Rebuilding Wisely

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By Donald E. Powell
Thursday, February 2, 2006

President Bush made a commitment that the federal government would be a full partner in the recovery and rebuilding of the areas devastated by Hurricane Katrina, and he is keeping that commitment. The federal government has already set aside $85 billion for the recovery effort, and more is on the way.

But the president also established important principles that will guide the federal role in the response: State and local leaders -- not those in Washington -- must develop the recovery plan; taxpayer dollars must be spent wisely, with strong congressional oversight and accountability mechanisms in place; and, finally, markets must be able to work properly without interference from the government.

This three-pronged compact is the key to sustaining bipartisan support for the long haul. If federal bureaucrats determine the path of rebuilding, local insight and initiative will be overrun and local needs overlooked. If people see tax dollars wasted, support will wane. If the heavy hand of government impedes the private sector's proven ability to speed the recovery, it will take longer and cost more.

Much has been made recently of an idea by Rep. Richard Baker (R-La.) to create a government entity called the Louisiana Recovery Corp. (LRC) to buy out homeowners and banks at pre-Katrina prices. While we share the congressman's goals, there are several reasons we oppose this legislation.

First, the LRC is not a long-term plan. As with any complex problem, the state must identify and prioritize its needs. The plans should include some key elements, among them: decisions on where, and where not, to rebuild; the creation of codes so that buildings can withstand future disasters; an examination of zoning issues; a rebuilding timeline; and a setting of priorities for housing and infrastructure needs. State and local leaders have made some progress in creating recovery plans: Mississippi is starting to implement one, and in Louisiana, New Orleans Mayor C. Ray Nagin's commission has submitted a recovery proposal, while those of other parish leaders are underway. The state should pull all these plans together, identify gaps and overlaps and develop the tools to implement the strategy.

Second, the LRC would have weak congressional oversight and thus little accountability, increasing the potential for waste and inefficiency. It would also operate outside the appropriations process. Third, setting up a new federal agency requires time and staff, incurring administrative costs and other inefficiencies. Fourth, as a former chairman of the Federal Deposit Insurance Corp. (FDIC) and someone who spent 40 years in the banking sector, I do not believe making the government a broker and landlord for the region will ensure a healthy long-term recovery. Doing so -- at a cost of up to $30 billion with an option to renew, and little chance of recouping those funds -- would destroy free-market mechanisms.

There is a better, more direct way to assist homeowners. The federal government has allocated $24.5 billion to Louisiana for housing -- 67 percent of total federal housing funds available for the Gulf Coast region. Federal money is already being used for loans, rental assistance, flood insurance, rural housing and low-income tax credits. Last week we announced that Louisiana will receive $6.2 billion through the well-tested Community Development Block Grant (CDBG) program. This will be available once the state submits a detailed plan to the federal government on how it plans to use the funds. CDBG allows those closest to the problem to make direct grants, avoiding federal bureaucracy. If the state wants to use this money to set up its own buyout plan, it certainly has that option.

Using the most updated numbers on damaged homes -- and we now know original estimates were off by a factor of more than three -- Louisiana could use the CDBG funds to compensate all uninsured homeowners outside the flood plain and still have upward of $5 billion to address other housing and infrastructure needs. Louisiana residents are also expected to get another $27.2 billion from private insurance payouts.

If, after spending all the federal funds allocated, there are remaining unmet needs, we will work with Congress to help ensure the resources are there. The federal government will continue to help strengthen, but not replace, state and local government as well as private initiative, and to help our fellow citizens meet the challenges of rebuilding their lives and their communities.

The writer is the federal coordinator for Gulf Coast rebuilding.


© 2006 The Washington Post Company

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