Massive Recovery Effort Raises Cost Concerns

The scope of the project and the innumerable plans to tackle it has spurred a national debate over the final cost of the reconstruction and how to fund it.

As President George W. Bush stood in New Orleans’ Jackson Square on Sept. 15, 2005, he said his administration’s immediate response to Hurricane Katrina could have been “more effective” and he pledged future federal support. Speaking from a city that he said was “nearly empty, still partly under water, and waiting for life and hope to return,” the president then laid out the first steps in what he said would be “one of the largest reconstruction efforts the world has ever seen.”

The president’s outline included a federal commitment for the rebuilding of the region’s infrastructure including roads, bridges, schools and water systems. The president also laid out programs that would provide direct funds to help citizens from the affected areas with health care, jobs and housing.

In addition, he said the federal government would reimburse state and local organizations, both public and private, that were affected by the disaster and help fund the region’s economic recovery with direct assistance to businesses as well as new tax incentives.

In the early days after Hurricane Katrina tore ashore, President Bush signed two bills allocating a total $62.3 billion in disaster relief funding that has been used in up to 41 states that were directly or indirectly impacted by the storm. After Hurricane Rita dealt a second blow to the Gulf region on Sept. 24, the president pledged further relief funds for the battered areas of Southwest Louisiana and East Texas.

Initial estimates by lawmakers put the total federal cost of hurricane recovery at somewhere between $100 billion and $300 billion, with most settling on a figure around $200 billion. No official estimate has been published yet by either the Congressional Budget Office or the executive branch’s Office of Management and Budget.

President BushLouisiana lawmakers have submitted a bill calling for a $250 billion in recovery funds for their state alone. The proposal contains an estimated $180 billion in direct federal spending; the rest of the cost would come from tax relief and incentives.

Louisiana’s Democratic Sen. Mary Landrieu, echoing the words used earlier by President Bush, said “this unprecedented national tragedy will require an unprecedented national response.” She called the legislation a first step in her state’s recovery.

Sen. David Vitter, R-La., lauded the private sector initiatives and incentives in the bill. “While it is extremely important to rebuild Louisiana’s infrastructure, it is equally vital that we create jobs for our people,” he said in a statement.

summary of the bill says the money would finance a broad range of recovery assistance activities, by state and local governments as well as private organizations. The bill lays out a vast recovery plan, covering the areas of health care, education, energy, defense, business, bankruptcy relief, law enforcement, historic preservation, wildlife management, emergency preparedness, housing, industry revitalization, infrastructure repair, economic development, transportation, tax relief, environmental protection and more.

The bill also would establish a commission for Protecting Essential Louisiana Infrastructure, Citizens and Nature, or PELICAN. The commission would effectively have control over Army Corps of Engineer projects in the state and be able to implement hurricane protection, flood control, coastal restoration and navigation projects without having to get congressional approval.

The proposal also immediately allocates $40 billion to be dispersed by the commission for Army Corps projects in Louisiana. And under the legislation, Louisiana would get to keep half of the revenues from oil and gas leases off the state’s coast, estimated at between $3 billion and $4 billion per year — money that usually goes straight to federal coffers.

Both the cost and scope of the Louisiana plan have generated opposition, accusations of political payoffs and calls for more accountability for previously spent funds.

A Sept. 26 editorial in the Washington Post said the bill’s $250 billion price tag “would cost more than the Louisiana Purchase under the Jefferson administration on an inflation-adjusted basis” and that the legislators received advice from a “working group” dominated by lobbyists before drafting the legislation.

But Landrieu said the legislation reflects the reality of the devastation. “We’re going to fight for every dollar,” she has said. “We wanted to tell people the truth.”

As the debate continued over the Louisiana’s $250 billion proposal, the Bush administration had already begun to disperse the $62.3 billion that Congress approved.

Most of the funding — $60 billion — went to the Department of Homeland Security and its Federal Emergency Management Agency for immediate recovery efforts including food, housing assistance, emergency clean up and repairs, and the restoration of water and sewage services. The rest went to the Defense Department for its emergency activities in the aftermath of the storm.

But some in Congress have raised red flags about the amount, speed and manner of spending.

“I have been extremely concerned about this because I think we’re going to wake up six months from now or three months from now and realize that a haphazard approach has not been effective either in resolving the problems in the Gulf Coast or in managing the taxpayers’ money effectively,” said Senate Budget Committee Chairman Judd Gregg, R-N.H.

Republican Rep. Jeff Flake of Arizona said he voted against the $52 billion recovery bill because it did not include offsets.

“There’s no shortage of places where the federal government can tighten its belt to pay the cost of the hurricane recovery effort,” Flake said, according to the Washington Post. “Let’s face it, after years of uninterrupted growth, the federal government is bloated.”

Senate Majority Leader Bill Frist, R-Tenn., said lawmakers would look at “offsets, potential across the board spending cuts, looking at legislation we passed in recent weeks, months, and even years as to where we can appropriately cut.”

Democrats like Senate Minority Leader Harry Reid of Nevada have said the estate tax, which Reid says benefits the wealthy, should be repealed in order to save money. Some Republicans have joined Democrats in suggesting that the overall tax cuts passed in the president’s first term should be allowed to expire.

But others like then-House Majority Leader Rep. Tom Delay, R-Texas, countered that repealing tax cuts would have a detrimental effect on the economy.

“The Gulf Coast region is today without an economy, without jobs, or businesses, or investment,” DeLay said. “Raising taxes will not help create any of those things but will instead guarantee that the region’s economic troubles spread to the rest of the country.”

Lawmakers from both parties have suggested scaling back spending allocated in the $286 billion highway bill passed in August. The bill contained an estimated $24 billion in “earmarks,” or funding for local projects placed in the bill by individual members of Congress.

Mike PenceThe Republican Study Group — a fiscally conservative congressional coalition led by Indiana Rep. Mike Pence — suggested spending cuts in Medicare and other entitlement programs in order to pay for hurricane recovery.

Pence said delaying implementation of the Medicare prescription drug entitlement in particular “would put $40 billion back on the books that we could apply to Katrina next year.”

Opponents, however, argued that people in hard hit areas are more reliant than ever on programs like Medicare.

“[I]f belt tightening, as it usually does, means withdrawing health care from poor people and the kinds of things that hurts most, those who are poorest in this country, that is not, in my judgment, advancing America’s cause,” said Sen. Byron Dorgan, D-N.D.

Before hurricanes Katrina and Rita, President Bush promised to cut the budget deficit in half by 2009. Prior to the storms, the budget deficit for fiscal year 2006 was estimated at $300 billion and the national debt was around $8 trillion.

After the president submitted his request for the $62 billion relief package, his budget chief Josh Bolten told reporters that, although the deficits for 2005 and 2006 would rise, the goal of halving the deficit by 2009 remained intact.

The sometimes cited $200 billion recovery estimate amounts to around 7.7 percent of the current $2.6 trillion U.S. budget. That figure, the Los Angeles Times reported, is “roughly the same amount spent on the wars in Iraq and Afghanistan combined, and about double the inflation-adjusted cost of the Marshall Plan, which rebuilt Europe after World War II.”

The Washington Post reported that “Congress has already spent $62.3 billion, dwarfing the inflation-adjusted $17.8 billion that Congress spent on hurricanes Andrew, Iniki and Omar,” in 1992 and “the $15.2 billion emergency appropriation for the Northridge, Calif., earthquake of 1994.”

One of the central questions in the ongoing debate is what must the federal government cover and what can be left to the private sector or state and local governments.

“We’ve got a budget of $2.6 trillion. You would think you’d find a few shekels here and there to be able to pay for things,” Stan Collender, budget analyst and former Democratic staffer for the House and Senate Budget committees, told the NewsHour on Sept. 20.

Former Republican Rep. Pat Toomey, now president of the Club for Growth, which supports limited government and low taxes, said programs, including mandatory ones considered off-limits, should be left on the table to help pay for hurricane relief.