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. Both Louisiana and Mississippi devoted most of their allocations  toward housing assistance, with a majority directed toward homeowners. 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. 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. 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. 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). 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. 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. 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. 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. 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. 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. 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.
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, Housing and Urban Development (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 the Federal Emergency Management Agency's (FEMA) 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.