Video: Where has all the money gone?

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updated 2/6/2007 7:53:10 PM ET 2007-02-07T00:53:10

Hurricane Katrina hammered Biloxi, Miss., devastating the town and its casinos.

Today, most casinos have been rebuilt thanks to private money, but all of the businesses across the street are in disrepair. So is much of the town.

In nearby Bay St. Louis, Katrina took out two critical bridges. The railroad bridge was destroyed by the storm, but it was quickly rebuilt with private money.

But the companion bridge for cars and trucks — being rebuilt with federal money — is only 55 percent complete.

"Without that, we're never going to recover," says Bay St. Louis Mayor Eddie Favre. He explains the bridge offers the community access to a ' whole other world ' on the other side of the Mississippi Bay. Visitors no longer have easy eastern access to the town, leaving many businesses without a reliable revenue stream.

"We would like to think that everything would be OK 17 months after the fact, but it's not. It's almost like we were forgotten, " says Favre.

So far, only about half the $110 billion allotted by the federal government has actually been spent. Officials at all levels complain that bureaucratic red tape has choked off the recovery.

"It's kind of like a glacier melting waiting for those moneys to come down to the local level," says Aaron Broussard, president of Jefferson Parish in New Orleans .

The first chokepoint: The Stafford Act, a federal requirement designed to reduce corruption, that state or local governments must provide 10 percent of the money for rebuilding projects.

In Bay St. Louis alone, 25 key federally funded projects — (totaling nearly $70 million) including new water and sewer systems — are stuck because the city doesn't have the matching funds.

Favre explains, "We don't have the money. We have borrowed every bit of money we could possibly borrow to the point now that legally we can't borrow anymore because of our debt limit capacities. We don't really know what we're going to do."

Louisiana officials complain that requirement is their biggest impediment.

"That match requirement is bollixing up the works," says Sean Reilly, board member with the Louisiana Recovery Authority. "The problem we're having with the Stafford Act is that it requires a 10 percent match. The No. 1 red tape eradication measure would be for the federal government, through the White House, to waive the match requirement for the State of Louisiana. It's about eliminating the bureaucratic red tape so that FEMA and HUD can no longer gum up the works. That's what's slowing down the money."

The Stafford Act has been lifted before. It didn't apply to New York City in September 2001 or to South Florida following Hurricane Andrew in 1992, but it remains in place along the Gulf.

The second chokepoint: State bureaucracies and their new anti-corruption measures, especially in Louisiana.

One Parish president, previously a harsh critic of the federal government, has changed his tune.

"FEMA is in the processing part, I think, fairly effective," says Broussard. "We are having problems at our state level getting efficient processing in place."

That's especially true in distributing billions which the federal government has given states to rebuild homes and businesses.

In Louisiana, fewer than 1 percent of homeowners who applied for have gotten any money.

Of the 105,375 applicants for the Road Home Program, only 506 have received the money. In Mississippi, about 68 percent have received checks.

Of the 17,639 applicants for the Mississippi Home Owner Assistance Program, 12,021 have received money thus far.

As a result, charities have led the way in rebuilding homes. Habitat for Humanity says it's now the largest homebuilder in all of New Orleans. For Jeannette Trask, who lost everything in Katrina, they've been a godsend.

" I am just happy to have a home! The government wasn't going to help anyone," she says. "Thank goodness for charity!"

Trask will pay for her new, three-bedroom home with a 30-year, zero interest loan. In order to qualify for the program you must have good or no credit, demonstrate a need for housing and meet certain income requirements.

In Creole, La., an area hard hit by Hurricane Rita, the owner of ShaSha's restaurant says he got tired of waiting for government help, so he and his wife rebuilt totally by themselves.

Months after their town was completely destroyed, they were told the Army Corps would come and assist in the clean up of their business. The inside of the restaurant was covered in three feet of mud. "We put every nail and every screw into this building by ourselves without one person helping us... nobody," says Karlton Styron. "If you want to get something done, don't wait on government help."

ShaSha's is now the only business in Creole that has been rebuilt, as chokeholds and competing bureaucracies thwart recovery across the Gulf Coast.

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