New Orleans Rebuilding Largest Federal Effort Ever

This week marks the one year anniversary of Hurricane Katrina and the tragedy of New Orleans. Today's Wall Street Journal marks the occasion with a corrective editorial noting that federal disaster relief spending in New Orleans is the highest in history, though you wouldn't know it from the remarks by Democratic Members of Congress -- including Senator Hillary Clinton -- denouncing the federal government for "turning its back on the people who need us":

Turned its back? As the chart nearby indicates, Congress has approved $122.5 billion for the Gulf Region, a figure incomprehensible in size to anyone but, well, a politician. The real wonder is that anyone is surprised, much less feigning surprise, that things are going poorly.

New Orleans' plight is not the result of federal underspending. Uncle Sam has spent some five times more on Katrina relief than any other natural disaster in the past 50 years. Both parties in Congress and the White House opted for the status quo by relying on federal bureaucracies to oversee the rebuilding effort. If Uncle Sam were deliberately trying to waste these funds, it is hard to imagine a better way than to funnel the money through the Department of Housing and Urban Development, the Small Business Administration and the Federal Emergency Management Agency. Both HUD and the SBA have been on the chopping block back to the early Reagan years.

The post-Katrina spend-fest in Louisiana will be remembered as one of the greatest taxpayer wastes in U.S. history. First came the FEMA $2,000 debit-cards fiasco intended to pay for necessities that were used for things like flat-panel TVs and tattoos. Then came the purchase of thousands of mobile homes that cost as much as $400,000 per family housed; the $200 million for renting the Carnival Cruise Ship; millions more in payments that went for season football tickets, luxury vacation resorts, even divorce lawyers. Federal flood insurance policies surely will encourage many to rebuild in the same flood plains and at the same height as before.

There has been some notable progress away from the most damaged areas of New Orleans. Coastal Mississippi is well on the way to full recovery, thanks in part to the leadership of Governor Haley Barbour. The number of building permits in Mississippi are four times higher than in New Orleans. The business district in New Orleans and the French Quarter, where flooding was minimal, are nearly back to the normal rhythm of life. But the neighborhoods that were overwhelmed with water remain mostly deserted wrecks, with electricity, hot water and sewage systems spotty at best.

Where rebuilding progress has been swiftest in New Orleans, it has been companies like Wal-Mart and Home Depot that have stepped up to make contributions along with the $4 billion in charitable donations. While billions of dollars of federal flood insurance payments and community development dollars remain tangled in red tape, the private insurance industry has made at least 80% of its payments to homeowners.

Given the famously ingrained culture of political corruption in New Orleans--a system designed to siphon public money of any sort away from its intended purpose--President Bush was right to call on Congress to convert New Orleans into a massive "enterprise zone." That included tax breaks for new business investment, health savings accounts for those without medical insurance, school vouchers for families located where schools have been ruined and a reappraisal of all regulations.
Some of the tax incentives were enacted and have spurred more business investment. And charter schools will serve thousands of the kids still residing in New Orleans this fall. But Congress and Louisiana's pols have ignored most of the promising free-market reforms, opting instead for red tape as usual.

After the hurricane, newspapers around the world showed photos of New Orleans under headlines that shouted: "America's shame." In truth, New Orleans was America's shame long before Katrina. In large part the residents of the Big Easy were victims of the predatory behavior of their own politicians. Louisiana already ranked among the bottom five of all the states in crime, poverty, health care and school performance; the murder rate in New Orleans today is 10 times the national average.

For all the finger-pointing this week, Congress hasn't spent much more than a dime to clear away the debris of corruption, patronage, welfare dependency, high taxes and racial division of decimated neighborhoods. What is still lacking in the life of New Orleans is the vital architecture of local capitalism.

See also this month's Fortune magazine cover story on the New Orleans rebuilding effort, which says that the government's Katrina recovery job there is the most mismanaged in history.