Local government Katrina loans could be forgiven
Published 11:56 pm Tuesday, March 31, 2009
The federal government is proposing to forgive disaster loans made to coastal communities that have faced budget problems in the years after hurricanes Katrina and Rita.
Rules proposed Monday would let local governments avoid repaying some or all of their loans if their revenues for three fiscal years since the disasters haven’t met operating costs. Debt forgiveness would not be automatic, meaning communities would have to apply for the relief and meet established criteria.
The Federal Emergency Management Agency made available nearly $1.3 billion in loans to communities in Louisiana and Mississippi after the 2005 hurricanes devastated the region — about $1 billion more than it says it had released in community disaster loans for nearly all of the 30 years prior to the two major storms.
As of March 16, $831 million in loan funds had been drawn down. FEMA had no estimate on how much of the loaned money may be forgiven.
In 2007, Congress authorized the agency to forgive the loans under certain conditions. But the rules proposed on Monday were the first specific steps moving that process forward.
“With this effort, we are closer to helping our Gulf Coast communities rebuild, recover and get back on their feet,” U.S. Homeland Security Secretary Janet Napolitano said in a statement.
The Department of Homeland Security, which oversees FEMA, said public comments will be taken before the rule is finalized. The storms also Alabama and Texas, but no communities there were deemed eligible for the loans.
After President Barack Obama took office in January, his administration pledged to re-examine recovery efforts. Authorities announced the creation of state-federal teams aimed to address funding disputes and new steps to speed rebuilding of New Orleans and other storm-damaged areas of the state.
In December, Louisiana’s congressional delegation said rules for loan cancellation or paybacks were needed so governmental entities, including school boards, fire districts and sheriff’s offices that received money, could budget appropriately in the future.
The first loans do not come due until the fall 2010, although two communities — Mandeville, La., and Forrest County, Miss. — had voluntarily repaid their amounts in full with interest as of January, according to FEMA and DHS officials.
The city of New Orleans has drawn on its $240 million in loans to bolster its operations. It doesn’t expect to be able to operate without aid of the loans until 2011 — despite the return of much of its population and sales tax collections nearly returning to pre-Katrina levels.
“The city’s revenues haven’t returned totally to pre-Katrina levels, so we’re still having our challenges,” the city’s finance director, Reginald Zeno, said. “But we’re pretty hopeful that the loans will be forgiven.”