Affordable Housing Institute : US

[Continued from yesterday's Part 1.]

 

As $10 billion in taxpayer money floods into Mississippi and Louisiana,

 

It’s happened before.

 

the two states are establishing very different approaches, with Louisiana’s the more prescriptive:

 

Take ten billion and call me after the hurricane season.

 

And those who do stay can use the money for only one purpose.

 

“We are not handing out checks,” said Mike Byrne of ICF International, a company based in Fairfax, Va., that was hired by the state to manage the program, at a news conference last week. The money will be put into “disbursement accounts” administered by mortgage lenders, and will be doled out to homeowners only as repairs are made or as houses are rebuilt or bought, he said.

 

Problem number 2.  These state-administered construction loans add a new potential arbitrage — people who claim to be rebuilding, and get their ‘friends’ to sign ‘construction draws’ so certifying, only to use the money for something else.  This will either lead to many scandal-anecdotes of fraud, or many fraud inspectors, or both.

 

Both states are requiring extensive documentation of ownership and damage, and say they are making stringent efforts to prevent the kind of fraud that plagued FEMA’s assistance after the hurricanes.

 

That takes care of that worry, doesn’t it?

 

ICF will provide counseling to explain the complex arrangements to homeowners.

 

You’re going to need it.

 

Under the Louisiana plan, the amount of money homeowners can receive will depend on the value of their houses before the storm and the amount of damage that is not covered by insurance. Loans and extra grants for raising houses off the ground and other preventive measures may also be available, subject to the $150,000 cap. Those who should have had insurance and chose not to do so will have their grants reduced by 30%.

 

Whoops, here’s a political inversion.

 

 

Rock-ribbed Mississippi absolves those who put the state in moral hazard, whereas safety-net Louisiana penalizes them.  Odd.

 

An even larger chunk, 40%, will be taken out of the grants to people who want to sell their homes to the state and leave Louisiana.  (Those who relocate within the state are not penalized.)  But if a family sells its home to a private buyer, the program benefits can be transferred to the new owners …

 

Everything’s on the up and up here!

 

… if they promise to abide by its rules, including living in the house for three years from the time of the award.

 

Problem number 3.  Now another administrative problem: real and faux sales to buyers who ‘promise to abide.’

 

 

Three strikes you’re out?

 

I knew we should have redesigned the incentives.

 

With so many people receiving money to rebuild at once, there has been widespread concern about the availability of legitimate contractors. Suzie Elkins, director of community development for Louisiana, said that contractors in the program would have to be licensed [And we all know how incorruptible Louisiana's licensing boards are. -- Ed.], and that a registry would be created where homeowners could tell others about their experiences with particular contractors.

 

The better to find complaisant certifiers?

 

The state is also hoping to attract major construction companies and housing manufacturers, perhaps by offering them housing for employees, and training money will also be available.

 

What happens when presented with a use-it-or-lose-it gift?  You use it!

 

Both states expect the average payout to be less than $100,000, and neither state expects to have any money left over.

 

Mississippi state officials are already working to figure out how to spend any money left over, perhaps by helping people whose homes were in the flood plain but had inadequate insurance, or none at all.

 

While in restarting an economy there is no substitute for infusing capital and credit, sometimes one can, infuse it too quickly; money floods sometimes move so quickly they preclude the development of a robust and complex ecosystem. 

 

Will the money produce good or ill?  And which model will work better, Mississippi’s largesse or Louisiana’s scrutiny?  Over the next months, years, and decades, we are about to find out:

 

While acknowledging that Washington has never financed any housing recovery program of this scale before, federal officials say that the billions of dollars dedicated to the program pale in comparison with the scope of the destruction.

 

“Our participation, the federal money, is just a catalyst,” said Nelson R. Bregon, general deputy assistant secretary of the federal housing agency. “At the end of the day, we foresee the private sector stepping in.”

 

As the Black Sox demonstrated, if you wave money, they will come.

 

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