Va. Firm Grows Fast, But Katrina Aid Lags

By Zachary A. Goldfarb
Washington Post Staff Writer
Wednesday, August 29, 2007

Louisiana Gov. Kathleen Babineaux Blanco went to New Orleans last August to oversee the opening of the city's first housing-assistance center aimed at people whose homes were destroyed or damaged by Hurricane Katrina. "This is not just a real estate transaction, but an emotional transaction as well," Blanco said, adding: "Full-speed ahead!"

Blanco, a Democrat, was counting on a Northern Virginia government contractor to manage Louisiana's "Road Home" program and get money to homeowners so they could rebuild. And ICF International of Fairfax was eager to prove itself, viewing the roughly $750 million contract as a source of new business, a foundation for future growth.

In the year since, the company's stock price has skyrocketed, its revenue has doubled and its workforce has grown. But the program, the nation's largest housing assistance effort, has had a bumpier experience. Although 40,000 people have received payments, ICF has been the subject of steady criticism from government officials and homeowners for failing to award grants fast enough. Blanco said through a spokeswoman this week that she was "still quite dissatisfied with ICF's performance."

"There are big positives, and there are some challenges which we have to deal with," Sudhakar Kesavan, the company's chief executive, said in an interview. "It's a learning process. There will be certain political aspects to any program of this size as the firm grows. Here, the humanitarian aspect is extremely important."

ICF had never run such a program before Hurricane Katrina and then Hurricane Rita set down two years ago on the Gulf Coast and ravaged several hundred thousand homes in Louisiana. The need to hand out help collided with bureaucratic and political hang-ups, and ICF often found itself in the middle.

The company started in 1969 as the Inner City Fund, whose goal was to provide capital to urban businesses. Over time, it built up some expertise in government housing programs, primarily as a consultant. After the hurricanes, ICF was hired to help Louisiana devise a plan for spending a projected $7.9 billion in federal housing aid. It soon saw an opportunity to expand its role, positioning itself not just to consult but to run government programs.

"We could take the capabilities built here and leverage them in response to additional disasters," said John Wasson, ICF's chief operations officer.

Simply winning the contract sparked the first controversy. The Louisiana Republican delegation, no fan of Blanco, alleged "obvious ethical conflicts" because the company had helped work on the spending plan. The executive director of the state Board of Ethics wrote that he had "grave concerns," but his board cleared ICF for the work.

The company launched a pilot effort in summer 2006, seeking to close the gap between what it would cost to repair or replace a damaged home, up to $150,000, minus whatever a homeowner received from insurance or other sources. The average grant has been $73,000.

Lawmakers, homeowners and others quickly complained that the program was not doling out money fast enough. And there were arguments over the calculations used to appraise the pre-storm value of homes.

Still, in October ICF received a second contract to expand the pilot program to 11 cities. The expectation was that it would take 2 1/2 years for an estimated 100,000 people to get their money. That was not fast enough for some. "We were getting criticized within one month," said ICF senior vice president Douglas Beck.

As 2007 neared, barely 300 people had received housing grants. ICF said that's all the contract called for at that time.

Nevertheless, Donald E. Powell, the presidential-appointed federal coordinator for Gulf Coast Rebuilding, wrote to ICF to express "serious concerns about the effectiveness and expediency of this program." The Louisiana House of Representatives and Senate called for ICF to be terminated.

Given the political volatility, ICF hired lobbyists to reach out to Louisiana and federal officials. It retained former Louisiana congressman Robert Livingston (R) and others, paying them $180,000 so far this year, according to the company. "You have to reach out to all stakeholders," Beck said.

Through it all, the company grew. In the last quarter of 2006, the company's overall revenues more than doubled, to $113.9 million. Profit from all its businesses rose to $9.2 million. Kesavan's bonus climbed to $1.7 million in 2006 from $282,000 the year before; Wasson's rose to $1 million from $205,000.

In 2007, ICF started to deliver grants at a greater speed. In February, it made its 2,300th award -- considered a milestone -- and it recently boosted its goal to make 10,000 awards a month.

But while the pace quickened, ICF's troubles did not let up.

The state auditor, for instance, found that up to 12 percent of applications, even at a late stage, contained errors. Controversy also centered on the company's $19.1 million travel budget. The New Orleans Times-Picayune reported that one subcontractor, an appraising company, was unable to pay its staff and appraisers quit.

ICF said it had addressed the problems. Further, the company argued that the rules for doling out grants, designed by the state and federal governments to avoid fraud, were time-consuming and in a constant flux. "I think it would be difficult for any company in the world to say it could do better," Beck said, adding that the pace of grants was ahead of schedule.

To date, more than 40,000 grants have been handed out. More than 140,000 people await word on their applications, far more than originally projected.

"The spotlight can't be any hotter," said Beck, who said he expects the company to complete about 90,000 closings this year.

This month, ICF reported that second-quarter revenue quadrupled to $190 million, $129 million of which came from Road Home. And ICF raised its future revenue forecasts based on the projected workload. The company's stock closed at $21.08 yesterday, up 70 percent since September and near a high.

The company still faces challenges. A few days before the earnings announcement, the governor's office warned ICF that it could face millions of dollars in penalties if it did not meet benchmarks.

The Louisiana Recovery Authority, which developed the program's broad goals, announced last Friday that it had hired an outside consultant to evaluate the effort.

"We're hopeful it'll get smoother because the road has been fairly rocky so far," said Walter Leger, chairman of the authority's housing task force.