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Where Did the Katrina Money Go?

When pressed on the slow pace of recovery in the Gulf Coast, President Bush insists the federal government has fulfilled its promise to rebuild the region. The proof, he says, is in the big check the federal government signed to underwrite the recovery — allegedly more than $116 billion. But residents of the still-devastated Gulf Coast are left wondering whether the check bounced.

“$116 billion is not a useful number,” says Stanley Czerwinski of the Government Accountability Office, Congress’ investigative arm.

For starters, most federal money — about two-thirds — was quickly spent for short-term needs like debris removal and Coast Guard rescue. As Czerwinski explains, “There is a significant difference between responding to an emergency and rebuilding post-disaster.”

That has left little money for long-term Gulf Coast recovery projects. Although it’s tricky to unravel the maze of federal reports, our best estimate of agency data is that only $35 billion has been appropriated for long-term rebuilding.

Even worse, less than 42 percent of the money set aside has even been spent, much less gotten to those most in need. For example:

Washington set aside $16.7 billion for Community Development Block Grants, one of the two biggest sources of rebuilding funds, especially for housing. But as of March 2007, only $1 billion — just 6 percent — had been spent, almost all of it in Mississippi. Following bad publicity, HUD spent another $3.8 billion on the program between March and July, leaving 70 percent of the funds still unused.

The other major source of rebuilding help was supposed to be FEMA’s Public Assistance Program. But of the $8.2 billion earmarked, only $3.4 billion was meant for nonemergency projects like fixing up schools and hospitals.

Louisiana officials recently testified that FEMA has also “low-balled” project costs, underestimating the true expenses by a factor of four or five. For example, for 11 Louisiana rebuilding projects, the lowest bids came to $5.5 million — but FEMA approved only $1.9 million.

After the failure of federal levees flooded 80 percent of New Orleans, the U.S. Army Corps of Engineers received $8.4 billion to restore storm defenses. But as of July 2007, less than 20 percent of the funds have been spent, even as the Corps admits that levee repair won’t be completed until as late as 2011.

The fact that, two years later, most federal Katrina funds remain bottled up in bureaucracy is especially shocking considering that the amounts Washington allocated come nowhere near the anticipated costs of Gulf rebuilding.

For example, the $3.4 billion FEMA has available to recover local public infrastructure would only cover about one-eighth of the damage suffered in Louisiana alone. But this money is spread across five states — Alabama, Florida, Louisiana, Mississippi, and Texas — and covers damage from three 2005 hurricanes, Katrina, Rita and Wilma.

Congress has acted on some of the money holdups, like changing a requirement in the Stafford Act that mandates local governments pay 10 percent of rebuilding projects up front before receiving federal aid. The Bush administration had refused to waive the rule — like it did for New York after 9/11 — grounding countless projects. The effect of the rule was particularly devastating in the hardest-hit places like Mississippi’s Hancock County, where communities lost most of their tax base after the storms.

Many in Washington claim that state and local governments are to blame: The money’s there, they say, but the locals just aren’t using it. And it’s true that there have been problems below the federal level. For example, Louisiana’s “Road Home” program — created by Congress but run by the state — has been so poorly managed that 18 months after the storms only 630 homeowners had received checks. Closings have sped up since then, but administrators admit many won’t see money until 2008, if at all — the program is facing a projected $3 billion shortfall.

But the White House and Congress have done little to exercise oversight of these federally backed programs, much less step in to remove red tape and make sure taxpayer money gets to its intended destination.

This is especially true when it comes to tax breaks and rebuilding contracts. Included in the $116 billion figure is $3.5 billion in tax breaks to jump-start business in Gulf Opportunity Zones — “GO Zones” — across 91 parishes and counties in Alabama, Louisiana and Mississippi. But many of the breaks have been of questionable benefit to Katrina survivors, like a $1 million deal to build 10 luxury condos next to the University of Alabama football stadium — four hours from the Gulf Coast.

Federal contracts for rebuilding and recovery have also been marked by scandal, fraud and abuse. An August 2006 study by the office of Rep. Henry Waxman, D-Calif., identified 19 contracts worth $8.75 billion that experienced “significant overcharges, wasteful spending or mismanagement.”

For thousands of Gulf residents, the end result is that federal support for recovery after Katrina’s devastation has been insufficient, too slow and hasn’t gotten to those most in need.

“Where did it go?” says Tanya Harris of ACORN in New Orleans when asked about the $116 billion. “Tell me. Where did it go?”

Jeffrey Buchanan is communications officer with the Robert F. Kennedy Memorial Center for Human Rights.

Chris Kromm is executive director of the Institute for Southern Studies. This report was part of ISS’s “Blue Print for Gulf Renewal“.

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