Gulf Coast Disaster Recovery
Community Development Block Grant Program Guidance to States Needs to Be Improved Gao ID: GAO-09-541 June 19, 2009Almost 4 years after the 2005 Gulf Coast hurricanes, the region continues to face daunting rebuilding challenges. To date, $19.7 billion in Community Development Block Grant (CDBG) funds have been appropriated for Gulf Coast rebuilding assistance--the largest amount in the history of the program. GAO was asked to report on (1) how Louisiana and Mississippi allocated their shares of CDBG funds, (2) what difficulties Louisiana faced in administering its housing recovery program, and (3) what human capital challenges Louisiana and Mississippi encountered and the efforts taken to address those challenges. GAO interviewed federal and state officials and reviewed budget data, federal regulations, and state policies and planning documents.
Louisiana and Mississippi received the largest shares of CDBG disaster funds and targeted the majority toward homeowner assistance, allocating the rest to economic development, infrastructure, and other projects. Between 2006 and 2008, Louisiana's total allocation devoted to housing increased from 77 to 86 percent while Mississippi's decreased from 63 to 52 percent as the state focused on economic development. With homeowners as the primary focus, Louisiana initially adopted a plan that linked federal funds to home reconstruction and controlled the flow of funds to homeowners, while Mississippi paid homeowners for their losses regardless of their intentions to rebuild. This helped Mississippi avoid challenges that Louisiana would encounter, but with fewer assurances that people would actually rebuild. Louisiana's approach to housing recovery created a program that incorporated certain elements from two different models--compensation and rehabilitation--funded with multiple federal funding streams. While there is no written guidance that distinguishes between the two models, Housing and Urban Development (HUD) explained the major differences. In a rehabilitation model, funds are used explicitly for repairs or reconstruction, requiring site-specific environmental reviews. In contrast, a compensation program disburses funds directly to homeowners for damages suffered regardless of whether they intend to rebuild and does not trigger site-specific environmental reviews. Federal guidance was insufficient to address Louisiana's program and funding designs. Two major problems stemmed from the state's approach. First, HUD and the state disagreed as to whether the incremental disbursement of funds subjected homeowners' properties to environmental reviews. Despite many iterations of the program, HUD ordered a cease and desist of the program, leading the state to abandon its original plans and issue lump-sum payments to recipients. Continual revision and re-submittal of the design contributed to a 12-month evolution of the program. Second, conflicting federal determinations hindered coordination of CDBG and the Federal Emergency Management Agency's (FEMA) Hazard Mitigation Grant Program (HMGP) funds. According to state officials, the Federal Coordinator for Gulf Coast Rebuilding advised them to use most of the HMGP funds to acquire properties through their housing recovery program. FEMA rejected this plan, in part, because it determined that the program gave preference to the elderly. However, HUD is subject to similar legal requirements and did not find the program discriminatory. Louisiana changed its plans and used HMGP funds for a home elevation program. In sum, it took FEMA and the state over a year to reach agreement, delaying assistance to homeowners. In the immediate aftermath of the 2005 hurricanes, Louisiana and Mississippi lacked sufficient capacity to suddenly administer and manage CDBG programs of such unprecedented size. Both states created new offices to direct disaster recovery efforts and hired additional state agency staff and private contractors to implement homeowner assistance programs.
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Director: Team: Phone:GAO-09-541, Gulf Coast Disaster Recovery: Community Development Block Grant Program Guidance to States Needs to Be Improved
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Report to the Committee on Homeland Security and Governmental Affairs,
U.S. Senate:
United States Government Accountability Office:
GAO:
June 2009:
Gulf Coast Disaster Recovery:
Community Development Block Grant Program Guidance to States Needs to
Be Improved:
GAO-09-541:
GAO Highlights:
Highlights of GAO-09-541, a report to the Committee on Homeland
Security and Governmental Affairs, U.S. Senate.
Why GAO Did This Study:
Almost 4 years after the 2005 Gulf Coast hurricanes, the region
continues to face daunting rebuilding challenges. To date, $19.7
billion in Community Development Block Grant (CDBG) funds have been
appropriated for Gulf Coast rebuilding assistance”the largest amount in
the history of the program. GAO was asked to report on (1) how
Louisiana and Mississippi allocated their shares of CDBG funds, (2)
what difficulties Louisiana faced in administering its housing recovery
program, and (3) what human capital challenges Louisiana and
Mississippi encountered and the efforts taken to address those
challenges. GAO interviewed federal and state officials and reviewed
budget data, federal regulations, and state policies and planning
documents.
What GAO Found:
Louisiana and Mississippi received the largest shares of CDBG disaster
funds and targeted the majority toward homeowner assistance, allocating
the rest to economic development, infrastructure, and other projects.
Between 2006 and 2008, Louisiana‘s total allocation devoted to housing
increased from 77 to 86 percent while Mississippi‘s decreased from 63
to 52 percent as the state focused on economic development. With
homeowners as the primary focus, Louisiana initially adopted a plan
that linked federal funds to home reconstruction and controlled the
flow of funds to homeowners, while Mississippi paid homeowners for
their losses regardless of their intentions to rebuild. This helped
Mississippi avoid challenges that Louisiana would encounter, but with
fewer assurances that people would actually rebuild.
Louisiana‘s approach to housing recovery created a program that
incorporated certain elements from two different models”compensation
and rehabilitation”funded with multiple federal funding streams. While
there is no written guidance that distinguishes between the two models,
HUD explained the major differences. In a rehabilitation model, funds
are used explicitly for repairs or reconstruction, requiring site-
specific environmental reviews. In contrast, a compensation program
disburses funds directly to homeowners for damages suffered regardless
of whether they intend to rebuild and does not trigger site-specific
environmental reviews.
Federal guidance was insufficient to address Louisiana‘s program and
funding designs. Two major problems stemmed from the state‘s approach.
First, HUD and the state disagreed as to whether the incremental
disbursement of funds subjected homeowners‘ properties to environmental
reviews. Despite many iterations of the program, HUD ordered a cease
and desist of the program, leading the state to abandon its original
plans and issue lump-sum payments to recipients. Continual revision and
re-submittal of the design contributed to a 12-month evolution of the
program. Second, conflicting federal determinations hindered
coordination of CDBG and FEMA‘s Hazard Mitigation Grant Program (HMGP)
funds. According to state officials, the Federal Coordinator for Gulf
Coast Rebuilding advised them to use most of the HMGP funds to acquire
properties through their housing recovery program. FEMA rejected this
plan, in part, because it determined that the program gave preference
to the elderly. However, HUD is subject to similar legal requirements
and did not find the program discriminatory. Louisiana changed its
plans and used HMGP funds for a home elevation program. In sum, it took
FEMA and the state over a year to reach agreement, delaying assistance
to homeowners.
In the immediate aftermath of the 2005 hurricanes, Louisiana and
Mississippi lacked sufficient capacity to suddenly administer and
manage CDBG programs of such unprecedented size. Both states created
new offices to direct disaster recovery efforts and hired additional
state agency staff and private contractors to implement homeowner
assistance programs.
What GAO Recommends:
GAO recommends that the Secretary of Housing and Urban Development
(HUD): (1) issue written CDBG disaster assistance program guidance that
articulates an acceptable rehabilitation versus compensation program,
including, among other things, explanation of program elements that
trigger federal environmental reviews and (2) coordinate with the
Federal Emergency Management Agency (FEMA) to clarify options and
limits of using CDBG funds with other disaster-related federal funds.
HUD partially agreed with the recommendations, citing concerns about
the content and timing of new guidance. GAO believes such guidance
would better aid states‘ housing recovery efforts.
View [hyperlink, http://www.gao.gov/products/GAO-09-541] or key
components. For more information, contact Stanley J. Czerwinski at
(202) 512-6806 or czerwinskis@gao.gov.
[End of section]
Contents:
Letter:
Background:
Louisiana and Mississippi Targeted Majority of Funds to Homeowner
Assistance:
Federal Guidance Was Insufficient to Address Louisiana's Approach to
Housing Recovery:
Louisiana and Mississippi Took Similar Approaches to Address Human
Capital Needs for Unprecedented Program Size:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of Housing and Urban
Development:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Time Line of Events Surrounding the Evolution of Louisiana's
Road Home Program:
Table 2: Time Line of Events Surrounding Louisiana's Attempt to
Leverage HMGP Funds:
Table 3: Comparison of Louisiana's and Mississippi's Annual CDBG
Budgets to CDBG Disaster Funds Allocated After 2005 Gulf Coast
Hurricanes (in millions):
Figures:
Figure 1: Estimated Number of Housing Units Damaged by State:
Figure 2: Amount of CDBG Funds Allocated by State:
Figure 3: Louisiana's Allocations of CDBG Disaster Funds in 2006 and
2008:
Figure 4: Mississippi's Allocations of CDBG Disaster Funds in 2006 and
2008:
Abbreviations:
CDBG: Community Development Block Grant:
DHS: Department of Homeland Security:
FEMA: Federal Emergency Management Agency:
GOHSEP: Louisiana Governor's Office for Homeland Security and Emergency
Preparedness:
HMGP: Hazard Mitigation Grant Program:
HUD: Department of Housing and Urban Development:
LRA: Louisiana Recovery Authority:
MDA: Mississippi Development Authority:
OCD: Louisiana Office of Community Development:
PA: Public Assistance (grant program):
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
June 19, 2009:
The Honorable Joseph I. Lieberman:
Chairman:
The Honorable Susan M. Collins:
Ranking Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Mary L. Landrieu:
Chairman:
Ad Hoc Subcommittee on Disaster Recovery:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
Almost 4 years after Hurricanes Katrina, Rita and Wilma brought death
and destruction along the Gulf Coast, the region and the nation
continue to face daunting rebuilding challenges. For perspective on the
magnitude of the damage, some estimates put capital losses at a range
of $70 billion to more than $150 billion.[Footnote 1] Wide swaths of
housing, infrastructure, and businesses were destroyed, leaving more
than 1,500 people dead and hundreds of thousands of others displaced
without shelter or employment. Over the coming years, perhaps decades,
many neighborhoods and communities will need to be rebuilt--some from
the ground up. The size and scope of the devastation caused by the 2005
Gulf Coast hurricanes[Footnote 2] presents the nation with
unprecedented rebuilding challenges, as well as opportunities to
reexamine shared responsibility among all levels of government.
In the interest of providing funds to the Gulf Coast states quickly and
affording states as much discretion as possible in the aftermath of the
2005 Gulf Coast hurricanes, Congress chose the Community Development
Block Grant (CDBG) program as the vehicle to provide the largest share
of disaster relief and recovery funds. The CDBG program's primary
objective is not specifically to provide disaster relief to states, but
rather to develop viable urban communities by providing decent housing,
a suitable living environment, and expanded economic opportunities for
low and moderate income persons. However, CDBG has often been relied
upon as a convenient source of flexible funding that can easily be
applied to federal disaster situations to help states rebuild and
revitalize their communities. This is consistent with past practice:
over the last two decades, Congress has repeatedly turned to CDBG to
assist states in recovering from federal disasters.[Footnote 3] For
example, Congress directed CDBG funds toward recovery and rebuilding
efforts in Texas and Louisiana after Hurricanes Gustav and Ike in 2008,
New York after the September 11th terrorist attacks in 2001, the
Midwest after the floods in 1997, Oklahoma City after the 1995 bombing
of the Alfred Murrah Building, Southern California after the 1994
Northridge earthquake, and Florida after Hurricane Andrew in 1992.
To date, $19.7 billion in supplemental appropriations have gone to Gulf
Coast states through CDBG--the largest amount of CDBG disaster relief
provided to one area in the history of the program. You requested that
we review the CDBG funding that has been allocated for rebuilding the
Gulf Coast and determine what challenges, if any, the states
encountered in administering and managing the funds. In response to
your request, we report on: (1) Louisiana's and Mississippi's
allocations of CDBG funds, (2) difficulties Louisiana faced in
administering its housing recovery program, and (3) the human capital
challenges Louisiana and Mississippi encountered and their efforts to
address those challenges. This report builds upon GAO's prior work on
rebuilding efforts in the Gulf Coast region.[Footnote 4]
Our work focused on Louisiana and Mississippi--the two states most
directly affected by the 2005 Gulf Coast hurricanes. To conduct our
review we obtained and reviewed the supplemental appropriations acts
outlining the purpose and availability of CDBG disaster funds. We
collected and analyzed information on the Department of Housing and
Urban Development's (HUD) role in the allocation and distribution of
the funds, how Louisiana and Mississippi prioritized and developed
allocations for their shares of disaster funding, and how those
allocations changed over time. In our examination of the challenges the
two states encountered when administering their housing recovery
programs, we focused on Louisiana because of its specific approach,
which led to significant program challenges. We interviewed various
federal officials from HUD, the Federal Emergency Management Agency
(FEMA), and the Office of the Federal Coordinator for Gulf Coast
Rebuilding within the Department of Homeland Security (DHS). We also
interviewed various state officials and contractors hired by the states
and coordinated our work with HUD's Office of Inspector General and
state audit offices. We analyzed federal regulations, various state
policies and planning documents, and federal and state budget data. For
more information on our scope and methodology see appendix I. We
conducted our work from June 2007 through April 2009 in accordance with
generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and
conclusions based on our audit objectives. We believe that the evidence
obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.
Background:
The Community Development Block Grant (CDBG) program, created in 1974
and administered by the Department of Housing and Urban Development
(HUD), is the most widely available source of federal funding
assistance to state and local governments for neighborhood
revitalization, housing rehabilitation activities, and economic
development.[Footnote 5] Eligible activities include housing
assistance, historic preservation, real property acquisitions,
mitigation, demolition, and economic development. Because of the
funding mechanism that the CDBG program already has in place to provide
federal funds to states and localities, the program is widely viewed as
a convenient, ready-made solution for disbursing large amounts of
federal funds to address emergency situations. Eligible activities that
grantees have undertaken with CDBG disaster recovery funds include
public services, relocation payments to displaced residents,
acquisition of damaged properties, rehabilitation of damaged homes, and
rehabilitation of public facilities such as neighborhood centers and
roads. Over the past two decades, CDBG has repeatedly been adapted as a
vehicle to respond to federal disasters such as floods, hurricanes, and
terrorist attacks. For example, Congress provided CDBG disaster relief
funds to aid long-term recovery efforts after the Midwest floods in
1993 and for economic revitalization after the 1995 bombing of the
Murrah Federal Building in Oklahoma City. CDBG funds were also provided
to New York City in the aftermath of the September 11, 2001, terrorist
attacks to aid in the redevelopment of Lower Manhattan. When the CDBG
program is used to provide disaster relief funds, many of the statutory
and regulatory provisions governing the use of CDBG funds are waived or
modified, thereby providing states with even greater flexibility and
discretion.
Following the 2005 Gulf Coast hurricanes, $19.7 billion in disaster
CDBG funds were provided to the most affected states--Louisiana,
Mississippi, Alabama, Florida, and Texas--through three supplemental
appropriations enacted between December 2005 and November 2007. The
first CDBG supplemental appropriation, passed on December 30, 2005,
provided $11.5 billion in CDBG funding and included, among others, a
provision that prohibited any state from receiving more than 54 percent
of that total appropriation.[Footnote 6] The second supplemental
appropriation, passed on June 15, 2006, provided an additional $5.2
billion in CDBG funds and required that no state receive more than $4.2
billion of that appropriation.[Footnote 7] HUD was responsible for
allocating the funds from these two supplemental appropriations among
the five states in accordance with these and other statutory
requirements.[Footnote 8] A third supplemental appropriation passed on
November 13, 2007, and provided an additional $3 billion exclusively
for Louisiana.[Footnote 9]
According to HUD's estimates,[Footnote 10] a total of 305,109 housing
units suffered major or severe damage or were completely destroyed
along the coast of Louisiana, Mississippi, Alabama, Florida and Texas.
For perspective, figure 1 shows the states' total damages in terms of
housing units. Louisiana suffered the greatest amount of devastation
compared to any other Gulf Coast state with an estimated 204,737
damaged housing units--equal to 67 percent of the total estimated
damage in the Gulf Coast region. Mississippi had the second highest
degree of destruction with an estimated 61,386 damaged housing units--
20 percent of the total estimated damage in the region. The remaining
damage--an estimated 38,986 housing units or approximately 13 percent
of the total damage--was combined across Alabama, Florida, and Texas.
Figure 1: Estimated Number of Housing Units Damaged by State:
[Refer to PDF for image: horizontal bar graph]
State: Alabama. Florida, Texas;
Estimated number of housing units damaged: 38,986.
State: Mississippi;
Estimated number of housing units damaged: 61,386.
State: Louisiana;
Estimated number of housing units damaged: 204,737.
Source: GAO analysis of HUD damage estimates, which were based upon
FEMA and SBA inspection data.
Note: "Housing units" refers to both owner-occupied and renter-occupied
structures. "Damage" refers to units that suffered major or severe
damage or were completely destroyed.
[End of figure]
Based on HUD's analysis of housing damage estimates for each of the
five Gulf Coast states and in accordance with specific congressional
provisions, the department distributed the $19.7 billion in CDBG funds
that were appropriated for recovery efforts in the region.[Footnote 11]
Louisiana received the greatest amount--68 percent of the total CDBG
funding or $13.4 billion. Mississippi received 28 percent of the total
funding--$5.5 billion. The remaining 4 percent--almost $800 million--
was allocated across Alabama, Florida, and Texas. Figure 2 shows a
breakdown of the total amount of CDBG disaster recovery funds that HUD
allocated to each state.
Figure 2: Amount of CDBG Funds Allocated by State:
[Refer to PDF for image: stacked horizontal bar graph]
State: Alabama, Florida, Texas;
First supplemental CDBG appropriation: $0.23 billion;
Second supplemental CDBG appropriation: $0.55 billion;
Third supplemental CDBG appropriation: $0;
Total CDBG allocations: $0.78 billion.
State: Mississippi;
First supplemental CDBG appropriation: $5.06 billion;
Second supplemental CDBG appropriation: $0.42 billion;
Third supplemental CDBG appropriation: $0;
Total CDBG allocations: $5.48 billion.
State: Louisiana;
First supplemental CDBG appropriation: $6.21 billion;
Second supplemental CDBG appropriation: $4.2 billion;
Third supplemental CDBG appropriation: $3 billion.
Total CDBG allocations: $13.41 billion.
Source: GAO analysis of HUD allocation data.
[End of figure]
Traditionally, grantees are afforded broad discretion as they decide
how to allocate CDBG funds to specific projects and programs. In the
aftermath of the 2005 Gulf Coast hurricanes and in an action similar to
past disaster recovery situations, Congress provided additional
flexibility to the states' use of CDBG funds. For example, lawmakers
permitted HUD to waive certain regulations and statutes that would
otherwise be applicable including income targeting provisions and
public service expenditure caps.[Footnote 12] Specifically, HUD was
allowed to waive the threshold outlined in statute that 70 percent of
total funds must be allocated to activities that primarily benefit low
and moderate income persons. Instead, only 50 percent of the total
funds had to be targeted on this basis unless the Secretary found a
compelling need to waive the targeting provision altogether. In
addition, HUD suspended statutory requirements that limit the amount of
CDBG money that can be used to provide public services to the affected
communities.[Footnote 13] In conjunction with these increased
flexibilities, Congress prohibited HUD from waiving four specific
program requirements--nondiscrimination, environmental review, labor
standards, and fair housing.
Once HUD allocated CDBG funds to the affected states, the state-level
development agencies were responsible for the administration and
management of these funds. In Louisiana and Mississippi, the two states
that incurred the most damage, the authorities in charge of disaster
recovery efforts were the Office of Community Development (OCD) and the
Mississippi Development Authority (MDA), respectively. In Louisiana,
OCD has managed the state CDBG program over the past two decades. After
the 2005 Gulf Coast hurricanes, the Louisiana Commissioner of
Administration created the Disaster Recovery Unit within OCD to
administer the state's share of CDBG disaster relief funds. Similarly,
MDA's Disaster Recovery Division was responsible for managing
Mississippi's share of CDBG disaster relief funds.
Federal funding sources other than CDBG were available to states after
the 2005 Gulf Coast hurricanes, but CDBG supplemental appropriations
provided the largest amount of money. Other sources included the Public
Assistance (PA) grant program and Hazard Mitigation Grant Program
(HMGP), both administered by the Federal Emergency Management Agency
(FEMA).[Footnote 14] In contrast to the PA grant program--which
provides funds to support infrastructure recovery such as rebuilding
schools, roads, and utilities--HMGP provides funds to states and local
governments to implement long-term, cost-effective hazard mitigation
measures after a major disaster.[Footnote 15] For example, HMGP funds
may be used for projects such as flood-proofing properties, acquiring
the property of willing sellers in hazard-prone areas and transforming
it into open space, and retrofitting structures against earthquakes or
hurricane-force winds. After the Midwest floods in 1993, CDBG and HMGP
funds from HUD and FEMA respectively, were used to acquire privately
held property within flood plain areas in the affected states and
convert the land to public uses, such as recreation or green space.
Louisiana and Mississippi Targeted Majority of Funds to Homeowner
Assistance:
HUD allocations of CDBG disaster funds to the Gulf Coast states were
designated for necessary expenses related to disaster relief, long-term
recovery, and restoration of infrastructure in the most affected and
distressed areas. States had great flexibility in choosing the types of
recovery activities to initiate with their CDBG funds. Specific
language in the supplemental appropriations acts required states to
develop and submit action plans to HUD detailing the proposed use of
all funds. Upon submission, HUD reviewed the action plans for
acceptance.[Footnote 16] These action plans served as state proposals
for how states would use their share of CDBG disaster funds and
included descriptions of eligibility criteria and how the funds would
be used to address both urgent needs and long-term recovery and
infrastructure restoration. Any substantial program changes--presented
as amendments to a state's action plan for its use of CDBG disaster
recovery funds--had to be submitted to HUD for review and acceptance.
[Footnote 17]
Recovery activities in Louisiana and Mississippi fell into four main
categories: housing, infrastructure, economic development, and other
projects. Both Louisiana and Mississippi devoted most of their
allocations toward housing assistance, with a majority directed toward
homeowners. For example, in November 2006, Louisiana allocated nearly
77 percent of its CDBG funds for housing assistance. Of that amount,
approximately 80 percent was directed toward homeowners. In December
2006, Mississippi allocated 63 percent of its CDBG funds for housing
assistance, of which approximately 98 percent was directed toward
homeowners.
Between 2006 and 2008 Louisiana and Mississippi modified the level of
funding allocated for different recovery projects as shown in figures 3
and 4 below. For example, as permitted by CDBG guidelines, Louisiana
increased the percentage of its total CDBG allocation for housing while
Mississippi reallocated a percentage of its housing funds for economic
development needs.
Figure 3: Louisiana's Allocations of CDBG Disaster Funds in 2006 and
2008:
[Refer to PDF for image: two pie-charts]
2006 ($10.4 billion total):
Housing: 76.5%;
Infrastructure: 7.1%;
Economic development: 3.2%;
Other: 2.0%;
Unallocated: 11.2%.
2008 ($13.4 billion total):
Housing: 86.3%;
Infrastructure: 9.5%;
Economic development: 2.5%;
Other: 1.6%;
Unallocated: 0.1%.
Source: GAO analysis of budget data from Louisiana Office of Community
Development.
Note: In Louisiana, "Other" refers to planning, administration, and
technical assistance activities. "Housing" includes homeowner, rental,
and low-income programs.
[End of figure]
Louisiana's increased focus on housing largely resulted from the
additional supplemental appropriations that Congress provided amid
concerns that the state's housing recovery program needed additional
funds. As of November 2006, Louisiana received $10.4 billion in CDBG
disaster relief funds. After Congress granted an additional $3 billion
in CDBG funds exclusively for Louisiana, in November 2007, the state's
total increased to $13.4 billion. Mississippi's reprogramming of funds
was largely attributed to the state's decision to repair one of its
storm-damaged ports.
Figure 4: Mississippi's Allocations of CDBG Disaster Funds in 2006 and
2008:
[Refer to PDF for image: two pie-charts]
2006 ($5.5 billion total):
Housing: 63.0%;
Economic development: 9.1%;
Other: 8.9%;
Unallocated: 18.4%.
2008 ($5.5 billion total):
Housing: 52.4%;
Infrastructure: 11.1%;
Economic development: 22.8%;
Other: 11.7%;
Unallocated: 2.0%.
Source: GAO analysis of budget data from the Mississippi Development
Authority.
Note: In Mississippi, "Other" refers to ratepayer and wind insurance
mitigation and administrative activities. "Housing" includes homeowner,
rental, and low-income programs.
[End of figure]
The different approaches that Louisiana and Mississippi took for
designing and developing their own homeowner assistance programs led to
substantially different experiences. The specific goals and details of
Louisiana's and Mississippi's initial designs differed significantly.
Louisiana started with a program design that included incentives to
promote home rebuilding and ensure retention of the state population.
The primary concern for Louisiana state officials was to bring
residents back to their communities to begin the process of rebuilding.
On the other hand, Mississippi adopted a much simpler design, which
awarded one-time, lump-sum payments to homeowners to compensate them
for their losses, independent of their choice to rebuild. This helped
Mississippi to avoid many of the challenges and delays that Louisiana
would experience as discussed in the next section of this report.
Federal Guidance Was Insufficient to Address Louisiana's Approach to
Housing Recovery:
As Louisiana and Mississippi planned their housing recovery efforts,
Louisiana designed different solutions than Mississippi did. Louisiana
initially adopted a plan that tied federal funds to home reconstruction
and controlled the flow of funds to homeowners while Mississippi paid
homeowners for their losses regardless of their intentions to rebuild.
Specifically, Louisiana initially created a program that incorporated
certain elements from two different housing recovery program models:
compensation and rehabilitation. Although there is no written guidance
distinguishing between the two models, HUD officials explained to us
what the major differences are between the two programs. Generally, in
a rehabilitation program, funds are used explicitly for repairs or
reconstruction projects. In contrast, a compensation program disburses
grant payments directly to homeowners for the damages they suffered
regardless of whether they intend to repair or rebuild.
Furthermore, rehabilitation and compensation programs are subject to
different legal and financial requirements in terms of HUD's oversight
responsibilities. HUD officials explained that under a rehabilitation
model, binding federal funds to reconstruction triggers several federal
requirements, including site-specific environmental reviews of each
property. Federal and state officials said these environmental reviews
can be costly and time consuming, taking perhaps several months to
years to complete.[Footnote 18] Officials in both states said this was
a key factor considered when deciding whether or not to adopt the
rehabilitation model. Under a compensation model, environmental reviews
are not required because recipients are not required to spend their
grant proceeds on home repair and reconstruction. Senior HUD officials
said that historically, CDBG funds have not been used for compensation
programs, but rather rehabilitation, reconstruction, and rebuilding
programs.[Footnote 19] According to senior HUD officials involved with
administering CDBG disaster assistance, CDBG is not often used for
compensation programs because it is difficult to know what recipients
will do with the money.
Louisiana's other solution was to try to use multiple federal funding
streams for its housing recovery program. Specifically, the state
planned to finance the purchase of properties with CDBG funds and
essentially pay itself back with FEMA funds. Mississippi, on the other
hand, chose not to combine federal funds together in this way. Existing
guidance was not sufficient to address Louisiana's approach, and
failures in communication hindered full understanding of the problems
with the state's particular program and funding designs. As a result,
Louisiana encountered many challenges to implementing its recovery
efforts that Mississippi did not.
In Louisiana, there were two major problems stemming from its
particular program and funding designs. The first was a
misunderstanding between Louisiana officials and HUD staff as to
whether the design for their housing recovery program could be
considered a compensation program, as opposed to a rehabilitation
program. The two types of programs have different regulatory
requirements as noted above. In particular, rehabilitation programs
require costly and time-consuming site-by-site environmental reviews,
whereas compensation programs do not. Louisiana's program design was
labeled as compensation, even though it contained elements of a
rehabilitation program. This led to more misunderstandings with HUD and
delays in program implementation.
The second problem came up when, on the advice of the Federal
Coordinator for Gulf Coast Rebuilding (Federal Coordinator) according
to state officials, Louisiana tried to use multiple federal funding
sources for its housing recovery program.[Footnote 20] Louisiana state
officials planned to use FEMA and HUD funds together for purposes
allowable under the requirements for each funding source. However, the
manner in which the state planned to use the funds to finance the
state's purchase of residential properties led the state to run afoul
of certain programmatic and legal requirements governing the FEMA
funds. All of these problems led to more delays in funding and program
implementation.
Misunderstandings between Louisiana and HUD Led to Multiple Iterations
of the Road Home Program:
Louisiana state officials developed and started to implement the Road
Home program,[Footnote 21] which evolved over the course of
approximately 12 months between May 2006 and May 2007. Throughout, HUD
staff provided technical assistance to state officials and conducted
scheduled monitoring visits for oversight purposes. To explain the
evolution of the Road Home program, we identified three key phases and
their associated milestones: the original design (approved May 2006),
the revision (accepted July 2006), and HUD's cease and desist order
(issued March 2007). Table 1 below highlights the time line of events
surrounding the evolution of the Road Home program.
Table 1: Time Line of Events Surrounding the Evolution of Louisiana's
Road Home Program:
Phase One:
Date: Feb. 13, 2006;
Event: HUD announced Louisiana's first CDBG disaster funding allocation
and related waivers.
Date: May 12, 2006;
Event: Louisiana submitted action plan to HUD describing Road Home
program.
Date: May 30, 2006;
Event: HUD approved the Road Home program.
Phase Two:
Date: July 12, 2006;
Event: Louisiana re-submitted Road Home program action plan to HUD as a
compensation program; HUD accepted Road Home as a compensation program;
Louisiana began pilot of Road Home program.
Date: Aug. 11, 2006;
Event: Louisiana submitted clarification and an update to HUD about
Road Home.
Date: Aug. 22, 2006;
Event: HUD approved the Road Home clarification and update; Road Home
began accepting homeowner applications.
Date: Nov. 30, 2006;
Event: Louisiana submitted further clarifications about Road Home
program; HUD accepted Road Home clarifications.
Phase Three:
Date: Mar. 16, 2007;
Event: HUD ordered Louisiana to cease and desist Road Home program.
Date: Apr. 9, 2007;
Event: Louisiana publicly announced Road Home as lump-sum compensation
program.
Date: May 7, 2007;
Event: Louisiana submitted Road Home program action plan amendment to
HUD; adopted lump-sum compensation model.
Date: May 30, 2007;
Event: HUD approved action plan amendment.
Source: Data from HUD and Louisiana's Office of Community Development.
[End of table]
Original Program Design Encouraged Homeowners to Stay:
This first phase began after HUD announced Louisiana's first CDBG
disaster funding allocation in February 2006. In the following months,
Louisiana state officials established the goals of the Road Home
program, which were aimed at encouraging residents to return to their
neighborhoods and rebuild their storm-damaged homes.[Footnote 22] To
meet the program goals, Louisiana state authorities developed the main
housing assistance components[Footnote 23] of the program and offered
homeowners three specific options through the program. Homeowners
could: (1) rebuild homes on their own properties, (2) sell their
properties and relocate within the state, or (3) sell their homes and
relocate outside of the state. Those homeowners who chose to stay in
Louisiana were eligible to receive a larger grant award than those who
chose to leave the state.[Footnote 24] As noted above, in contrast to
Louisiana's home recovery plan, Mississippi chose early on to adopt a
homeowner assistance program that was clearly within the terms of a
compensation model. Once Louisiana homeowners applied for Road Home
assistance, they had to select their preferred benefit option.[Footnote
25] Among the three choices available to homeowners, rebuilding was the
most popular selection. Of the 143,580 homeowners who returned their
benefit preference to state officials, almost 88 percent chose to stay
and rebuild their storm-damaged homes.[Footnote 26]
By April 2006, Louisiana officials completed the state's action plan.
The action plan outlined the different types and amounts of assistance
available to homeowners, eligibility criteria, formulas to calculate
recipient grant awards, and a general description of the disbursement
process to transfer funds to eligible recipients. Under the initial
design of the Road Home program, homeowners who chose to rebuild were
required to meet code and zoning requirements and comply with the
latest available FEMA guidance for base flood elevations. These
homeowners were required to use the home as their primary residence for
at least 3 years upon completion of repairs.[Footnote 27] Louisiana
submitted the plan to HUD on May 12, 2006--3 months after HUD announced
each state's allocation of CDBG funds. The HUD Secretary approved
[Footnote 28] Louisiana's action plan for the Road Home program
approximately 2 weeks later on May 30, 2006.
Action Plan Revision Attempted to Address Conflicting Interpretations;
Program Development Proceeded:
The second phase began in the months immediately following the HUD
Secretary's approval of the Road Home action plan. Key HUD staff and
state officials had different interpretations and expectations of
exactly how the Road Home program would operate. Because HUD lacked
written program guidance, there were no concrete federal definitions
that HUD or the state could refer to. According to HUD officials who
were involved in reviewing Louisiana's action plan, their understanding
was that Road Home would operate as a rehabilitation program--thereby
requiring site-specific environmental reviews. In contrast, Louisiana
state officials thought CDBG program rules provided sufficient
flexibility so that the program they proposed qualified as a
compensation model and would not require the environmental reviews. As
a result, Louisiana officials revised the action plan in an attempt to
resolve the conflicting interpretations and re-submitted the plan for
HUD review. HUD officials said that they worked with state officials to
revise the language in the action plan to reflect more of a
compensation-type program so as to not trigger the site-specific
environmental requirements. On July 12, 2006, HUD officials accepted
the revised plan for Road Home as a compensation program.
Upon HUD's acceptance of the action plan, the state continued to
develop the operational and payment structures to implement Road Home
and initiated a pilot of the program. On August 11, 2006, the state
provided HUD with additional Road Home program clarifications that
further explained the formulas used to calculate grant award payments
to homeowners and the covenants that would be placed upon the homes of
those who chose to stay in their homes and rebuild. The covenants
required that Louisiana homeowners rebuild and elevate their homes in
accordance with applicable codes and local ordinances and that the home
be owner-occupied for at least 3 years after receiving compensation and
be covered by the appropriate insurance.[Footnote 29] The purpose of
these covenants was to ensure that homeowners returned to their
neighborhoods and helped to rebuild the community. The state also
clarified that homeowners who did not fulfill the terms of their
covenants may not receive benefits or may have to repay all or some of
the compensation they received. In addition, homeowners would receive
grant proceeds incrementally to ensure covenant compliance, but were
not required to use the money for repairs and rebuilding costs. To meet
the requirements for a compensation program, the action plan amendment
explicitly stated that homeowners had complete discretion as to the use
of the compensation they received. HUD approved the clarifications in
the amendment on August 22, 2006. Another step forward for the program
involved state officials establishing agreements with local financial
institutions and defining their roles and responsibilities in the
disbursement process, transferring funds from the state to eligible
recipients. Agreements were also established between individual
homeowners, the state, and the financial institutions and included
specific provisions and requirements that outlined the terms of grant
award disbursement.
During this second phase, the state worked out some of the details of
its original design. For example, homeowners who chose to rebuild their
storm-damaged homes would receive their CDBG grant awards in
incremental payments as they provided evidence to the state that
rebuilding efforts were under way. Under the Road Home program, a
homeowner would receive an initial portion of his or her grant proceeds
equal to either $7,500 or 10 percent of his or her total grant
proceeds--whichever is less--upon execution of a contract for repairs.
Subsequently, the homeowner would receive a second portion of the grant
proceeds equal to no more than one-third of the total funds necessary
to rebuild his or her home upon completion of a commensurate amount of
repairs.[Footnote 30] Similarly, a third payment would be disbursed
upon completion of two-thirds of the necessary repairs followed by a
final disbursement of the remaining grant proceeds. Final payment of
the grant proceeds is withheld until the state receives verification
that the work is actually complete thereby protecting the homeowner
from potential fraudulent contractor action.[Footnote 31] Louisiana
state officials chose this type of incremental payment system to
provide assurance that federal funds were being spent as intended, and
to provide information that could be used to measure the progress of
homeowners' rebuilding. Tying CDBG funds to home repairs in this manner
is consistent with a rehabilitation program; however, Road Home had
been labeled and approved as a compensation program.
One year after Hurricane Katrina made landfall, the Road Home program
was officially launched statewide in late August 2006 when the state
began accepting applications from homeowners and continued forward with
plans to disburse initial payments to those homeowners who participated
in the pilot. Throughout the subsequent months, state authorities
mailed out award letters to individual homeowners explaining the three
options available to them and giving them deadlines for their
participation. In addition, housing assistance centers, where eligible
homeowners could speak with trained housing advisors to help guide them
through the process and make informed decisions about their options,
opened state-wide. Housing advisors also collected critical information
from homeowners regarding ownership, insurance, and mortgage balances--
information that was required to process individual applications and
inform benefit calculation. In November 2006, Louisiana submitted
another action plan amendment that, among other changes, removed any
penalty for elderly homeowners who chose to relocate outside of
Louisiana.[Footnote 32] HUD did not consider the contents of the
November 2006 amendment to be substantial enough to require formal
review, allowing state officials to continue forward with the Road Home
program. By March 15, 2007, Louisiana had received more than 116,000
applications for Road Home assistance and disbursed approximately
$214.4 million to nearly 3,000 homeowners.[Footnote 33]
HUD's Cease and Desist Order Prompted More Changes to Road Home
Program:
The third phase began on March 16, 2007, when HUD ordered Louisiana
officials to "cease and desist" Road Home, approximately 7 months after
the program was fully operational. According to HUD officials, they
found that the program was operating more like a rehabilitation
program--meaning that CDBG funds were paying for home repairs and
reconstruction exclusively--and therefore, participating homes were
subject to site-by-site environmental reviews. While there is no
written documentation explaining HUD's decision reversal nor any
written federal guidance outlining the specific terms of a compensation
program, key HUD officials provided us with a verbal explanation.
Specifically, they said that HUD staff conducted a scheduled monitoring
visit to Louisiana and reviewed the operating documents for the Road
Home program, including the grant disbursement agreements. According to
an e-mail from the HUD Assistant Secretary to key HUD staff involved in
Gulf Coast recovery, there was an "apparent inconsistency" between Road
Home program operations and the approved action plan. HUD would not
allow the state to move forward with the program until adjustments were
made to the disbursement process or until the state conducted the
required site-by-site environmental reviews.
According to Louisiana state officials, they were very surprised and
frustrated by HUD's decision because of the department's previous
acceptance of the Road Home program design. One top Louisiana official
testified on May 8, 2008, before the House Financial Services
Subcommittee on Housing and Community Opportunity that the
environmental assessments were the single biggest reason for the state
opting to implement a compensation model over a rehabilitation model.
During the early development of Road Home, Louisiana conducted a study
to estimate the costs, staff requirements, and time needed for full
site-by-site property reviews. The state concluded that there was no
practical way to cost-effectively perform the environmental assessments
on well over 100,000 homes and expect to get rebuilding money "on the
street" in a timely manner.
State officials met with key HUD staff in Washington, D.C., to discuss
HUD's concerns and reconcile conflicting federal and state
interpretations of what qualifies as a compensation program versus a
rehabilitation program. However, as noted earlier, Louisiana officials
believed that CDBG regulations provided sufficient flexibility for its
approach to operate a compensation program. After these discussions,
Louisiana state officials decided to abandon their plans to disburse
grant proceeds incrementally and chose to provide funds to homeowners
in lump-sum payments. State officials submitted an action plan
amendment to HUD in early May 2007 to document this policy change. HUD
approved the revised action plan shortly thereafter and said in its
approval letter to state officials that the changes addressed the
Department's concerns that Road Home "did not comply with the
requirements of a true compensation program." Louisiana state
authorities announced the policy change on April 7, 2007, explaining
that homeowners would receive a full payment of their Road Home grant
award in lump sum. They also recommended that homeowners consult with
financial advisors, lenders, and housing counselors before beginning
home repairs and encouraged homeowners to establish voluntary
disbursement accounts with lenders to help guard against fraudulent
contractor activity.
While the state continued to accept homeowner applications, individual
covenants had to be revised; homeowner grant awards had to be
recalculated; and scheduled house closings[Footnote 34] were postponed.
Many federal and state officials said that the original design of the
Road Home program with the incremental payment process was better
aligned with the state's original priorities of ensuring long-term
rebuilding and incorporating front-end assurances that federal funds
were spent as intended than the lump-sum compensation program that was
ultimately implemented. Senior HUD officials told us that a
compensation model could disburse funds to homeowners incrementally
rather than one-time, lump-sum payments, but the officials were unable
to provide any examples where such an approach has been taken when
disbursing CDBG disaster recovery funds.[Footnote 35]
Conflicting Federal Determinations Hindered Coordination of Federal
Funding Sources:
While the CDBG program provided much of the federal assistance in the
aftermath of the 2005 Gulf Coast hurricanes, several other federal
programs provided assistance to Louisiana to support the state's
comprehensive long-term recovery efforts, including among others,
FEMA's Hazard Mitigation Grant Program (HMGP). Louisiana was eligible
to receive almost $1.5 billion from FEMA's HMGP, which is part of a
broad framework of FEMA initiatives authorized by the Robert T.
Stafford Disaster Relief and Emergency Assistance Act.[Footnote 36]
Similar to the evolution of Louisiana's Road Home program design
discussed above, the state's proposal to use HMGP funds for homeowner
assistance also evolved for more than a year.
Key Federal and State Officials Agreed That HMGP Funding Could Be Used
for Road Home:
Soon after the first supplemental appropriation was enacted in late
December 2005, federal and state officials entered into negotiations
for a second appropriation of CDBG funding in light of concerns that
the Road Home program needed additional funds. State officials reported
that as part of these negotiations, the Office of the Federal
Coordinator advised them on how to incorporate HMGP funding[Footnote
37] into the Road Home program. Doing so would have reduced the amount
of additional CDBG funds the state would request from Congress.
As part of their proposed funding design for the Road Home program,
Louisiana state officials planned to use approximately $1.1 billion in
HMGP funds in coordination with CDBG funds to purchase over 12,000
properties from homeowners who chose to relocate. The properties would
have initially been purchased with CDBG funds. At some point, but not
necessarily before their purchase, state officials and other
stakeholders would determine exactly which properties would be
converted to open space and which ones would be redeveloped. The cost
of the properties converted to open space would then be reimbursed with
HMGP funds, as converting properties to open space is an acceptable
mitigation activity under HMGP rules and regulations.
In traditional HMGP projects, funding is typically passed through the
state government to a local sub-grant applicant to coordinate with
property owners. In this case, the state itself would have been
coordinating directly with property owners. According to FEMA
officials, they first found out that the state expected to use HMGP
funds toward Road Home in July 2006, after the state had already
published its action plans, which stated this intention. FEMA also
claimed that the agency was not included in the initial negotiations
between the state and the Federal Coordinator's office. However,
Louisiana state officials reported that FEMA verbally committed to
allowing the state to use HMGP funds for acquisitions. Throughout the
second half of 2006 and much of 2007, state officials met regularly
with FEMA as well as HUD--who did not oppose the initial plan--to work
out an agreement for the use of HMGP funds. However, it still took over
one year for FEMA and the state to come to an agreement over how HMGP
funding could be used.
FEMA Rejected Louisiana's Initial Application for HMGP Funds:
In late September 2006, Louisiana submitted its application to FEMA for
HMGP funds in accordance with its planned property acquisition project.
In a December 13, 2006 letter to the Louisiana Governor's Office for
Homeland Security and Emergency Preparedness (GOHSEP)--the entity
responsible for administering and managing the state's HMGP funds--FEMA
expressed its concerns with Louisiana's application.
FEMA denied Louisiana's application to use HMGP toward the Road Home
program in February 2007 because the agency asserted that the state's
intended plan to use HMGP for property acquisition did not meet
statutory, regulatory, or programmatic requirements. Specifically, FEMA
cited three main aspects of the proposal that formed the basis for its
rejection:
* the plan exempted senior citizens from a specific financial penalty
under the Road Home program, which violated FEMA's statutory
requirement of non-discrimination based on age;
* the plan did not adequately involve local jurisdictions; and:
* the application itself was too general and did not contain project-
level data and specific budget information.
FEMA officials also indicated that the proposed project was
inconsistent with the overall purpose of HMGP; namely, they perceived
the Road Home proposal as more focused on redevelopment than long-term
hazard mitigation. As noted in FEMA's letter to Louisiana, the state
did not have a plan to coordinate with local officials to identify
which properties would become part of the HMGP program before their
acquisition. However, state officials could not identify the total
number of properties that would be converted to open space or
redeveloped until homeowners indicated to the state their choice to
either keep or sell their storm-damaged property in accordance with the
benefit options available under the Road Home program. Subsequently,
FEMA maintained that this arrangement would not provide enough detail
for the agency to determine project eligibility for specific
properties. It appeared that the Road Home program lacked sufficient
budgetary resources, and the state's priority was to "backfill" the
CDBG account with proceeds from HMGP, according to one FEMA official.
Louisiana state authorities submitted an appeal to FEMA on April 4,
2007. In that letter, GOHSEP urged FEMA to reverse its decision and
allow the Road Home program to use HMGP funds to acquire property and
transform it into open space. GOHSEP argued that the combination of the
CDBG-funded Road Home program and the HMGP acquisition project had the
great potential to reduce future damages more than any other hazard
mitigation project ever funded. Table 2 below shows the time line of
events surrounding the state's attempt to leverage HMGP funding.
Table 2: Time Line of Events Surrounding Louisiana's Attempt to
Leverage HMGP Funds:
2006:
Date: January;
Event: Concerns expressed that Road Home program needs additional
funds. Meetings between Louisiana state officials and the Federal
Coordinator.
Date: Summer, Fall;
Event: Interagency Steering Committee meetings including Louisiana,
FEMA, and HUD.
Date: July 12;
Event: Louisiana officials contend that FEMA verbally committed to
Louisiana's use of funds for acquisitions.
Date: September 29;
Event: Louisiana applied for HMGP funds.
2007:
Date: February 6;
Event: FEMA denied Louisiana's application.
Date: April 4;
Event: Louisiana submitted appeal to FEMA.
Date: July 16;
Event: FEMA denied the state's appeal.
Date: Summer;
Event: Louisiana decided to use HMGP for elevations rather than
acquisitions.
Date: October 15;
Event: FEMA approved Elevation/Pilot Reconstruction Project.
Date: November 13;
Event: Public Law 110-116 passed ($3 billion for Road Home).
Source: Data from FEMA, Louisiana's Office of Community Development,
and Louisiana Governor's Office of Homeland Security and Emergency
Preparedness.
[End of table]
FEMA denied the state's appeal on July 16, 2007. According to FEMA
regulations, HMGP funds cannot be used as a substitute or replacement
to fund projects or programs that are available under other federal
authorities, except under limited circumstances in which there are
extraordinary threats to lives, public health or safety or improved
property. [Footnote 38] HMGP funds may, however, be packaged or used in
combination with other federal, state, local, or private funding
sources when appropriate to develop a comprehensive mitigation
solution. One FEMA official testified that HMGP is not designed to
compensate individuals for disaster losses. Rather, HMGP provides
communities with resources to implement long-term solutions that reduce
the risk to citizens and public facilities from hazards. The Stafford
Act permits HMGP funds to be used in connection with flooding for
property acquisition as long as the property's use is compatible with
an open space, recreational, or wetlands management practice, among
other requirements.[Footnote 39] In Louisiana's case, the state's
planned use of HMGP funds was to transform flood-prone properties into
open space and relocate homeowners out of harm's way. In a May 24,
2007, hearing before the Senate Homeland Security and Governmental
Affairs Subcommittee on Disaster Recovery, FEMA's Assistant
Administrator for Mitigation testified that the agency "agreed in
concept to this approach and began developing the legal and
programmatic framework to make it work." However, FEMA later determined
that the state's implementation approach did not allow for compliance
with HMGP requirements.
Although HUD and FEMA are bound by similar nondiscrimination statutes
and regulations to determine project eligibility for their respective
disaster recovery programs, the agencies reached different conclusions
about their ability to fund the Road Home program. FEMA's determination
that it could not fund the program because of HMGP's non-discrimination
requirements prevented HMGP funding from being used for property
acquisitions as initially intended by the state. Under the Road Home
program, homeowners who chose to sell their properties to the state and
relocate outside Louisiana or those who sold homes and remained in the
state without purchasing new properties incurred a financial penalty.
Specifically, homeowner grants were reduced by 40 percent. Elderly
homeowners (65 or older as of December 31, 2005), however, were exempt
from this penalty. HUD did not find this measure violated the non-
discrimination requirements applicable to CDBG funds, which were used
to fund the Road Home program. However, citing the Stafford Act, FEMA
determined that such an exemption was discriminatory toward homeowners
under the specified age limit. From the states' perspective, it was not
necessarily clear how two separate nondiscrimination provisions would
be applied to the Road Home program. In effect, different federal
determinations prohibited the state's efforts to design and implement
this piece of its housing recovery program.
FEMA Accepted Revised HMGP Application, but Delays Continued:
Louisiana successfully redesigned the program to use HMGP funding
primarily for elevation grants, but the vast majority of homeowners
have yet to receive funds. After FEMA denied the state's appeal to use
HMGP funds for property acquisitions, state officials redesigned their
request, and submitted a new application to FEMA to use HMGP funding
for homeowner elevation grants and reconstruction projects.[Footnote
40] FEMA approved the plan, and in October 2007 the agency approved a
small batch of test properties as eligible to receive HMGP funds.
Although the state administered the new elevation/reconstruction
project through the Road Home program, HMGP funds were not integrated
with CDBG funds as they would have been under Louisiana's original
acquisition proposal. Both federal and state officials characterized
the HMGP elevation project as running on a separate but parallel track
to the CDBG-funded homeowner assistance program. Homeowner demand for
the projects has been less than expected, in part because of the length
of time it has taken to develop and implement the program.
Consequently, the state has reallocated funds from the state-run HMGP
elevation/reconstruction program to community-led traditional HMGP
projects.
Our past work found that the application process for HMGP funds can be
complex and time and resource intensive.[Footnote 41] Long delays can
occur in receiving funds, which can lead to additional obstacles for
local communities. For example, delays in receiving grant funds can
prevent a city from being more cost-effective in terms of mitigation.
These types of HMGP delays were only exacerbated in Louisiana when the
state attempted to use HMGP funds alongside CDBG funds. While FEMA has
taken several steps to streamline their review processes, every
property must still meet FEMA eligibility requirements, including
environmental and historical preservation requirements. In our prior
work, one local mitigation official said that it would be most
effective to conduct mitigation activities immediately after a storm
event, when damages are being repaired, rather than waiting for HMGP
funds to become available.[Footnote 42] According to FEMA, while states
normally have up to one year from the date of a disaster declaration to
apply for HMGP funds, the approval process can begin much earlier
following a disaster if state and local officials have previously
identified viable mitigation projects that are consistent with state
and local mitigation plans. However, without effective communication
between federal agencies, states are challenged to coordinate the
multiple streams of federal funding typically needed to address
recovery from catastrophic disasters.
Louisiana and Mississippi Took Similar Approaches to Address Human
Capital Needs for Unprecedented Program Size:
In the immediate aftermath of such a catastrophic disaster, Louisiana
and Mississippi state development agencies lacked sufficient capacity
to effectively manage billions of dollars in federal assistance. This
is most evident in the human capital challenges state agencies faced as
they designed and developed state CDBG programs of unprecedented size.
We found that Louisiana and Mississippi employed similar approaches to
build organizational capacity and address human capital needs,
including the creation of new state entities, hiring private
contractors, and hiring additional state agency staff.
Prior to the 2005 Gulf Coast hurricanes, state community development
agencies in both states had experience managing CDBG program budgets of
similar size to one another. For example, between fiscal years 2002 and
2005, the average annual CDBG program administered at the state level
was budgeted at approximately $34.6 million and $35.6 million for
Louisiana and Mississippi respectively. Funding allocations for state
CDBG programs have been generally declining in recent years.
Specifically, Louisiana's state CDBG program budget decreased to $27.6
million in 2008 while Mississippi's budget decreased to $29.8 million.
The amount of CDBG disaster recovery funds Congress provided after the
Gulf Coast hurricanes translated into enormous increases in both
states' CDBG budgets. Table 3 shows the annual state CDBG budgets for
Louisiana and Mississippi compared to the amount of CDBG disaster funds
provided to each state for Gulf Coast hurricanes recovery and
rebuilding efforts.
Table 3: Comparison of Louisiana's and Mississippi's Annual CDBG
Budgets to CDBG Disaster Funds Allocated After 2005 Gulf Coast
Hurricanes (in millions):
Louisiana: State CDBG Program;
FY2002-FY2005 (average): $34.6;
FY2006: $29.3; FY2007: $29.5;
FY2008: $27.6.
Louisiana: CDBG Disaster Funds;
FY2002-FY2005 (average): [Empty];
FY2006: $6,210.0;
FY2007: $4,200.0;
FY2008: $3,000.0.
Mississippi: State CDBG Program;
FY2002-FY2005 (average): $35.6;
FY2006: $30.4;
FY2007: $30.5;
FY2008: $29.8.
Mississippi: CDBG Disaster Funds;
FY2002-FY2005 (average): [Empty];
FY2006: $5,058.2;
FY2007: $423.0;
FY2008: [Empty].
Source: GAO analysis of HUD data.
Note: Annual CDBG figures reflect funds granted to the state program.
Additional CDBG funds are administered by localities within the state.
[End of table]
Both states were suddenly responsible for managing and administering
multibillion dollar programs that were substantially larger than their
more typical multimillion dollar programs.
Both States Created New Offices to Direct Disaster Recovery Efforts:
Both states created new entities to coordinate and oversee rebuilding
efforts and to serve as policymaking bodies responsible for planning
and coordinating efforts throughout the state. In Louisiana, the
governor created the Louisiana Recovery Authority (LRA) within the
state's executive branch in October 2005.[Footnote 43] As part of its
responsibilities, LRA was charged with establishing spending priorities
and plans for the state's share of CDBG funds, subject to approval of
Louisiana's state legislature. LRA's primary goals included securing
funding for recovery and rebuilding, identifying and addressing
critical short-term recovery issues, and providing oversight and
accountability. While LRA was responsible for developing and issuing
policies on the state's recovery, the Office of Community Development
(OCD) was responsible for administering the Road Home program and
managing the day-to-day implementation of LRA's policies. In 2008,
under the leadership of a newly elected governor, OCD merged with LRA
creating a more centralized structure for authority and oversight of
the state's recovery activities. Moreover, the executive director of
the recently combined LRA and OCD now serves as the governor's
authorized representative to the President for disaster recovery in
Louisiana. According to one state official we spoke with, this
consolidated leadership structure has improved the operation of the
Road Home program.
Similarly, in Mississippi, the governor created the Governor's Office
of Recovery and Renewal in January 2006, which served as a policy-
oriented body and had the primary responsibility for designing the
state's various recovery programs and shaping the state's overall
approach to rebuilding.[Footnote 44] Among its responsibilities, the
office coordinated relief efforts among federal and state agencies and
other public and private entities. Its primary objectives included,
obtaining the maximum amount of federal funds and maximizing the use of
credit in lieu of cash, providing policy advice and formulation to the
governor and state agencies, providing technical assistance and
outreach to local governments, and facilitate the implementation of
recommendations made by the Governor's Commission.[Footnote 45] While
the Governor's Office of Recovery and Renewal is responsible for
setting policies for long-term recovery plans, Mississippi Development
Authority (MDA) is responsible for the implementation of these policies
and administering the state's CDBG disaster recovery programs.
Both States Hired Additional State Agency Staff and Private
Contractors:
Officials from the state development agencies--OCD and MDA--recognized
the need to build the states' organizational capacities to address the
enormous task of developing and managing massive housing recovery
programs. In response, both Louisiana and Mississippi hired additional
state agency staff; however, Mississippi lagged behind Louisiana in
this effort. Specifically, Louisiana OCD made use of state civil
service provisions that allowed the agency to recruit higher-salaried,
term-appointment managers who were well-qualified disaster recovery
experts. According to the former Executive Director of OCD, despite
most of the key staff in the agency having more than 20 years of
experience working with the CDBG program, the agency needed additional
help. OCD hired staff from other states who had experience implementing
federal housing programs and with CDBG disaster program funding. These
individuals came from various states including Kentucky, New York,
North Dakota, and Pennsylvania and were placed in top management
positions within the agency.
In Mississippi, top agency officials also acknowledged that the state
and local governments were overwhelmed by the scale of destruction left
by the 2005 Gulf Coast hurricanes. One top MDA official said the agency
did not have a sufficient number of staff in place--particularly staff
with expertise in CDBG-funded disaster recovery programs--to administer
a wide range of new programs. Top MDA officials said that they had
approximately 20 people assigned to disaster recovery positions in the
aftermath of the 2005 Gulf Coast hurricanes. Eventually, MDA increased
its disaster recovery staffing level in 2008 after receiving an
evaluation and recommendations from HUD. For example, an audit
conducted by the HUD Inspector General found that MDA did not have
adequate staff to monitor implementation of the state's Homeowner
Assistance Program and had not established the required monitoring
processes. The supplemental appropriations act that provided CDBG funds
for recovery from the 2005 Gulf Coast hurricanes, coupled with the
state's HUD-approved action plan, required that MDA establish and
implement monitoring processes to ensure that program requirements were
met and to provide continuous quality assurance.
In addition, HUD's Office of Community Planning and Development, which
was the office responsible for administering and overseeing CDBG
disaster recovery funds, found that MDA had insufficient separation of
duties, thereby negatively affecting the state's fiscal controls and
accounting procedures for billions of federal CDBG dollars.
Specifically, HUD found that one individual had multiple roles of
authority as a program and financial manager and monitor as well as an
invoice approval and reconciliation manager. In response to HUD's
findings, MDA restructured the agency and created a separate bureau to
handle all reporting and monitoring responsibilities. The agency also
hired 30 people, for a total of approximately 50 employees assigned to
administering and managing the state's disaster recovery work.
In addition to hiring additional agency staff, both states contracted
with private firms to help state development agencies implement and
manage their housing assistance programs. Both states hired contractors
to set up customer service centers, process applications, determine and
verify eligibility and calculate damage compensation amounts, develop
tracking procedures, prevent duplication of benefits, and develop cost
estimates. Louisiana officials recognized that even with the additional
agency staff, the agency still did not have the capacity to manage all
of those operations. When reviewing potential contractors to implement
the Road Home program, state officials included multiple stakeholders
in an inclusive and transparent process. For example, the top OCD
official at the time brought in experts from other states to score and
rank the various proposals. ICF International's proposal was
unanimously chosen by the selection team with the support of the state
legislature and state attorney general's office. The initial contract
between OCD and ICF International cost approximately $756 million, but
the cost increased to $912 million in December 2007 when the number of
homeowners estimated to receive assistance increased from 100,000 to
160,000. Similarly, MDA recognized its need to build capacity and
contracted with Reznick Group to implement its Homeowners Assistance
Program. One top MDA official said the agency relied heavily on Reznick
to manage program operations on the ground. Mississippi's contract with
the firm cost an estimated $88 million.
Both States Said They Needed HUD Staff on the Ground:
According to state officials in both Louisiana and Mississippi, the
state development agencies responsible for designing and administering
CDBG-funded housing recovery programs needed regular, on-site technical
assistance from HUD staff. While HUD staff did conduct four to five on-
site monitoring and technical assistance visits per year as part of its
oversight responsibilities, a number of state officials pointed to a
need for clarification and further explanation of various federal
regulations, environmental requirements, and waivers related to the
states' use of CDBG funds in disaster recovery activities. HUD has
field offices in both states; however, the CDBG disaster recovery
program for the Gulf Coast was managed out of the agency's Washington,
D.C. headquarters office. In Mississippi, MDA officials asserted that
some of their agency's capacity challenges and frustration interacting
with HUD could have been alleviated if one HUD official had been
assigned to work in their office. Specifically, they identified two
ways that on-site HUD assistance would have benefited the state. First,
a HUD representative would have brought extensive CDBG expertise and
helped to fill the knowledge gap at the state level. Second, a HUD
representative with sufficient decision-making authority could have
reduced bureaucratic delays and led to quicker program implementation.
According to MDA officials, HUD's first visit to Mississippi was in the
fall of 2007, almost 2 years after Hurricane Katrina's landfall.
Similarly, top officials in LRA and OCD also highlighted the state's
need for on-site technical assistance, adding that such an arrangement
could have helped Louisiana avoid some of the challenges it encountered
with the Road Home program. For example, one top state official said
that HUD's on-site presence would have strengthened the state's ability
to evaluate its options during program design, particularly when
choosing to implement a compensation model versus a rehabilitation
model. Another top state official in Louisiana expressed frustration
that HUD encouraged the state to be creative only to get "stuck" in
trying to do so because of insufficient guidance from HUD on the
nuances related to CDBG disaster funds. In that official's opinion, it
would have been more helpful if HUD's role was less prescriptive but
still provided a clear sense of direction to the states. Louisiana
officials suggested that HUD representatives could work in state
agencies for a couple months at a time, rather than providing technical
assistance by phone--which was typically the case after the 2005 Gulf
Coast hurricanes. The former top OCD official said that they never had
HUD on the ground with them in that capacity.
Officials in both states expressed frustration with CDBG as a funding
delivery mechanism, and were critical of its effectiveness in disaster
recovery programs. According to one key state official, CDBG is a
totally inappropriate source for funding disaster recovery efforts and
it is not well-designed to meet the immediate needs of residents. Other
top state officials were critical of HUD's assistance to the state
because of HUD's approach of force-fitting the program rules and
regulations applicable to traditional CDBG programs to state disaster
recovery programs. In the states' view, the magnitude of the 2005 Gulf
Coast hurricanes made many of the traditional CDBG rules that were not
already waived or modified impractical and slowed the process.
Additionally, state officials noted that in some instances there
appeared to be disagreements between the stated policies of top HUD
management and the technical assistance provided by mid-level HUD staff
during program implementation.
Conclusions:
Although CDBG has been widely viewed as a convenient, expedient, and
accessible off-the-shelf tool for distributing federal assistance funds
to states, it proved to be slower, less flexible, and more difficult to
manage than expected. The experiences in Louisiana and Mississippi
provide insights when considering the effectiveness of adapting an
existing funding delivery mechanism like CDBG when responding to
catastrophic disasters. For example, broad discretion was granted to
the states to tailor fit a CDBG program to their needs. However, when
Louisiana took its specific approach to provide compensation to
homeowners and encourage rebuilding, state officials encountered
federal environmental requirements that made such a housing recovery
approach impractical. While the environmental requirements were
outlined in law and regulations, it was unclear as to which cases the
requirements would apply. The lump-sum compensation design that both
Louisiana and Mississippi ultimately chose channeled CDBG funds to
homeowners with fewer assurances to the states that people would
actually rebuild and contribute to community development.
In Louisiana, state officials were challenged by the inconsistent and
conflicting guidance they received from different federal entities when
coordinating different federal funding streams. When states are faced
with navigating the numerous complexities of a funding delivery
mechanism like CDBG, along with other federal disaster recovery funds,
it is critical that federal guidance and assistance be clear, concise,
and consistent to help minimize misunderstandings, confusion, and
program delays. This is particularly important when states are
developing their approaches to disaster recovery. This is also true
when states are managing other sources of federal funds, some of which
may or may not be combined for projects of similar purpose. Louisiana's
experience with HMGP raises questions about the need for federal
regulations or operational guidance that clearly outline the options
and the limitations of coordinating different disaster-related funding
streams in the aftermath of a catastrophic event. Valuable
opportunities also exist for the federal government--primarily HUD,
FEMA, and the Office of the Federal Coordinator--to reflect upon
lessons learned to improve federal assistance to states devastated by a
catastrophic disaster.
At the state level, any disaster that creates such catastrophic damage
and devastation will present state authorities with the immediate need
and challenge of building additional human capital capacity. The steps
Louisiana and Mississippi state officials took to address such
challenges, including the creation of a policy-making and coordinating
entity to lead recovery efforts and hiring experienced disaster
recovery staff, provide valuable lessons at both the federal and state
level for future disaster recovery efforts.
Recommendations for Executive Action:
We recommend that the Secretary of the U.S. Department of Housing and
Urban Development take the following two actions:
* Develop and issue written CDBG disaster assistance program guidance
for state and local governments to use as they begin to develop plans
for housing recovery efforts and disbursing federal assistance to
residents after natural and man-made disasters. Specifically, this
guidance should clearly articulate what constitutes an acceptable
rehabilitation program versus a compensation program, including an
explanation of the implications of each program design; clarification
of the legal and financial requirements with which states must comply;
and an explanation of the types of program elements that may trigger
federal environmental and other requirements.
* Coordinate with the Federal Emergency Management Agency to ensure
that the new guidance clarifies the potential options, and limitations,
available to states when using CDBG disaster assistance funds alongside
other disaster-related federal funding streams.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Secretary of the Department
of Housing and Urban Development (HUD) and the Secretary of the
Department of Homeland Security (DHS) for comment. We received written
comments from HUD, which are provided in appendix II.
In a letter signed by the General Deputy Assistant Secretary for
Community Planning and Development, HUD partially agreed with our
recommendation that the department issue written disaster recovery
program guidance and improve coordination with FEMA to clarify the
appropriate uses of CDBG funds with other disaster-related federal
funds, such as HMGP funding. In short, HUD agreed to provide a report
describing the four housing compensation programs that have been
implemented in the past. The department also agreed to make its
forthcoming multiyear evaluation report of the housing compensation
programs in Louisiana and Mississippi publicly available. HUD did not
agree that providing further technical or binding guidance comparing
housing compensation and housing rehabilitation designs was the correct
action at this time. The department also feels that additional
coordination with FEMA will be far more useful if the role of the CDBG
program in disaster recovery is regularized.
While HUD stated that it had no issues with the general direction of
the recommendation, the department provided additional comments
expressing three main concerns. These concerns are outlined below along
with our response.
First, HUD stated that compensation programs are not an eligible CDBG
activity--except when acquiring property for a public purpose--unless
the Secretary grants a statutory waiver to allow it. While HUD has
issued guidance covering all aspects of housing rehabilitation
programs, the department stated that it has issued no formal guidance
for compensation programs because such programs have been seldom used
and each compensation design has been different. Furthermore, because
the requirements for compensation programs are tailored to the
grantee's specific program design, HUD does not consider this to be a
"fruitful area for general guidance." However, HUD agreed that it may
be useful to compare already implemented housing compensation programs
to a typical rehabilitation program to identify key areas where
policies have differed and examine the application of environmental
reviews and other requirements. As stated in our report, we note that
compensation programs have been rare. In our view, that fact helps
highlight the importance and need for the development of written CDBG
disaster assistance guidance for housing compensation program design.
While each compensation program may have its own unique design
features, we continue to believe that HUD could improve its assistance
to states by issuing guidance that clearly articulates the applicable
legal and financial requirements, as well as the types of program
elements that may trigger federal environmental and other requirements.
We support HUD's suggestion to compare past compensation programs with
a typical rehabilitation design to identify differences in policies and
the application of environmental requirements. The results of such a
comparative study would contribute to the department's development of
new written guidance.
Second, HUD stated that it is currently conducting a multiyear
evaluation of the housing compensation programs in Louisiana and
Mississippi--the results of which are expected to clarify whether HUD
will support housing compensation programs in the future. For this
reason, the department hesitated to develop guidance that would be
"premature" if issued prior to completion of the evaluation. Hopefully,
the results of HUD's evaluation will provide valuable insights on the
effectiveness of compensation programs for disaster recovery. We agree
that HUD should wait to develop guidance until it completes its
evaluation. However, if the department chooses to continue to allow
housing compensation programs, we continue to stand by our
recommendation that the department issue written guidance. Similar to
the comparative study discussed earlier, the results of this multiyear
evaluation would help to inform HUD's efforts to develop written
guidance for housing compensation programs.
Third, HUD stated that the CDBG program is not a formal part of the
federal government's disaster recovery programs. The department
anticipates that upon a presidential review of disaster recovery
programs, the current administration may choose to either relieve the
CDBG program of any disaster recovery role or grant it a permanent
place among the array of federal assistance programs available to
states for disaster recovery. If the latter happens, HUD stated that it
would issue permanent regulations and supporting guidance. In addition,
the department stated that it would be better positioned to coordinate
with FEMA in advance of an event, rather than waiting for Congress to
grant CDBG disaster assistance funds in the aftermath of an event. As
we noted in our report, Congress has turned to the CDBG program to
provide disaster assistance to states at least 20 times over the past
two decades. In response to HUD's comment, we recommend that the
department continue to engage the presidential administration on this
issue. If the CDBG program continues to assume a disaster recovery
role, we reiterate our recommendation that HUD issue written guidance
for housing compensation programs, including, among other things, an
explanation of program elements that trigger federal environmental
reviews.
We continue to believe the issuance of written HUD guidance that
clearly articulates the differences between a compensation program and
a rehabilitation program--including an explanation of the types of
program elements that may trigger federal environmental reviews--will
better aid state and local governments as they develop their plans for
housing recovery efforts and disburse federal disaster assistance to
residents. In addition, as long as the CDBG program continues to be a
primary vehicle for distributing federal disaster assistance, we
believe increased coordination between HUD and FEMA to ensure that the
new guidance clarifies the potential options and limitations of using
CDBG disaster assistance funds alongside other disaster-related funds
would further aid state and local governments as they navigate the
complexities of multiple federal disaster recovery program resources.
Together, the implementation of these two recommendations should help
to create clear, concise, and consistent federal messages to state and
local governments and help to minimize the misunderstandings,
confusion, and program delays that Louisiana officials experienced
after the 2005 Gulf Coast hurricanes.
DHS provided only technical comments, which were incorporated as
appropriate. We also provided drafts of the relevant sections of this
report to Louisiana and Mississippi state officials involved in the
specific examples cited in this report. Both states provided technical
comments, which we incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the date of this letter. We will then send copies of this report
to the Secretary for Housing and Urban Development, the Secretary of
Homeland Security, other interested congressional committees, and state
officials affected by the 2005 Gulf Coast hurricanes. We will make
copies available to others upon request. In addition, the report will
be available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-6806 or at czerwinskis@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. Individuals who made key
contributions to this report are listed in appendix III.
Signed by:
Stanley J. Czerwinski:
Director, Strategic Issues:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
To examine how Gulf Coast states allocated their share of Community
Development Block Grant (CDBG) funds, we focused our review on the
states of Louisiana and Mississippi--the states most directly affected
by the 2005 Gulf Coast hurricanes. To determine how the two states
prioritized their rebuilding efforts and allocated their share of CDBG
funds, we first identified the amount of funds provided to each state
by reviewing Federal Register notices and the housing damage estimates
that were used to determine each state's allocation. Housing damage
estimates were based on data from the Federal Emergency Management
Agency (FEMA) and the Small Business Administration and were compiled
in cooperation with the Office of the Federal Coordinator for Gulf
Coast Rebuilding within the Department of Homeland Security and the
Department of Housing and Urban Development (HUD). We also reviewed
federal statutes, regulations, and notices governing the use of CDBG
funds and interviewed officials in HUD's Community Planning and
Development division regarding their roles and responsibilities in
allocating and distributing CDBG disaster funds to the states. To
identify Louisiana's and Mississippi's priorities and how those
priorities changed over time, we obtained and reviewed state planning
documents and budget data from April 2006 to September 2008 and
interviewed state program and budget officials responsible for
administering and managing CDBG programs in Louisiana and Mississippi.
We assessed the reliability of the budget data by reviewing the data
for completeness and internal consistency, verified totals, and
interviewed state officials responsible for preparation of budget
reports. We observed changes in states' budget data format and
categories over time. For example, each state categorized its
unallocated amount of CDBG funds differently and changed the reporting
format between 2006 and 2008. To present the data from both states in a
common set of budget categories, we consolidated periodic reports to
obtain cumulative values and collapsed or disaggregated budget
categories. We also consulted with state officials to verify
interpretation of budget categories and reporting periods, to verify
identification of instances where reporting formats changed, and to
obtain confirmation that our reformulation of categories and amounts
were acceptable. Note that periods covered are not exactly the same,
but the difference in periods covered does not exceed one month. We
determined that the data were sufficiently reliable for the purposes of
this report.
To determine what challenges states faced with their housing recovery
programs, we relied primarily on testimonial evidence from key federal
officials at HUD headquarters in Washington, D.C.; HUD field offices in
New Orleans, Louisiana and Jackson, Mississippi; the Office of the
Federal Coordinator for Gulf Coast Rebuilding; and FEMA, as well as key
state officials in Louisiana and Mississippi. We corroborated
testimonial evidence with documents and data that we received from key
federal and state officials including federal guidance and regulations
related to HUD's CDBG program and FEMA's Hazard Mitigation Grant
Program (HMGP), relevant environmental statutes and regulations, state
planning documents, state program and budget data, and
intergovernmental correspondence. We also interviewed staff from ICF
International--the contractor Louisiana hired to manage the state's
Road Home housing program.
To examine the human capital challenges Louisiana and Mississippi
encountered and their efforts to address those challenges, we
interviewed state program and budget officials responsible for
administering and managing CDBG disaster funds. We obtained and
analyzed information on state agency CDBG budgets, staffing levels, and
organizational changes undertaken by the two states in the aftermath of
the 2005 Gulf Coast hurricanes. We reviewed reports completed by the
HUD Inspector General and HUD's Community and Planning Development
division and interviewed key staff to capture their observations.
In addition, we reviewed relevant congressional statements and
testimonies and coordinated our work with the HUD Inspector General and
with state audit offices. We also drew upon previous work we have
conducted on Gulf Coast rebuilding efforts, emergency response,
capacity issues and CDBG-funded disaster programs.
In Louisiana at the state level, we spoke with officials at the
Louisiana Office of Community Development (OCD), which was the official
grantee of HUD CDBG disaster funds for the state. Within OCD, we met
with officials in the Disaster Recovery Unit, which was the agency
division responsible for administering and managing the state's share
of CDBG disaster recovery funds. We met with officials at the Louisiana
Recovery Authority, which served as a policymaking and coordinating
body for recovery efforts throughout the state. We also met with
officials in the Governor's Office of Homeland Security and Emergency
Preparedness, which was the agency responsible for administering FEMA
HMGP funds provided to the state for mitigation projects. In addition,
we met with key staff in the Office of the Louisiana Legislative
Auditor to discuss their past and ongoing work evaluating the state's
housing recovery program and their observations on OCD's human capital
challenges.
In Mississippi at the state level, we spoke with officials at the
Mississippi Development Authority (MDA), which was the official grantee
of HUD CDBG disaster funds for the state. We met with key staff in the
Governor's Office of Recovery and Renewal, which served as a
policymaking and coordinating body for recovery efforts throughout the
state. Also, we met with officials at the Mississippi Emergency
Management Association, which is the entity responsible for
administering FEMA HMGP funds provided to the state for mitigation
projects. In addition, we met with the Mississippi Office of the State
Auditor to discuss their observations of the state's housing recovery
program and their relationship with the HUD Inspector General's office
on audits of MDA's human capital capacity.
We conducted this performance audit from June 2007 through April 2009
in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives. We requested comments on a
draft of this report from the Department of Housing and Urban
Development and the Department of Homeland Security. We received
written comments from HUD, which are included in appendix II. DHS
provided only technical comments, which were incorporated as
appropriate. We also provided drafts of the relevant sections of this
report to state officials in Louisiana and Mississippi and incorporated
their technical comments as appropriate.
[End of section]
Appendix II: Comments from the Department of Housing and Urban
Development:
U.S. Department Of Housing And Urban Development:
Assistant Secretary For Community Planning And Development:
Washington, DC 20410-7000:
[hyperlink, http://www.hud.gov]
[hyperlink, http://espanol.hud.gov]
May 11, 2009:
Mr. Stanley J. Czerwinski:
Director, Strategic Issues:
U.S. Government Accountability Office:
441 G St., NW:
Washington, DC 20548:
Dear Mr. Czerwinski:
The Department thanks GAO for this opportunity to respond to the draft
report entitled Gulf Coast Disaster Recovery. It recommends that HUD
provide additional guidance related to housing compensation and
rehabilitation. The Department appreciated the discussions with GAO of
issues related to long-term disaster recovery in the Gulf Coast
following the hurricanes of 2005 and of more general issues related to
the design and implementation of future long-term recovery programs. As
GAO is aware, HUD has made every effort to speak frankly and openly
with the hope that the lessons learned, even if they were
uncomfortable, could be applied to good purpose in the continuing Gulf
Coast recovery and any future events.
The final recommendation is that HUD issue written disaster recovery
program guidance differentiating housing compensation and housing
rehabilitation and describing what constitutes an "acceptable" program
of either design. The report also recommends that HUD coordinate with
FEMA to ensure that CDBG disaster recovery assistance works well with
other recovery programs. HUD has no issues with the general direction
of the guidance, which looks to increased guidance prior to
catastrophic events and greater coordination.
That said, the Department fords it difficult to entirely agree with the
GAO recommendation. GAO has recommended that HUD issue guidance about
the ways in which the "housing compensation model" differs from the
"housing rehabilitation model", with the apparent idea that this
guidance will help with program design and launch following future
disasters. This recommendation overlooks some key points of our
discussions.
First, housing compensation is not an eligible activity under the
Community Development Block Grant (CDBG) program. Housing
rehabilitation is eligible, and HUD has issued a tremendous amount of
guidance over the past 30 plus years covering all aspects of
implementing housing rehabilitation programs. Rehabilitation remains a
useful eligible activity, with literally hundreds of program variations
among the 1,200 regular CDBG grantees around the country. For housing
compensation, HUD has issued no formal guidance because it has been
used so seldom (four times) and because no two programs have had the
same design.
Because housing compensation is not an eligible CDBG activity (outside
of acquisition of property for a public purpose), a grantee may use
CDBG funds for that purpose only if the Secretary of HUD grants a
statutory waiver to allow it. Such waivers are granted on a case-by-
case basis, after a review of case-specific needs. The alternative
requirements are tailored to the grantee's specific program design. For
a case in point, the housing compensation waivers granted to
Mississippi and Louisiana are not identical because the states designed
different programs and requested different waivers. So, this is not a
fruitful area for general guidance, but HUD does agree that it may be
useful to compare the disaster recovery housing compensation programs
that have occurred with a fairly typical housing rehabilitation program
and identify key areas where policies have differed and states have
taken different paths that affected the application of environmental
review and other requirements.
Second, although HUD has a great deal of information about the
operation of housing rehabilitation programs, HUD has not yet completed
the evaluation of the housing compensation programs in Louisiana and
Mississippi. In a multi-year evaluation, HUD is assessing the extent to
which these housing compensation programs have resulted in disaster
recovery. Until HUD has this information, it will not be clear whether
such a waiver should be granted again. Thus, providing guidance for
future disaster recovery efforts maybe premature.
Third, HUD has made disaster recovery CDBG grants under a series of
supplemental appropriations laws, no two of which are the same. CDBG is
not a formal part of the federal government's disaster recovery
programs. It is possible that review of disaster recovery programs
under this administration will result in CDBG being removed from this
role, or in it being given a permanent place in the federal assistance
made available after catastrophes. If the former, providing guidance on
the difference between compensation and rehabilitation will not be
necessary; if the latter, HUD would issue permanent regulations and
supporting guidance as a matter of course. HUD would also be better
positioned to coordinate with FEMA in advance of an event, rather than
waiting to see whether Congress intended to make disaster recovery CDBG
available following an event.
In short, HUD agrees that it is appropriate and feasible to provide a
report describing the housing compensation and incentives programs as
implemented by Mississippi, Louisiana, New York, and Grand Forks. HUD
also will complete the evaluation of the housing compensation programs
on the Gulf Coast and make the resulting report publicly available. HUD
does not agree that providing further technical or binding guidance
comparing and contrasting housing compensation and housing
rehabilitation is the correct action at this time. HUD also feels that
additional coordination with FEMA will be far more useful if the role
of the CDBG program in disaster recovery is regularized.
Thank you again for the opportunity to provide our comments on the
draft report. Please contact me if you have further questions or
concerns.
Sincerely,
Signed by:
Nelson R. Bregon:
General Deputy Assistant Secretary:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Stanley J. Czerwinski, (202) 512-6806 or czerwinskis@gao.gov.
Staff Acknowledgments:
Major contributors to this report were Michael Springer, Assistant
Director; David Lutter; Susan Mak; and Leah Q. Nash. Jessica
Nierenberg, Melanie Papasian, Brenda Rabinowitz, and A.J. Stephens also
made key contributions to this report.
[End of section]
Footnotes:
[1] See GAO, Gulf Coast Rebuilding: Observations on Federal Financial
Implications, [hyperlink, http://www.gao.gov/products/GAO-07-1079T]
(Washington, D.C.: Aug. 2, 2007).
[2] For the purposes of this report, Hurricanes Katrina, Rita, and
Wilma are referred to as the Gulf Coast hurricanes.
[3] Over the past two decades, CDBG supplemental appropriations have
been provided for disaster relief more than 20 times.
[4] [hyperlink, http://www.gao.gov/products/GAO-07-1079T] and GAO,
Preliminary Information on Rebuilding Efforts in the Gulf Coast,
[hyperlink, http://www.gao.gov/products/GAO-07-809R] (Washington, D.C.:
June 29, 2007), and Gulf Coast Rebuilding: Preliminary Observations on
Progress to Date and Challenges for the Future, [hyperlink,
http://www.gao.gov/products/GAO-07-574T] (Washington, D.C.: Apr. 12,
2007).
[5] Activities funded with CDBG must address at least one of three
objectives: (1) principally benefit low and moderate income persons,
(2) aid in eliminating or preventing slums or blight, or (3) meet
particularly urgent community development needs.
[6] Department of Defense, Emergency Supplemental Appropriations to
Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act,
2006, Pub. L. No. 109-148, 119 Stat. 2680, 2779-2780. These funds were
appropriated on a no-year basis and remain available until expended. In
addition to CDBG funds, the federal government provided assistance
through a combination of grants, loans, tax subsidies, and federal tax
incentives.
[7] Emergency Supplemental Appropriations Act for Defense, the Global
War on Terror, and Hurricane Recovery, 2006, Pub. L. No. 109-234, 120
Stat. 418, 472. These funds were appropriated on a no-year basis and
remain available until expended.
[8] For example, both appropriations acts granted HUD the authority to
waive certain provisions governing the use of CDBG funds and required
that HUD establish procedures to prevent recipients from receiving any
duplication of benefits.
[9] Department of Defense Appropriations Act, 2008, Pub. L. No. 110-
116, 121 Stat. 1295, 1343. These funds were appropriated on a no-year
basis and remain available until expended.
[10] To inform its allocation decisions, HUD developed damage estimates
based on data collected during FEMA's and the Small Business
Administration's (SBA) inspections of housing damages in the affected
areas. Based on this inspection data, HUD estimated the number of homes
with minor, major, and severe damage including both owner-occupied and
renter-occupied housing units.
[11] The supplemental appropriations language that provided CDBG funds
included specific provisions, among others, that limited the amount of
funds that could be allocated to a single Gulf Coast state.
[12] Pub. L. No. 109-148, 119 Stat. at 2780; Pub. L. No. 109-234, 120
Stat. at 472-73.
[13] Typically, public service expenditures cannot exceed 15 percent of
the grantee's total CDBG allocation. Eligible expenditures include the
provision of food, temporary shelter, and other related services. In
the event of a presidentially declared disaster, HUD may suspend this
statutory requirement.
[14] In addition to the CDBG, Public Assistance, and Hazard Mitigation
Grant programs, some other examples of federal assistance included
payouts from the National Flood Insurance Program, economic injury and
physical disaster loans for homeowners, renters, businesses and
nonprofit organizations, funds for levee restoration and repair, and
Gulf Opportunity Zone tax relief and incentives for individuals and
businesses.
[15] Our prior work reported on FEMA's PA grant program and identified
a number of challenges the program has faced with respect to Gulf Coast
rebuilding efforts. See GAO, Disaster Recovery: FEMA's Public
Assistance Grant Program Experienced Challenges with Gulf Coast
Rebuilding, [hyperlink, http://www.gao.gov/products/GAO-09-129]
(Washington, D.C.: Dec. 18, 2008).
[16] HUD expresses its "acceptance" of grantee action plans rather than
its "approval." According to HUD officials, this distinction is
important as it underscores the grantee's legal responsibility to carry
out CDBG activities in accordance with program requirements. According
to HUD, if the grantee submits a plan that appears to be acceptable and
certifies that it will meet all program requirements, but then HUD
later discovers eligibility deficiencies, HUD's position is somewhat
stronger than if it had approved the plan. However, we found that HUD
officials used these terms interchangeably. In this report, where we
use the term "approve" HUD has also used the same term.
[17] In some cases, an action plan amendment may not be considered
substantial, and therefore does not require HUD review and acceptance.
In addition, a state may submit technical modifications to its action
plan, which also does not require HUD review and acceptance.
[18] For example, HUD highlighted that above-ground propane tanks were
commonly found in Mississippi. As part of an environmental review,
homeowners would have to either bury the tanks underground or harden
their homes to safeguard against a potential blast.
[19] According to senior HUD officials, CDBG disaster funds have not
been used to distribute compensation payments to individual residents
in the past, except in New York City after the September 11th terrorist
attacks when compensation payments were provided to local renters as an
incentive to stay in the city. However, that situation differed from
the Gulf Coast because specific language was included in the
supplemental appropriations regarding compensation payments to
residents. The supplemental appropriations language granting CDBG funds
to the Gulf Coast did not include such references.
[20] The position of Coordinator of Federal Support for the Recovery
and Rebuilding of the Gulf Coast Region was created by Executive Order
13390 on November 1, 2005. Among other things, the function of the
Coordinator was to lead the development and monitor the implementation
of specific policies and programs to provide effective, integrated, and
fiscally responsible support from across the federal government to
state and local governments, and others in the recovery of the Gulf
Coast. Also see GAO, Office of the Federal Coordinator for Gulf Coast
Rebuilding: Perspectives and Observations, [hyperlink,
http://www.gao.gov/products/GAO-09-411R] (Washington, D.C.: Apr. 10,
2009).
[21] The Road Home program is the largest housing recovery program in
U.S. history.
[22] Louisiana identified four specific goals in its initial Road Home
action plan: (1) repair and rebuild quality housing in safe
neighborhoods, (2) restore pre-storm value to homeowners who want to
return, (3) provide affordable rental housing opportunities for
displaced residents, and (4) provide housing for the return of critical
workforce.
[23] The Road Home program consisted of four sets of programs to
restore the state's housing stock: homeowner assistance, workforce and
affordable rental housing, homeless housing, and developer incentives.
For the purposes of this report, we focused solely on the homeowner
assistance component of the Road Home program.
[24] Grant awards for homeowners who elected to leave the state were
based on 60 percent of their pre-storm home value instead of 100
percent of their pre-storm value.
[25] The deadline to apply for homeowner assistance through the Road
Home program was July 31, 2007, followed by a second deadline upon
which homeowners had to identify their option selection. Homeowners had
to report their option selection to the state by November 1, 2008.
[26] This percentage is based on the number of benefit option letters
returned to the state by the deadline.
[27] There were additional requirements and benefits stipulated in the
original plan: the state specified a total benefit cap of $150,000 per
homeowner; and state authorities applied a 30 percent penalty, or
reduction, on the grant proceeds of those homeowners who were not
carrying the type of insurance required for their home at the time of
the storm.
[28] As noted earlier, HUD officials explained that the department
expresses its "acceptance" of grantee action plans rather than
"approval." However, we found that HUD officials used these terms
interchangeably. For example, in its August 2006 and May 2007 letters
to Louisiana, HUD "approved" the action plan amendments. In this
report, where we use the term "approve," HUD has also used the same
term.
[29] This is a slight change from the prior version of the action plan
in which the covenants required homeowners to occupy the home for 3
years after completion of repairs. Both Louisiana and Mississippi
attached covenants to the properties of those homeowners who chose to
rebuild their storm-damaged homes.
[30] Completion of repairs would be confirmed by an inspection.
[31] This specific disbursement process applied to homeowners who had
mortgages on their houses. For those homeowners without mortgages, they
could choose to either have their grant proceeds managed in this way or
to receive funds over a 3-year period.
[32] Previously, the state action plan stated that compensation for any
homeowner choosing to relocate outside of the state would be based on
60 percent, rather than 100 percent, of the home's pre-storm value. The
state also updated compensation grant formulas to factor in the amount
of housing damage incurred.
[33] The amount disbursed is an estimate based on the total number of
completed home closings multiplied by the average grant award per
homeowner. As of March 15, 2007, Road Home completed 2,956 closings
with an average grant award of $72,529 per homeowner. Similarly, as of
late February 2009, Road Home received a total of 185,113 applications,
completed 122,722 closings, and disbursed approximately $7.8 billion to
homeowners with an average award of $63,586 per homeowner.
[34] Closings were scheduled when eligible homeowners returned their
completed benefit option letters and provided all required
documentation, including mortgage and title information. After
homeowners completed their closings, they would begin to receive their
grant awards.
[35] According to HUD, although CDBG funds were distributed as
compensation in the form of incremental incentive payments to New York
City renters after the September 11, 2001, terrorist attacks, CDBG has
never before been used to provide compensation payments to individual
homeowners.
[36] The amount of HMGP funds made available to states is formula-
driven, based on a percentage of the total estimated amount of disaster
grants provided under other Stafford Act programs, such as the Public
Assistance program and the Assistance to Individuals and Households
program. The maximum HMGP contribution within each state for each major
disaster declaration ranges from 7.5 percent to 15 percent of the total
Stafford Act assistance. 42 U.S.C. 5170c as amended by Pub. L. No. 109-
295, § 684, 120 Stat. 1447 (Oct. 4, 2006).
[37] Unlike CDBG disaster funding, HMGP funding originates from the
Disaster Relief Fund and is not a line item appropriation.
[38] 44 C.F.R. § 206.434(g).
[39] 42 U.S.C. § 5170c(b).
[40] The Louisiana Office of Community Development's Hazard Mitigation
Grant Program provides an award up to $30,000 (based on actual
construction costs) to eligible homeowners to elevate or reconstruct
their homes to certain standards. Homeowner eligibility is determined
by FEMA based on HMGP regulations. These funds are not subject to the
Road Home $150,000 maximum cap. The state administers a second
elevation program through the Road Home with CDBG funds, the Road Home
Elevation Incentive program. This initiative provides a fixed amount of
$30,000 ($20,000 for mobile homes) to eligible homeowners as an
incentive to elevate their homes to meet certain standards. These funds
are limited to the specific dollar amount and cannot exceed the Road
Home $150,000 maximum grant amount.
[41] GAO, Natural Hazard Mitigation: Various Mitigation Efforts Exist,
but Federal Efforts Do Not Provide a Comprehensive Strategic Framework,
[hyperlink, http://www.gao.gov/products/GAO-07-403] (Washington, D.C.:
Aug. 22, 2007).
[42] [hyperlink, http://www.gao.gov/products/GAO-07-403].
[43] The LRA was created at the direction of former Governor Blanco by
executive order in October 2005 and subsequently authorized by the
state legislature in early 2006. LRA is scheduled to sunset on July 1,
2010, unless further extended by the legislature.
[44] Creation of Mississippi's Office of Recovery and Renewal was
passed by the state legislature and signed by the governor in early
2006.
[45] In December 2005, the Governor's Commission on Recovery,
Rebuilding, and Renewal released a report titled, "After Katrina:
Building Back Better than Ever." The report contained over 230
recommendations in a variety of areas including infrastructure,
economic development, and human services. The Office of Recovery and
Renewal issued annual reports with updates on the state's recovery
efforts.
[End of section]
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