• U.S.

How to Spend (Almost) $1 Billion A Day

11 minute read
Daniel Eisenberg

Every single purchase during a natural-disaster-relief operation is billed to a four-digit federal code. In accounting terms, Hurricane Charley was known as 1539 and 1543. Ivan had nine codes, starting with 1548, one for each state affected by the emergency. Hurricane Katrina is such a vast and expensive undertaking that it has been assigned 45 separate codes: 1602 for Florida, 1603 for Louisiana, 1604 for Mississippi and 1605 for Alabama, plus one for every state taking in evacuees. For months and perhaps years to come, those codes will be used by the Federal Government to pay for, and keep track of, the billions of dollars required to rebuild. The Federal Emergency Management Agency (FEMA) will end up reimbursing the Coast Guard for fuel used to power helicopters in rescue missions, the city of New Orleans for the overtime of its police and fire departments, and Houston for the costs of housing evacuees in the Astrodome.

The receipts for such expenses during the first couple of weeks of Katrina relief have been collected. The tab so far: $9.8 billion, including $1.8 billion for the reimbursement of lodging expenses and $1.3 billion on trailers and temporary homes. And that is just the beginning. Shortly after Labor Day, the Bush Administration asked Congress to sign off on an additional $51.8 billion–roughly what the U.S. spends in Iraq each year. Unlike the Persian Gulf, though, the funds earmarked for the Gulf Coast were expected to last a month or two. House Republicans were so spooked by the size of the request that the White House dispatched Budget Director Joshua Bolten to Capitol Hill on Sept. 7, where he made an unusual, late-evening appeal to nearly 200 skeptical Representatives.

One can only imagine what they were thinking as the President addressed the nation about a week later from an otherwise desolate Jackson Square in New Orleans’ soon-to-reopen French Quarter. The man who said during his re-election campaign that “government is limited in its capacity to heal and help” spoke in bold terms about “one of the largest reconstruction efforts the world has ever seen,” proposing a tax-advantaged Gulf Opportunity Zone to create jobs, worker-recovery accounts to help evacuees pay for job training and child care, and even an Urban Homesteading Act to let some low-income victims of Katrina build homes on cheap federal land. Think of it as George W. Bush’s New Deal.

As money flows into the Gulf States faster than water is pumped out of New Orleans, it’s safe to say the recovery from Hurricane Katrina has entered a new phase: the financial free-for-all. The President was careful not to get specific about what the “generosity of a united country” might cost, but economists estimate that Katrina’s final price tag could easily top $200 billion. While frugal Republicans like Senator Tom Coburn of Oklahoma and Arizona Representative Jeff Flake (one of 11 members of the House to vote against the President’s relief bill) instinctively called for budget cuts to offset the cost of the recovery effort, few cuts seem politically realistic. And much to the dismay of many of his colleagues, House majority leader Tom DeLay proclaimed that the G.O.P. had already trimmed most of the fat from the federal budget.

Beyond saying that “unnecessary spending” must be targeted, the President has suggested few specific cuts of his own so far. During a news conference with Russian President Vladimir Putin the day after his televised speech, however, Bush stressed that more tax cuts remained a top priority. Neither side of the aisle has seemed capable of demonstrating fiscal prudence and compassion simultaneously, while the President, hobbled by a $331 billion budget deficit, an unpopular and expensive war in Iraq, and an official admission that he mishandled the initial crisis, could neither afford his Gulf Coast largesse–nor afford not to extend it.

With money flowing so freely, nearly every group–from hard-hit farmers to federal contractors–is angling for its piece of the action. The Federal Government is forking over as much as $800 million a day to cover everything from temporary housing and debris removal to generators and bottled water. The next stage of the gold rush should take place near the end of October, when the White House expects to return to Congress for another cash infusion, an Administration official tells TIME.

On Capitol Hill, both parties are trying their best to harness the massive Katrina rebuilding effort to propel their own ideological agendas. Democrats view this as a once-in-a-generation opportunity to try to reduce poverty and racial inequality, touting more investment in public school construction and housing vouchers. At the same time, they are showing a renewed spirit in fighting the President’s proposed Medicaid cuts and a slew of G.O.P. tax reductions that were on the verge of passage. But conservatives could see at least some of their handiwork in the Administration’s initial proposals for job-training accounts and private- and parochial-school vouchers–as well as in the President’s earlier controversial decision to suspend rules requiring federal contractors to pay “prevailing wages” in the region. Alabama Senator Jeff Sessions has even tried to use the tragedy to fuel support for his faltering legislation to repeal the estate tax, which brought in $24.8 billion to the Treasury last year. After his prodding, activists were busy trying to identify a victim whose estate would get hit by the current tax.

Back on the ground, the Administration and Congress have had to prove they are at least attempting to mind the store. To help win passage of the $51.8 billion relief bill, Congress allocated $15 million to the Department of Homeland Security to closely monitor the spending, a sum DHS inspector general Richard Skinner termed “a good start.” His office, along with the White House Office of Management and Budget, is required to give Congress weekly briefings on how the money is being spent. The first such report spanned 10 spreadsheet-packed, rather puzzling pages–including a two-page glossary–breaking out spending into numerous categories, including human services and infrastructure. “You can’t prevent [abuse],” says Clark Kent Ervin, the former inspector general at the DHS. “The issue is what you can do to minimize it.”

As part of that expanded oversight, FEMA is sending some 30 auditors to the Gulf to follow the money. Not to be outdone, Congress has its own team of 24 investigators hot on the FEMA auditors’ heels. But unless the President appoints an independent czar to oversee the entire reconstruction operation, Democrats and Republicans alike fear it may be as poorly managed as the initial response to the storm. FEMA’s track record before Katrina isn’t too encouraging: during last year’s $2 billion cleanup of Hurricane Frances, millions of relief dollars ended up in the hands of residents in the largely unaffected area around Miami.

So even after last week’s resignation of FEMA director Michael Brown, it may be a long time before the agency stops being politicians’ favorite punching bag. No wonder the challenge of spending all that money seems to hold no joy for those grinding away at FEMA’s National Response Coordination Center located in a sad annex behind a southwest Washington Holiday Inn. “The size of it is daunting. The speed with which it needs to be delivered is very difficult,” says Bob Spaulding, project manager for Fluor Corp., one of the companies awarded $100 million to help provide temporary housing to nearly 1 million people in the region. To help quicken the pace of rebuilding, the government has relaxed some of its normal rules, guaranteeing contractors a certain profit regardless of what they spend, allowing many contracts to be signed without competitive bidding, and raising the amount federal employees can put on their credit cards without getting special approval, from $25,000 to $250,000.

But cutting corners doesn’t necessarily make things run faster. In many parts of Louisiana and Mississippi, frustration is building over the slow recovery. Relatively few of the promised federal help centers to coordinate assistance have been opened, while some local officials have struggled to get contracts for cleanup projects approved in Washington. Numerous victims of Hurricane Katrina have had trouble applying for assistance, whether online or on the telephone, though bandwidth and staffing have been greatly increased in recent days. One of three Carnival Cruise Lines ships that was chartered to house thousands of relief workers and possibly evacuees for at least six months, at a cost of around $220 million, was still docked in Mobile, Ala., most of last week and empty, as Alabama, Mississippi and Louisiana jockeyed for the vessel. More ominously, in the wake of the horrifying discovery of 34 bodies at a Louisiana nursing home and an additional 45 at New Orleans’ Memorial Medical Center, a very public dispute about the slow pace of gathering bodies in New Orleans erupted between FEMA and Kathleen Blanco, the Governor of Louisiana. Claiming that it needed better coordination with local authorities to get the job done, Houston-based Kenyon International Emergency Services canceled its temporary contract with FEMA and signed on with the state instead. By the end of the week, the official death toll from Katrina had risen above 800.

Most of the major Katrina contracts doled out so far have been for temporary housing, and they have gone, by and large, to companies with strong ties to the Bush Administration, including Bechtel, Fluor and the Shaw Group, which recently built a helicopter pad for Vice President Dick Cheney’s home in Washington. A $3 billion engineering-and-consulting behemoth that has equally close connections to the Louisiana Democratic Party, the Shaw Group, based in Baton Rouge, La., counts former Bush campaign manager Joe Allbaugh as one of its lobbyists in Washington and has scored two separate $100 million Katrina-related contracts–one to help the Army Corps of Engineers pump water out of New Orleans and another to help FEMA provide temporary housing. Soon after the deals were announced, Shaw’s struggling stock soared from $16 to $24 a share.

Congress has allocated enough money to purchase almost 300,000 trailers, 18,000 of which have already been delivered to victims of the storm. Still, few people in the industry think it can come up with anywhere near that many units in the next few months. Ed Unger, director of operations at Tom Raper RVs in Richmond, Ind., says it took about a week on e-mail to complete a $15 million to $20 million contract to provide from 1,000 to 2,000 trailers. Under FEMA guidelines, he’ll have to wait until all the trailers are delivered down South before he gets his check. The only real snag was that after the dealership had come up with the idea of filling each trailer with donations of food and clothing, FEMA informed Unger that rules stipulated that each trailer had to arrive empty. Instead, Unger is sending the supplies down by tractor trailers to church groups doing relief work in the area.

The very idea of using trailers and other mobile homes to house so many evacuees has also come under attack. House Democrats have complained that the approach could “result in segregating poor people into unsustainable, artificial communities.” A more sensible plan, many of them insist, would be to expand the government’s Section 8 housing-voucher program. Meanwhile, President Bush’s “urban homesteading” plan has received a lukewarm reception. “You’re asking people who make less than $10,000 to build their own homes?” says Bruce Katz, a housing-policy expert at the Brookings Institution in Washington.

How the crucial housing issue is ultimately handled–much like the final bill for rebuilding the Gulf–is anybody’s guess. For all the imposing dollar figures and bold proposals being bandied about, it’s clear that Washington is making this up as it goes along. “It’s going to cost whatever it costs,” is how the President put it last week. Given the battering his reputation has taken in the past few weeks, that open-ended approach makes perfect sense. After all, no matter what it ends up costing, the White House has learned that the price of inaction is much, much higher. –Reported by Mike Allen, Perry Bacon Jr., Brian Bennett, Timothy J. Burger, Massimo Calabresi and Matthew Cooper/ Washington, Michael Peltier/ New Orleans and Cathy Booth Thomas/Baton Rouge

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