Implementation of the Road Home Program Four Years after Hurricane Katrina

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New Orleans – August 20, 2009 – Madam Chair and members of the Committee, thank you for the invitation to appear before you this afternoon. I am Deputy Director of the Greater New Orleans Community Data Center, a product of Nonprofit Knowledge Works. Operating since 1997, the Data Center analyzes and disseminates data to help nonprofit and civic leaders work smarter and more strategically.

The purpose of my testimony is to provide an overview of the status of the Road Home program, the recovery of greater New Orleans, and some of the challenges homeowners have encountered as they rebuild. This overview draws largely from the New Orleans Index that we publish in collaboration with the Brookings Institution as well as a large array of other data sources and studies that we have been gathering since Katrina.

I want to preface by saying that the Data Center is a neutral data intermediary. Our expertise does not extend to how law is written or how programs are designed. But I can present you with a solid set of facts about the Road Home program, as well as New Orleans’ recovery. According to HUD estimates, the 2005 storms damaged more than 515,000 homes in Louisiana, the majority were owner occupied, and of these, one–third were underinsured. The New Orleans metro area sustained the largest losses with 320,000 damaged homes.

Immediately after Katrina, housing costs rose sharply as demand exceeded supply. By 2006 fair market rents had risen 39 percent and job vacancies soared — particularly in lower–wage occupations.

Road Home provides grants for the uninsured losses of homeowners to repair their homes or relocate. The program began in June 2006, but got off to a slow start. Nonetheless, by the third anniversary of Katrina last year, the program had disbursed grants to the vast majority of the applicants expected to receive awards. Today over 124,000 grants averaging $64,000 have been disbursed.

Road Home recipients include 96,000 in the New Orleans metro area — 45,000 are in the city of New Orleans itself. Fully ninety percent are repairing their homes rather than selling to the state.

By mid 2008, after the Road Home program had distributed thousands of grants in the metro area covering more than one–quarter of all damaged homes, the market began to soften. In 2009, rents fell for the first time since the storm.

Four years after Katrina, the city has recovered 77 percent of its pre–Katrina number of households, a big jump from mid–2006 when the Road Home program began at which time less than half the population had returned.

New Orleans families with children have struggled to return. When the Road Home program began, the share of all households with children had dropped from 30 percent pre–Katrina to 18 percent, but rebounded to 20 percent by 2007. In 2006, the African American population of the city had decreased dramatically from 67 percent of the total pre–Katrina to 58 percent. Three years after Katrina the African American population of New Orleans had rebounded to 61 percent of the total.

I’d like to highlight three obstacles encountered by Road Home recipients in their attempts to rebuild: gaps in funding, contractor fraud, and inaccurate cost estimates. A Policy Link study of Road Home data concluded that an astounding 81 percent of recipients in New Orleans and 69 percent of those in other parishes who planned to rebuild did not have sufficient funds to cover repairs even when taking into account insurance and Road Home grants. Because grant awards were based on pre–storm home values rather than total repair costs, the average gap between damage estimates and rebuilding funds was $36,000. Gaps were larger in lower income and African American neighborhoods. For example, in the Lower Ninth Ward the average gap was $75,000.

News reports about contractor fraud abound and a study by LSU, PolicyLink and LouisianaRebuilds concluded that 9,000 households were affected. In over 40 percent of the cases, the homeowner was unable to finish rebuilding. More than half of the incidents were reported, but in 41 percent of the cases no action was taken by the authorities. Only 1 percent of victimized homeowners successfully got their monies returned.

Nonprofit groups working with homeowners also report that many recipients complain of a high-cost environment as one barrier to rebuilding. Although no post-Katrina studies have quantified this problem, extensive nationwide research by HUD indicates that estimating the cost of rehabbing structures is extremely difficult. Unforeseen circumstances, such as termite damage behind walls, can drive costs above initial estimates sometimes by a factor of 100 percent — even when estimates are provided by experienced professionals.

Inability to accurately budget for all rebuilding costs, gaps in funding, and contractor fraud are three obstacles frequently encountered by Road Home recipients. Nonetheless, the Road Home program has had a marked effect on the New Orleans area housing market and the ability of homeowners to return. Once again, thank you for the opportunity to appear today. I would be pleased to answer any questions you may have about my testimony.