• Analysis of the Rebuild Louisiana Housing Program
  • February 28, 2006
  • Law Firm: Baker, Donelson, Bearman, Caldwell & Berkowitz, PC - Memphis Office
  • Louisiana Governor Kathleen Blanco announced at a meeting held on Monday, February 21, 2006 of the Louisiana Recovery Authority (the "LRA") a proposed $7.5 billion program to aid homeowners in Louisiana of flood-damaged houses with up to $150,000 each in direct grants. The "Rebuilding Louisiana Housing" program, although at this time only a preliminary plan, offers the first comprehensive state package of potential homeowner assistance that could help to spur rebuilding efforts in the devastated areas. Made possible by -- and conditioned upon the receipt of -- an additional $4.2 billion in new federal money recently promised by President Bush for housing needs in Louisiana, the plan would offer a combination of cash and low or no-interest loans to impacted homeowners, with the specific purpose of encouraging persons to repair and rebuild their storm-damaged homes.

    Under the plan, homeowners would have four (4) options to consider in utilizing the federal monies contemplated to be made available to fund the program: (1) repair, (2) rebuild, (3) relocate, or (4) buyout (if no other options are appropriate). Depending upon the option selected, the assistance offered would be capped at $150,000 per homeowner, with deductions from that amount for any insurance payments or FEMA aid otherwise received. However, if the home was located within a flood plain and no flood insurance had been purchased for the property, the maximum available assistance would be reduced by thirty percent (30%) -- in other words, the maximum grant available in that case would be $105,000. Because of these limitations -- and the likelihood that rebuilding and repair efforts may require owners to assume additional debt -- the new state program makes provisions for some $1.3 billion in affordable loans to cover the gap between the funded cash grants and the actual renovation or rebuilding costs.

    Only homeowners would be eligible for assistance at this time under the proposed plan. Although the state continues to explore investing in rebuilding rental units through a variety of measures (including gap financing and low-income housing tax credits), Governor Blanco made clear that this relief package is directed to owner occupied property only. And, for any homeowner to qualify for aid under the plan, their property must have sustained major or severe damage for which they have not received full compensation, either through applicable insurance, or other governmental aid (i.e., from FEMA). However, with those qualifications satisfied, the proposal announced by the Governor is designed to maximize the aid available to homeowners who seek to repair or rebuild and to encourage them to do so, where possible, at the original property location.

    A brief overview of potential funding available under each of the plan's options (and what restrictions may apply for each category) demonstrates how the Governor's program would work:

    Repair

    • This option is available for homes in need of rehabilitation and mitigation assistance, provided that the repair costs are less than the cost of replacing the home.

    • A grant equal to the total cost of the repairs OR the owner's pre-storm home value, whichever is less, will be allowed, up to the maximum cap of $150,000 minus any insurance and/or FEMA payments received for repairs and damages.

    • An affordable loan package program will be provided for needs above the grant amount up to the program cap.

    Rebuild

    • Homeowners with homes either too damaged to repair or which cannot be repaired cost effectively will be assisted in building an equivalent replacement home.

    • The house will be rebuilt on the same property on which it was located pre-storm, provided it is declared by the local governing authority that it is safe to do so.

    • A grant equal to the total cost for the equivalent replacement of the home OR the owner's pre-storm home value, whichever is less, will be allowed, up to the maximum cap of $150,000 minus any payments received from insurance and/or FEMA for repairs and damages.

    • An affordable loan package program will be provided for needs above the grant amount up to the program cap.

    Relocate

    • If a homeowner is unable to repair or rebuild on his present site, or if he chooses not to do so (and that decision is "cost effective" ), that homeowner will be assisted in building or purchasing an equivalent replacement home elsewhere -- as long as it is located within the State of Louisiana.

    • A grant equal to the cost of the new home OR the owner's pre-storm home value, whichever is less, will be allowed, up to the maximum cap of $150,000 minus any payments received from insurance and/or FEMA for repairs and damages.

    • However, if repairs are feasible, but the homeowner elects to relocate rather than rebuild, assistance is then capped at the estimated repair cost for the pre-storm home.

    • An affordable loan package program will be provided for needs above the grant amount up to the program cap (or the repair cost cap as described above).

    Sell

    • For homeowners who opt not to repair, rebuild or relocate elsewhere within Louisiana, the state will offer to buyout the homeowner of the property at sixty percent (60%) of its pre-storm value, up to the maximum cap of $150,000.

    • There is no loan package program offered for homeowners in this category.

    For all four classifications, there are a number of considerations to keep in mind that apply equally no matter what option any particular homeowner may fall under. For example, all programs are assignable on the transfer of a free and clear title to a new owner after the program inception date. In calculating the repair or rebuilding costs under each option, mitigation costs (such as elevations, hurricane shutters, etc.) are allowable under the program cap. Contributed funds under the various programs will be fully forgiven after 5 years of occupancy of the repaired, restored, or relocated home. And, as noted above, homeowners without flood insurance who were in the flood plain will face a thirty percent (30%) reduction on the funding cap, regardless of how their claim may be classified.

    In reviewing the Governor's plan, it's important to remember that the proposal is at this stage only a draft recommendation and is still subject to further review, change and modification. As such, there are a number of issues to be resolved before the plan can be implemented -- not the least of which is that the plan assumes that Congress will appropriate the $4.2 billion of additional housing funds promised by the President. If that appropriation fails to be passed (or if a significantly lesser amount of funds is allocated to Louisiana for housing by Congress), the proposed program could be in jeopardy (or at least require significant modification). And -- even if the full amount of the request is approved by Congress -- it's not yet known whether or not there will be sufficient funds available to cover the total housing loss. Should the total loss calculations prove greater than the available funds, then it's likely that a pro-rata reduction would then be applied to adjust the program appropriately.

    Other important unresolved questions include exactly how to measure the pre-storm value of damaged homes and whether or not homeowners in certain locations will be required as a condition of eligibility for grant money to elevate their houses if that option makes fiscal sense under a FEMA cost-benefit analysis. That determination may depend upon a review of the new federal flood advisories, which FEMA expects to be released sometime in March, but it may also depend upon an assessment from FEMA as to whether or not the structure of each home is "substantially damaged" under applicable FEMA guidelines, all of which remains to be considered before funds are disbursed under the Governor's plan.

    Nor is there any present system in place to actually coordinate the filing and review of claims under the program or to administer the disbursement of funds and loans contemplated by the plan. Governor Blanco had previously proposed the creation of a state housing trust that was envisioned to be charged with the responsibility of distributing the money anticipated to be available for housing needs in Louisiana. But, the Louisiana Legislature failed to approve that proposal in the special legislative session that ended just last week. The Legislature also failed to pass a separate proposal to create "housing recovery centers" that would have offered advice to Louisiana homeowners on the options available to them under the housing program.

    Nonetheless, the new plan now presented by the Governor calls for both a state entity that would distribute the anticipated aid and the recovery counseling centers to coordinate claims filing and program advice. Should the Louisiana Legislature again fail to approve the creation of these agencies at the regular session of the Legislature (set to begin in late March), the Governor's office believes that it may have the authority to implement these programs under the Governor's executive authority. As an alternative, some legislators have proposed using existing state agencies familiar with administering housing aid programs (of which there are several) to process and distribute the new assistance claims.

    In the interim, the Governor announced that she intends to launch a website and a call center sometime in early March to initiate direct contact with homeowners who may be eligible for assistance in rebuilding. At that time, homeowners who have previously registered with FEMA and who have uninsured damage costs in excess of $5,200 will be asked to complete a pre-application registry. Also, pre-applications will be accepted from homeowners at the series of Town Hall meetings contemplated to be held around the state to discuss the rebuilding plan. The Governor wants to begin this registration process now -- despite the uncertainties that remain to be resolved -- so that files can be opened in anticipation of the program's implementation.

    Over the course of the next few months, as Congress and the state legislature debate the funding and mechanical aspects of the program -- and as it is refined into its final form -- it is also contemplated that decisions will be made at the parish and local level to determine safety considerations that may dictate where rebuilding can either occur or will not be permitted. After those safety considerations are finalized (which, in part, will depend upon receipt of the new FEMA flood zone maps), it's at that time that the Governor's plan contemplates that housing counselors at local recovery centers will begin scheduling appointments with individual homeowners eligible for relief under the program to determine the precise amount of assistance available for that particular homeowner.

    One final point to note is that the Governor's plan -- although intended to apply state-wide -- competes with an earlier plan announced just last week by Mayor Nagin and other local New Orleans leaders for distribution of federal housing relief funds in Orleans Parish. Nagin's plan (which was proposed as a reaction to the Administration's criticism of the Baker Bill) would also cap assistance at $150,000 per homeowner, minus any insurance payments and FEMA aid. However, unlike the state plan, the Orleans Parish proposal offers owners various percentages of a home's renovation cost instead of basing the compensation on the market value of the house. While those without flood insurance would get 60% of those costs under Nagin's plan, insured homeowners would get 80%. Other differences in the two proposals are that, under the Nagin plan, homeowners who move out of state and do not plan to return may receive 100% of their pre-storm home value (compared with 60% under the state plan), but any gap existing between the program cap and the actual renovation costs are left up to the homeowner to finance (whereas the state proposal provides for loan assistance targeted to lower and moderate income homeowners).

    Although interesting, these differences may prove to be of little consequence, because it seems clear that the state proposal would direct a far greater total amount of housing relief funds to homeowners located within New Orleans -- some $4 billion compared to about $2.5 billion under the Nagin plan. So, it seems unlikely that many of the Nagin plan's provisions would survive discussions that are now underway between the state and local New Orleans officials to merge the New Orleans plan into Governor Blanco's state-wide proposal. The one aspect of the New Orleans plan that could remain in place is its suggestion that a separate Orleans Parish agency be created to dispense the federal housing money intended for the City. Although Governor Blanco has said that she does not believe that a separate local entity is necessary to discharge this task, she has also said that she is "...not absolutely opposed..." to the idea, either. For that reason, it's possible that Orleans Parish may end up with its own local agency to coordinate the distribution of the funds under the state plan, but this won't be known until a final plan is ultimately announced by the Governor.

    At the present time, the LRA is slated to vote on the proposed housing plan at its next meeting to be held in late March, although Andy Kopplin, the Executive Director of the LRA, has indicated that the board may try to speed up its consideration of the proposal. Once a plan is finalized and approved by the LRA, it would still need to be considered by the Louisiana Legislature and then sent to the U.S. Department of Housing and Urban Development for final evaluation and approval, before any appropriated federal monies would be made available to fund the program.