Gulf Coast Disaster Recovery:

Community Development Block Grant Program Guidance to States Needs to Be Improved

GAO-09-541: Published: Jun 19, 2009. Publicly Released: Jul 20, 2009.

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Almost 4 years after the 2005 Gulf Coast hurricanes, the region continues to face daunting rebuilding challenges. To date, $19.7 billion in Community Development Block Grant (CDBG) funds have been appropriated for Gulf Coast rebuilding assistance--the largest amount in the history of the program. GAO was asked to report on (1) how Louisiana and Mississippi allocated their shares of CDBG funds, (2) what difficulties Louisiana faced in administering its housing recovery program, and (3) what human capital challenges Louisiana and Mississippi encountered and the efforts taken to address those challenges. GAO interviewed federal and state officials and reviewed budget data, federal regulations, and state policies and planning documents.

Louisiana and Mississippi received the largest shares of CDBG disaster funds and targeted the majority toward homeowner assistance, allocating the rest to economic development, infrastructure, and other projects. Between 2006 and 2008, Louisiana's total allocation devoted to housing increased from 77 to 86 percent while Mississippi's decreased from 63 to 52 percent as the state focused on economic development. With homeowners as the primary focus, Louisiana initially adopted a plan that linked federal funds to home reconstruction and controlled the flow of funds to homeowners, while Mississippi paid homeowners for their losses regardless of their intentions to rebuild. This helped Mississippi avoid challenges that Louisiana would encounter, but with fewer assurances that people would actually rebuild. Louisiana's approach to housing recovery created a program that incorporated certain elements from two different models--compensation and rehabilitation--funded with multiple federal funding streams. While there is no written guidance that distinguishes between the two models, Housing and Urban Development (HUD) explained the major differences. In a rehabilitation model, funds are used explicitly for repairs or reconstruction, requiring site-specific environmental reviews. In contrast, a compensation program disburses funds directly to homeowners for damages suffered regardless of whether they intend to rebuild and does not trigger site-specific environmental reviews. Federal guidance was insufficient to address Louisiana's program and funding designs. Two major problems stemmed from the state's approach. First, HUD and the state disagreed as to whether the incremental disbursement of funds subjected homeowners' properties to environmental reviews. Despite many iterations of the program, HUD ordered a cease and desist of the program, leading the state to abandon its original plans and issue lump-sum payments to recipients. Continual revision and re-submittal of the design contributed to a 12-month evolution of the program. Second, conflicting federal determinations hindered coordination of CDBG and the Federal Emergency Management Agency's (FEMA) Hazard Mitigation Grant Program (HMGP) funds. According to state officials, the Federal Coordinator for Gulf Coast Rebuilding advised them to use most of the HMGP funds to acquire properties through their housing recovery program. FEMA rejected this plan, in part, because it determined that the program gave preference to the elderly. However, HUD is subject to similar legal requirements and did not find the program discriminatory. Louisiana changed its plans and used HMGP funds for a home elevation program. In sum, it took FEMA and the state over a year to reach agreement, delaying assistance to homeowners. In the immediate aftermath of the 2005 hurricanes, Louisiana and Mississippi lacked sufficient capacity to suddenly administer and manage CDBG programs of such unprecedented size. Both states created new offices to direct disaster recovery efforts and hired additional state agency staff and private contractors to implement homeowner assistance programs.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Effective 11/21/11, the Office of the Assistant Secretary for Community Planning and Development (CPD) at HUD issued guidance clarifying the potential options and limitations of using CDBG disaster recovery funds alongside other types of disaster-related federal funding such as FEMA assistance. While CDBG disaster recovery funds may not duplicate the ultimate use of FEMA funds received, the guidance clarifies that "in some instances, funds provided for the same general purpose as the CDBG disaster recovery funds will have been used by the applicant for a different specific eligible purpose." In such cases, the funds are not considered to be duplicative provided that "the applicant can document that the funds received were used for a different eligible purpose." For example, the guidance states that if "a grantee is administering a homeowner rehabilitation program and an applicant to the program previously received housing assistance from FEMA," the applicant must "document that the FEMA funds were used for eligible interim housing costs (such as rent, in accordance with FEMA program eligibility), and not housing replacement or rehabilitation (which may also be an eligible use of the funds)." The guidance applies to all CDBG disaster recovery expenditures, programs, and activities and was developed in consultation with the Federal Emergency Management Agency (FEMA), among others. The guidance also encourages grantees to (1) work with HUD to determine what documentation is appropriate, (2) remind applicants of this requirement when applying for CDBG assistance that supplements FEMA assistance already received, and (3) contact their assigned HUD CPD representative for further guidance if needed.

    Recommendation: The Secretary of Housing and Urban Development (HUD) should coordinate with FEMA to ensure that the new guidance clarifies the potential options, and limitations, available to states when using CDBG disaster assistance funds alongside other disaster-related federal funding streams.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Implemented

    Comments: In August 2011, HUD issued its research study comparing rehabilitation versus compensation program models based on Gulf Coast housing recovery efforts after Hurricanes Katrina and Rita. According to HUD officials, since the issuance of that study, the agency is no longer bringing attention to the compensation program model because the agency believes it has limited effective applications. Instead HUD has taken a broader multi-faceted approach by first helping grantees identify their own unmet housing needs and then providing them with the tools to implement their chosen program type. First, in March 2013, HUD issued guidance in the form of "Disaster Recovery Toolkits," for grantees to use when identifying their housing needs and launching housing recovery programs after a disaster. The toolkits detail program design considerations and implementation strategies for both rehabilitation and buyout program models, including some of the legal matters grantees should consider. For each stage of program implementation the toolkits describe critical success factors, potential obstacles and corresponding strategies, resources, and tools to overcome those obstacles. In addition, each toolkit includes a set of sample policies and procedures that grantees can adopt or adapt for their purposes. Second, multi-disciplinary teams review action plans of the highest risk grantees to identify concerns with proposed activities. The teams also participate in weekly technical assistance calls with the grantees to provide guidance on legal, environmental, and other requirements. Finally, HUD published training materials highlighting best practices and cross-cutting requirements.

    Recommendation: The Secretary of the HUD should develop and issue written CDBG disaster assistance program guidance for state and local governments to use as they begin to develop plans for housing recovery efforts and disbursing federal assistance to residents after natural and man-made disasters. Specifically, this guidance should clearly articulate what constitutes an acceptable rehabilitation program versus a compensation program, including an explanation of the implications of each program design; clarification of the legal and financial requirements with which states must comply; and an explanation of the types of program elements that may trigger federal environmental and other requirements.

    Agency Affected: Department of Housing and Urban Development


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