Tag Archives: hurricane katrina

Post-Katrina HUD funding has underwhelmed in Gulfport

Hurricane Katrina made landfall 10 years ago and devastated much of the gulf coast. In the immediate aftermath of the storm, both public and private aid flooded into the effected areas. Not all of this aid was effective, and my colleagues at the Mercatus Center have meticulously analyzed what worked, what didn’t, and how the region was largely able to get back on its feet.

One project that is still being scrutinized is the Port of Gulfport Restoration Program. In 2007 the Mississippi Development Authority (MDA) requested that $567 million of federal Housing and Urban Development (HUD) funds be diverted to the newly created Port of Gulfport Restoration Program. Prior to Katrina there were 2,058 direct maritime jobs at the port, and the 2007 plan submitted to HUD projected that there would be 5,400 direct, indirect, and induced jobs once the restoration project was complete in 2015. In return for the money the administrators promised HUD that at least 1,300 jobs would be created, and HUD Secretary Julian Castro was recently in Gulfport to check on the progress that has been made. As is typical with HUD projects, the actual progress on the ground has not lived up to the hype.

In September of 2014, nine years after Katrina, the port employed only 814 people. This was well short of even the 2,348 jobs predicted by 2010 in the original 2007 plan. Ignoring the fact that jobs are a poor metric for judging economic development – labor is a cost, not a benefit – the project has failed to live up to the promise made to federal taxpayers who are footing the bill.

HUD funding has a long history of failure. Billions of HUD money has poured into cities such as Detroit and Cleveland since the 1970s with little to show for it. Moreover, any successful HUD story is really just the result of transferring economic activity from one place to another. The $570 million being spent in Gulfport came from taxpayers all over the country who could have spent that money on other things. Moving all of that money to Gulfport caused small declines in economic activity all over the country, such as less investment in local businesses and/or lower demand for local goods and services. These small declines are hard to see relative to the big splash that $570 million in spending creates, but they are real and they do affect people.

Large, federal spending projects rarely live up to their hype and usually waste resources. Local citizens using local assets are often much more effective at revitalizing devastated communities. There are lessons to be learned from Hurricane Katrina, and at the top of the list is don’t expect too much from federally funded programs – they are usually not up to the challenge.

Why Regulations Fail

Last week, David Fahrenthold wrote a great article in the Washington Post, in which he described the sheer absurdity of a USDA regulation mandating a small town magician to develop a disaster evacuation plan for his rabbit (the rabbit was an indispensible part of trick that also involved a hat). The article provides a good example of the federal regulatory process’ flaws that can derail even the best-intentioned regulations. I list a few of these flaws below.

  1. Bad regulations often start with bad congressional statutes. The Animal Welfare Act of 1966, the statute authorizing the regulation, was meant to prevent medical labs from using lost pets for experiments. Over time, the statute expanded to include all warm-blooded animals (pet lizards apparently did not merit congressional protection) and to apply to zoos and circuses in addition to labs (pet stores, dog and cat shows, and several other venues for exhibiting animals were exempt).The statute’s spotty coverage resulted from political bargaining rather than the general public interest in animal welfare. The USDA rule makes the statute’s arbitrariness immediately apparent. Why would a disaster plan benefit circus animals but not the animals in pet stores or farms? (A colleague of mine jokingly suggested eating the rabbit as part of an evacuation plan, since rabbits raised for meat are exempt from the regulation’s requirements).
  2. Regulations face little oversight. When media reported on the regulation’s absurdity, the USDA Secretary Tom Vilsack ordered the regulation to be reviewed. It seems that even the agency’s head was caught off guard by the actions of his agency’s regulators. Beyond internal supervision, only a fraction of regulations face external oversight. Of over 2600 regulations issued in 2012, less than 200 were subject to the OMB review (data from GAO and OMB). Interestingly, the OMB did review the USDA rule but offered only minor revisions.
  3. Agencies often fail to examine the need for regulation. In typical Washington fashion, the agency decided to regulate in response to a crisis – Hurricane Katrina in this case. In fact, the USDA offered little more than Katrina’s example to justify the regulation. It offered little evidence that the lack of disaster evacuation plans was a widespread problem that required the federal government to step in. In this, the USDA is not alone. According to the Mercatus Center’s Regulatory Report Card, which evaluates agencies’ economic analysis, few agencies offer substantial evidence justifying the need for promulgated regulations.
  4. Agencies often fail to examine the regulation’s effectiveness. The USDA’s plan to save animals in case of a disaster was to require owners to draw up an evacuation plan. It offered little evidence that having a plan would in fact save the animals. For example, the magician’s evacuation plan called for shoving the rabbit into a plastic bag and getting out. In the USDA’s view, the magician would not have thought of doing the same had he not drawn up the evacuation plan beforehand.
  5. The public has little influence in the process. By law, agencies are required to ask the public for input on proposed regulations. Yet, small businesses and individual consumers rarely have time or resources to keep an eye on federal agencies. In general, organized interests dominate the commenting process. The article describes the magician’s surprise to learn that he was required to have a license and a disaster evacuation plan his rabbit, even though the regulation was in the works for a few years and was open for public comments for several months. Most small businesses, much like this magician, learn about regulations only after they have passed.
  6. Public comments are generally ignored. Most public comments that the USDA received argued against the rule. They pointed out that it would impose substantial costs on smaller businesses. The agency dismissed the comments with little justification. This case is not unique. Research indicates that agencies rarely make substantial changes to regulations in response to public comments.

Shortfalls in non-profit disaster rebuilding

This post originally appeared at Market Urbanism, a blog about free-market urban development.

After receiving years of praise for its work in post-Katrina recovery, Brad Pitt’s home building organization, Make It Right, is receiving some media criticism. At the New Republic, Lydia Depillis points out that the Make It Right homes built in the Lower Ninth Ward have resulted in scarce city dollars going to this neighborhood with questionable results. While some residents have been able to return to the Lower Ninth Ward through non-profit and private investment, the population hasn’t reached the level necessary to bring the commercial services to the neighborhood that it needs to be a comfortable place to live.

After Hurricane Katrina, the Mercatus Center conducted extensive field research in the Gulf Coast, interviewing people who decided to return and rebuild in the city and those who decided to permanently relocate. They discussed the events that unfolded immediately after the storm as well as the rebuilding process. They interviewed many people in the New Orleans neighborhood surrounding the Mary Queen of Vietnam Church. This neighborhood rebounded exceptionally well after Hurricane Katrina, despite experiencing some of the city’s worst flooding 5-12-feet-deep and being a low-income neighborhood. As Emily Chamlee-Wright and Virgil Storr found [pdf]:

Within a year of the storm, more than 3,000 residents had returned [of the neighborhood’s 4,000 residents when the storm hit]. By the summer of 2007, approximately 90% of the MQVN residents were back while the rate of return in New Orleans overall remained at only 45%. Further, within a year of the storm, 70 of the 75 Vietnamese-owned businesses in the MQVN neighborhood were up and running.

Virgil and Emily attribute some of MQVN’s rebuilding success to the club goods that neighborhood residents shared. Club goods share some characteristics with public goods in that they are non-rivalrous — one person using the pool at a swim club doesn’t impede others from doing so — but club goods are excludable, so that non-members can be banned from using them. Adam has written about club goods previously, using the example of mass transit. The turnstile acts as a method of exclusion, and one person riding the subway doesn’t prevent other passengers from doing so as well. In the diagram below, a subway would fall into the “Low-congestion Goods” category:

club goods

In the case of MQVN, the neighborhood’s sense of community and shared culture provided a club good that encouraged residents to return after the storm. The church provided food and supplies to the first neighborhood residents to return after the storm. Church leadership worked with Entergy, the city’s power company, to demonstrate that the neighborhood had 500 residents ready to pay their bills with the restoration of power, making them one of the city’s first outer neighborhoods to get power back after the storm.

While resources have poured into the Lower Ninth Ward from outside groups in the form of $400,000 homes from Make It Right $65 million  in city money for a school, police station, and recreation center, the neighborhood has not seen the success that MQVN achieved from the bottom up. This isn’t to say that large non-profits don’t have an important role to play in disaster recovery. Social entrepreneurs face strong incentives to work well toward their objectives because their donors hold them accountable and they typically are involved in a cause because of their passion for it. Large organizations from Wal-Mart to the American Red Cross provided key resources to New Orleans residents in the days and months after Hurricane Katrina.

The post-Katrina success of MQVN relative to many other neighborhoods in the city does demonstrates the effectiveness of voluntary cooperation at the community level and the importance of bottom-up participation for long-term neighborhood stability. While people throughout the city expressed their love for New Orleans and desire to return in their conversations with Mercatus interviewers, many faced coordination problems in their efforts to rebuild. In the case of MQVN, club goods and voluntary cooperation permitted the quick and near-complete return of residents.

More money for FEMA does not guarantee improved results

Before Congress passed $9.7 billion in Hurricane Sandy relief spending today, Governor Christie made headlines for his angry response to the House GOP’s delay in approving relief funds. The new spending will provide FEMA with money to pay out claims to those holding federal flood insurance. While the Hurricane Sandy relief effort gives political immediacy to FEMA funding, the Center for American Progress proposes a longer term strategy for dealing with natural disasters:

There must  be a dedicated source of revenue to fund predisaster mitigation programs that is not susceptible to budget cuts or political manipulation. Since the frequency and/or severity of extreme weather events will be exacerbated by climate change, it makes sense to raise revenue for resiliency from the fossil fuels whose combustion emits carbon pollution responsible for climate change.

The perspective that disaster recovery is a core responsibility of the federal government is widely shared, and voices as diverse as Governor Christie to the Center for American Progress express this opinion. However, the Mercatus Center’s Gulf Coast Recovery Project conducted in the wake of Hurricane Katrina demonstrates that funneling federal dollars toward disaster relief does not guarantee positive results for disaster victims. While the FEMA response to Hurricane Sandy went more smoothly than the Hurricane Katrina response, the federal government simply doesn’t have the capability to respond quickly and efficiently to individuals’ needs following a disaster, and channeling more resources to FEMA from any revenue source will not change the this fact.

As Pete Leeson and Russ Sobel write in a 2007 paper (pdf):

Following a natural disaster, on the one side there are “relief demanders”—individuals who desperately need disaster-relief supplies, including evacuation, food, shelter, medical attention, and so forth. On the other side, there are “relief suppliers”—individuals ready and willing to bring their supplies and expertise to bear in meeting the relief demanders’ needs. On both sides of this “market,” information is decentralized, local, and often inarticulate. Relief demanders know when relief is needed, what they need, and in what quantities, but they do not necessarily know who has the relief supplies they require or how to obtain them. Similarly, relief suppliers know what relief supplies they have and how they can help, but they may be largely unaware of whether relief is required and, if it is, what is needed, by whom, and in what locations and quantities.

[. . .]

Government’s informational deficit in the disaster-relief context is an unavoidable outcome of the centralization of disaster relief management when relief is provided by the state. Disaster-relief reforms that leave government as the primary manager of natural disasters are thus bound to fail. Correcting government’s information failure in the context of disaster relief requires eliminating its root cause: government involvement itself.

Researchers on the Gulf Coast Recovery Project found that non-profits, civic organizationsprivate firms, and individuals were more successful at providing the goods and services needed for recovery than the federal government.

Aside from the inherent challenges facing federal disaster response, funneling federal tax dollars to coastal areas prone to flooding leads to moral hazard. Because residents of flood-prone areas purchase federal insurance, taxpayers subsidize those who choose to live in these high-risk areas. Eli Lehrer of the R Street Institute explains this aspect of the Hurricane Sandy Relief Bill to Climate Wire:

“The mitigation piece of it is problematic,” said Eli Lehrer, president of the R Street Institute, a conservative organization that works with environmentalists and insurers to reduce subsidies in public insurance programs. “I think the bill should be drastically scaled back overall.”

He suggests that the disaster supplemental package could be cut in half. That would save taxpayer money, he says, now and in the future — by reducing incentives to develop coastlines. Lehrer also proposes cutting the federal share of post-disaster rebuilding costs to 50 percent. Currently, the government pays for 75 percent of recovery efforts, and Obama is asking Congress to increase that to 90 percent for Sandy survivors.

Politicians and activists who support a large role for the federal government in responding to disasters may have the best of intentions, but these intentions cannot circumvent the knowledge problems that government faces in disaster relief. By reducing the cost of developing in flood plains, greater reliance on the federal government for disaster mitigation and relief will be a costly effort unlikely to provide an adequate response when the next disaster strikes.

The Road Home?

Our own Daniel Rothschild testified last week before the House Judiciary Subcommittee on the Constitution, Civil Rights, and Civil Liberties, about the role of state and federal governments in obstructing home building in devastated New Orleans neighborhoods. From Louisiana’s Daily World:

Daniel Rothschild, director of the Gulf Coast Recovery Project at George Mason University, said the problem isn’t necessarily that government officials are discriminating, but that they’re becoming overly involved in recovery efforts.

“Federal and state policies designed to rebuild homes sowed confusion and uncertainty, making it difficult for people to make informed choices about how, when and where to rebuild,” Rothschild said.

He said the government should set clear, simple rules, then get out of the way to allow rebuilding to take place from the ground up.

“Community leaders, clergy, social entrepreneurs have leveraged social capital and local knowledge to spur rebuilding, and over 1 million Americans have volunteered their time, some for weeks and some for years,” he said. “They got it fixed and built houses one at a time.”

For more Mercatus work on the problems created by post-disaster government uncertainty, and how we could encourage rebuilding efforts, see some of our extensive publications on the subject.

Hurricane Season Begins

Today is the first day of the 2010 hurricane season, which NOAA predicts will be more active than usual, with 14 to 23 named storms. (In fairness, NOAA has been way off the mark in recent years, to the relief of the residents of the Gulf and Atlantic coasts.)

The Mercatus Center’s Gulf Coast Recovery Project has put out over 50 studies since 2005 looking at the rebuilding of the Gulf Coast after Hurricane Katrina. Below are links to eight studies that state and local policy makers may find useful today and in the coming months.

  • A Policy Maker’s Guide to Effective Disaster Preparedness and Response. In the years since Hurricane Katrina devastated the Gulf Coast region of the United States, scholars, policy makers, and concerned citizens have been working to understand what exactly went wrong in the response to the event and how better to prepare for future natural disasters. Post-Katrina New Orleans presents a unique opportunity to study how and how not to undertake the rebuilding of a major population center after such a catastrophe. Proper study of this subject, if conducted objectively and rigorously, will not only save other communities countless dollars but will also save lives.
  • Building a Safe Port in the Storm: Public vs Private Choices in Hurricane Mitigation. This Policy Comment analyzes the connection between hurricane mitigation and insurance. As many people fail to purchase government-subsidized flood and earthquake insurance, some researchers argue that market failure explains the lack of mitigation. But empirical evidence shows that markets do value natural hazards risks, including hurricane mitigation, and thus the case for market failure has been overstated.
  • The Entrepreneur’s Role in Post-Disaster Community Recovery. This Policy Primer recommends that in the aftermath of a disaster, government relax non-disaster regulations in order to allow entrepreneurs, who are in the best position to assess local conditions and needs in the rapidly changing, post-disaster environment, to step in and quickly respond to the community’s needs.
  • The Road Home: Helping Homeowners in the Gulf Post-Katrina. This comment explores Road Home’s policy goals and design, placing them in the context of the destruction wrought by the hurricanes and the role of insurance and government before and after a disaster. It then contrasts Road Home’s goals and design with the policy goals and design of Mississippi’s Homeowner Assistance Program.
  • Disastrous Uncertainty: How Government Disaster Policy Undermines Community Rebound. This Policy Comment looks at the ways in which public policy has had negative unintended consequences on the ability of communities to make informed decisions about sustainable rebuilding after Hurricane Katrina.  Based on fieldwork, the authors explain why social capital and signals generated by market and civil interactions are important to recovery efforts and how policy makers can encourage rather than retard grassroots rebuilding efforts.
  • Making Hurricane Response More Effective: Lessons from the Private Sector and the Coast Guard During Katrina. Many assume that the only viable option for emergency response and recovery from a natural disaster is one that is centrally directed. However, highlighted by the poor response from the federal government and the comparatively effective response from private retailers and the Coast Guard after Hurricane Katrina, this assumption seems to be faulty. Big box retailers such as Wal-Mart were extraordinarily successful in providing help to damaged communities in the days, weeks, and months after the storm. This Policy Comment provides a framework for understanding why private retailers and the Coast Guard mounted an effective response in the Gulf Coast region.
  • Ensuring Disaster: State Insurance Regulation, Coastal Development, and Hurricanes. This policy comment examines how state insurance regulation affects societal vulnerability to hurricanes. States provide insurance for high-risk properties at below market rates primarily through insurance pools. Seven states, including Louisiana and Mississippi, have wind pools, with over 1.8 million policies and a total liability of over $500 billion as of early 2007. Wind pools are financed, in part, through additional charges on other citizens’ premiums throughout the state to cover excess losses from hurricanes. State guaranty funds, which ensure payment of claims of insolvent insurers, also subsidize high-risk properties.

For more information about these studies or to request hard copies, feel free to email me using the link here.

Haiti’s Road Home: Rebuilding Lessons from the Gulf Coast

The Louisiana Road Home program was established to provide up to $150,000 for homeowners rebuilding in the wake of Hurricane Katrina. Almost 5 years after the hurricane devastated the Gulf Coast, the Louisiana Recovery Authority estimates that one third of grant recipients have yet to rebuild and return home. Why? Garett Jones and Neighborhood Effects blogger Daniel Rothschild offered a few reasons last year in Forbes:

While initially designed to rapidly provide rebuilding assistance to residents, [the Road Home program] was loaded down with caveats and clauses meant to engineer a particular rebuilding plan, rather than allow the rebuilding to emerge spontaneously. Government rules became government direction, and private decision making was shoved into the back corner….

The biggest problem with Road Home was that it caused people to wait for promised federal help, and indeed, some people are still waiting. The initial promise of quick and easy government assistance combined with inept program administration and a 57-step application process mean that even [nearly five] years after Katrina, thousands of homeowners are still waiting for their checks…. So government action delayed private action and government plans crowded out local solutions.

Haiti — and the international commission that will direct its reconstruction — should heed lessons from the Gulf Coast recovery.

Yet development economist Jeffrey Sachs, like many other experts, advocates a centralized reconstruction strategy for the country. “There should be one overarching framework. There should be one major multi-donor bank account to finance the heavy outlays required for Haiti’s recovery. There should be a highly professional executive team co-ordinating the international support efforts.”

The Interim Haiti Recovery Commission grants Sach’s wish. It will determine which reconstruction projects deserve funding and then disperse the $9.9 billion pledged by donors. But it must beware entangling Haitians in obstacles that plagued Gulf Coast rebuilders — crowding out of local solutions, creating bureaucratic red tape that delays recovery, and unintentionally encouraging inaction as citizens wait for government or international panaceas.

Evidence from the Road Home program suggests that the federal government’s Katrina recovery strategy encouraged residents to battle for grants rather than innovate creative solutions to overcome their challenges. The international community’s reconstruction strategy in Haiti must avoid doing the same.

Report from Snowmageddon

The levels of damages from the recent Washington snowfalls were nothing like the widespread destruction of property and loss of lives from Hurricane Katrina. Still, the governments in the Washington area, while not facing a natural disaster of the same magnitude, showed a Katrina-like ineptitude.

Heavy snow fell in my Maryland neighborhood from mid-afternoon on Friday, February 5, until late Saturday, February 6, leaving about 20 to 25 inches of snow. This was admittedly an extreme event that has happened only about 4 or 5 times in the past 30 years. It required state and local governments to show some real flexibility and an ability to devise new strategic responses on the fly. They failed!

A Montgomery County snowplow did finally come through my neighborhood on the evening of February 7, actually sooner than I had feared. The real problem was the arterials. Even on Monday the 15th, while my neighborhood roads were showing bare pavement, nearby East-West Highway — a main thoroughfare for Montgomery County — was covered with layers of ice and snow. Only one lane was functioning in each direction.

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The Downside of “Better” Housing

Earlier this week President Obama visited the of New Orleans to see a city that, four years after Hurricane Katrina, still has not recovered from the damage.  Most of the homes in the Lower 9th Ward where he spoke at a middle school remain vacant.

November’s issue of The Atlantic includes an article about new housing developments in New Orleans — the efforts of social entrepreneurs who have stepped in where government has failed to provide the new housing that it promised. Journalist Wayne Curtis points out that one of the many problems in recovery after Katrina has been policy makers’ misunderstanding of residents culture and preferences. Curtis quotes Andres Duany, co-founder of the Congress for New Urbanism:

Many of the shotgun houses in New Orleans were built by the fathers and grandfathers of people living in them today, and few of them meet building codes.  But no one worries about paying mortgages or insurance. “The situation is that the housing is essentially paid off, and it allows people to accumulate leisure,” he said. “What’s special about New Orleans is that it’s the only place in the United State where you can have a first-rate urban life for very little money.”

One of the first lessons in economics is that we respect consumer preferences, making no judgment about differences in subjective tastes and utility. Unfortunately this often does not carry over to economic policy making. While federal agencies are busy developing plans to allow people to obtain home mortgages, they are ignoring that some people would prefer not to take on and debt — inexpensive housing allows them to work less and to enjoy more hours of leisure.

Policy makers may think that housing standards requiring higher quality construction make people unambiguously better off, but in that case they fail to take into account the unseen consequences such as higher rates of homelessness and requiring that people devote more of their scarce time to earning money to pay for housing. From the point of view of lawmakers, higher building standards improve safety and neighborhoods’ appearance, but it also leads to higher costs, and this tradeoff may not be in line with the subjective preferences of many New Orleanians.

An unseen consequence of housing policy after Hurricane Katrina may be alterations to the culture and sense of place for which the city is widely known. Policymakers should consider the unique cultural attributes that give each city unique flare when dictating legislation that will result in lifestyle changes.

Steward Brand, Slumlord

Whole Earth Catalog founder and onetime Merry Prankster Stewart Brand is one of twelve thinkers asked this month by Wired magazine to contribute to a list of “twelve shocking ideas that could change the world.” In this brief piece, Brand praises slums as good for the environment:

Cities draw people away from subsistence farming, which is ecologically devastating, and they defuse the population bomb. In the villages, women spend their time doing agricultural stuff, for no pay, or having lots and lots of kids. When women move to town, it’s better to have fewer kids, bear down, and get them some education, some economic opportunity. Women become important, powerful creatures in the slums. They’re often the ones running the community-based organizations, and they’re considered the most reliable recipients of microfinance loans.

Here is Stewart Brand’s TED talk from earlier this year where he discusses the idea in greater depth.

Mike Davis wrote in 2007 that slums are, contra Brand, environmental tragedies. For different but related reasons, Tyler Cowen argued in 2006 that in recovering from Hurricane Katrina, New Orleans should allow shantytowns to emerge unmolested.