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  1. #1
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    The next disaster to hit the Gulf coast...

    October 22, 2005
    Finances
    After Two Storms, Cities Confront Economic Peril
    By GARY RIVLIN

    BATON ROUGE, La., Oct. 21 - In better times, before Hurricane Katrina washed away its tax base, the St. Bernard School District employed 1,200 people. Now, with no money to make its payroll, the district employs fewer than 12 employees, and this weekend, the parish government expects to lay off a large share of its firefighters and emergency personnel.

    Next door in New Orleans, the school district has laid off virtually every employee, more than 7,000 people. The city has laid off half its workforce, and the state university system is preparing for thousands of layoffs and serious cutbacks in services.

    After weeks of dealing with the initial shock of the storm and trying to help residents with immediate emergencies, local and state governments around the Gulf Coast are starting to grapple with the staggering size of their financial peril. The disaster that caused so much human misery has also produced what some are calling the worst municipal finance crisis in the nation's history.

    "We've never seen anything like this, at least not in our lifetime," said Roy Bahl, dean of the Andrew Young School of Policy Studies at Georgia State University in Atlanta and an expert in public finance. "You think about the hurricanes that hit Florida last year. They were bad. But they didn't devastate the tax base of an entire metropolitan area. They didn't devastate the tax base of an entire region like happened here."

    Without money, governments cannot run buses so that residents without cars can search for jobs and go to work. They cannot educate the children of families that might try to return. They cannot provide health care, pick up garbage or begin the detailed planning and engineering necessary to bring a city back to life.

    They are locked in a painful loop, unable to lure back exiled residents without services, but unable to provide the services without tax bases.

    That has become apparent in St. Bernard Parish, the one county in the state that was entirely engulfed in the storm. Officials there have laid off more than half its workforce of 650, including road crews and other essential workers desperately needed for restoration, and by this weekend they might need to slash scores more emergency workers.

    "I can't ask people to work another two weeks if I know there's a good chance I'm not going to be able to pay them," the emergency preparedness director in the parish, Larry J. Ingargiola, said. "If you call this weekend and get no answer, you'll know why."

    St. Bernard and New Orleans are among dozens of cities and parishes around the coast peering into a financial abyss, along with small towns like Waveland and Bay St. Louis, Miss. Hurricanes Katrina and Rita cost southern Louisiana municipalities at least $3.3 billion in lost taxes and fees, according to the state legislative office that audits local government books. That does not include $1.5 billion in losses on the state level.

    Local governments, desperately hoping for a bailout from the state and federal governments, have not been pleased by what they have received. The state has its own problems, and the federal assistance so far has strings and payback requirements that many localities consider onerous.

    By statute, the Federal Emergency Management Agency will reimburse government entities 75 cents on the dollar for costs associated with rebuilding and repairs, forcing cities to come up with a 25 percent contribution many cannot afford.

    Local officials are hoping to persuade federal officials to provide 100 percent reimbursement, as the agency did after the attacks of Sept. 11, 2001, and after Hurricane Andrew in 1992.

    "If we're going to need to pay a match of 25 percent on the cost of Katrina at the same time we have to absorb these lost revenues, frankly I don't know what we're going to do," said John Carpenter, director of the fiscal division of the Louisiana House of Representatives.

    This month, Congress approved legislation to set aside $1 billion so governments could borrow cash to help meet operating expenses.

    But many governments said they were frustrated to hear that they would have to repay the money.

    "We asked for a grant, and what we got was a loan," State Treasurer John Neely Kennedy said.

    Requiring municipalities with wrecked tax bases to pay back the loan, Mr. Kennedy and others said, means that the agencies that most need the money are precisely those that can least afford to take advantage of the program.

    It is also not clear whether Wall Street and big lenders will come to the region's aid. This week, J. P. Morgan Chase extended New Orleans a $150 million line of credit to help it make its regular bond payments and pay essential personnel like police officers and firefighters.

    But the city's credit was marginal before the storm, and bank officials said the credit line was not a normal business decision.

    "If you look at the typical credit guidelines we use, this probably isn't something we would do, given that the city essentially has little or none of the revenues we usually look for," said Donald E. Wilbon, who runs public financing group in the Southeast for the bank.

    The bank decided to extend the line of credit, Mr. Wilbon said, in part based on its longstanding relationship with the city, where the bank has a strong presence, and on a firm belief that the economy there will eventually rebound. New Orleans typically collected $39 million a month in taxes and fees to pay for functions like police, fire and emergency medical services.

    Since the hurricane, the city has collected $2 million in revenues, according to Finance Director Reginald Zeno. The bulk of that has been paid by the Harrah's casino downtown, which although it remains closed still has to continue paying its taxes under an agreement with the city.

    The primary revenue source in New Orleans is its sales tax, which pre-hurricane covered about one-third of the operating budget for the city. The tax was a rich and reliable source when the hotels were full and the streets were thick with tourists eager to dine at the myriad restaurants and drink themselves silly.

    Now about the only people occupying the smattering of open hotels are federal workers, and federal employees are exempt from paying local sales taxes when working on government business.

    "We've gone from about $13 million a month in sales tax to zero," Mr. Zeno said. He gave a long list of other lost revenues like fines from parking and speeding tickets and taxes imposed on utilities that the city cannot expect to see for some time.

    "The level of revenue we might see next year is anyone's guess," Mr. Zeno said.

    One saving grace is that the demand for services has dramatically fallen. A nearly deserted city means that it will be far less expensive to open schools in the short term.

    The New Orleans district plans on opening eight of its 120 or so schools starting next month, said William V. Roberti, a partner at Alvarez & Marsal, a management firm hired in the spring to run the beleaguered school system.

    Yet the district, which spent $450 million last year, will not save nearly as much money as it might seem at first glance. Even the scaled-down version is scheduled to cost $82 million, not including the $32 million the district has to pay on bonds and the $80 million it has set aside to cover unemployment compensation and employees' health benefits.

    Around half the financing for the district is from the state, but the state has its own budget woes, and districts elsewhere in the state have a claim on some of that money because of the extra students that they absorbed after the huge evacuations in the New Orleans metropolitan region.

    The city, St. Bernard Parish and school districts have applied for loans from the $1 billion federal fund.

    St. Bernard, which relies on nonexistent property taxes, faces a grimmer situation than New Orleans. The parish government has eliminated its road crews, though the byways are in dire need of repair, said Mr. Ingargiola, the parish security director. The parish might also be forced to lay off firefighters and other emergency workers.

    "Even FEMA people say they've never seen a situation like this where a county or parish is so completely obliterated that we don't even have a safe base of operation to start a recovery," said Gary Huettmann, the economic development director for the parish who is working at a borrowed desk in a building across the street from the State Capitol here.

    The Louisiana State University system, operator of two public hospitals in New Orleans, is laying off 3,000 workers. That number might grow significantly, officials warn, when the system grapples with the possibility of hundreds of millions of dollars in additional cuts, largely because of a precipitous drop in income-tax revenues. Nearly a quarter-million state residents have lost their jobs. Cities are also worried about defaulting on bond payments. New Orleans is directly responsible for repaying $40 million in debt. The only reason that it is not late is because there have been no payments due since the storm, Mr. Zeno said.

    State officials have promised to prevent any city or parish from declaring bankruptcy.


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  2. #2
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    Re: The next disaster to hit the Gulf coast...

    October 23, 2005
    Damage
    Thousands of Demolitions Are Likely in New Orleans
    By ADAM NOSSITER

    NEW ORLEANS, Oct. 22 - As crews begin inspecting thousands of rotting houses and preservationists begin efforts to save them, city and federal officials say that 30,000 to 50,000 of the city's houses will probably have to be demolished.

    That number, though smaller than some earlier predictions, nonetheless represents more than a quarter of the city's housing stock. A few weeks from now, when giant track excavators begin tearing into homes that once sheltered families and nest eggs, the city will experience one of the most painful moments of its ordeal.

    "Really, the whole scope of this thing is hard to get your mind around," said Allen Morse, who will be in charge of the demolition effort for the Army Corps of Engineers. "It's going to be a huge task."

    Already the dreaded bright red-orange stickers blaring "unsafe" have begun to proliferate on houses, signaling what is becoming a passionate debate over the extent of the demolition.

    Of the city's 180,000 houses, 110,000 were flooded, city officials say, and half of those sat for days or weeks in more than six feet of water. If up to 50,000 homes are beyond salvaging, many of the others could be saved with expensive repair jobs, but large numbers of homeowners may not have the resources to rebuild. As a result, the number of demolitions could soar beyond 50,000.

    The Corps of Engineers is being careful not to make predictions about the scope of the job. "The word 'demolition' is not even being discussed around here," said Kelley Aasen, the corps official in charge of the mammoth task of inspecting every house in New Orleans for obvious structural damage. "It's triage, right now."

    Yet as building inspectors fan out around the city, taking the first steps in deciding the fate of flooded homes, a picture is beginning to emerge on the Corps of Engineers map: red dots are sprouting in the Lower Ninth Ward, and the area below Lake Pontchartrain is a field of yellow, meaning structural damage is suspected. Houses marked with either color face a tenuous future.

    By midweek, about 30,000 inspections had been completed, with 7,000 houses tagged yellow and 700 red, corps officials said. Most of the hardest-hit areas have not yet been inspected.

    The process has not been without hiccups. The Shaw Group, the construction company that is providing many of the inspectors to the corps, provoked complaints this week from the corps and city building officials that some people hired as inspectors, including a retired art dealer and a hairdresser, were unqualified to make structural appraisals.

    By Friday, a corps official said Shaw had responded to the complaints, dismissing two dozen of the least qualified inspectors.

    City officials say it will probably not be necessary to destroy entire neighborhoods, speaking instead of city blocks. There had been earlier discussion of ending the city's preservation-review process and allowing bulldozers to plow through some of the most historically significant neighborhoods in New Orleans. That idea aroused consternation. But those fears ended when city officials promised that historic houses would get special consideration and that deluged neighborhoods like the Lower Ninth Ward and New Orleans East would not be wiped out.

    "There's a recognition that the New Orleans housing stock is really pretty sturdy, and there should not be the necessity for wholesale demolition once thought," said Camille Strachan, a trustee emeritus of the National Trust for Historic Preservation and a New Orleans lawyer. "I think that as the hysteria subsides along with the water, there will be a lot more rational decisions made."

    But questions remain about a process that is certain to change the face of this city for good. No one is certain when the demolitions will begin in earnest, what will happen to houses without flood insurance or whether New Orleans homeowners, facing the demolition squad, will resist en masse.

    Already, flashpoints have emerged in the complex interplay of municipal vision, homeowner rights and federal mandates. Some of these conflicts hark back to age-old fights here between developers and preservationists; some are brand-new, reflecting the changed, browned-over landscape in large parts of this city.

    City officials say that even when neighborhoods like the Ninth Ward are rebuilt, they will look very different, particularly given the staggering cost of trying to return them to something resembling their earlier state.

    "People are going to be upside down when they look at the cost of rebuilding," said Greg Meffert, chief information officer for the City of New Orleans and a top aide to Mayor C. Ray Nagin.

    But preservationists say that money must be found to rebuild some of the most historic residential structures and that the demolition process must proceed cautiously.

    "When you have a city that has suffered an incredible disaster, you can't overlook any economic resource, and the historic buildings are an economic resource," said Patricia Gay, executive director of the Preservation Resource Center of New Orleans, the leading local preservation group. "This type of thing is the flesh and blood of the city."

    Officials at every level take pains to emphasize that the demolition will be kept to a minimum. "The current thinking is, you only go tear down the absolute minimum number of homes," said Mr. Morse, the corps official who will take charge of what he calls a "sensitive" operation. "We're trying to save as many homes as possible." And the officials emphasize that owners' rights will be paramount.

    With the demolition some time away - "Nobody wants to really put a marker on the wall as to when this happens," Mr. Morse said - neither officials nor homeowners in New Orleans seem ready to envision the day of reckoning.

    "As far as I'm concerned, I'm just going to stand still. I'm not tearing anything down right now," said Janie Blackmon, a loan officer who "saved one picture of my beautiful daughter," but nothing else, from her home in New Orleans East.

    For now, there is brave talk of hanging on to ravaged neighborhoods. "I don't care if I have to go door to door," said Annie Avery, director of African-American heritage preservation for the Preservation Resource Center. "I want to save our neighborhoods."

    In practice, it will be very difficult for many homeowners to save their flooded houses. For a start, about half of them did not have flood insurance, meaning they might have to foot the entire cost of restoration themselves - a crushing burden in a city where nearly a quarter of the residents were below the poverty level.

    Federal flood insurance guidelines will also require that thousands of damaged homes in floodplains be elevated by a foot or more, a fearsomely expensive proposition for which there is limited federal assistance. If the city allows those homes to be rebuilt without being elevated, it could be cut off from the National Flood Insurance Program.

    Finally, with homeowners all over the city desperately scrambling for contractors, the price of renovations has quadrupled to nearly $120 a square foot. On top of an existing mortgage, the economics of reconstruction quickly become prohibitive, even for yellow-tagged houses.

    "New construction is a lot cheaper than renovation," said Jay Williams, a local insurance agent.

    Homeowners will be given the final say on whether their houses will be torn down, but they will have a limited time to decide whether to renovate or demolish. After that, the city can order an unsafe house to come down.

    "At some point, we have to have a cutoff," said Michael Centineo, director of the Department of Safety and Permits in New Orleans. "When it becomes a public nuisance, when it becomes a blight."

    For now, the piles of debris outside many homes here, put there by owners who are gutting them, testify to the hope that houses and neighborhoods can be saved. Yet uncertainty about the future prevails.

    "We're not really getting feedback as to how much of the neighborhood is going to be rebuilt," said Bari Landry, past president of the Lakeview Civic Improvement Association in the middle-class northwest corner of the city. "No one is really giving us the information we need."

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