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HUD sued over Katrina fund diversion

A lawsuit to be filed Wednesday seeks to invalidate the diversion of $600 million in hurricane-relief funds to a massive port expansion in Mississippi.'s Mike Stuckey reports.
Image: Gulfport Miss. State Port
Gulfport is the third-busiest port in the Gulf of Mexico. Mississippi officials want to raise its profile with a $600 million expansion.John Fitzhugh / Sun Herald via AP file

A group of public interest lawyers sued the U.S. Department of Housing and Urban Development on Wednesday, seeking to stop the state of Mississippi from diverting $600 million in federal hurricane-relief funds intended for housing to a massive expansion of the state’s port facilities.

Separately, has obtained a memo from a HUD official that demonstrates concern within the agency over waivers granted by HUD officials and the fund diversions, and raises the specter that they could violate civil rights laws.

The diversion of the grant money is "a tragic misdirection of funds,” said attorney James Wodarski of the Boston-based firm of Mintz Levin. Wodarski is leading a team of lawyers from the Mississippi Center for Justice, the Lawyers’ Committee for Civil Rights Under Law, the Mississippi chapter of the NAACP and Gulf Coast Fair Housing Center that filed the lawsuit.

The groups are vocal critics of how Mississippi has spent much of the $5.5 billion in HUD Community Development Block Grant funds it received in the wake of Hurricane Katrina, which devastated the region in 2005. They hope that if they can persuade the U.S. District Court in Washington to order HUD to review the use of the grant money currently destined for the port, the funding will be returned to its original purpose — rebuilding housing in Mississippi’s hurricane zone.

Blasting Barbour
The plaintiffs maintain that Mississippi Gov. Haley Barbour, a former lobbyist, White House aide and head of the Republican National Committee, is using the federal money to pay for a huge makeover to state port facilities at Gulfport that was planned before the hurricane struck. They point out that spending $600 million on the port, which already received insurance money for damage it suffered in the storm, cannot be considered hurricane-related repair because it is  more than four times the $127.5 million the port was valued at before Katrina.

Barbour and other state officials counter that expansion of the Gulf’s third-busiest port is a vital economic development program that will create new jobs and generate tax revenue. They say the state has allocated nearly $3 billion to programs focused on replacing housing — from grants to homeowners, to programs for small landlords to repair their buildings and direct funding of new public housing units. “When all of these programs have been implemented, the state will not only have replaced lost housing stock, but will have created more affordable housing in South Mississippi than existed before Katrina,” the state said in its recent “Three Years After Katrina” report.

In an e-mail statement to, Barbour maintained that some of the diverted community development money was always intended for port expansion.

“The port project has been part of the recovery plan detailed in November 2005 to the Congress, administration, Mississippi Legislature and news media," he said. "It’s always been in the plan. Restoration of the Port of Gulfport is critical to recovery of the Gulf Coast from the worst natural disaster in American history.”

But, as previously reported, Barbour testified at a Senate committee hearing in March 2006 that the grant money was mostly committed to housing in seeking new funds for  the port. A year later, Gray Swoope, executive director of the Mississippi Development Authority, did not mention port funding in testimony before Congress about the use of grant funds, just a few months before the new port master plan was adopted.

Affordable housing needed, plaintiffs say
The plaintiffs in the lawsuit argue that the need for affordable housing along the Gulf Coast, especially among poor and minority renters, remains acute. They estimate that the region had a 13,000-unit shortage of affordable rentals before Katrina and lost about that many more in the storm. On top of that, Katrina damaged most of the 2,695 public housing units in southern Mississippi, they say.

Reilly Morse, an attorney with the Mississippi Center for Justice, said 5,500 households in the area remain in some form of temporary housing, along with many others “who can’t easily be counted (and are) tucked into substandard situations all along the coast.”

The lawsuit says the state ignored HUD rules that require projects to benefit low- and moderate-income people, prevent or eliminate slums or blight or address urgent threats to health or safety. They said HUD, by granting waivers of those rules to Mississippi and failing to properly review its plans to use the funds, failed in its legal obligation to make sure the money is spent that way.

Brian Sullivan, a HUD spokesman, declined to comment Wednesday on "pending litigation that we haven't seen."

But he referred to a letter to Barbour approving the funding diversion in January, in which then-HUD Secretary Alphonso Jackson said affordable housing in coastal Mississippi was a "more pressing need" than the port expansion, but that "congressional language" gave him little discretion to block the switch.

Wodarski, the lead attorney for the plaintiffs, disagrees that HUD had little leeway to reject Mississippi's request. In approving the Katrina funds, “Congress gave a very minimal set of instructions to HUD but it gave them four areas it could not waive regulations in,” he said. As a result, he said, HUD ruled that any projects funded with Katrina-linked community development grants must be certified to further fair housing goals and benefit low- and moderate-income residents.

The port expansion clearly doesn’t meet those tests, Wodarski said, and Jackson’s statement that Congress had tied his hands was preposterous. “HUD was taking the position that under the regulations it itself created to review the use of these funds, it lacked any oversight or discretion,” he said. (Jackson, under investigation for cronyism, resigned in April and was replaced by Steve Preston.)

The lawsuit is asking the federal court to make HUD reassess the waiver. “If they have to go back, we’re hoping there will be a substantially different outcome,” and the $600 million will be placed back in the housing pool, he said.

Gulfport Port Authority Executive Director Don Allee declined to comment on the lawsuit pending review by legal counsel.

Meanwhile, a memo obtained by shows that at least one HUD official was troubled by waivers sought by Mississippi for use of the federal grant money. In reviewing a request to waive the requirement that a sewage project benefit low- and moderate-income residents in June, Pamela Walsh, an official in HUD’s Office of Fair Housing and Equal Opportunity, wrote that Mississippi should use the community development money for the “compelling needs of the homeless, special needs and low-income populations as a first priority.”

Walsh’s memo, which obtained on the condition that it not identify its source, said that “given the correlation between income and race in the Katrina affected areas,” failure to do so “could result in non-compliance with civil rights and fair housing laws.”

Asked about the memo, Morse said it was “quite relevant” to the contentions in the lawsuit. Although the suit won’t allege intentional racial discrimination as a result of the port diversion, Morse said because people of color have disproportionately lower incomes than the general population along the state's Gulf Coast, it is one of the de facto outcomes. The memo, he said, “affirms from someone inside HUD the very concern we’re raising.”