A Tale Of Two Cities: New Orleans After Katrina

Alex Brandon / AP This home in the Gentilly area of New Orleans is still yet to be gutted.

The program -- which is run for the state by the company ICF International  -- has been taking applications since August 2006. By the July 31 deadline, some 184,290 homeowners had submitted applications. A smaller similar project exists for owners of rental properties.

Gentry Brann, the program’s director of communications, says there have been many more applications than anyone anticipated, attributing that to lower-than-expected insurance compensation and greater-than-expected damages.

According to Melissa Landry, press secretary for the Lousiana Recovery Authority, $7.5 billion in federal funds was budgeted, based on the assumption that 120,000 homes were quality. Landry says the real number now looks 40,000 higher. The program is projecting a $4 billion budget shortfall.

"There has never been a program or disaster like this," says Brann. "It’s one piece of a very complicated recovery process."

So is the program itself. After applying, people need to go through a series of steps in what resembles a conventional real estate closing process that takes an average of three to four months.

Thus far, the program has "calculated’ benefits for 118,000 applicants, equal to about $8 billion. Of that group, 42,199 cases have closed, meaning the owners were given a check, for a total pay out of $3 billion. About 75% of them lived in the flood plain and had flood insurance. The average amount dispersed so far has been $72,940. The program is expected to close on 90,000 cases by the end of 2007, says Brand

By comparison, the median price for an existing single-family house in the New Orleans metropolitan area was $137,400 in 2004, (vs. a national average of $195,000), according to the National Association of Realtors. More recently, the New Orleans median was up to $166,000.

"We’ve tried very hard to make this program compassionate and fair," says Brann. "We never think of it as a take it or leave it situation."

Best Foot Forward

New Orleans is making an admirable effort in playing to its strengths, but that may not be enough.

"Tourism’s success will be a major factor in getting those other areas back on track," says Shulz. "Visitors in town mean more money for renovation."

Trickle down economics aside, Scott, the economist, says the poor condition of schools and a high crime rate are also hurting the population and overall rebuilding effort.

With about two-thirds of the city’s 350 miles of levees and flood walls up to snuff, according to the U.S. Army Corps of Engineers, the system is now supposedly capable of handing a Category 3 storm, just as it was during the pre- Katrina era. New Orleans evacuation plan is now considered one of the best in the country.

The goal is to rebuild the hurricane protection system by 2011 to handle the so-called 100-year storm – which has a one in 100 chance of hitting each year.

The federal government has thrown enormous amounts of money at the problem, but even discounting the inevitable bureaucratic foul ups, waste and fraud, there’s no guarantee it will return New Orleans to what is was. Subsidized or public housing has had limited success throughout the years and there’s also no successful historical precedent in the U.S. for migrating people into a densely populated area.

"If the market takes care of it, what you’re going to wind up with is a smaller New Orleans," says Vigdor. "And that might not be such a bad thing."

© 2008 CNBC.com

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