The Myths of Hurricane Katrina: Part One

Myth number one: A lack of federal money

I am currently in New Orleans on my nineteenth trip to the Gulf Coast since Hurricane Katrina, as part of the Mercatus Center's research on Gulf Coast rebuilding. Earlier this month, I'd been asked several times what I thought about Time magazine's August 13th cover story. Thing is, I had a hard time finding it. The magazine was stocked on the newsstand at the New Orleans airport upside-down. When I pulled out the front copy, I noticed that the copy behind it had also been flipped. As had the copy behind that-and so on to the back of the news rack. It was a subtle form of protest you see often in the Crescent City.

The author of the story, Michael Grunwald, probably had no control over the cover, which carries the banner "Special Report: Why New Orleans Still Isn't Safe." But it angered many New Orleanians, who are tired of that kind of sensationalism and feel it does little to inform the public discussion about what's happening on the Gulf Coast two years after Katrina.

It's unfortunate, because Grunwald has done some excellent work covering post-Katrina reconstruction, especially untangling the web of cash, cronyism, and committee chairmanships that pollutes the US Army Corps of Engineers. But Grunwald's the exception to the rule. Much reporting on the Gulf Coast has been inadequate at best, applying a cookie-cutter template to a scenario that's far too unique and important for trite narratives.

Unfortunately, these stories are likely to continue. With today's second anniversary of Katrina, reporters and editors have again turned their attention to the Gulf Coast. And as expected, they're resurrecting the old saws that have ill-informed the public the last two years.

But forewarned is forearmed. Over the next three days I will discuss three myths about the rebuilding after Katrina—and explain why you should ignore them.

Myth Number One: The main impediment to rebuilding the Gulf Coast is a lack of federal money.

Talk with people on the Gulf Coast area and you'll soon learn the primary problem they face is not a lack of funding, but the mass confusion created by federal, state, and local governments about the rules of the game when it comes to rebuilding. Confusing and contradictory regulations, showboating by politicians, and stunningly complex bureaucracy have only exacerbated the problems of people who've already been through hell and have kept people from making the decisions they need to make to get on with their lives. This creates what economist Emily Chamlee-Wright calls "signal noise"—the persistent uncertainty created by uncoordinated government at every step of the recovery process.

All levels of government deserve blame for this. On the federal level, Congress and the US Army Corps of Engineers have failed to articulate a clear, credible plan for what types of flood protections will be built and when they'll be completed. And of course, based on the Corps' recent track record, no one could fault Gulf Coast residents for questioning whether those protections will perform as advertised once (and if) they are completed.

On the state level, Louisiana's Road Home Program is currently suffering from a $3 billion shortfall, and the program only recently began settling existing claims at a rate faster than new claims were coming in. So it may be another two years before many people receive their check—and that's if there's any money left by the time their claims crawl to the front of the queue. Local governments haven't done much better. New Orleans is already on its fifth rebuilding plan since Katrina. Meanwhile, Mississippi residents have been subjected to one urban planning charrette after another, with few actual plans adopted. Mississippians have become to the New Urbanist movement what The Daily Show's Aasif Mandvi once joked that Iraqis are to the neoconservatives: human guinea pigs for testing their latest theories.

The federal government has already allocated a substantial amount of money to Gulf Coast reconstruction. According to the Congressional Budget Office (CBO), as of July 2007 the federal government had appropriated $94.8 billion for Katrina recovery. Congress has allowed the National Flood Insurance Program to borrow another $17 billion from the government to cover the deficit it racked up paying out Katrina claims. The federal government has also created $16 billion in targeted tax breaks through Gulf Opportunity (GO) Zone credits and other programs.

So it's not a lack of funding that's the problem. It's spending the money. Under existing laws, FEMA can't simply write checks to Katrina victims. Some recipients would undoubtedly squander their funds, and there would be widespread fraud. This isn't idle speculation. According to the Government Accountability Office, immediately after Katrina hit, about a billion dollars of emergency aid—16 percent of the total—was lost to fraudulent claims. Even legitimately obtained pre-paid debit cards given to aid Katrina's victims were used to buy champagne, guns, tattoos, and porn.

Unfortunately, the other option—the one currently in place—isn't any better: government micromanagement of payouts. This is where you get the Road Home program's Byzantine policies, which includes dozens of dizzying, intermediate steps between filing a claim and the receipt of funds and, consequently, the plodding pace of recovery we've seen over the last two years. Because of legitimate fears that money will be squandered, mismanaged, or lost to fraud, the money sits unused.

Two years after Katrina, the CBO reports that FEMA had spent only about 66 percent of its supplemental appropriations for Hurricanes Katrina, Rita, and Wilma. Only 28 percent of Community Development Block Grant (CDBG) funding had been spent. A billion dollars in approved Small Business Administration loans have yet to be dispersed. And the Department of Housing and Urban Development (HUD) has yet to even allocate 15 percent of its Katrina-specific budget, much less disperse it.

Things are probably going to get worse before they get better. The New Orleans Times-Picayune reports that Louisiana's Road Home Corporation—the state corporation that purchases properties sold to the state by Road Home grant recipients—is an absentee landlord, leaving its forfeited properties to decay in disrepair. Such absentee government ownership of homes is only likely to increase: an unpublished Small Business Administration report estimates that up to a quarter of Louisianans who took out SBA loans after Katrina may default on them within the next two years. Which means the federal government will take control of their property.

It's also unlikely that Washington will pony up much more cash. Soon after Katrina, Louisiana senators Mary Landrieu (a Democrat) and David Vitter (a Republican) proposed a $250 billion recovery package. Unfortunately, it was chock full of earmarks and special favors that would have done little to actually help the victims of Katrina. Many of the earmarks had been rejected in prior legislation as wasteful boondoggles. Republican Sens. Trent Lott and Thad Cochran of Mississippi, for example, attached a $700 million earmark—the largest in history, according to the Christian Science Monitor—to another bill to move the CSX railroad line that hugs Mississippi's coast several miles north from its current location. The Louisiana and Mississippi senatorial delegations squandered much of the goodwill their fellow legislators had shortly after Katrina. Many in Congress are likely to see additional requests as little more than grabs for more pork.

Even so, there's little evidence to support the idea that the primary obstacle to rebuilding the Gulf Coast is a lack of federal funding. The problems go much deeper than that. So far, the federal bureaucracy hasn't been able to spend the piles of money that have already been allocated, much less spend them wisely. Governments at all levels have failed to clearly articulate the rules of the game for rebuilding. And the state and federal governments are getting into the business of absentee slumlordship. More funding will only bring more of the same.

Tomorrow: Myth number two: New Orleans and "the Gulf Coast" are the same thing.

Daniel Rothschild is the associate director of the Global Prosperity Initiative at the Mercatus Center at George Mason University. The Mercatus Center is conducting a five-year study of the Gulf Coast after Hurricane Katrina.