White House deals blow to Baker "buy-out" plan
By Bill Walsh
WASHINGTON — In a severe blow to state and local plans for rebuilding hurricane-devastated areas, the Bush administration Tuesday came out against a homeowner bailout proposal that many in Louisiana saw as the key to economic recovery and the rebirth of a redesigned New Orleans.
Donald Powell, President Bush’s choice to oversee the Gulf Coast recovery from Hurricanes Katrina and Rita, said that grant money already appropriated by Congress — as much as $6.2 billion for Louisiana — would be “sufficient” to take care of homeowners who suffered the most in the storm.
Powell said the administration prefers the specifically defined financing of the grant program over an open-ended proposal by Rep. Richard Baker, R-Baton Rouge, that would set up a governmental agency to buy flood-damaged homes and pay off the mortgages for possible resale and redevelopment.
The administration has been coy about its position on the Baker bill since late last year, when it stalled in the final days of the congressional session. Public opposition by the White House now dramatically handicaps the bill’s prospects.
“The monies Congress approved will be sufficient to meet the needs of uninsured homeowners,” Powell said. “I think it is a much better approach (than the Baker bill), a more direct approach. It puts the process in the hands of the local people. It doesn’t put government in the real estate business and it doesn’t add another layer of bureaucracy.”
The administration’s opposition to the Baker bill drew a sharp criticism from Louisiana officials who say that the Community Development Block Grant financing isn’t enough to cover the state’s dramatic housing needs.
“Clearly the $6 billion isn’t enough,” Baker said. “It ignores the vital recovery in the parishes of Orleans, St. Bernard, Cameron and parts of Plaquemines. That is unacceptable.”
The Louisiana Recovery Authority, the panel established by Gov. Kathleen Blanco to oversee the state’s recovery plans, estimated that 217,245 homes were destroyed in Katrina and Rita. Baker’s bill would have drawn on federal financing to pay owners of flood-damage property at least 60 percent of the equity in their homes and paid off their mortgages as well.
New Orleans recovery officials had planned to use the Baker plan, or something like it, as a way to help homeowners who wanted to move out of more flood-prone areas into a smaller “city footprint” on higher ground that did not flood during Katrina.
But Powell said the administration is encouraging the state to focus on a much smaller subset of flood-damaged homes: An estimated 20,000 outside the flood plain whose owners lacked flood insurance. The administration believes they are the hardest-luck cases because they had no expectation of flooding and now find themselves without insurance money to pay for repairs.
The Louisiana Recovery Authority has said that 77,340 homes would fall into that category, more than three times the administration’s estimate. But, significantly, Powell’s figures do not include rental property, only owner-occupied dwellings. He said those homeowners are the most deserving of financial assistance and could be covered by Louisiana’s share of $11.5 billion in Community Development Block Grants that Congress appropriated late last year. Louisiana’s share is expected to be announced today.
“If you do the math, you can see that it would be enough to meet the need,” Powell said.
Baker said that the administration told him that Louisiana should follow Mississippi’s lead in helping homeowners. Mississippi Gov. Haley Barbour has proposed using the bulk of his state’s block grants — expected to be about $5.3 billion — to help an estimated 35,000 uninsured homeowners who were outside the flood plain. His plan could mean about $115,000 per household.
Louisiana officials have argued that Mississippi’s solution wouldn’t work in their state, where flooding damage was more severe, including thousands of homes destroyed when federally built levees gave way in the storm. According to the Louisiana Recovery Authority, the state suffered many times more damage to housing, schools, hospitals, businesses and infrastructure than Mississippi.
Tuesday’s announcement has major implications for the land-use plan recommended by Mayor Ray Nagin’s Bring New Orleans Back Commission, a proposal that also received a favorable initial review by the state’s Louisiana Recovery Authority.
A buyout mechanism such as the Baker bill was seen as critical to rebuilding New Orleans in a manner that avoids the so-called “jack-o-lantern effect,” a term to describe neighborhoods in which some homes are repaired but large pockets turn into blighted properties. Moreover, members of the mayor’s and state commissions repeatedly have emphasized the importance of safety guiding the rebuilding process, emphasizing that some residents might be better off moving to higher ground. Such relocations also would create a more densely populated city, seen as an important step so that cash-strapped New Orleans can afford to provide basic services.
But to accomplish the dual goals of creating population density and safer redevelopment of some low-lying parts of the city, a buyout of some property owners is seen as inevitable. A voluntary buyout program is viewed as needed to help homeowners who are willing to move to higher ground but otherwise will be forced to renovate their flooded properties where they sit, or walk away and face foreclosure, due to the limits of their flood insurance payouts.
While much attention has been focused on homeowners who did not have flood insurance because FEMA maps classified their neighborhoods as above the flood plain, even homeowners with flood insurance may not be much better off without a buyout option, particularly if their neighborhoods do not demonstrate a high rate of returning residents.
Federally backed flood insurance policies are intended to replace structures, but they do not compensate homeowners for the land. Therefore, the lack of a voluntary buyout option would encourage homeowners wishing to remain in New Orleans to renovate or rebuild where they are, regardless of the elevation of the property, essentially creating the potential for a cityscape that federal officials, members of the state’s Louisiana Recovery Authority and planners have warned against.
Moreover, mortgage holders have first claim on insurance payouts which, depending on length of ownership, could leave some homeowners still owing a balance. Or, if the insurance pays off the mortgage, an owner could be left owning a destroyed home and a piece of land in a largely abandoned block.
Joe Canizaro, who chaired the BNOB’s land-use committee, has said there are ways besides the Baker bill to accomplish buyouts. But Canizaro said at the time he did not wish to elaborate because he was optimistic Congress would approve the Baker bill, in some form.
In a speech two weeks ago, Blanco called the grant money “a start” in addressing Louisiana’s housing needs, but said she was counting on the Baker bill to make up the difference. Without the bill, Louisiana officials said, other recovery efforts will suffer.
“Our (grant) money was for housing, but we also have significant infrastructure and economic development needs,” Andy Kopplin, executive director of the Louisiana Recovery Authority, said. “We’re very concerned.”
Kopplin also took issue with the Bush administration’s desire to focus primarily on owner-occupied dwellings. He said it unfairly excludes people who own rental property and those who resided in the federally designated flood plain, but figured high water would come from heavy rains, not storm surge pushed over and through protection levees.
“If you focus on the 20,000, you don’t focus on folks who had no reason to expect to see the Gulf of Mexico washing up in their front yards or those who were depending on the federal levees which failed,” Kopplin said.
Powell was careful to say that the emphasis on owner-occupied property is only a recommendation and federal rules give states wide latitude in how they spend grant money. He said that other programs are available for flood-damaged homeowners, such as Small Business Administration loans and up to $26,000 in assistance from the federal Emergency Management Agency.
Baker said he was caught off-guard by the administration’s opposition to his bill. He had been talking with high-ranking administration officials since last fall as he tweaked the legislation and said he thought he had their tacit approval.
“Perhaps I was too optimistic, but I had encouragement from the administration along the way,” he said. “I did not expect it to be rejected outright.”
He said he still hasn’t given up on the bill.
It passed out of a key House committee last year, 50-9, and he said that in the waning days of the 2005 session, he got positive signals from House leadership as well. He said he ran out of time to lobby the Senate, which was reluctant to act without a clear statement of position from the White House.
Baker said he was prepared to forsake a key element of his bill: financing it through the issuance of federal bonds. Instead, he said he was prepared to make his so-called Louisiana Recovery Corp., subject to annual appropriations to give Congress and the administration more control over the finances. He said he hopes to either win over the White House or build enough momentum in Congress that it won’t matter.
“Bills have been passed before without presidential approval,” he said.
Bill Walsh can be reached at email@example.com or (202) 383-7817.