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entitled 'Gulf Coast Disaster Recovery: Community Development Block 
Grant Program Guidance to States Needs to Be Improved' which was 
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Report to the Committee on Homeland Security and Governmental Affairs, 
U.S. Senate: 

United States Government Accountability Office: 
GAO: 

June 2009: 

Gulf Coast Disaster Recovery: 

Community Development Block Grant Program Guidance to States Needs to 
Be Improved: 

GAO-09-541: 

GAO Highlights: 

Highlights of GAO-09-541, a report to the Committee on Homeland 
Security and Governmental Affairs, U.S. Senate. 

Why GAO Did This Study: 

Almost 4 years after the 2005 Gulf Coast hurricanes, the region 
continues to face daunting rebuilding challenges. To date, $19.7 
billion in Community Development Block Grant (CDBG) funds have been 
appropriated for Gulf Coast rebuilding assistance—the largest amount in 
the history of the program. GAO was asked to report on (1) how 
Louisiana and Mississippi allocated their shares of CDBG funds, (2) 
what difficulties Louisiana faced in administering its housing recovery 
program, and (3) what human capital challenges Louisiana and 
Mississippi encountered and the efforts taken to address those 
challenges. GAO interviewed federal and state officials and reviewed 
budget data, federal regulations, and state policies and planning 
documents. 

What GAO Found: 

Louisiana and Mississippi received the largest shares of CDBG disaster 
funds and targeted the majority toward homeowner assistance, allocating 
the rest to economic development, infrastructure, and other projects. 
Between 2006 and 2008, Louisiana’s total allocation devoted to housing 
increased from 77 to 86 percent while Mississippi’s decreased from 63 
to 52 percent as the state focused on economic development. With 
homeowners as the primary focus, Louisiana initially adopted a plan 
that linked federal funds to home reconstruction and controlled the 
flow of funds to homeowners, while Mississippi paid homeowners for 
their losses regardless of their intentions to rebuild. This helped 
Mississippi avoid challenges that Louisiana would encounter, but with 
fewer assurances that people would actually rebuild. 

Louisiana’s approach to housing recovery created a program that 
incorporated certain elements from two different models—compensation 
and rehabilitation—funded with multiple federal funding streams. While 
there is no written guidance that distinguishes between the two models, 
HUD explained the major differences. In a rehabilitation model, funds 
are used explicitly for repairs or reconstruction, requiring site-
specific environmental reviews. In contrast, a compensation program 
disburses funds directly to homeowners for damages suffered regardless 
of whether they intend to rebuild and does not trigger site-specific 
environmental reviews. 

Federal guidance was insufficient to address Louisiana’s program and 
funding designs. Two major problems stemmed from the state’s approach. 
First, HUD and the state disagreed as to whether the incremental 
disbursement of funds subjected homeowners’ properties to environmental 
reviews. Despite many iterations of the program, HUD ordered a cease 
and desist of the program, leading the state to abandon its original 
plans and issue lump-sum payments to recipients. Continual revision and 
re-submittal of the design contributed to a 12-month evolution of the 
program. Second, conflicting federal determinations hindered 
coordination of CDBG and FEMA’s Hazard Mitigation Grant Program (HMGP) 
funds. According to state officials, the Federal Coordinator for Gulf 
Coast Rebuilding advised them to use most of the HMGP funds to acquire 
properties through their housing recovery program. FEMA rejected this 
plan, in part, because it determined that the program gave preference 
to the elderly. However, HUD is subject to similar legal requirements 
and did not find the program discriminatory. Louisiana changed its 
plans and used HMGP funds for a home elevation program. In sum, it took 
FEMA and the state over a year to reach agreement, delaying assistance 
to homeowners. 

In the immediate aftermath of the 2005 hurricanes, Louisiana and 
Mississippi lacked sufficient capacity to suddenly administer and 
manage CDBG programs of such unprecedented size. Both states created 
new offices to direct disaster recovery efforts and hired additional 
state agency staff and private contractors to implement homeowner 
assistance programs. 

What GAO Recommends: 

GAO recommends that the Secretary of Housing and Urban Development 
(HUD): (1) issue written CDBG disaster assistance program guidance that 
articulates an acceptable rehabilitation versus compensation program, 
including, among other things, explanation of program elements that 
trigger federal environmental reviews and (2) coordinate with the 
Federal Emergency Management Agency (FEMA) to clarify options and 
limits of using CDBG funds with other disaster-related federal funds. 
HUD partially agreed with the recommendations, citing concerns about 
the content and timing of new guidance. GAO believes such guidance 
would better aid states’ housing recovery efforts. 

View [hyperlink, http://www.gao.gov/products/GAO-09-541] or key 
components. For more information, contact Stanley J. Czerwinski at 
(202) 512-6806 or czerwinskis@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Louisiana and Mississippi Targeted Majority of Funds to Homeowner 
Assistance: 

Federal Guidance Was Insufficient to Address Louisiana's Approach to 
Housing Recovery: 

Louisiana and Mississippi Took Similar Approaches to Address Human 
Capital Needs for Unprecedented Program Size: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of Housing and Urban 
Development: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Time Line of Events Surrounding the Evolution of Louisiana's 
Road Home Program: 

Table 2: Time Line of Events Surrounding Louisiana's Attempt to 
Leverage HMGP Funds: 

Table 3: Comparison of Louisiana's and Mississippi's Annual CDBG 
Budgets to CDBG Disaster Funds Allocated After 2005 Gulf Coast 
Hurricanes (in millions): 

Figures: 

Figure 1: Estimated Number of Housing Units Damaged by State: 

Figure 2: Amount of CDBG Funds Allocated by State: 

Figure 3: Louisiana's Allocations of CDBG Disaster Funds in 2006 and 
2008: 

Figure 4: Mississippi's Allocations of CDBG Disaster Funds in 2006 and 
2008: 

Abbreviations: 

CDBG: Community Development Block Grant: 

DHS: Department of Homeland Security: 

FEMA: Federal Emergency Management Agency: 

GOHSEP: Louisiana Governor's Office for Homeland Security and Emergency 
Preparedness: 

HMGP: Hazard Mitigation Grant Program: 

HUD: Department of Housing and Urban Development: 

LRA: Louisiana Recovery Authority: 

MDA: Mississippi Development Authority: 

OCD: Louisiana Office of Community Development: 

PA: Public Assistance (grant program): 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

June 19, 2009: 

The Honorable Joseph I. Lieberman: 
Chairman: 
The Honorable Susan M. Collins: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

The Honorable Mary L. Landrieu: 
Chairman: 
Ad Hoc Subcommittee on Disaster Recovery: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

Almost 4 years after Hurricanes Katrina, Rita and Wilma brought death 
and destruction along the Gulf Coast, the region and the nation 
continue to face daunting rebuilding challenges. For perspective on the 
magnitude of the damage, some estimates put capital losses at a range 
of $70 billion to more than $150 billion.[Footnote 1] Wide swaths of 
housing, infrastructure, and businesses were destroyed, leaving more 
than 1,500 people dead and hundreds of thousands of others displaced 
without shelter or employment. Over the coming years, perhaps decades, 
many neighborhoods and communities will need to be rebuilt--some from 
the ground up. The size and scope of the devastation caused by the 2005 
Gulf Coast hurricanes[Footnote 2] presents the nation with 
unprecedented rebuilding challenges, as well as opportunities to 
reexamine shared responsibility among all levels of government. 

In the interest of providing funds to the Gulf Coast states quickly and 
affording states as much discretion as possible in the aftermath of the 
2005 Gulf Coast hurricanes, Congress chose the Community Development 
Block Grant (CDBG) program as the vehicle to provide the largest share 
of disaster relief and recovery funds. The CDBG program's primary 
objective is not specifically to provide disaster relief to states, but 
rather to develop viable urban communities by providing decent housing, 
a suitable living environment, and expanded economic opportunities for 
low and moderate income persons. However, CDBG has often been relied 
upon as a convenient source of flexible funding that can easily be 
applied to federal disaster situations to help states rebuild and 
revitalize their communities. This is consistent with past practice: 
over the last two decades, Congress has repeatedly turned to CDBG to 
assist states in recovering from federal disasters.[Footnote 3] For 
example, Congress directed CDBG funds toward recovery and rebuilding 
efforts in Texas and Louisiana after Hurricanes Gustav and Ike in 2008, 
New York after the September 11th terrorist attacks in 2001, the 
Midwest after the floods in 1997, Oklahoma City after the 1995 bombing 
of the Alfred Murrah Building, Southern California after the 1994 
Northridge earthquake, and Florida after Hurricane Andrew in 1992. 

To date, $19.7 billion in supplemental appropriations have gone to Gulf 
Coast states through CDBG--the largest amount of CDBG disaster relief 
provided to one area in the history of the program. You requested that 
we review the CDBG funding that has been allocated for rebuilding the 
Gulf Coast and determine what challenges, if any, the states 
encountered in administering and managing the funds. In response to 
your request, we report on: (1) Louisiana's and Mississippi's 
allocations of CDBG funds, (2) difficulties Louisiana faced in 
administering its housing recovery program, and (3) the human capital 
challenges Louisiana and Mississippi encountered and their efforts to 
address those challenges. This report builds upon GAO's prior work on 
rebuilding efforts in the Gulf Coast region.[Footnote 4] 

Our work focused on Louisiana and Mississippi--the two states most 
directly affected by the 2005 Gulf Coast hurricanes. To conduct our 
review we obtained and reviewed the supplemental appropriations acts 
outlining the purpose and availability of CDBG disaster funds. We 
collected and analyzed information on the Department of Housing and 
Urban Development's (HUD) role in the allocation and distribution of 
the funds, how Louisiana and Mississippi prioritized and developed 
allocations for their shares of disaster funding, and how those 
allocations changed over time. In our examination of the challenges the 
two states encountered when administering their housing recovery 
programs, we focused on Louisiana because of its specific approach, 
which led to significant program challenges. We interviewed various 
federal officials from HUD, the Federal Emergency Management Agency 
(FEMA), and the Office of the Federal Coordinator for Gulf Coast 
Rebuilding within the Department of Homeland Security (DHS). We also 
interviewed various state officials and contractors hired by the states 
and coordinated our work with HUD's Office of Inspector General and 
state audit offices. We analyzed federal regulations, various state 
policies and planning documents, and federal and state budget data. For 
more information on our scope and methodology see appendix I. We 
conducted our work from June 2007 through April 2009 in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. 

Background: 

The Community Development Block Grant (CDBG) program, created in 1974 
and administered by the Department of Housing and Urban Development 
(HUD), is the most widely available source of federal funding 
assistance to state and local governments for neighborhood 
revitalization, housing rehabilitation activities, and economic 
development.[Footnote 5] Eligible activities include housing 
assistance, historic preservation, real property acquisitions, 
mitigation, demolition, and economic development. Because of the 
funding mechanism that the CDBG program already has in place to provide 
federal funds to states and localities, the program is widely viewed as 
a convenient, ready-made solution for disbursing large amounts of 
federal funds to address emergency situations. Eligible activities that 
grantees have undertaken with CDBG disaster recovery funds include 
public services, relocation payments to displaced residents, 
acquisition of damaged properties, rehabilitation of damaged homes, and 
rehabilitation of public facilities such as neighborhood centers and 
roads. Over the past two decades, CDBG has repeatedly been adapted as a 
vehicle to respond to federal disasters such as floods, hurricanes, and 
terrorist attacks. For example, Congress provided CDBG disaster relief 
funds to aid long-term recovery efforts after the Midwest floods in 
1993 and for economic revitalization after the 1995 bombing of the 
Murrah Federal Building in Oklahoma City. CDBG funds were also provided 
to New York City in the aftermath of the September 11, 2001, terrorist 
attacks to aid in the redevelopment of Lower Manhattan. When the CDBG 
program is used to provide disaster relief funds, many of the statutory 
and regulatory provisions governing the use of CDBG funds are waived or 
modified, thereby providing states with even greater flexibility and 
discretion. 

Following the 2005 Gulf Coast hurricanes, $19.7 billion in disaster 
CDBG funds were provided to the most affected states--Louisiana, 
Mississippi, Alabama, Florida, and Texas--through three supplemental 
appropriations enacted between December 2005 and November 2007. The 
first CDBG supplemental appropriation, passed on December 30, 2005, 
provided $11.5 billion in CDBG funding and included, among others, a 
provision that prohibited any state from receiving more than 54 percent 
of that total appropriation.[Footnote 6] The second supplemental 
appropriation, passed on June 15, 2006, provided an additional $5.2 
billion in CDBG funds and required that no state receive more than $4.2 
billion of that appropriation.[Footnote 7] HUD was responsible for 
allocating the funds from these two supplemental appropriations among 
the five states in accordance with these and other statutory 
requirements.[Footnote 8] A third supplemental appropriation passed on 
November 13, 2007, and provided an additional $3 billion exclusively 
for Louisiana.[Footnote 9] 

According to HUD's estimates,[Footnote 10] a total of 305,109 housing 
units suffered major or severe damage or were completely destroyed 
along the coast of Louisiana, Mississippi, Alabama, Florida and Texas. 
For perspective, figure 1 shows the states' total damages in terms of 
housing units. Louisiana suffered the greatest amount of devastation 
compared to any other Gulf Coast state with an estimated 204,737 
damaged housing units--equal to 67 percent of the total estimated 
damage in the Gulf Coast region. Mississippi had the second highest 
degree of destruction with an estimated 61,386 damaged housing units-- 
20 percent of the total estimated damage in the region. The remaining 
damage--an estimated 38,986 housing units or approximately 13 percent 
of the total damage--was combined across Alabama, Florida, and Texas. 

Figure 1: Estimated Number of Housing Units Damaged by State: 

[Refer to PDF for image: horizontal bar graph] 

State: Alabama. Florida, Texas; 
Estimated number of housing units damaged: 38,986. 

State: Mississippi; 
Estimated number of housing units damaged: 61,386. 

State: Louisiana; 
Estimated number of housing units damaged: 204,737. 

Source: GAO analysis of HUD damage estimates, which were based upon 
FEMA and SBA inspection data. 

Note: "Housing units" refers to both owner-occupied and renter-occupied 
structures. "Damage" refers to units that suffered major or severe 
damage or were completely destroyed. 

[End of figure] 

Based on HUD's analysis of housing damage estimates for each of the 
five Gulf Coast states and in accordance with specific congressional 
provisions, the department distributed the $19.7 billion in CDBG funds 
that were appropriated for recovery efforts in the region.[Footnote 11] 
Louisiana received the greatest amount--68 percent of the total CDBG 
funding or $13.4 billion. Mississippi received 28 percent of the total 
funding--$5.5 billion. The remaining 4 percent--almost $800 million-- 
was allocated across Alabama, Florida, and Texas. Figure 2 shows a 
breakdown of the total amount of CDBG disaster recovery funds that HUD 
allocated to each state. 

Figure 2: Amount of CDBG Funds Allocated by State: 

[Refer to PDF for image: stacked horizontal bar graph] 

State: Alabama, Florida, Texas; 
First supplemental CDBG appropriation: $0.23 billion; 
Second supplemental CDBG appropriation: $0.55 billion; 
Third supplemental CDBG appropriation: $0; 
Total CDBG allocations: $0.78 billion. 

State: Mississippi; 
First supplemental CDBG appropriation: $5.06 billion; 
Second supplemental CDBG appropriation: $0.42 billion; 
Third supplemental CDBG appropriation: $0; 
Total CDBG allocations: $5.48 billion. 

State: Louisiana; 
First supplemental CDBG appropriation: $6.21 billion; 
Second supplemental CDBG appropriation: $4.2 billion; 
Third supplemental CDBG appropriation: $3 billion. 
Total CDBG allocations: $13.41 billion. 

Source: GAO analysis of HUD allocation data. 

[End of figure] 

Traditionally, grantees are afforded broad discretion as they decide 
how to allocate CDBG funds to specific projects and programs. In the 
aftermath of the 2005 Gulf Coast hurricanes and in an action similar to 
past disaster recovery situations, Congress provided additional 
flexibility to the states' use of CDBG funds. For example, lawmakers 
permitted HUD to waive certain regulations and statutes that would 
otherwise be applicable including income targeting provisions and 
public service expenditure caps.[Footnote 12] Specifically, HUD was 
allowed to waive the threshold outlined in statute that 70 percent of 
total funds must be allocated to activities that primarily benefit low 
and moderate income persons. Instead, only 50 percent of the total 
funds had to be targeted on this basis unless the Secretary found a 
compelling need to waive the targeting provision altogether. In 
addition, HUD suspended statutory requirements that limit the amount of 
CDBG money that can be used to provide public services to the affected 
communities.[Footnote 13] In conjunction with these increased 
flexibilities, Congress prohibited HUD from waiving four specific 
program requirements--nondiscrimination, environmental review, labor 
standards, and fair housing. 

Once HUD allocated CDBG funds to the affected states, the state-level 
development agencies were responsible for the administration and 
management of these funds. In Louisiana and Mississippi, the two states 
that incurred the most damage, the authorities in charge of disaster 
recovery efforts were the Office of Community Development (OCD) and the 
Mississippi Development Authority (MDA), respectively. In Louisiana, 
OCD has managed the state CDBG program over the past two decades. After 
the 2005 Gulf Coast hurricanes, the Louisiana Commissioner of 
Administration created the Disaster Recovery Unit within OCD to 
administer the state's share of CDBG disaster relief funds. Similarly, 
MDA's Disaster Recovery Division was responsible for managing 
Mississippi's share of CDBG disaster relief funds. 

Federal funding sources other than CDBG were available to states after 
the 2005 Gulf Coast hurricanes, but CDBG supplemental appropriations 
provided the largest amount of money. Other sources included the Public 
Assistance (PA) grant program and Hazard Mitigation Grant Program 
(HMGP), both administered by the Federal Emergency Management Agency 
(FEMA).[Footnote 14] In contrast to the PA grant program--which 
provides funds to support infrastructure recovery such as rebuilding 
schools, roads, and utilities--HMGP provides funds to states and local 
governments to implement long-term, cost-effective hazard mitigation 
measures after a major disaster.[Footnote 15] For example, HMGP funds 
may be used for projects such as flood-proofing properties, acquiring 
the property of willing sellers in hazard-prone areas and transforming 
it into open space, and retrofitting structures against earthquakes or 
hurricane-force winds. After the Midwest floods in 1993, CDBG and HMGP 
funds from HUD and FEMA respectively, were used to acquire privately 
held property within flood plain areas in the affected states and 
convert the land to public uses, such as recreation or green space. 

Louisiana and Mississippi Targeted Majority of Funds to Homeowner 
Assistance: 

HUD allocations of CDBG disaster funds to the Gulf Coast states were 
designated for necessary expenses related to disaster relief, long-term 
recovery, and restoration of infrastructure in the most affected and 
distressed areas. States had great flexibility in choosing the types of 
recovery activities to initiate with their CDBG funds. Specific 
language in the supplemental appropriations acts required states to 
develop and submit action plans to HUD detailing the proposed use of 
all funds. Upon submission, HUD reviewed the action plans for 
acceptance.[Footnote 16] These action plans served as state proposals 
for how states would use their share of CDBG disaster funds and 
included descriptions of eligibility criteria and how the funds would 
be used to address both urgent needs and long-term recovery and 
infrastructure restoration. Any substantial program changes--presented 
as amendments to a state's action plan for its use of CDBG disaster 
recovery funds--had to be submitted to HUD for review and acceptance. 
[Footnote 17] 

Recovery activities in Louisiana and Mississippi fell into four main 
categories: housing, infrastructure, economic development, and other 
projects. Both Louisiana and Mississippi devoted most of their 
allocations toward housing assistance, with a majority directed toward 
homeowners. For example, in November 2006, Louisiana allocated nearly 
77 percent of its CDBG funds for housing assistance. Of that amount, 
approximately 80 percent was directed toward homeowners. In December 
2006, Mississippi allocated 63 percent of its CDBG funds for housing 
assistance, of which approximately 98 percent was directed toward 
homeowners. 

Between 2006 and 2008 Louisiana and Mississippi modified the level of 
funding allocated for different recovery projects as shown in figures 3 
and 4 below. For example, as permitted by CDBG guidelines, Louisiana 
increased the percentage of its total CDBG allocation for housing while 
Mississippi reallocated a percentage of its housing funds for economic 
development needs. 

Figure 3: Louisiana's Allocations of CDBG Disaster Funds in 2006 and 
2008: 

[Refer to PDF for image: two pie-charts] 

2006 ($10.4 billion total): 
Housing: 76.5%; 
Infrastructure: 7.1%; 
Economic development: 3.2%; 
Other: 2.0%; 
Unallocated: 11.2%. 

2008 ($13.4 billion total): 
Housing: 86.3%; 
Infrastructure: 9.5%; 
Economic development: 2.5%; 
Other: 1.6%; 
Unallocated: 0.1%. 

Source: GAO analysis of budget data from Louisiana Office of Community 
Development. 

Note: In Louisiana, "Other" refers to planning, administration, and 
technical assistance activities. "Housing" includes homeowner, rental, 
and low-income programs. 

[End of figure] 

Louisiana's increased focus on housing largely resulted from the 
additional supplemental appropriations that Congress provided amid 
concerns that the state's housing recovery program needed additional 
funds. As of November 2006, Louisiana received $10.4 billion in CDBG 
disaster relief funds. After Congress granted an additional $3 billion 
in CDBG funds exclusively for Louisiana, in November 2007, the state's 
total increased to $13.4 billion. Mississippi's reprogramming of funds 
was largely attributed to the state's decision to repair one of its 
storm-damaged ports. 

Figure 4: Mississippi's Allocations of CDBG Disaster Funds in 2006 and 
2008: 

[Refer to PDF for image: two pie-charts] 

2006 ($5.5 billion total): 
Housing: 63.0%; 
Economic development: 9.1%; 
Other: 8.9%; 
Unallocated: 18.4%. 

2008 ($5.5 billion total): 
Housing: 52.4%; 
Infrastructure: 11.1%; 
Economic development: 22.8%; 
Other: 11.7%; 
Unallocated: 2.0%. 

Source: GAO analysis of budget data from the Mississippi Development 
Authority. 

Note: In Mississippi, "Other" refers to ratepayer and wind insurance 
mitigation and administrative activities. "Housing" includes homeowner, 
rental, and low-income programs. 

[End of figure] 

The different approaches that Louisiana and Mississippi took for 
designing and developing their own homeowner assistance programs led to 
substantially different experiences. The specific goals and details of 
Louisiana's and Mississippi's initial designs differed significantly. 
Louisiana started with a program design that included incentives to 
promote home rebuilding and ensure retention of the state population. 
The primary concern for Louisiana state officials was to bring 
residents back to their communities to begin the process of rebuilding. 
On the other hand, Mississippi adopted a much simpler design, which 
awarded one-time, lump-sum payments to homeowners to compensate them 
for their losses, independent of their choice to rebuild. This helped 
Mississippi to avoid many of the challenges and delays that Louisiana 
would experience as discussed in the next section of this report. 

Federal Guidance Was Insufficient to Address Louisiana's Approach to 
Housing Recovery: 

As Louisiana and Mississippi planned their housing recovery efforts, 
Louisiana designed different solutions than Mississippi did. Louisiana 
initially adopted a plan that tied federal funds to home reconstruction 
and controlled the flow of funds to homeowners while Mississippi paid 
homeowners for their losses regardless of their intentions to rebuild. 
Specifically, Louisiana initially created a program that incorporated 
certain elements from two different housing recovery program models: 
compensation and rehabilitation. Although there is no written guidance 
distinguishing between the two models, HUD officials explained to us 
what the major differences are between the two programs. Generally, in 
a rehabilitation program, funds are used explicitly for repairs or 
reconstruction projects. In contrast, a compensation program disburses 
grant payments directly to homeowners for the damages they suffered 
regardless of whether they intend to repair or rebuild. 

Furthermore, rehabilitation and compensation programs are subject to 
different legal and financial requirements in terms of HUD's oversight 
responsibilities. HUD officials explained that under a rehabilitation 
model, binding federal funds to reconstruction triggers several federal 
requirements, including site-specific environmental reviews of each 
property. Federal and state officials said these environmental reviews 
can be costly and time consuming, taking perhaps several months to 
years to complete.[Footnote 18] Officials in both states said this was 
a key factor considered when deciding whether or not to adopt the 
rehabilitation model. Under a compensation model, environmental reviews 
are not required because recipients are not required to spend their 
grant proceeds on home repair and reconstruction. Senior HUD officials 
said that historically, CDBG funds have not been used for compensation 
programs, but rather rehabilitation, reconstruction, and rebuilding 
programs.[Footnote 19] According to senior HUD officials involved with 
administering CDBG disaster assistance, CDBG is not often used for 
compensation programs because it is difficult to know what recipients 
will do with the money. 

Louisiana's other solution was to try to use multiple federal funding 
streams for its housing recovery program. Specifically, the state 
planned to finance the purchase of properties with CDBG funds and 
essentially pay itself back with FEMA funds. Mississippi, on the other 
hand, chose not to combine federal funds together in this way. Existing 
guidance was not sufficient to address Louisiana's approach, and 
failures in communication hindered full understanding of the problems 
with the state's particular program and funding designs. As a result, 
Louisiana encountered many challenges to implementing its recovery 
efforts that Mississippi did not. 

In Louisiana, there were two major problems stemming from its 
particular program and funding designs. The first was a 
misunderstanding between Louisiana officials and HUD staff as to 
whether the design for their housing recovery program could be 
considered a compensation program, as opposed to a rehabilitation 
program. The two types of programs have different regulatory 
requirements as noted above. In particular, rehabilitation programs 
require costly and time-consuming site-by-site environmental reviews, 
whereas compensation programs do not. Louisiana's program design was 
labeled as compensation, even though it contained elements of a 
rehabilitation program. This led to more misunderstandings with HUD and 
delays in program implementation. 

The second problem came up when, on the advice of the Federal 
Coordinator for Gulf Coast Rebuilding (Federal Coordinator) according 
to state officials, Louisiana tried to use multiple federal funding 
sources for its housing recovery program.[Footnote 20] Louisiana state 
officials planned to use FEMA and HUD funds together for purposes 
allowable under the requirements for each funding source. However, the 
manner in which the state planned to use the funds to finance the 
state's purchase of residential properties led the state to run afoul 
of certain programmatic and legal requirements governing the FEMA 
funds. All of these problems led to more delays in funding and program 
implementation. 

Misunderstandings between Louisiana and HUD Led to Multiple Iterations 
of the Road Home Program: 

Louisiana state officials developed and started to implement the Road 
Home program,[Footnote 21] which evolved over the course of 
approximately 12 months between May 2006 and May 2007. Throughout, HUD 
staff provided technical assistance to state officials and conducted 
scheduled monitoring visits for oversight purposes. To explain the 
evolution of the Road Home program, we identified three key phases and 
their associated milestones: the original design (approved May 2006), 
the revision (accepted July 2006), and HUD's cease and desist order 
(issued March 2007). Table 1 below highlights the time line of events 
surrounding the evolution of the Road Home program. 

Table 1: Time Line of Events Surrounding the Evolution of Louisiana's 
Road Home Program: 

Phase One: 

Date: Feb. 13, 2006; 
Event: HUD announced Louisiana's first CDBG disaster funding allocation 
and related waivers. 

Date: May 12, 2006; 
Event: Louisiana submitted action plan to HUD describing Road Home 
program. 

Date: May 30, 2006; 
Event: HUD approved the Road Home program. 

Phase Two: 

Date: July 12, 2006; 
Event: Louisiana re-submitted Road Home program action plan to HUD as a 
compensation program; HUD accepted Road Home as a compensation program; 
Louisiana began pilot of Road Home program. 

Date: Aug. 11, 2006; 
Event: Louisiana submitted clarification and an update to HUD about 
Road Home. 

Date: Aug. 22, 2006; 
Event: HUD approved the Road Home clarification and update; Road Home 
began accepting homeowner applications. 

Date: Nov. 30, 2006; 
Event: Louisiana submitted further clarifications about Road Home 
program; HUD accepted Road Home clarifications. 

Phase Three: 

Date: Mar. 16, 2007; 
Event: HUD ordered Louisiana to cease and desist Road Home program. 

Date: Apr. 9, 2007; 
Event: Louisiana publicly announced Road Home as lump-sum compensation 
program. 

Date: May 7, 2007; 
Event: Louisiana submitted Road Home program action plan amendment to 
HUD; adopted lump-sum compensation model. 

Date: May 30, 2007; 
Event: HUD approved action plan amendment. 

Source: Data from HUD and Louisiana's Office of Community Development. 

[End of table] 

Original Program Design Encouraged Homeowners to Stay: 

This first phase began after HUD announced Louisiana's first CDBG 
disaster funding allocation in February 2006. In the following months, 
Louisiana state officials established the goals of the Road Home 
program, which were aimed at encouraging residents to return to their 
neighborhoods and rebuild their storm-damaged homes.[Footnote 22] To 
meet the program goals, Louisiana state authorities developed the main 
housing assistance components[Footnote 23] of the program and offered 
homeowners three specific options through the program. Homeowners 
could: (1) rebuild homes on their own properties, (2) sell their 
properties and relocate within the state, or (3) sell their homes and 
relocate outside of the state. Those homeowners who chose to stay in 
Louisiana were eligible to receive a larger grant award than those who 
chose to leave the state.[Footnote 24] As noted above, in contrast to 
Louisiana's home recovery plan, Mississippi chose early on to adopt a 
homeowner assistance program that was clearly within the terms of a 
compensation model. Once Louisiana homeowners applied for Road Home 
assistance, they had to select their preferred benefit option.[Footnote 
25] Among the three choices available to homeowners, rebuilding was the 
most popular selection. Of the 143,580 homeowners who returned their 
benefit preference to state officials, almost 88 percent chose to stay 
and rebuild their storm-damaged homes.[Footnote 26] 

By April 2006, Louisiana officials completed the state's action plan. 
The action plan outlined the different types and amounts of assistance 
available to homeowners, eligibility criteria, formulas to calculate 
recipient grant awards, and a general description of the disbursement 
process to transfer funds to eligible recipients. Under the initial 
design of the Road Home program, homeowners who chose to rebuild were 
required to meet code and zoning requirements and comply with the 
latest available FEMA guidance for base flood elevations. These 
homeowners were required to use the home as their primary residence for 
at least 3 years upon completion of repairs.[Footnote 27] Louisiana 
submitted the plan to HUD on May 12, 2006--3 months after HUD announced 
each state's allocation of CDBG funds. The HUD Secretary approved 
[Footnote 28] Louisiana's action plan for the Road Home program 
approximately 2 weeks later on May 30, 2006. 

Action Plan Revision Attempted to Address Conflicting Interpretations; 
Program Development Proceeded: 

The second phase began in the months immediately following the HUD 
Secretary's approval of the Road Home action plan. Key HUD staff and 
state officials had different interpretations and expectations of 
exactly how the Road Home program would operate. Because HUD lacked 
written program guidance, there were no concrete federal definitions 
that HUD or the state could refer to. According to HUD officials who 
were involved in reviewing Louisiana's action plan, their understanding 
was that Road Home would operate as a rehabilitation program--thereby 
requiring site-specific environmental reviews. In contrast, Louisiana 
state officials thought CDBG program rules provided sufficient 
flexibility so that the program they proposed qualified as a 
compensation model and would not require the environmental reviews. As 
a result, Louisiana officials revised the action plan in an attempt to 
resolve the conflicting interpretations and re-submitted the plan for 
HUD review. HUD officials said that they worked with state officials to 
revise the language in the action plan to reflect more of a 
compensation-type program so as to not trigger the site-specific 
environmental requirements. On July 12, 2006, HUD officials accepted 
the revised plan for Road Home as a compensation program. 

Upon HUD's acceptance of the action plan, the state continued to 
develop the operational and payment structures to implement Road Home 
and initiated a pilot of the program. On August 11, 2006, the state 
provided HUD with additional Road Home program clarifications that 
further explained the formulas used to calculate grant award payments 
to homeowners and the covenants that would be placed upon the homes of 
those who chose to stay in their homes and rebuild. The covenants 
required that Louisiana homeowners rebuild and elevate their homes in 
accordance with applicable codes and local ordinances and that the home 
be owner-occupied for at least 3 years after receiving compensation and 
be covered by the appropriate insurance.[Footnote 29] The purpose of 
these covenants was to ensure that homeowners returned to their 
neighborhoods and helped to rebuild the community. The state also 
clarified that homeowners who did not fulfill the terms of their 
covenants may not receive benefits or may have to repay all or some of 
the compensation they received. In addition, homeowners would receive 
grant proceeds incrementally to ensure covenant compliance, but were 
not required to use the money for repairs and rebuilding costs. To meet 
the requirements for a compensation program, the action plan amendment 
explicitly stated that homeowners had complete discretion as to the use 
of the compensation they received. HUD approved the clarifications in 
the amendment on August 22, 2006. Another step forward for the program 
involved state officials establishing agreements with local financial 
institutions and defining their roles and responsibilities in the 
disbursement process, transferring funds from the state to eligible 
recipients. Agreements were also established between individual 
homeowners, the state, and the financial institutions and included 
specific provisions and requirements that outlined the terms of grant 
award disbursement. 

During this second phase, the state worked out some of the details of 
its original design. For example, homeowners who chose to rebuild their 
storm-damaged homes would receive their CDBG grant awards in 
incremental payments as they provided evidence to the state that 
rebuilding efforts were under way. Under the Road Home program, a 
homeowner would receive an initial portion of his or her grant proceeds 
equal to either $7,500 or 10 percent of his or her total grant 
proceeds--whichever is less--upon execution of a contract for repairs. 
Subsequently, the homeowner would receive a second portion of the grant 
proceeds equal to no more than one-third of the total funds necessary 
to rebuild his or her home upon completion of a commensurate amount of 
repairs.[Footnote 30] Similarly, a third payment would be disbursed 
upon completion of two-thirds of the necessary repairs followed by a 
final disbursement of the remaining grant proceeds. Final payment of 
the grant proceeds is withheld until the state receives verification 
that the work is actually complete thereby protecting the homeowner 
from potential fraudulent contractor action.[Footnote 31] Louisiana 
state officials chose this type of incremental payment system to 
provide assurance that federal funds were being spent as intended, and 
to provide information that could be used to measure the progress of 
homeowners' rebuilding. Tying CDBG funds to home repairs in this manner 
is consistent with a rehabilitation program; however, Road Home had 
been labeled and approved as a compensation program. 

One year after Hurricane Katrina made landfall, the Road Home program 
was officially launched statewide in late August 2006 when the state 
began accepting applications from homeowners and continued forward with 
plans to disburse initial payments to those homeowners who participated 
in the pilot. Throughout the subsequent months, state authorities 
mailed out award letters to individual homeowners explaining the three 
options available to them and giving them deadlines for their 
participation. In addition, housing assistance centers, where eligible 
homeowners could speak with trained housing advisors to help guide them 
through the process and make informed decisions about their options, 
opened state-wide. Housing advisors also collected critical information 
from homeowners regarding ownership, insurance, and mortgage balances--
information that was required to process individual applications and 
inform benefit calculation. In November 2006, Louisiana submitted 
another action plan amendment that, among other changes, removed any 
penalty for elderly homeowners who chose to relocate outside of 
Louisiana.[Footnote 32] HUD did not consider the contents of the 
November 2006 amendment to be substantial enough to require formal 
review, allowing state officials to continue forward with the Road Home 
program. By March 15, 2007, Louisiana had received more than 116,000 
applications for Road Home assistance and disbursed approximately 
$214.4 million to nearly 3,000 homeowners.[Footnote 33] 

HUD's Cease and Desist Order Prompted More Changes to Road Home 
Program: 

The third phase began on March 16, 2007, when HUD ordered Louisiana 
officials to "cease and desist" Road Home, approximately 7 months after 
the program was fully operational. According to HUD officials, they 
found that the program was operating more like a rehabilitation 
program--meaning that CDBG funds were paying for home repairs and 
reconstruction exclusively--and therefore, participating homes were 
subject to site-by-site environmental reviews. While there is no 
written documentation explaining HUD's decision reversal nor any 
written federal guidance outlining the specific terms of a compensation 
program, key HUD officials provided us with a verbal explanation. 
Specifically, they said that HUD staff conducted a scheduled monitoring 
visit to Louisiana and reviewed the operating documents for the Road 
Home program, including the grant disbursement agreements. According to 
an e-mail from the HUD Assistant Secretary to key HUD staff involved in 
Gulf Coast recovery, there was an "apparent inconsistency" between Road 
Home program operations and the approved action plan. HUD would not 
allow the state to move forward with the program until adjustments were 
made to the disbursement process or until the state conducted the 
required site-by-site environmental reviews. 

According to Louisiana state officials, they were very surprised and 
frustrated by HUD's decision because of the department's previous 
acceptance of the Road Home program design. One top Louisiana official 
testified on May 8, 2008, before the House Financial Services 
Subcommittee on Housing and Community Opportunity that the 
environmental assessments were the single biggest reason for the state 
opting to implement a compensation model over a rehabilitation model. 
During the early development of Road Home, Louisiana conducted a study 
to estimate the costs, staff requirements, and time needed for full 
site-by-site property reviews. The state concluded that there was no 
practical way to cost-effectively perform the environmental assessments 
on well over 100,000 homes and expect to get rebuilding money "on the 
street" in a timely manner. 

State officials met with key HUD staff in Washington, D.C., to discuss 
HUD's concerns and reconcile conflicting federal and state 
interpretations of what qualifies as a compensation program versus a 
rehabilitation program. However, as noted earlier, Louisiana officials 
believed that CDBG regulations provided sufficient flexibility for its 
approach to operate a compensation program. After these discussions, 
Louisiana state officials decided to abandon their plans to disburse 
grant proceeds incrementally and chose to provide funds to homeowners 
in lump-sum payments. State officials submitted an action plan 
amendment to HUD in early May 2007 to document this policy change. HUD 
approved the revised action plan shortly thereafter and said in its 
approval letter to state officials that the changes addressed the 
Department's concerns that Road Home "did not comply with the 
requirements of a true compensation program." Louisiana state 
authorities announced the policy change on April 7, 2007, explaining 
that homeowners would receive a full payment of their Road Home grant 
award in lump sum. They also recommended that homeowners consult with 
financial advisors, lenders, and housing counselors before beginning 
home repairs and encouraged homeowners to establish voluntary 
disbursement accounts with lenders to help guard against fraudulent 
contractor activity. 

While the state continued to accept homeowner applications, individual 
covenants had to be revised; homeowner grant awards had to be 
recalculated; and scheduled house closings[Footnote 34] were postponed. 
Many federal and state officials said that the original design of the 
Road Home program with the incremental payment process was better 
aligned with the state's original priorities of ensuring long-term 
rebuilding and incorporating front-end assurances that federal funds 
were spent as intended than the lump-sum compensation program that was 
ultimately implemented. Senior HUD officials told us that a 
compensation model could disburse funds to homeowners incrementally 
rather than one-time, lump-sum payments, but the officials were unable 
to provide any examples where such an approach has been taken when 
disbursing CDBG disaster recovery funds.[Footnote 35] 

Conflicting Federal Determinations Hindered Coordination of Federal 
Funding Sources: 

While the CDBG program provided much of the federal assistance in the 
aftermath of the 2005 Gulf Coast hurricanes, several other federal 
programs provided assistance to Louisiana to support the state's 
comprehensive long-term recovery efforts, including among others, 
FEMA's Hazard Mitigation Grant Program (HMGP). Louisiana was eligible 
to receive almost $1.5 billion from FEMA's HMGP, which is part of a 
broad framework of FEMA initiatives authorized by the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act.[Footnote 36] 
Similar to the evolution of Louisiana's Road Home program design 
discussed above, the state's proposal to use HMGP funds for homeowner 
assistance also evolved for more than a year. 

Key Federal and State Officials Agreed That HMGP Funding Could Be Used 
for Road Home: 

Soon after the first supplemental appropriation was enacted in late 
December 2005, federal and state officials entered into negotiations 
for a second appropriation of CDBG funding in light of concerns that 
the Road Home program needed additional funds. State officials reported 
that as part of these negotiations, the Office of the Federal 
Coordinator advised them on how to incorporate HMGP funding[Footnote 
37] into the Road Home program. Doing so would have reduced the amount 
of additional CDBG funds the state would request from Congress. 

As part of their proposed funding design for the Road Home program, 
Louisiana state officials planned to use approximately $1.1 billion in 
HMGP funds in coordination with CDBG funds to purchase over 12,000 
properties from homeowners who chose to relocate. The properties would 
have initially been purchased with CDBG funds. At some point, but not 
necessarily before their purchase, state officials and other 
stakeholders would determine exactly which properties would be 
converted to open space and which ones would be redeveloped. The cost 
of the properties converted to open space would then be reimbursed with 
HMGP funds, as converting properties to open space is an acceptable 
mitigation activity under HMGP rules and regulations. 

In traditional HMGP projects, funding is typically passed through the 
state government to a local sub-grant applicant to coordinate with 
property owners. In this case, the state itself would have been 
coordinating directly with property owners. According to FEMA 
officials, they first found out that the state expected to use HMGP 
funds toward Road Home in July 2006, after the state had already 
published its action plans, which stated this intention. FEMA also 
claimed that the agency was not included in the initial negotiations 
between the state and the Federal Coordinator's office. However, 
Louisiana state officials reported that FEMA verbally committed to 
allowing the state to use HMGP funds for acquisitions. Throughout the 
second half of 2006 and much of 2007, state officials met regularly 
with FEMA as well as HUD--who did not oppose the initial plan--to work 
out an agreement for the use of HMGP funds. However, it still took over 
one year for FEMA and the state to come to an agreement over how HMGP 
funding could be used. 

FEMA Rejected Louisiana's Initial Application for HMGP Funds: 

In late September 2006, Louisiana submitted its application to FEMA for 
HMGP funds in accordance with its planned property acquisition project. 
In a December 13, 2006 letter to the Louisiana Governor's Office for 
Homeland Security and Emergency Preparedness (GOHSEP)--the entity 
responsible for administering and managing the state's HMGP funds--FEMA 
expressed its concerns with Louisiana's application. 

FEMA denied Louisiana's application to use HMGP toward the Road Home 
program in February 2007 because the agency asserted that the state's 
intended plan to use HMGP for property acquisition did not meet 
statutory, regulatory, or programmatic requirements. Specifically, FEMA 
cited three main aspects of the proposal that formed the basis for its 
rejection: 

* the plan exempted senior citizens from a specific financial penalty 
under the Road Home program, which violated FEMA's statutory 
requirement of non-discrimination based on age; 

* the plan did not adequately involve local jurisdictions; and: 

* the application itself was too general and did not contain project- 
level data and specific budget information. 

FEMA officials also indicated that the proposed project was 
inconsistent with the overall purpose of HMGP; namely, they perceived 
the Road Home proposal as more focused on redevelopment than long-term 
hazard mitigation. As noted in FEMA's letter to Louisiana, the state 
did not have a plan to coordinate with local officials to identify 
which properties would become part of the HMGP program before their 
acquisition. However, state officials could not identify the total 
number of properties that would be converted to open space or 
redeveloped until homeowners indicated to the state their choice to 
either keep or sell their storm-damaged property in accordance with the 
benefit options available under the Road Home program. Subsequently, 
FEMA maintained that this arrangement would not provide enough detail 
for the agency to determine project eligibility for specific 
properties. It appeared that the Road Home program lacked sufficient 
budgetary resources, and the state's priority was to "backfill" the 
CDBG account with proceeds from HMGP, according to one FEMA official. 

Louisiana state authorities submitted an appeal to FEMA on April 4, 
2007. In that letter, GOHSEP urged FEMA to reverse its decision and 
allow the Road Home program to use HMGP funds to acquire property and 
transform it into open space. GOHSEP argued that the combination of the 
CDBG-funded Road Home program and the HMGP acquisition project had the 
great potential to reduce future damages more than any other hazard 
mitigation project ever funded. Table 2 below shows the time line of 
events surrounding the state's attempt to leverage HMGP funding. 

Table 2: Time Line of Events Surrounding Louisiana's Attempt to 
Leverage HMGP Funds: 

2006: 

Date: January; 
Event: Concerns expressed that Road Home program needs additional 
funds. Meetings between Louisiana state officials and the Federal 
Coordinator. 

Date: Summer, Fall; 
Event: Interagency Steering Committee meetings including Louisiana, 
FEMA, and HUD. 

Date: July 12; 
Event: Louisiana officials contend that FEMA verbally committed to 
Louisiana's use of funds for acquisitions. 

Date: September 29; 
Event: Louisiana applied for HMGP funds. 

2007: 

Date: February 6; 
Event: FEMA denied Louisiana's application. 

Date: April 4; 
Event: Louisiana submitted appeal to FEMA. 

Date: July 16; 
Event: FEMA denied the state's appeal. 

Date: Summer; 
Event: Louisiana decided to use HMGP for elevations rather than 
acquisitions. 

Date: October 15; 
Event: FEMA approved Elevation/Pilot Reconstruction Project. 

Date: November 13; 
Event: Public Law 110-116 passed ($3 billion for Road Home). 

Source: Data from FEMA, Louisiana's Office of Community Development, 
and Louisiana Governor's Office of Homeland Security and Emergency 
Preparedness. 

[End of table] 

FEMA denied the state's appeal on July 16, 2007. According to FEMA 
regulations, HMGP funds cannot be used as a substitute or replacement 
to fund projects or programs that are available under other federal 
authorities, except under limited circumstances in which there are 
extraordinary threats to lives, public health or safety or improved 
property. [Footnote 38] HMGP funds may, however, be packaged or used in 
combination with other federal, state, local, or private funding 
sources when appropriate to develop a comprehensive mitigation 
solution. One FEMA official testified that HMGP is not designed to 
compensate individuals for disaster losses. Rather, HMGP provides 
communities with resources to implement long-term solutions that reduce 
the risk to citizens and public facilities from hazards. The Stafford 
Act permits HMGP funds to be used in connection with flooding for 
property acquisition as long as the property's use is compatible with 
an open space, recreational, or wetlands management practice, among 
other requirements.[Footnote 39] In Louisiana's case, the state's 
planned use of HMGP funds was to transform flood-prone properties into 
open space and relocate homeowners out of harm's way. In a May 24, 
2007, hearing before the Senate Homeland Security and Governmental 
Affairs Subcommittee on Disaster Recovery, FEMA's Assistant 
Administrator for Mitigation testified that the agency "agreed in 
concept to this approach and began developing the legal and 
programmatic framework to make it work." However, FEMA later determined 
that the state's implementation approach did not allow for compliance 
with HMGP requirements. 

Although HUD and FEMA are bound by similar nondiscrimination statutes 
and regulations to determine project eligibility for their respective 
disaster recovery programs, the agencies reached different conclusions 
about their ability to fund the Road Home program. FEMA's determination 
that it could not fund the program because of HMGP's non-discrimination 
requirements prevented HMGP funding from being used for property 
acquisitions as initially intended by the state. Under the Road Home 
program, homeowners who chose to sell their properties to the state and 
relocate outside Louisiana or those who sold homes and remained in the 
state without purchasing new properties incurred a financial penalty. 
Specifically, homeowner grants were reduced by 40 percent. Elderly 
homeowners (65 or older as of December 31, 2005), however, were exempt 
from this penalty. HUD did not find this measure violated the non- 
discrimination requirements applicable to CDBG funds, which were used 
to fund the Road Home program. However, citing the Stafford Act, FEMA 
determined that such an exemption was discriminatory toward homeowners 
under the specified age limit. From the states' perspective, it was not 
necessarily clear how two separate nondiscrimination provisions would 
be applied to the Road Home program. In effect, different federal 
determinations prohibited the state's efforts to design and implement 
this piece of its housing recovery program. 

FEMA Accepted Revised HMGP Application, but Delays Continued: 

Louisiana successfully redesigned the program to use HMGP funding 
primarily for elevation grants, but the vast majority of homeowners 
have yet to receive funds. After FEMA denied the state's appeal to use 
HMGP funds for property acquisitions, state officials redesigned their 
request, and submitted a new application to FEMA to use HMGP funding 
for homeowner elevation grants and reconstruction projects.[Footnote 
40] FEMA approved the plan, and in October 2007 the agency approved a 
small batch of test properties as eligible to receive HMGP funds. 
Although the state administered the new elevation/reconstruction 
project through the Road Home program, HMGP funds were not integrated 
with CDBG funds as they would have been under Louisiana's original 
acquisition proposal. Both federal and state officials characterized 
the HMGP elevation project as running on a separate but parallel track 
to the CDBG-funded homeowner assistance program. Homeowner demand for 
the projects has been less than expected, in part because of the length 
of time it has taken to develop and implement the program. 
Consequently, the state has reallocated funds from the state-run HMGP 
elevation/reconstruction program to community-led traditional HMGP 
projects. 

Our past work found that the application process for HMGP funds can be 
complex and time and resource intensive.[Footnote 41] Long delays can 
occur in receiving funds, which can lead to additional obstacles for 
local communities. For example, delays in receiving grant funds can 
prevent a city from being more cost-effective in terms of mitigation. 
These types of HMGP delays were only exacerbated in Louisiana when the 
state attempted to use HMGP funds alongside CDBG funds. While FEMA has 
taken several steps to streamline their review processes, every 
property must still meet FEMA eligibility requirements, including 
environmental and historical preservation requirements. In our prior 
work, one local mitigation official said that it would be most 
effective to conduct mitigation activities immediately after a storm 
event, when damages are being repaired, rather than waiting for HMGP 
funds to become available.[Footnote 42] According to FEMA, while states 
normally have up to one year from the date of a disaster declaration to 
apply for HMGP funds, the approval process can begin much earlier 
following a disaster if state and local officials have previously 
identified viable mitigation projects that are consistent with state 
and local mitigation plans. However, without effective communication 
between federal agencies, states are challenged to coordinate the 
multiple streams of federal funding typically needed to address 
recovery from catastrophic disasters. 

Louisiana and Mississippi Took Similar Approaches to Address Human 
Capital Needs for Unprecedented Program Size: 

In the immediate aftermath of such a catastrophic disaster, Louisiana 
and Mississippi state development agencies lacked sufficient capacity 
to effectively manage billions of dollars in federal assistance. This 
is most evident in the human capital challenges state agencies faced as 
they designed and developed state CDBG programs of unprecedented size. 
We found that Louisiana and Mississippi employed similar approaches to 
build organizational capacity and address human capital needs, 
including the creation of new state entities, hiring private 
contractors, and hiring additional state agency staff. 

Prior to the 2005 Gulf Coast hurricanes, state community development 
agencies in both states had experience managing CDBG program budgets of 
similar size to one another. For example, between fiscal years 2002 and 
2005, the average annual CDBG program administered at the state level 
was budgeted at approximately $34.6 million and $35.6 million for 
Louisiana and Mississippi respectively. Funding allocations for state 
CDBG programs have been generally declining in recent years. 
Specifically, Louisiana's state CDBG program budget decreased to $27.6 
million in 2008 while Mississippi's budget decreased to $29.8 million. 
The amount of CDBG disaster recovery funds Congress provided after the 
Gulf Coast hurricanes translated into enormous increases in both 
states' CDBG budgets. Table 3 shows the annual state CDBG budgets for 
Louisiana and Mississippi compared to the amount of CDBG disaster funds 
provided to each state for Gulf Coast hurricanes recovery and 
rebuilding efforts. 

Table 3: Comparison of Louisiana's and Mississippi's Annual CDBG 
Budgets to CDBG Disaster Funds Allocated After 2005 Gulf Coast 
Hurricanes (in millions): 

Louisiana: State CDBG Program; 
FY2002-FY2005 (average): $34.6; 
FY2006: $29.3; FY2007: $29.5; 
FY2008: $27.6. 

Louisiana: CDBG Disaster Funds; 
FY2002-FY2005 (average): [Empty]; 
FY2006: $6,210.0; 
FY2007: $4,200.0; 
FY2008: $3,000.0. 

Mississippi: State CDBG Program; 
FY2002-FY2005 (average): $35.6; 
FY2006: $30.4; 
FY2007: $30.5; 
FY2008: $29.8. 

Mississippi: CDBG Disaster Funds; 
FY2002-FY2005 (average): [Empty]; 
FY2006: $5,058.2; 
FY2007: $423.0; 
FY2008: [Empty]. 

Source: GAO analysis of HUD data. 

Note: Annual CDBG figures reflect funds granted to the state program. 
Additional CDBG funds are administered by localities within the state. 

[End of table] 

Both states were suddenly responsible for managing and administering 
multibillion dollar programs that were substantially larger than their 
more typical multimillion dollar programs. 

Both States Created New Offices to Direct Disaster Recovery Efforts: 

Both states created new entities to coordinate and oversee rebuilding 
efforts and to serve as policymaking bodies responsible for planning 
and coordinating efforts throughout the state. In Louisiana, the 
governor created the Louisiana Recovery Authority (LRA) within the 
state's executive branch in October 2005.[Footnote 43] As part of its 
responsibilities, LRA was charged with establishing spending priorities 
and plans for the state's share of CDBG funds, subject to approval of 
Louisiana's state legislature. LRA's primary goals included securing 
funding for recovery and rebuilding, identifying and addressing 
critical short-term recovery issues, and providing oversight and 
accountability. While LRA was responsible for developing and issuing 
policies on the state's recovery, the Office of Community Development 
(OCD) was responsible for administering the Road Home program and 
managing the day-to-day implementation of LRA's policies. In 2008, 
under the leadership of a newly elected governor, OCD merged with LRA 
creating a more centralized structure for authority and oversight of 
the state's recovery activities. Moreover, the executive director of 
the recently combined LRA and OCD now serves as the governor's 
authorized representative to the President for disaster recovery in 
Louisiana. According to one state official we spoke with, this 
consolidated leadership structure has improved the operation of the 
Road Home program. 

Similarly, in Mississippi, the governor created the Governor's Office 
of Recovery and Renewal in January 2006, which served as a policy- 
oriented body and had the primary responsibility for designing the 
state's various recovery programs and shaping the state's overall 
approach to rebuilding.[Footnote 44] Among its responsibilities, the 
office coordinated relief efforts among federal and state agencies and 
other public and private entities. Its primary objectives included, 
obtaining the maximum amount of federal funds and maximizing the use of 
credit in lieu of cash, providing policy advice and formulation to the 
governor and state agencies, providing technical assistance and 
outreach to local governments, and facilitate the implementation of 
recommendations made by the Governor's Commission.[Footnote 45] While 
the Governor's Office of Recovery and Renewal is responsible for 
setting policies for long-term recovery plans, Mississippi Development 
Authority (MDA) is responsible for the implementation of these policies 
and administering the state's CDBG disaster recovery programs. 

Both States Hired Additional State Agency Staff and Private 
Contractors: 

Officials from the state development agencies--OCD and MDA--recognized 
the need to build the states' organizational capacities to address the 
enormous task of developing and managing massive housing recovery 
programs. In response, both Louisiana and Mississippi hired additional 
state agency staff; however, Mississippi lagged behind Louisiana in 
this effort. Specifically, Louisiana OCD made use of state civil 
service provisions that allowed the agency to recruit higher-salaried, 
term-appointment managers who were well-qualified disaster recovery 
experts. According to the former Executive Director of OCD, despite 
most of the key staff in the agency having more than 20 years of 
experience working with the CDBG program, the agency needed additional 
help. OCD hired staff from other states who had experience implementing 
federal housing programs and with CDBG disaster program funding. These 
individuals came from various states including Kentucky, New York, 
North Dakota, and Pennsylvania and were placed in top management 
positions within the agency. 

In Mississippi, top agency officials also acknowledged that the state 
and local governments were overwhelmed by the scale of destruction left 
by the 2005 Gulf Coast hurricanes. One top MDA official said the agency 
did not have a sufficient number of staff in place--particularly staff 
with expertise in CDBG-funded disaster recovery programs--to administer 
a wide range of new programs. Top MDA officials said that they had 
approximately 20 people assigned to disaster recovery positions in the 
aftermath of the 2005 Gulf Coast hurricanes. Eventually, MDA increased 
its disaster recovery staffing level in 2008 after receiving an 
evaluation and recommendations from HUD. For example, an audit 
conducted by the HUD Inspector General found that MDA did not have 
adequate staff to monitor implementation of the state's Homeowner 
Assistance Program and had not established the required monitoring 
processes. The supplemental appropriations act that provided CDBG funds 
for recovery from the 2005 Gulf Coast hurricanes, coupled with the 
state's HUD-approved action plan, required that MDA establish and 
implement monitoring processes to ensure that program requirements were 
met and to provide continuous quality assurance. 

In addition, HUD's Office of Community Planning and Development, which 
was the office responsible for administering and overseeing CDBG 
disaster recovery funds, found that MDA had insufficient separation of 
duties, thereby negatively affecting the state's fiscal controls and 
accounting procedures for billions of federal CDBG dollars. 
Specifically, HUD found that one individual had multiple roles of 
authority as a program and financial manager and monitor as well as an 
invoice approval and reconciliation manager. In response to HUD's 
findings, MDA restructured the agency and created a separate bureau to 
handle all reporting and monitoring responsibilities. The agency also 
hired 30 people, for a total of approximately 50 employees assigned to 
administering and managing the state's disaster recovery work. 

In addition to hiring additional agency staff, both states contracted 
with private firms to help state development agencies implement and 
manage their housing assistance programs. Both states hired contractors 
to set up customer service centers, process applications, determine and 
verify eligibility and calculate damage compensation amounts, develop 
tracking procedures, prevent duplication of benefits, and develop cost 
estimates. Louisiana officials recognized that even with the additional 
agency staff, the agency still did not have the capacity to manage all 
of those operations. When reviewing potential contractors to implement 
the Road Home program, state officials included multiple stakeholders 
in an inclusive and transparent process. For example, the top OCD 
official at the time brought in experts from other states to score and 
rank the various proposals. ICF International's proposal was 
unanimously chosen by the selection team with the support of the state 
legislature and state attorney general's office. The initial contract 
between OCD and ICF International cost approximately $756 million, but 
the cost increased to $912 million in December 2007 when the number of 
homeowners estimated to receive assistance increased from 100,000 to 
160,000. Similarly, MDA recognized its need to build capacity and 
contracted with Reznick Group to implement its Homeowners Assistance 
Program. One top MDA official said the agency relied heavily on Reznick 
to manage program operations on the ground. Mississippi's contract with 
the firm cost an estimated $88 million. 

Both States Said They Needed HUD Staff on the Ground: 

According to state officials in both Louisiana and Mississippi, the 
state development agencies responsible for designing and administering 
CDBG-funded housing recovery programs needed regular, on-site technical 
assistance from HUD staff. While HUD staff did conduct four to five on- 
site monitoring and technical assistance visits per year as part of its 
oversight responsibilities, a number of state officials pointed to a 
need for clarification and further explanation of various federal 
regulations, environmental requirements, and waivers related to the 
states' use of CDBG funds in disaster recovery activities. HUD has 
field offices in both states; however, the CDBG disaster recovery 
program for the Gulf Coast was managed out of the agency's Washington, 
D.C. headquarters office. In Mississippi, MDA officials asserted that 
some of their agency's capacity challenges and frustration interacting 
with HUD could have been alleviated if one HUD official had been 
assigned to work in their office. Specifically, they identified two 
ways that on-site HUD assistance would have benefited the state. First, 
a HUD representative would have brought extensive CDBG expertise and 
helped to fill the knowledge gap at the state level. Second, a HUD 
representative with sufficient decision-making authority could have 
reduced bureaucratic delays and led to quicker program implementation. 
According to MDA officials, HUD's first visit to Mississippi was in the 
fall of 2007, almost 2 years after Hurricane Katrina's landfall. 

Similarly, top officials in LRA and OCD also highlighted the state's 
need for on-site technical assistance, adding that such an arrangement 
could have helped Louisiana avoid some of the challenges it encountered 
with the Road Home program. For example, one top state official said 
that HUD's on-site presence would have strengthened the state's ability 
to evaluate its options during program design, particularly when 
choosing to implement a compensation model versus a rehabilitation 
model. Another top state official in Louisiana expressed frustration 
that HUD encouraged the state to be creative only to get "stuck" in 
trying to do so because of insufficient guidance from HUD on the 
nuances related to CDBG disaster funds. In that official's opinion, it 
would have been more helpful if HUD's role was less prescriptive but 
still provided a clear sense of direction to the states. Louisiana 
officials suggested that HUD representatives could work in state 
agencies for a couple months at a time, rather than providing technical 
assistance by phone--which was typically the case after the 2005 Gulf 
Coast hurricanes. The former top OCD official said that they never had 
HUD on the ground with them in that capacity. 

Officials in both states expressed frustration with CDBG as a funding 
delivery mechanism, and were critical of its effectiveness in disaster 
recovery programs. According to one key state official, CDBG is a 
totally inappropriate source for funding disaster recovery efforts and 
it is not well-designed to meet the immediate needs of residents. Other 
top state officials were critical of HUD's assistance to the state 
because of HUD's approach of force-fitting the program rules and 
regulations applicable to traditional CDBG programs to state disaster 
recovery programs. In the states' view, the magnitude of the 2005 Gulf 
Coast hurricanes made many of the traditional CDBG rules that were not 
already waived or modified impractical and slowed the process. 
Additionally, state officials noted that in some instances there 
appeared to be disagreements between the stated policies of top HUD 
management and the technical assistance provided by mid-level HUD staff 
during program implementation. 

Conclusions: 

Although CDBG has been widely viewed as a convenient, expedient, and 
accessible off-the-shelf tool for distributing federal assistance funds 
to states, it proved to be slower, less flexible, and more difficult to 
manage than expected. The experiences in Louisiana and Mississippi 
provide insights when considering the effectiveness of adapting an 
existing funding delivery mechanism like CDBG when responding to 
catastrophic disasters. For example, broad discretion was granted to 
the states to tailor fit a CDBG program to their needs. However, when 
Louisiana took its specific approach to provide compensation to 
homeowners and encourage rebuilding, state officials encountered 
federal environmental requirements that made such a housing recovery 
approach impractical. While the environmental requirements were 
outlined in law and regulations, it was unclear as to which cases the 
requirements would apply. The lump-sum compensation design that both 
Louisiana and Mississippi ultimately chose channeled CDBG funds to 
homeowners with fewer assurances to the states that people would 
actually rebuild and contribute to community development. 

In Louisiana, state officials were challenged by the inconsistent and 
conflicting guidance they received from different federal entities when 
coordinating different federal funding streams. When states are faced 
with navigating the numerous complexities of a funding delivery 
mechanism like CDBG, along with other federal disaster recovery funds, 
it is critical that federal guidance and assistance be clear, concise, 
and consistent to help minimize misunderstandings, confusion, and 
program delays. This is particularly important when states are 
developing their approaches to disaster recovery. This is also true 
when states are managing other sources of federal funds, some of which 
may or may not be combined for projects of similar purpose. Louisiana's 
experience with HMGP raises questions about the need for federal 
regulations or operational guidance that clearly outline the options 
and the limitations of coordinating different disaster-related funding 
streams in the aftermath of a catastrophic event. Valuable 
opportunities also exist for the federal government--primarily HUD, 
FEMA, and the Office of the Federal Coordinator--to reflect upon 
lessons learned to improve federal assistance to states devastated by a 
catastrophic disaster. 

At the state level, any disaster that creates such catastrophic damage 
and devastation will present state authorities with the immediate need 
and challenge of building additional human capital capacity. The steps 
Louisiana and Mississippi state officials took to address such 
challenges, including the creation of a policy-making and coordinating 
entity to lead recovery efforts and hiring experienced disaster 
recovery staff, provide valuable lessons at both the federal and state 
level for future disaster recovery efforts. 

Recommendations for Executive Action: 

We recommend that the Secretary of the U.S. Department of Housing and 
Urban Development take the following two actions: 

* Develop and issue written CDBG disaster assistance program guidance 
for state and local governments to use as they begin to develop plans 
for housing recovery efforts and disbursing federal assistance to 
residents after natural and man-made disasters. Specifically, this 
guidance should clearly articulate what constitutes an acceptable 
rehabilitation program versus a compensation program, including an 
explanation of the implications of each program design; clarification 
of the legal and financial requirements with which states must comply; 
and an explanation of the types of program elements that may trigger 
federal environmental and other requirements. 

* Coordinate with the Federal Emergency Management Agency to ensure 
that the new guidance clarifies the potential options, and limitations, 
available to states when using CDBG disaster assistance funds alongside 
other disaster-related federal funding streams. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Secretary of the Department 
of Housing and Urban Development (HUD) and the Secretary of the 
Department of Homeland Security (DHS) for comment. We received written 
comments from HUD, which are provided in appendix II. 

In a letter signed by the General Deputy Assistant Secretary for 
Community Planning and Development, HUD partially agreed with our 
recommendation that the department issue written disaster recovery 
program guidance and improve coordination with FEMA to clarify the 
appropriate uses of CDBG funds with other disaster-related federal 
funds, such as HMGP funding. In short, HUD agreed to provide a report 
describing the four housing compensation programs that have been 
implemented in the past. The department also agreed to make its 
forthcoming multiyear evaluation report of the housing compensation 
programs in Louisiana and Mississippi publicly available. HUD did not 
agree that providing further technical or binding guidance comparing 
housing compensation and housing rehabilitation designs was the correct 
action at this time. The department also feels that additional 
coordination with FEMA will be far more useful if the role of the CDBG 
program in disaster recovery is regularized. 

While HUD stated that it had no issues with the general direction of 
the recommendation, the department provided additional comments 
expressing three main concerns. These concerns are outlined below along 
with our response. 

First, HUD stated that compensation programs are not an eligible CDBG 
activity--except when acquiring property for a public purpose--unless 
the Secretary grants a statutory waiver to allow it. While HUD has 
issued guidance covering all aspects of housing rehabilitation 
programs, the department stated that it has issued no formal guidance 
for compensation programs because such programs have been seldom used 
and each compensation design has been different. Furthermore, because 
the requirements for compensation programs are tailored to the 
grantee's specific program design, HUD does not consider this to be a 
"fruitful area for general guidance." However, HUD agreed that it may 
be useful to compare already implemented housing compensation programs 
to a typical rehabilitation program to identify key areas where 
policies have differed and examine the application of environmental 
reviews and other requirements. As stated in our report, we note that 
compensation programs have been rare. In our view, that fact helps 
highlight the importance and need for the development of written CDBG 
disaster assistance guidance for housing compensation program design. 
While each compensation program may have its own unique design 
features, we continue to believe that HUD could improve its assistance 
to states by issuing guidance that clearly articulates the applicable 
legal and financial requirements, as well as the types of program 
elements that may trigger federal environmental and other requirements. 
We support HUD's suggestion to compare past compensation programs with 
a typical rehabilitation design to identify differences in policies and 
the application of environmental requirements. The results of such a 
comparative study would contribute to the department's development of 
new written guidance. 

Second, HUD stated that it is currently conducting a multiyear 
evaluation of the housing compensation programs in Louisiana and 
Mississippi--the results of which are expected to clarify whether HUD 
will support housing compensation programs in the future. For this 
reason, the department hesitated to develop guidance that would be 
"premature" if issued prior to completion of the evaluation. Hopefully, 
the results of HUD's evaluation will provide valuable insights on the 
effectiveness of compensation programs for disaster recovery. We agree 
that HUD should wait to develop guidance until it completes its 
evaluation. However, if the department chooses to continue to allow 
housing compensation programs, we continue to stand by our 
recommendation that the department issue written guidance. Similar to 
the comparative study discussed earlier, the results of this multiyear 
evaluation would help to inform HUD's efforts to develop written 
guidance for housing compensation programs. 

Third, HUD stated that the CDBG program is not a formal part of the 
federal government's disaster recovery programs. The department 
anticipates that upon a presidential review of disaster recovery 
programs, the current administration may choose to either relieve the 
CDBG program of any disaster recovery role or grant it a permanent 
place among the array of federal assistance programs available to 
states for disaster recovery. If the latter happens, HUD stated that it 
would issue permanent regulations and supporting guidance. In addition, 
the department stated that it would be better positioned to coordinate 
with FEMA in advance of an event, rather than waiting for Congress to 
grant CDBG disaster assistance funds in the aftermath of an event. As 
we noted in our report, Congress has turned to the CDBG program to 
provide disaster assistance to states at least 20 times over the past 
two decades. In response to HUD's comment, we recommend that the 
department continue to engage the presidential administration on this 
issue. If the CDBG program continues to assume a disaster recovery 
role, we reiterate our recommendation that HUD issue written guidance 
for housing compensation programs, including, among other things, an 
explanation of program elements that trigger federal environmental 
reviews. 

We continue to believe the issuance of written HUD guidance that 
clearly articulates the differences between a compensation program and 
a rehabilitation program--including an explanation of the types of 
program elements that may trigger federal environmental reviews--will 
better aid state and local governments as they develop their plans for 
housing recovery efforts and disburse federal disaster assistance to 
residents. In addition, as long as the CDBG program continues to be a 
primary vehicle for distributing federal disaster assistance, we 
believe increased coordination between HUD and FEMA to ensure that the 
new guidance clarifies the potential options and limitations of using 
CDBG disaster assistance funds alongside other disaster-related funds 
would further aid state and local governments as they navigate the 
complexities of multiple federal disaster recovery program resources. 
Together, the implementation of these two recommendations should help 
to create clear, concise, and consistent federal messages to state and 
local governments and help to minimize the misunderstandings, 
confusion, and program delays that Louisiana officials experienced 
after the 2005 Gulf Coast hurricanes. 

DHS provided only technical comments, which were incorporated as 
appropriate. We also provided drafts of the relevant sections of this 
report to Louisiana and Mississippi state officials involved in the 
specific examples cited in this report. Both states provided technical 
comments, which we incorporated as appropriate. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the date of this letter. We will then send copies of this report 
to the Secretary for Housing and Urban Development, the Secretary of 
Homeland Security, other interested congressional committees, and state 
officials affected by the 2005 Gulf Coast hurricanes. We will make 
copies available to others upon request. In addition, the report will 
be available at no charge on GAO's Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-6806 or at czerwinskis@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. Individuals who made key 
contributions to this report are listed in appendix III. 

Signed by: 

Stanley J. Czerwinski: 
Director, Strategic Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

To examine how Gulf Coast states allocated their share of Community 
Development Block Grant (CDBG) funds, we focused our review on the 
states of Louisiana and Mississippi--the states most directly affected 
by the 2005 Gulf Coast hurricanes. To determine how the two states 
prioritized their rebuilding efforts and allocated their share of CDBG 
funds, we first identified the amount of funds provided to each state 
by reviewing Federal Register notices and the housing damage estimates 
that were used to determine each state's allocation. Housing damage 
estimates were based on data from the Federal Emergency Management 
Agency (FEMA) and the Small Business Administration and were compiled 
in cooperation with the Office of the Federal Coordinator for Gulf 
Coast Rebuilding within the Department of Homeland Security and the 
Department of Housing and Urban Development (HUD). We also reviewed 
federal statutes, regulations, and notices governing the use of CDBG 
funds and interviewed officials in HUD's Community Planning and 
Development division regarding their roles and responsibilities in 
allocating and distributing CDBG disaster funds to the states. To 
identify Louisiana's and Mississippi's priorities and how those 
priorities changed over time, we obtained and reviewed state planning 
documents and budget data from April 2006 to September 2008 and 
interviewed state program and budget officials responsible for 
administering and managing CDBG programs in Louisiana and Mississippi. 
We assessed the reliability of the budget data by reviewing the data 
for completeness and internal consistency, verified totals, and 
interviewed state officials responsible for preparation of budget 
reports. We observed changes in states' budget data format and 
categories over time. For example, each state categorized its 
unallocated amount of CDBG funds differently and changed the reporting 
format between 2006 and 2008. To present the data from both states in a 
common set of budget categories, we consolidated periodic reports to 
obtain cumulative values and collapsed or disaggregated budget 
categories. We also consulted with state officials to verify 
interpretation of budget categories and reporting periods, to verify 
identification of instances where reporting formats changed, and to 
obtain confirmation that our reformulation of categories and amounts 
were acceptable. Note that periods covered are not exactly the same, 
but the difference in periods covered does not exceed one month. We 
determined that the data were sufficiently reliable for the purposes of 
this report. 

To determine what challenges states faced with their housing recovery 
programs, we relied primarily on testimonial evidence from key federal 
officials at HUD headquarters in Washington, D.C.; HUD field offices in 
New Orleans, Louisiana and Jackson, Mississippi; the Office of the 
Federal Coordinator for Gulf Coast Rebuilding; and FEMA, as well as key 
state officials in Louisiana and Mississippi. We corroborated 
testimonial evidence with documents and data that we received from key 
federal and state officials including federal guidance and regulations 
related to HUD's CDBG program and FEMA's Hazard Mitigation Grant 
Program (HMGP), relevant environmental statutes and regulations, state 
planning documents, state program and budget data, and 
intergovernmental correspondence. We also interviewed staff from ICF 
International--the contractor Louisiana hired to manage the state's 
Road Home housing program. 

To examine the human capital challenges Louisiana and Mississippi 
encountered and their efforts to address those challenges, we 
interviewed state program and budget officials responsible for 
administering and managing CDBG disaster funds. We obtained and 
analyzed information on state agency CDBG budgets, staffing levels, and 
organizational changes undertaken by the two states in the aftermath of 
the 2005 Gulf Coast hurricanes. We reviewed reports completed by the 
HUD Inspector General and HUD's Community and Planning Development 
division and interviewed key staff to capture their observations. 

In addition, we reviewed relevant congressional statements and 
testimonies and coordinated our work with the HUD Inspector General and 
with state audit offices. We also drew upon previous work we have 
conducted on Gulf Coast rebuilding efforts, emergency response, 
capacity issues and CDBG-funded disaster programs. 

In Louisiana at the state level, we spoke with officials at the 
Louisiana Office of Community Development (OCD), which was the official 
grantee of HUD CDBG disaster funds for the state. Within OCD, we met 
with officials in the Disaster Recovery Unit, which was the agency 
division responsible for administering and managing the state's share 
of CDBG disaster recovery funds. We met with officials at the Louisiana 
Recovery Authority, which served as a policymaking and coordinating 
body for recovery efforts throughout the state. We also met with 
officials in the Governor's Office of Homeland Security and Emergency 
Preparedness, which was the agency responsible for administering FEMA 
HMGP funds provided to the state for mitigation projects. In addition, 
we met with key staff in the Office of the Louisiana Legislative 
Auditor to discuss their past and ongoing work evaluating the state's 
housing recovery program and their observations on OCD's human capital 
challenges. 

In Mississippi at the state level, we spoke with officials at the 
Mississippi Development Authority (MDA), which was the official grantee 
of HUD CDBG disaster funds for the state. We met with key staff in the 
Governor's Office of Recovery and Renewal, which served as a 
policymaking and coordinating body for recovery efforts throughout the 
state. Also, we met with officials at the Mississippi Emergency 
Management Association, which is the entity responsible for 
administering FEMA HMGP funds provided to the state for mitigation 
projects. In addition, we met with the Mississippi Office of the State 
Auditor to discuss their observations of the state's housing recovery 
program and their relationship with the HUD Inspector General's office 
on audits of MDA's human capital capacity. 

We conducted this performance audit from June 2007 through April 2009 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. We requested comments on a 
draft of this report from the Department of Housing and Urban 
Development and the Department of Homeland Security. We received 
written comments from HUD, which are included in appendix II. DHS 
provided only technical comments, which were incorporated as 
appropriate. We also provided drafts of the relevant sections of this 
report to state officials in Louisiana and Mississippi and incorporated 
their technical comments as appropriate. 

[End of section] 

Appendix II: Comments from the Department of Housing and Urban 
Development: 

U.S. Department Of Housing And Urban Development: 
Assistant Secretary For Community Planning And Development: 
Washington, DC 20410-7000: 
[hyperlink, http://www.hud.gov]	
[hyperlink, http://espanol.hud.gov] 

May 11, 2009: 

Mr. Stanley J. Czerwinski: 
Director, Strategic Issues: 
U.S. Government Accountability Office: 
441 G St., NW: 
Washington, DC 20548: 

Dear Mr. Czerwinski: 

The Department thanks GAO for this opportunity to respond to the draft 
report entitled Gulf Coast Disaster Recovery. It recommends that HUD 
provide additional guidance related to housing compensation and 
rehabilitation. The Department appreciated the discussions with GAO of 
issues related to long-term disaster recovery in the Gulf Coast 
following the hurricanes of 2005 and of more general issues related to 
the design and implementation of future long-term recovery programs. As 
GAO is aware, HUD has made every effort to speak frankly and openly 
with the hope that the lessons learned, even if they were 
uncomfortable, could be applied to good purpose in the continuing Gulf 
Coast recovery and any future events. 

The final recommendation is that HUD issue written disaster recovery 
program guidance differentiating housing compensation and housing 
rehabilitation and describing what constitutes an "acceptable" program 
of either design. The report also recommends that HUD coordinate with 
FEMA to ensure that CDBG disaster recovery assistance works well with 
other recovery programs. HUD has no issues with the general direction 
of the guidance, which looks to increased guidance prior to 
catastrophic events and greater coordination. 

That said, the Department fords it difficult to entirely agree with the 
GAO recommendation. GAO has recommended that HUD issue guidance about 
the ways in which the "housing compensation model" differs from the 
"housing rehabilitation model", with the apparent idea that this 
guidance will help with program design and launch following future 
disasters. This recommendation overlooks some key points of our 
discussions. 

First, housing compensation is not an eligible activity under the 
Community Development Block Grant (CDBG) program. Housing 
rehabilitation is eligible, and HUD has issued a tremendous amount of 
guidance over the past 30 plus years covering all aspects of 
implementing housing rehabilitation programs. Rehabilitation remains a 
useful eligible activity, with literally hundreds of program variations 
among the 1,200 regular CDBG grantees around the country. For housing 
compensation, HUD has issued no formal guidance because it has been 
used so seldom (four times) and because no two programs have had the 
same design. 

Because housing compensation is not an eligible CDBG activity (outside 
of acquisition of property for a public purpose), a grantee may use 
CDBG funds for that purpose only if the Secretary of HUD grants a 
statutory waiver to allow it. Such waivers are granted on a case-by-
case basis, after a review of case-specific needs. The alternative 
requirements are tailored to the grantee's specific program design. For 
a case in point, the housing compensation waivers granted to 
Mississippi and Louisiana are not identical because the states designed 
different programs and requested different waivers. So, this is not a 
fruitful area for general guidance, but HUD does agree that it may be 
useful to compare the disaster recovery housing compensation programs 
that have occurred with a fairly typical housing rehabilitation program 
and identify key areas where policies have differed and states have 
taken different paths that affected the application of environmental 
review and other requirements. 

Second, although HUD has a great deal of information about the 
operation of housing rehabilitation programs, HUD has not yet completed 
the evaluation of the housing compensation programs in Louisiana and 
Mississippi. In a multi-year evaluation, HUD is assessing the extent to 
which these housing compensation programs have resulted in disaster 
recovery. Until HUD has this information, it will not be clear whether 
such a waiver should be granted again. Thus, providing guidance for 
future disaster recovery efforts maybe premature. 

Third, HUD has made disaster recovery CDBG grants under a series of 
supplemental appropriations laws, no two of which are the same. CDBG is 
not a formal part of the federal government's disaster recovery 
programs. It is possible that review of disaster recovery programs 
under this administration will result in CDBG being removed from this 
role, or in it being given a permanent place in the federal assistance 
made available after catastrophes. If the former, providing guidance on 
the difference between compensation and rehabilitation will not be 
necessary; if the latter, HUD would issue permanent regulations and 
supporting guidance as a matter of course. HUD would also be better 
positioned to coordinate with FEMA in advance of an event, rather than 
waiting to see whether Congress intended to make disaster recovery CDBG 
available following an event. 

In short, HUD agrees that it is appropriate and feasible to provide a 
report describing the housing compensation and incentives programs as 
implemented by Mississippi, Louisiana, New York, and Grand Forks. HUD 
also will complete the evaluation of the housing compensation programs 
on the Gulf Coast and make the resulting report publicly available. HUD 
does not agree that providing further technical or binding guidance 
comparing and contrasting housing compensation and housing 
rehabilitation is the correct action at this time. HUD also feels that 
additional coordination with FEMA will be far more useful if the role 
of the CDBG program in disaster recovery is regularized. 

Thank you again for the opportunity to provide our comments on the 
draft report. Please contact me if you have further questions or 
concerns. 

Sincerely, 

Signed by: 

Nelson R. Bregon: 
General Deputy Assistant Secretary: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Stanley J. Czerwinski, (202) 512-6806 or czerwinskis@gao.gov. 

Staff Acknowledgments: 

Major contributors to this report were Michael Springer, Assistant 
Director; David Lutter; Susan Mak; and Leah Q. Nash. Jessica 
Nierenberg, Melanie Papasian, Brenda Rabinowitz, and A.J. Stephens also 
made key contributions to this report. 

[End of section] 

Footnotes: 

[1] See GAO, Gulf Coast Rebuilding: Observations on Federal Financial 
Implications, [hyperlink, http://www.gao.gov/products/GAO-07-1079T] 
(Washington, D.C.: Aug. 2, 2007). 

[2] For the purposes of this report, Hurricanes Katrina, Rita, and 
Wilma are referred to as the Gulf Coast hurricanes. 

[3] Over the past two decades, CDBG supplemental appropriations have 
been provided for disaster relief more than 20 times. 

[4] [hyperlink, http://www.gao.gov/products/GAO-07-1079T] and GAO, 
Preliminary Information on Rebuilding Efforts in the Gulf Coast, 
[hyperlink, http://www.gao.gov/products/GAO-07-809R] (Washington, D.C.: 
June 29, 2007), and Gulf Coast Rebuilding: Preliminary Observations on 
Progress to Date and Challenges for the Future, [hyperlink, 
http://www.gao.gov/products/GAO-07-574T] (Washington, D.C.: Apr. 12, 
2007). 

[5] Activities funded with CDBG must address at least one of three 
objectives: (1) principally benefit low and moderate income persons, 
(2) aid in eliminating or preventing slums or blight, or (3) meet 
particularly urgent community development needs. 

[6] Department of Defense, Emergency Supplemental Appropriations to 
Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 
2006, Pub. L. No. 109-148, 119 Stat. 2680, 2779-2780. These funds were 
appropriated on a no-year basis and remain available until expended. In 
addition to CDBG funds, the federal government provided assistance 
through a combination of grants, loans, tax subsidies, and federal tax 
incentives. 

[7] Emergency Supplemental Appropriations Act for Defense, the Global 
War on Terror, and Hurricane Recovery, 2006, Pub. L. No. 109-234, 120 
Stat. 418, 472. These funds were appropriated on a no-year basis and 
remain available until expended. 

[8] For example, both appropriations acts granted HUD the authority to 
waive certain provisions governing the use of CDBG funds and required 
that HUD establish procedures to prevent recipients from receiving any 
duplication of benefits. 

[9] Department of Defense Appropriations Act, 2008, Pub. L. No. 110- 
116, 121 Stat. 1295, 1343. These funds were appropriated on a no-year 
basis and remain available until expended. 

[10] To inform its allocation decisions, HUD developed damage estimates 
based on data collected during FEMA's and the Small Business 
Administration's (SBA) inspections of housing damages in the affected 
areas. Based on this inspection data, HUD estimated the number of homes 
with minor, major, and severe damage including both owner-occupied and 
renter-occupied housing units. 

[11] The supplemental appropriations language that provided CDBG funds 
included specific provisions, among others, that limited the amount of 
funds that could be allocated to a single Gulf Coast state. 

[12] Pub. L. No. 109-148, 119 Stat. at 2780; Pub. L. No. 109-234, 120 
Stat. at 472-73. 

[13] Typically, public service expenditures cannot exceed 15 percent of 
the grantee's total CDBG allocation. Eligible expenditures include the 
provision of food, temporary shelter, and other related services. In 
the event of a presidentially declared disaster, HUD may suspend this 
statutory requirement. 

[14] In addition to the CDBG, Public Assistance, and Hazard Mitigation 
Grant programs, some other examples of federal assistance included 
payouts from the National Flood Insurance Program, economic injury and 
physical disaster loans for homeowners, renters, businesses and 
nonprofit organizations, funds for levee restoration and repair, and 
Gulf Opportunity Zone tax relief and incentives for individuals and 
businesses. 

[15] Our prior work reported on FEMA's PA grant program and identified 
a number of challenges the program has faced with respect to Gulf Coast 
rebuilding efforts. See GAO, Disaster Recovery: FEMA's Public 
Assistance Grant Program Experienced Challenges with Gulf Coast 
Rebuilding, [hyperlink, http://www.gao.gov/products/GAO-09-129] 
(Washington, D.C.: Dec. 18, 2008). 

[16] HUD expresses its "acceptance" of grantee action plans rather than 
its "approval." According to HUD officials, this distinction is 
important as it underscores the grantee's legal responsibility to carry 
out CDBG activities in accordance with program requirements. According 
to HUD, if the grantee submits a plan that appears to be acceptable and 
certifies that it will meet all program requirements, but then HUD 
later discovers eligibility deficiencies, HUD's position is somewhat 
stronger than if it had approved the plan. However, we found that HUD 
officials used these terms interchangeably. In this report, where we 
use the term "approve" HUD has also used the same term. 

[17] In some cases, an action plan amendment may not be considered 
substantial, and therefore does not require HUD review and acceptance. 
In addition, a state may submit technical modifications to its action 
plan, which also does not require HUD review and acceptance. 

[18] For example, HUD highlighted that above-ground propane tanks were 
commonly found in Mississippi. As part of an environmental review, 
homeowners would have to either bury the tanks underground or harden 
their homes to safeguard against a potential blast. 

[19] According to senior HUD officials, CDBG disaster funds have not 
been used to distribute compensation payments to individual residents 
in the past, except in New York City after the September 11th terrorist 
attacks when compensation payments were provided to local renters as an 
incentive to stay in the city. However, that situation differed from 
the Gulf Coast because specific language was included in the 
supplemental appropriations regarding compensation payments to 
residents. The supplemental appropriations language granting CDBG funds 
to the Gulf Coast did not include such references. 

[20] The position of Coordinator of Federal Support for the Recovery 
and Rebuilding of the Gulf Coast Region was created by Executive Order 
13390 on November 1, 2005. Among other things, the function of the 
Coordinator was to lead the development and monitor the implementation 
of specific policies and programs to provide effective, integrated, and 
fiscally responsible support from across the federal government to 
state and local governments, and others in the recovery of the Gulf 
Coast. Also see GAO, Office of the Federal Coordinator for Gulf Coast 
Rebuilding: Perspectives and Observations, [hyperlink, 
http://www.gao.gov/products/GAO-09-411R] (Washington, D.C.: Apr. 10, 
2009). 

[21] The Road Home program is the largest housing recovery program in 
U.S. history. 

[22] Louisiana identified four specific goals in its initial Road Home 
action plan: (1) repair and rebuild quality housing in safe 
neighborhoods, (2) restore pre-storm value to homeowners who want to 
return, (3) provide affordable rental housing opportunities for 
displaced residents, and (4) provide housing for the return of critical 
workforce. 

[23] The Road Home program consisted of four sets of programs to 
restore the state's housing stock: homeowner assistance, workforce and 
affordable rental housing, homeless housing, and developer incentives. 
For the purposes of this report, we focused solely on the homeowner 
assistance component of the Road Home program. 

[24] Grant awards for homeowners who elected to leave the state were 
based on 60 percent of their pre-storm home value instead of 100 
percent of their pre-storm value. 

[25] The deadline to apply for homeowner assistance through the Road 
Home program was July 31, 2007, followed by a second deadline upon 
which homeowners had to identify their option selection. Homeowners had 
to report their option selection to the state by November 1, 2008. 

[26] This percentage is based on the number of benefit option letters 
returned to the state by the deadline. 

[27] There were additional requirements and benefits stipulated in the 
original plan: the state specified a total benefit cap of $150,000 per 
homeowner; and state authorities applied a 30 percent penalty, or 
reduction, on the grant proceeds of those homeowners who were not 
carrying the type of insurance required for their home at the time of 
the storm. 

[28] As noted earlier, HUD officials explained that the department 
expresses its "acceptance" of grantee action plans rather than 
"approval." However, we found that HUD officials used these terms 
interchangeably. For example, in its August 2006 and May 2007 letters 
to Louisiana, HUD "approved" the action plan amendments. In this 
report, where we use the term "approve," HUD has also used the same 
term. 

[29] This is a slight change from the prior version of the action plan 
in which the covenants required homeowners to occupy the home for 3 
years after completion of repairs. Both Louisiana and Mississippi 
attached covenants to the properties of those homeowners who chose to 
rebuild their storm-damaged homes. 

[30] Completion of repairs would be confirmed by an inspection. 

[31] This specific disbursement process applied to homeowners who had 
mortgages on their houses. For those homeowners without mortgages, they 
could choose to either have their grant proceeds managed in this way or 
to receive funds over a 3-year period. 

[32] Previously, the state action plan stated that compensation for any 
homeowner choosing to relocate outside of the state would be based on 
60 percent, rather than 100 percent, of the home's pre-storm value. The 
state also updated compensation grant formulas to factor in the amount 
of housing damage incurred. 

[33] The amount disbursed is an estimate based on the total number of 
completed home closings multiplied by the average grant award per 
homeowner. As of March 15, 2007, Road Home completed 2,956 closings 
with an average grant award of $72,529 per homeowner. Similarly, as of 
late February 2009, Road Home received a total of 185,113 applications, 
completed 122,722 closings, and disbursed approximately $7.8 billion to 
homeowners with an average award of $63,586 per homeowner. 

[34] Closings were scheduled when eligible homeowners returned their 
completed benefit option letters and provided all required 
documentation, including mortgage and title information. After 
homeowners completed their closings, they would begin to receive their 
grant awards. 

[35] According to HUD, although CDBG funds were distributed as 
compensation in the form of incremental incentive payments to New York 
City renters after the September 11, 2001, terrorist attacks, CDBG has 
never before been used to provide compensation payments to individual 
homeowners. 

[36] The amount of HMGP funds made available to states is formula- 
driven, based on a percentage of the total estimated amount of disaster 
grants provided under other Stafford Act programs, such as the Public 
Assistance program and the Assistance to Individuals and Households 
program. The maximum HMGP contribution within each state for each major 
disaster declaration ranges from 7.5 percent to 15 percent of the total 
Stafford Act assistance. 42 U.S.C. 5170c as amended by Pub. L. No. 109- 
295, § 684, 120 Stat. 1447 (Oct. 4, 2006). 

[37] Unlike CDBG disaster funding, HMGP funding originates from the 
Disaster Relief Fund and is not a line item appropriation. 

[38] 44 C.F.R. § 206.434(g). 

[39] 42 U.S.C. § 5170c(b). 

[40] The Louisiana Office of Community Development's Hazard Mitigation 
Grant Program provides an award up to $30,000 (based on actual 
construction costs) to eligible homeowners to elevate or reconstruct 
their homes to certain standards. Homeowner eligibility is determined 
by FEMA based on HMGP regulations. These funds are not subject to the 
Road Home $150,000 maximum cap. The state administers a second 
elevation program through the Road Home with CDBG funds, the Road Home 
Elevation Incentive program. This initiative provides a fixed amount of 
$30,000 ($20,000 for mobile homes) to eligible homeowners as an 
incentive to elevate their homes to meet certain standards. These funds 
are limited to the specific dollar amount and cannot exceed the Road 
Home $150,000 maximum grant amount. 

[41] GAO, Natural Hazard Mitigation: Various Mitigation Efforts Exist, 
but Federal Efforts Do Not Provide a Comprehensive Strategic Framework, 
[hyperlink, http://www.gao.gov/products/GAO-07-403] (Washington, D.C.: 
Aug. 22, 2007). 

[42] [hyperlink, http://www.gao.gov/products/GAO-07-403]. 

[43] The LRA was created at the direction of former Governor Blanco by 
executive order in October 2005 and subsequently authorized by the 
state legislature in early 2006. LRA is scheduled to sunset on July 1, 
2010, unless further extended by the legislature. 

[44] Creation of Mississippi's Office of Recovery and Renewal was 
passed by the state legislature and signed by the governor in early 
2006. 

[45] In December 2005, the Governor's Commission on Recovery, 
Rebuilding, and Renewal released a report titled, "After Katrina: 
Building Back Better than Ever." The report contained over 230 
recommendations in a variety of areas including infrastructure, 
economic development, and human services. The Office of Recovery and 
Renewal issued annual reports with updates on the state's recovery 
efforts. 

[End of section] 

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