricanes -- Katrina, Wilma and Rita.

Most of the remainder of FEMA's allocated funds was about $7 billion in "public assistance" -- money for local governments to use to rebuild after the storm. But this money covers everything from rebuilding town halls and sewer systems to paying the overtime of police and fire departments in the storm's immediate aftermath. As of late July, FEMA reported that only $3.7 billion had been spent; a FEMA official reported that not quite half of that money went to reimburse communities for hauling away debris.

In fact, FEMA can't say exactly how much money communities have received in reconstruction aid, because it doesn't actually give money to communities. Federal money for each project is assigned to an account that is controlled by the state emergency management office. That office does its own project review, including looking at state historic preservation and environmental standards. Once the project clears that review, the local government can begin signing contracts to have the work done, and can draw money out of the account to pay invoices. This state-controlled system allows for more detailed scrutiny of each reconstruction contract, but it can also add weeks to the approval process before any project goes forward.

Data provided to National Journal by the Louisiana Office of Homeland Security and Emergency Preparedness indicates that as of Aug.1 -- 11 months after Katrina made landfall -- local governments around the state had received about $190 million for reconstruction projects. (That figure does not include debris removal and emergency services.)

Rebuilding public facilities is in some ways the last priority of disaster relief -- behind emergency shelters, assistance to individuals, and even repair of damaged federal property. This ranking of priorities makes some sense, as it is obviously more important to re-establish housing in a devastated community than it is to reopen the library.

But it also results in part from FEMA's tangled system for determining what it will pay for, a process that leads to an agreement to reimburse a local government only after the work has been completed and the contractor's billing statements have been verified. By design, cities, towns and other entities may not see this federal disaster recovery money until years after the storm has wrecked their communities.

The Long Road To Repair
The wastewater treatment plant in Buras, La., is utterly unremarkable, except for the fact that it is broken.

Buras sits on the west bank of the Mississippi River in the southern part of Plaquemines Parish, a marshy peninsula that juts into the Gulf of Mexico. Buras, like most of the other rural areas in the parish, was submerged by Katrina's storm surge, and the sewage plant is just one of the dozens of broken components of the water and sewer systems that stretch across the 50-mile length of the parish.

The plant also serves as a prime example of why rebuilding takes so long.

After a disaster, FEMA does not simply write checks to local governments to rebuild whatever the locals want. The agency's disaster relief fund is governed by the Robert T. Stafford Disaster Relief and Emergency Assistance Act, which limits federal assistance to reconstruction and repair of public facilities to their pre-storm conditions. So FEMA inspectors and state and local officials must assess every damaged public structure -- a city hall, a library, a sewage treatment plant, a parking garage, a police station -- to determine how much of the reconstruction is eligible for federal reimbursement. The inspectors document each project in a "project worksheet," and each worksheet represents a separate line item on FEMA's ledgers.

To date, FEMA has written more than 20,000 project worksheets for local government funding requests in Louisiana and Mississippi, including requests for money to pay for debris removal and police overtime in the days after the storm.

Plaquemines Parish submitted the project worksheet, or "PW," for the Buras wastewater treatment plant to FEMA on Sept. 5, 2005, according to documents provided by SevernTrent, the contractor that runs the water-wastewater system for the parish. The worksheet estimated repairs of $383,000 and a start date of Oct. 15.

But, according to Mike Callegari, manager of SevernTrent's operations in the parish, that estimate was based on a quick inspection of the Buras plant in the days immediately after the storm. When the parish sought bids to repair the plant, the costs came in at $1.2 million -- a sum FEMA said it would not pay.

Parish President Benny Rousselle said that the original worksheet for the Buras plant was written without any allowance for re-engineering the antiquated facility. It assumed that the plant could be repaired simply by replacing the outdated (and now destroyed) electrical components.

"Early on we were told, 'You just need to get the PW written and then whatever the cost of the project is when it goes out for bid will be fine,'" Rousselle said. "'We'll honor the PW and do a revision.'" But when the bids came back showing the need for extensive re-engineering, FEMA refused to pay, because the original worksheet did not call for engineering costs.

On July 7, Rousselle submitted to FEMA officials a list of more than 100 worksheets that had been delayed by such disputes, and asked FEMA to expedite their approval. By the end of the month, Rousselle had a letter from FEMA agreeing that federal funds could be used to cover engineering costs, and the PW for the Buras treatment plant was approved.

Rousselle's central complaint was echoed by every one of the dozens of local officials interviewed by National Journal: FEMA employees are temporary, and funding decisions made by one group of managers are frequently reversed when their successors take over.

In St. Tammany Parish, across Lake Pontchartrain from New Orleans, Parish President Kevin Davis is grappling with a newly discovered category of flora: "ineligible detached stumps." Because of federal disaster relief rules, FEMA will pay to remove only those trees that were damaged or uprooted in the hurricane. If a citizen moves a stump from wherever the storm felled it (say, across a driveway), FEMA will not pay for the work unless officials have evidence that this was a "hurricane stump."

Davis said that FEMA directed his parish to use a global positioning system to establish the location of eligible stumps. "We had to GPS, measure and photograph every stump in this parish. Literally thousands of them," Davis said, a task that took the parish weeks to complete. But then the FEMA staff rotated out and, according to Davis, "a new batch of guys comes in and they look at us and say, 'Why did y'all GPS all these things?'"

James Walke, who heads FEMA's public assistance program, said he recognizes that inconsistent decisions by FEMA staff have caused problems, but he argues that those are the exceptions, not the rule. "To suggest that none of that goes on probably would be naive on my part," Walke said. "I recognize that we do have a lot of new people coming into a disaster. We provide them training, and hope that everybody is on the same level as far as disaster eligibility is concerned, [but] it takes some time to get to that point."

FEMA is trying to address the rotation problem. Temporary employees and contractors from across the country staffed the disaster offices set up in the region following the storm. A deployment of 90 days is about the most the government can demand of those employees. But since the beginning of the year, FEMA has been converting the initial disaster offices into full-time operations, and hiring permanent staff to fill the jobs there; the agency anticipates that the disaster recovery will take about a decade to complete.

Even when the FEMA process works properly, it can seem like an absurd exercise in red tape. St. Tammany Parish, which was badly damaged by Katrina but not devastated like New Orleans, has written a $1.6 million contract for the consulting firm Camp Dresser & McKee to basically create a new agency to manage the paperwork for storm-related debris removal and housing demolitions.

On a July afternoon, CDM employees stood in a suburban neighborhood watching another contractor remove dead limbs from trees in neatly tended yards. The CDM monitors had to ensure that the crew tackled the proper trees -- those spray-painted by FEMA inspectors to indicate whether they were eligible for federal reimbursement. (The spray-painting also indicated how much of the damaged tree was to be removed.)

CDM project manager Robert Batherson said that before tree removal, the state historic preservation office had to screen each private homesite to ensure that the work did not disturb any historic ruins or graveyards. Batherson said that CDM had as many as 125 people working in St. Tammany Parish strictly on paperwork management and project oversight. Other contractors will be hired to actually drive the bulldozers or tote the chain saws. Every hour of work on this project will be eligible for reimbursement from FEMA.

Walke argued that FEMA's process, while frustrating to local officials, plays a critical role in preventing waste of federal tax money. On private property, FEMA rules allow reimbursement only for work that removes a public safety risk. "We try to go in and identify those trees that in fact do present a health and safety threat," Walke said, explaining that every tree to be removed must be authorized for reimbursement. "Yeah, it is labor-intensive. But I think you either do that, or end up going out and allowing the contractors to clear-cut or prune whatever they feel like doing. And there has to be some controls on the process."

Parish President Davis proposes a more efficient way to rebuild after the storm.

"I asked [President Bush] for $1 billion and said I will personally guarantee it, be responsible for it and audit it. And I'll do everything in my parish," Davis said. "With $1 billion, I could have done everything I needed to do in this parish, and would have done all the auditing, all public bids. We would have rebuilt our schools, our highways -- I'd be in construction in all those areas."

FEMA Director David Paulison dismissed this idea. "It is simply unreasonable for parishes to think that the federal government should hand over millions of dollars and just 'walk away,'" Paulison said in an e-mail to National Journal. "While we are committed to improving our communications with state and local officials, we are equally committed to being good stewards of the taxpayer's dollar and facilitating the use of funds."

Cash Flows Down Highways
Last fall, it became clear to Congress that using FEMA to manage Gulf Coast reconstruction funding created restrictions and complications that would hinder recovery.

After passing two emergency appropriations bills in September that gave FEMA $60 billion, lawmakers reversed field in December and approved a third supplemental that transferred $23 billion of FEMA's unspent money and provided an additional $6 billion or so to 18 federal agencies for their own disaster relief efforts. A fourth emergency appropriation that Bush signed in June added another $6 billion to FEMA's coffers and sprinkled $14 billion more among other agencies. All told, Congress has approved about $86 billion in cash relief for the Gulf Coast, with FEMA managing about half of it and other federal agencies managing the rest.

(The remainder of the $125 billion in federal assistance consists mostly of the federal flood insurance program and a lot of non-cash relief, such as tax benefits for individuals and businesses returning to the area.)

Help From Overseas In the aftermath of Hurricane Katrina, the State Department received foreign donations totaling $126 million -- most of which came from the United Arab Emirates -- and hundreds of offers of personnel and supplies from countries around the world. Today, almost half of the money is still unspent. Last fall, State gave $66 million of the total to the Federal Emergency Management Agency, and FEMA allocated it to the National Case Management Consortium to help people displaced by the hurricane. In March, State turned over the remaining $60 million to the Education Department to give to schools in Katrina-affected communities. According to Hudson La Force, the senior counselor to Education Secretary Margaret Spellings, the department is waiting for schools to finish applications before awarding the gifts. The bulk of the money will go toward repairing or replacing school buildings in Louisiana and Mississippi. Foreign donations in the form of personnel and supplies ranged from blankets, camp beds and tents from the Czech Republic, to four mental health workers from Colombia. But the United States did not accept all offers: State turned down Greece's proposal to send a cruise ship. Several nations gave millions of dollars directly to U.S. charities. State says a complete list of foreign donors is not available, because certain countries did not want their contributions made public. The department would not provide a partial list. -- Corrie Driebusch

It is hard to keep track of all of this money. FEMA reports to Congress every week on its disaster fund expenditures, but the other federal agencies do not. The federal government has no central repository for real-time tracking of this spending.

Congressional appropriators say that it is the administration's job to oversee the spending. The White House Office of Management and Budget says that each agency is tracking its own spending. Spokesmen at several federal agencies said they could track only "obligations" -- what the agency has promised to pay -- and not the money that had actually been dispensed. The inspectors general who police the spending said that they focus only on specific areas of potential waste, fraud and abuse; and the Government Accountability Office said that it's trying to track all of the federal spending but can't find anyone in the government who has all of the data in one place.

Donald Powell, head of the Homeland Security Department's new Office for Gulf Coast Rebuilding, said in an interview that he works closely with other federal agencies that are active in the Gulf Coast area, and that he is kept abreast of their spending. In cooperation with OMB, Powell's office produces periodic reports on the obligations of each agency in the disaster zone.

In response to a June request from National Journal for a tally sheet of hurricane spending by federal agencies, the office said it was unable to provide a complete accounting of current spending. At the end of July, OMB provided a list of $85 billion in hurricane relief spending by FEMA and other federal agencies. But this list counted only obligations, not actual cash payments, and offered no specifics about what each agency was using its money for. Powell's office added a list of about $45 billion in actual expenditures, but acknowledged that it did not yet have data on spending by either the Army Corps of Engineers or the Defense Department.

Although it is impossible to track totals, it's clear that federal agencies are pouring money into the Gulf Coast. For instance, from last year until this month, riding a city bus in New Orleans was free. The federal Transportation Department provided a $47 million contract to support the transit system through June 30, and then added another $20.5 million to keep the system afloat through November 30 under the proviso that customers would have to resume paying fares at the beginning of August.

The department has also spent about $35 million repairing and maintaining the Interstate 10 "twin-span" bridge that crosses the mouth of Lake Pontchartrain to connect New Orleans and Slidell. The bridge was heavily damaged by the storm, but traffic flow was restored before Thanksgiving through the use of temporary, high-maintenance decking material.

In July, federal and state officials broke ground on an $803 million replacement twin span. Because this is transportation money, not FEMA money, no local match is required. The feds will pick up the entire tab.

Also, unlike FEMA, DOT is not limited to replacing what had been in place before the storm. Instead, the new bridge will be taller (and theoretically less vulnerable to storms) than the previous bridge, and it will increase traffic lanes from four to six.

Although the money for the bridge comes from the non-FEMA emergency appropriations that Congress approved for disaster relief, DOT Undersecretary Jeffrey Shane declared during the groundbreaking that the new spans would be a model of the department's commitment to reducing congestion. State officials said that the new bridge will be the largest public works project ever built in Louisiana.

By the end of June, the Federal Highway Administration reported that it had already spent $377 million on Katrina-related road projects.

The Defense Department has earmarked billions of dollars for the Gulf Coast region, although department spokesmen could not say exactly how much of the money has been spent. In the December and June supplemental appropriations, Congress gave the Corps $6.6 billion -- primarily to rebuild the New Orleans-area levees -- and gave the rest of the Defense Department another $7.2 billion.

A Pentagon spokesman said that it is impossible to track spending department-wide because each service is responsible for its own budget, but he added that a significant portion of the emergency appropriation was to repay the military for its services during the disaster. Thus "personnel" and "operations and maintenance" of the various military services consumed about $2.7 billion of the December and June supplemental appropriations.

Another $2.8 billion was tagged for military shipbuilding operations, essentially providing for increased costs of construction caused by damage to major shipbuilding facilities along the Gulf.

Other federal agencies received millions of dollars to replace or repair their facilities, including $1.2 billion to the Veterans Affairs Department, $132 million to the Fish and Wildlife Service, and $55 million to the National Park Service.

Other agencies are operating three enormous aid programs that provide direct assistance to individuals. Congress granted the National Flood Insurance Program the authority to borrow more than $19 billion from the federal Treasury to pay off claims from the 2005 hurricane season. By the end of July, the program had paid out about $16 billion. The Small Business Administration received some $1 billion to make low-interest loans to homeowners and businesses in the region. As of July 27, the SBA had leveraged this money into almost $10.3 billion in approved loans, but only $2.1 billion of that had actually been handed out to applicants.

"The biggest problem in getting the money out is that most people who have been approved for a loan haven't decided yet whether to take it," said SBA spokesman Michael Stamler.

The other giant assistance fund is at the Housing and Urban Development Department, which received $17 billion in the two supplemental bills, primarily to provide cash assistance to homeowners affected by the storms. Mississippi and Louisiana have both been approved to give individuals up to $150,000, though each state has developed complex rules for figuring out which homeowners are eligible and how much money they will ultimately receive. Mississippi began providing the first checks to its residents in July, while Louisiana is likely to begin distributing checks in August.

In an interview, Powell of the Gulf Coast Rebuilding Office said that he understands the frustration of those who want more visible signs of recovery in the area. But the fact is, he said, "when you compare it to other catastrophic events, this has moved pretty fast." In the first days after the storm, Powell added, "we had to deal with the immediate necessities, and that meant finding places [for people] to live, shelter, water, food, all of that other stuff." In addition, hauling away debris was an enormous task. The longer-term projects, including the HUD funding for housing and the tax relief to provide incentives for businesses to return, required approval from Congress.

Now that those approvals are in place, "I think the focus will be on the long-term rebuilding, and I think there is some traction there," Powell said. Once local officials work out the details of the housing assistance program, reconstruction activity should increase dramatically, he said.

But a bad hurricane season this year could set the whole recovery process back, Powell said. Even without another storm, he continued, the recovery "is not going to happen overnight. It is going to take some period of time."

Perhaps a Tommy Longo commemorative watch will help keep track of that time.

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