Two years after hurricanes Katrina and Rita swamped New Orleans, the recovery efforts have created a tale of two cities … and it is doubtful that the full grandeur of the old Crescent City will ever arise from either one of them.
The central business district, including the tourist areas, and the Port of New Orleans have been restored and have something of a business-as-usual character. But other districts of the metropolitan area, including suburban residential districts – which suffered the worst of the deluge – are ghosts of their former selves.
A return to pre-storm life in those areas, where levees broke or were breached, is questionable. In large part that’s because a significant number of residents are unlikely to return. That phenomenon has as much to do with the unusual and man-made condition of the city’s housing market as it does with the physical destruction of the natural disaster. For years prior to the storms the city’s economy and more importantly its workforce were defined by its low-cost housing.
And while the tourism industry and convention business are capable of sustainable comebacks, say economic experts and city watchers, they may never return to their post Katrina scale.
"My best guess for what New Orleans looks like in ten years is not what it looked like two years ago, but what it looks like now," says Jacob Vidgor, an associate professor of public policy and economic at Duke University, who has studied evacuees of the city.
Though the Port of New Orleans is the biggest component of the local economy, contributing about $33 billion in area revenue at its pre-storm peak, the tourism and hospitality industries are a better measure of the comeback story and reflection of past and present labor and housing conditions.
"The size of the problem is just huge." says Loren Scott, a Baton Rogue-based economist, who publishes the Louisiana Economic Outlook and authored four quarterly reports on the rebuilding effort "Assuming no other hurricane hits, it’s going to take a decade."
Katrina was a Category 5 hurricane and triggered a storm surge that breached the city's levees at multiple points, burying 80% of city under water, causing caused more than $125 billion in economic damage in the region. Four weeks later Hurricane Rita, a Category 3 storm, brought more wind and rain.
The Comeback City
Like the port, which sustained $100 million in storm damage, tourism is critically important to the city economy. So, it’s no surprise there’s been a swift and substantial investment in restoring those parts of the city trafficked by visitors.
Prior to the storms, tourism and convention business accounted for 30% of New Orleans’ tax base, about $5 billion in revenue and some 85,000 thousand jobs.
Kelly Schulz, vice president of the New Orleans Metropolitan Convention Center and Visitors Bureau, can tick off an impressive number of comeback milestones, and speaks for many in acknowledging that tourism is the city’s heart and soul.
"We are not a city with a lot of Fortune 500 companies, " says Schulz, "We’re an historic city. We live and die by tourism and hospitality."
The city has taken an aggressive approach to bringing back that business. Since 2006, its "Forever New Orleans" campaign has graced billboards in 18 cities. In July, the city started buying ad space on the tray tables on US Airways and America West Airlines planes.
The convention center reopened for its first citywide convention in June 2006 after a $60 million renovation – a small price to pay, considering the city lost $2 billion in business during the time the facility was closed.
The Super Dome – site of Super Bowls and home to the New Orleans Saints professional football team – received a $180 million renovation.
The city’s famous Mardi Gras drew 800,000 people this year after a weak 2006 showing. But its pre-storm levels were a million plus. On a broader basis, however, visits are down sharply. The city attracted 10.4 million visitors in 2004 but just 3.6 million in 2006.
The city has yet to regain all of its major convention customers, but it has brought in some big ones, including the American College of Cardiology Conference in March, which drew 26,000.
"We’re really optimistic," says Schulz, sounding optimistic. "The experience of coming here as a vacation traveler or business traveler is very much the same."
That opinion is echoed throughout the hotel industry. All but about 4,000 of the industry’s 38,000 plus rooms are back on the market. Through June of this year, occupancy rates are up 6.9% from a year ago, but have not returned to what they were before Katrina.
Fred Sawyers, general manager of the Hilton Riverside and president of the Greater New Orleans Hotel & Lodging Association, says "the pocket that most people see is in great shape," which is counter to most images.
Sawyers' 1,616-room hotel has undergone $66 million in repairs and improvements since the storm, and is now targeting more corporate meetings to compensate for the loss of the bigger conference business.
Other big hotel names – Marriott, Ritz-Carlton – have also made investments.
On the downside, however, is that the Hyatt (next to the Super Dome), Fairmont (which is undergoing a change in management) and Park Plaza (formerly a Radisson) hotels have yet to reopen. And a planned expansion of the convention center has been put on hold.
"We still have challenges," says Darrius Gray, the hotel association’s chairman and general manager of the Holiday Inn French Quarter. "We’re struggling to secure convention business." Gray says hotels are having to sacrifice on room rates a bit as well as offer incentive plans to attract business.
There have been other developments to brag about. Cruise line operator Carnival recently announced that it would keep its 2,056-passenger ship in New Orleans at least through 2008. In November, Southwest Airlines will add eight daily nonstop flights from New Orleans’ Louis Armstrong International Airport, where the number of daily flights is 75% of pre Katrina levels.
The Lost City
Though the hospitality industry has bounced back from the hurricanes of 2004, its recovery, as well as that of the overall economy, has been somewhat limited by the existing labor pool -- which will be a major factor in the future of New Orleans.
One of the cruel ironies of New Orleans today is that the labor market is tight, even though there is so much work to be done. Also worrisome is that job growth has slowed dramatically since an initial pop from the recovery.
In August 2005, the New Orleans metropolitan had 603,700 non-farm payroll jobs, according to the Bureau of Labor Statistics. Two months later – after Katrina and Rita – there were 425,800.
From November 2005 to June 2006, payrolls grew an average of 7,400 a month. That slowed to 2,000 a month in the second half of 2006. For the first five months of this year, it was down to 1,000 a month. As of July, there were 503,600 non-farm payroll jobs, a decline from the peak in June.
GDP data is also not very encouraging. The economy grew a robust 5.1% in 2004, was almost flat in 2005, and managed a 1.7% gain in 2006, well below the national growth rate.
Even before Katrina, New Orleans job base had been changing and shrinking. Between 1960 and 2000, the city’s population declined more than 20% which had a dramatic effect on the labor-housing market dynamic. Simply put, housing became unusually cheap.
Vigdor of Duke University says many of the people who remained were relatively low-skilled workers, with poor-paying jobs and little chance of advancement. They remained because of a low cost of living, thanks largely to a glut of housing, which depressed prices.
Shortly after the disaster, FEMA estimated close to 140,000 homes and rental properties in the New Orleans metropolitan area were destroyed or left uninhabitable by the storm. Some $13.5 billion was paid out to Louisiana homeowners under the National Flood Insurance Program.
"The housing market was turned upside down, or is it right side up?" says Vigdor. So was the workforce.
The population of the metropolitan is now 1.2 million versus its pre-Katrina level of 1.4 million. Orleans Parish, which includes the City of New Orleans and some adjacent areas, was recently estimated to have a population of 273,000 -- 60% of its 2004 level.
"The hospitality industry thrived because there was a supply of workers," explains Vigdor.
His analysis of evacuee data indicates that those who have returned are doing pretty well in finding jobs with decent pay. People in the lower wage, service category are not moving back. That supply has been reduced and business has had to adjust.
"We are using a great deal of contract labor," says Gray of Holiday Inn.
Sawyers at the Hilton is also using more contract labor than before. He says there’s also a shortage of more high-skilled culinary workers and guesses that wages for such jobs have risen 20%-30% as a result.
Even Shulz of the convention center says labor "is a big question we get" from prospective clients. "They want to know are there going to be people to staff the hotels and restaurants," she adds,
The labor shortage is a widespread problem, says Scott, the economist. "Employers tell me they are in desperate need of people. Some are recruiting overseas."
Scott adds that the bigger employers, such as the shipyards and refiners, had the financial wherewithal to weather the work stoppage resulting from the storms, come up creative ways to deal with housing and to keep their payrolls stable. Smaller and local employers have struggled.
Long Road Home
The construction sector is also in need of workers. A shortage of general contractors along with sharply higher home insurance and utility bills is hurting homeowners struggling to recover.
The bulk of that task falls on "The Road Home" program, which administers relief efforts for the state. It was formed to provide up to $150,000 to cover uninsured losses resulting from major and severe damage.
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."