Behind the key decision that left poor homeowners short of rebuilding money after Katrina

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Rebuilding a home in a poor neighborhood can cost a lot more than the house is worth on paper. So after Hurricane Katrina, when the U.S. government decided that home values would factor into rebuilding grants, it left many Louisiana homeowners short.

Why the federal government required that has long been a mystery. It had rarely, if ever, allowed home values to be used to calculate rebuilding aid after a disaster. It doesn't allow it anymore.

But it did for Katrina. That formula hurt poor neighborhoods, most of which in New Orleans were majority Black, according to an investigation published this week by WWL-TV, The Times-Picayune | The Advocate, and ProPublica.

Now, the news organizations have pieced together what led officials to use home values to calculate aid for Road Home, the largest housing recovery program in U.S. history. In Congress and the White House, leaders were worried about federal spending and how Louisiana corruption would come into play, the news outlets found.

So when Louisiana officials negotiated with congressional leaders and the White House, they settled on pre-storm value as a way to achieve two goals: Help Louisiana rebuild after an unprecedented disaster, but limit the size of the check.

In doing so, they created a system in which many poor homeowners would get less money than they needed to rebuild, perpetuating long-standing inequities in New Orleans.

"The tension was always, are the American taxpayers paying more than what the value was worth and what the current market held?" said Don Powell, President George W. Bush's coordinator of Gulf Coast rebuilding.

"One man's accountability," he said, "is another man's red tape."

A key meeting in Texas

The back-to-back 2005 hurricanes of Katrina and Rita devastated south Louisiana, damaging or destroying 305,000 housing units. Most homeowners didn't have sufficient insurance to cover all rebuilding costs. Louisiana leaders were concerned that without a massive injection of federal housing aid, communities would never recover.

In December 2005, Congress allocated $11.6 billion to Louisiana and Mississippi. Louisiana got $6.2 billion, of which state leaders said they would use about $4.5 billion to rebuild owner-occupied housing.

Those leaders said that wasn't enough even to start a housing recovery program; the Louisiana Recovery Authority estimated it needed at least $14 billion to run what would later become Road Home.

State officials worked to convince the federal government to give them more. Powell was the intermediary.

"I was a fiduciary trying to represent the American taxpayer and trying to make sure that the people along the Gulf Coast were taken care of," said Powell, now 81 and retired.

The negotiations were intense, he recalled, in part because of the fraught relationship between then-Louisiana Gov. Kathleen Blanco, a Democrat, and the Republicans who controlled the White House and Congress. Blanco, who died in 2019, had complained loudly when GOP-led Mississippi got almost half of the initial aid package, despite having just 20% of the damaged housing units.

House Speaker Dennis Hastert, R-Ill., presented the biggest obstacle to getting more money, former Powell aide Taylor Beery said. Just days after Katrina, Hastert suggested large parts of New Orleans should be "bulldozed" and said spending billions of dollars to rebuild the city "doesn't make sense to me." (He later backtracked, saying he meant the city should be rebuilt in a way that protected residents.)

Louisiana's reputation for graft also worked against it, according to former LRA officials. State leaders repeatedly promised to be good stewards of federal aid.

Beery and former LRA staffer Adam Knapp said factoring in the value of homes was raised in a series of meetings as a way to limit the price tag.

In January 2006, Powell said, three LRA board members — Xavier University President Norman Francis, shipbuilder Boysie Bollinger and investment banker David Voelker — went to Powell's home in Amarillo, Texas, to make their case for more money.

Powell recalled that "several folks," including "some staff members in Congress," suggested using homes' pre-storm value to limit grants. He doesn't know exactly who first mentioned it, because federal and state staffers had already addressed a lot of those details beforehand.

Bollinger, a Republican who acted as a liaison between the Bush and Blanco teams, confirmed that pre-storm value was first brought up during those tense negotiations, but he doesn't remember who raised it. Francis, who is 91, was not available to comment, and Voelker died in 2013.

Powell indicated there was no discussion about how using pre-storm value could lead to unequal impacts. "I think that's one of the misfires," he said.

Building a program from scratch

When Louisiana leaders returned from Texas, they had a commitment from Congress to provide $4.2 billion more in recovery aid. Combined with the initial appropriation, Louisiana now had enough to run a $7.5 billion housing recovery program. (It ended up being a $10 billion program.)

LRA Executive Director Andy Kopplin and Walter Leger, who headed the LRA's housing task force, introduced the housing plan a month later, in February 2006, with a presentation that read, "Louisiana contributes up to pre-storm value" to cover home repairs.

Without another disaster program to model it on, Leger said the LRA took cues from the Victim Compensation Fund set up after the Sept. 11 terror attacks — which was also designed to compensate people for their losses.

In order to get money to people as quickly as possible — and follow federal rules — Louisiana officials ended up compensating people for their losses even before they rebuilt, rather than reimbursing them for repairs as work was completed. HUD had to issue a waiver from its disaster aid rules to allow Louisiana and Mississippi to do that.

When HUD later approved similar waivers for Louisiana and Texas after hurricanes Gustav and Ike in 2008, the Federal Register entry said there was little data on how compensation money had been used during previous programs. The only examples it cited were the programs run by Mississippi and Louisiana after Katrina and Rita.

The U.S. government now forbids state and local governments from using HUD's disaster recovery grants to compensate people for losses after a disaster, so home values are no longer a factor. Since 2010, HUD has required states to reimburse people for approved expenses, including repairs.

HUD made that decision after it and Louisiana settled a federal lawsuit in which Black homeowners and housing advocates alleged discrimination by Road Home.

"After the Road Home settlement, HUD made the decision that, for future disasters, it would not permit its recipients of disaster relief to distribute 'compensation for loss' directly to homeowners as an eligible use of that money," De'Marcus Finnell, deputy press secretary for the U.S. Department of Housing and Urban Development, said in a written statement.

"HUD and other federal partners recognized the shortcomings of the federal response in Louisiana," Finnell said, "and have worked to improve those programs in the 15 years since."

People who need the most 'given the least'

Even after Road Home launched, the LRA changed how it would calculate grants several times, which resulted in larger grants. Each formula still capped initial awards at a home's pre-storm value.

Under the final formula, approved in November 2006, damage assessments would be done on every home. Grants would be based on the home's pre-storm value or its damage assessment, whichever was lower. Road Home would subtract any payments from insurance or FEMA, plus a penalty for those who didn't have insurance. The maximum award was $150,000.

In interviews, former LRA board members and staffers said they realized factoring in home values would mean some people would get more help than others, but they thought an affordable loan program for low- to middle-income homeowners — later converted to a grant — would eliminate the gaps.

The news organizations' analysis of state data found those additional grants helped. But even with that extra money, people in the poorest areas of New Orleans had to cover an average of 30% of their rebuilding costs after Road Home, FEMA aid and insurance. In the wealthiest areas, where residents had far more resources to draw on, the shortfall was 20%.

The state Office of Community Development took issue with the analysis, but none of the points it raised affected the news organizations' findings. Leger and Kopplin said they found the findings troubling.

The first to make waves criticizing how grants were calculated was Melanie Ehrlich, a genetics professor at Tulane University School of Medicine. She had founded a grassroots organization, Citizens Road Home Action Team, to advocate for Road Home applicants.

In October 2006, she emailed Leger to ask him to allow applicants to choose whether their grants would be based on pre-storm value or the cost of rebuilding. By then, nine months had passed since that meeting in Amarillo.

Leger shot her down, saying the Road Home "has always contained a grant cap of the lesser of pre-storm value or $150,000." He wrote, "Neither the limited budget nor time would allow for change in the cap."

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Later that month, Ehrlich sent Leger and other officials a chart showing that using pre-storm value on homes with lower appraisals meant people who needed the most help "are given the least help."

Leger said he agreed and took her complaint to HUD officials. He got HUD to allow the state to include land values in property appraisals, but he said the agency still insisted that initial calculations had to be capped at the property value.

At the next LRA meeting in December 2006, Leger reported that HUD had insisted on limiting grants to pre-storm value, according to board minutes.

"This wasn't and isn't the way America should fund major disaster recovery," Knapp said in an interview. Political battles led to budget shortfalls in Road Home, he said, and "budget was always the problem to the program design."

Leger said he didn't remember any of the 16 other LRA board members, including the eight Black members, ever raising concerns about inequitable impacts of the grant formula.

Two Black former board members, Francis and Virgil Robinson Jr., said in 2010 they never realized the formula could end up being discriminatory. This month, another Black former board member, Calvin Mackie, said he raised concerns about using home values but they were lost in the shuffle.

"Everyone was rushing to get a workable solution," he said, "and get the money out the door."

His father, whose home in the Gentilly neighborhood flooded in Katrina, didn't get anything from Road Home, he said. "My dad died in the process of fighting for the money, and in the end we got $0," Mackie said. "For me, it's real. I'm still living it."

-Staff writer Jeff Adelson and Sophie Chou of ProPublica contributed to this report.