Reallocation of Hurricane Katrina Emergency Appropriations: Defense and Other Issues

Congressional research reportDec 15, 2006

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Order Code RL33197

CRS Report for Congress

Received through the CRS Web

Reallocation of Hurricane Katrina Emergency

Appropriations: Defense and Other Issues

December 15, 2006

Coordinated by Amy Belasco

Specialist, National Defense

Foreign Affairs, Defense, and Trade Division

Congressional Research Service ˜ The Library of Congress

Reallocation of Hurricane Katrina Emergency

Appropriations: Defense and Other Issues

Summary

As the first session of the 109th Congress draws to a close, some Members

continue to address urgent needs from Hurricane Katrina funding. On October 28,

2005, the President proposed to reallocate $17.1 billion of the $60 billion in funds

previously appropriated for disaster relief in two Katrina supplementals (P.L.109-61

and P.L.109-62). On the same day, the President submitted a request to rescind $2.3

billion to offset some of the costs of the federal response.

Congressional action on the reallocation and rescission proposals may occur

before the first session of the 109th Congress adjourns if the package is attached to

the FY2006 Defense Appropriations bill (H.R. 2863) or some other legislative

vehicle. Some of the issues raised by the proposal include the following:

! How would the reallocation of funds from FEMA affect recovery

efforts?

! What programs would receive additional funds and what is the

urgency of those needs?

! Is all of the proposed $2 billion payment to contractors for higher

shipbuilding costs necessary and appropriate?

! Are additional funds for these or other programs needed now to meet

the needs of states, local governments, and other entities that

continue to provide assistance to Hurricane Katrina victims?

! What programs would be affected by the proposed rescissions?

This report will be updated as events warrant.

Contents

The President’s Reallocation Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Disaster Relief Fund Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Activities Funded to Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Components of the President’s Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Potential Issues in Reallocation Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Proposal to Expand Transfer Authority For All Agencies . . . . . . . . . . . . . . . 6

Army Corps Of Engineers Reallocation To Cover Initial Costs. . . . . . . . . . . 7

President Proposes $1.3 Billion For Flood Control and Navigation . . . 8

Initial Funding of Wetlands Restoration to Reduce Storm Damage . . . 8

Issues in Department of Defense Reallocations . . . . . . . . . . . . . . . . . . . . . . . 9

Potential Oversight Issues in Ship Cost Increases . . . . . . . . . . . . . . . . . . . . 10

Navy’s Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Questions About Navy’s Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Potential Overlap Between Government and Insurance Liabilities . . . 12

Uncertainties in Navy Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Urgency of Navy Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Segregating Katrina-related Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Efficiency of Navy’s Ramp-Up Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Issues in DOD’s Military Construction Request . . . . . . . . . . . . . . . . . . . . . 16

DOD’s Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Potential Issues in Military Construction Request . . . . . . . . . . . . . . . . 16

Funds For Bases Affected by BRAC . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Emergency Nature and Visibility of Funds . . . . . . . . . . . . . . . . . . . . . 17

Department of Housing and Urban Development . . . . . . . . . . . . . . . . . . . . 18

Urban Homesteading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Katrina Disaster Housing Assistance Program (KDHAP) . . . . . . . . . . 19

Additional Block Grant Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Transportation Would Receive $2.4 billion . . . . . . . . . . . . . . . . . . . . . . . . 20

$1.2B to Replace and Repair VA Hospitals . . . . . . . . . . . . . . . . . . . . . . . . 20

Funds to Rebuild NASA Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Funds for Small Business Administration Loans . . . . . . . . . . . . . . . . . . . . . 21

Environmental Protection Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

The President’s Proposed Rescissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

List of Tables

Table 1. Previous Appropriations and President’s Reallocation

and Rescission Request for Hurricane Katrina . . . . . . . . . . . . . . . . . . . . . . . 5

Table 2. Proposed Rescissions to Offset the Cost of Hurricane Katrina . . . . . . 24

Table 3. DOD’s $6.6 billion Re-Allocation Request . . . . . . . . . . . . . . . . . . . . . . 27

Table 4. Military Construction & Family Housing Request By service . . . . . . . 27

Table 5. Military Construction & Family Housing Request By Basea . . . . . . . . 28

Assistance was provided by Mary Bley, Knowledge Services Group, CRS. This

report is based, in part, on previous work coordinated by Ralph Chite, Resources,

Science and Industry Division, and Jennifer Lake, Domestic Social Policy Division,

CRS.

Reallocation of Hurricane Katrina

Emergency Appropriations: Defense and

Other Issues

The President’s Reallocation Request

On October 28, 2005, President Bush submitted a reallocation request to

Congress that would transfer to other agencies $17.1 billion of the $60 billion

appropriated to the Federal Emergency Management Agency’s (FEMA’s) Disaster

Relief Fund (DRF) to respond to Hurricanes Katrina, Rita, Wilma, and other

disasters. According to the White House, the proposed reallocation is “to undertake

response and recovery activities in the affected regions that cannot be funded by

FEMA under the Stafford Act,” primarily for repair and replacement of federal

facilities. The same day, the Administration also submitted a package of rescissions

totaling about $2.3 billion to offset part of the cost.1 This report deals primarily with

the reallocation requests. A separate section entitled “The President’s Proposed

Rescissions” outlines proposed rescissions.

The Administration contends that after the reallocation is made, “remaining

amounts available in the DRF are expected to be sufficient through May of 2006 to

proceed uninterrupted with ongoing disaster-response efforts underway in the

affected regions, state and local infrastructure rebuilding requirements, as well as

potential costs arising from Hurricane Wilma.” According to Director of OMB

Joshua Bolten, these proposed reallocations “address pressing needs through May

2006,” and OMB anticipates recommending additional funding for further recovery

and reconstruction in early 2006.2

The timing and legislative vehicle to respond to the President’s proposed

reallocation is currently being negotiated. According to press reports, some Members

are considering attaching the Congressional version of the reallocation request to the

conference version of FY2006 Defense Appropriations bill (H.R. 2863). In a recent

OMB, FY2006 Estimate No. 13, Reallocation package for Hurricane Katrina Relief and

Recovery (Various Agencies); hereinafter, OMB, Reallocation package, Oct. 28, 2005.

[http://www.whitehouse.gov/omb/budget/amendments/reallocation_package_10_28_05.pdf]

; hereinafter, President’s Reallocation request, October 28, 2005;OMB, FY2006 Estimate

no. 14, Rescission package to Help Offset the Costs of Hurricane Katrina (Various

agencies), 10-28-05; hereinafter, OMB, Rescission package, Oct. 28, 2005.

[http://www.whitehouse.gov/omb/budget/amendments/rescission_package_10_28_05.pdf]

OMB letter to the President, October 28, 2005 accompanying OMB, Reallocation

package, Oct. 28, 2005, p. 1.

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interview, Chair of the Senate Appropriations Committee, Senator Cochran, from

Mississippi, has called for doubling the Administration’s request by adding funds to

help storm victims rebuild homes, increase social service grants, and aid agricultural

disaster victims. The specifics of the Cochran package are not public — some press

reports say that the plan includes $11 billion to $13 billion in community

development block grants for homeowners in Mississippi and Louisiana who didn’t

have flood insurance and more funds for the levees — and negotiations, including

with both the White House and other Members, are ongoing.3 Mississippi Governor

Haley Barbour and some Members of Congress have also called for additional aid.

The prospect for the original or a revised package of additional assistance remains

unclear because of fiscal concerns. Unless offset, extra funds would add to the $314

billion deficit predicted by CBO for FY2006, which many analysts now say will be

closer to $350 billion. Other major concerns are how quickly the levees will be

repaired and rebuilt and whether they would be able to withstand another major

storm, how best to aid victims, and how to reconstruct the region.4

In the near-term, many are concerned with the level of protection that will be

available at the start of the 2006 hurricane season. By June 2006, the Army Corps of

Engineers expects to have completed its repairs of the existing infrastructure.

However, the findings from the Corps’ investigation into the causes of the floodwall

failures are not anticipated until June 2006, raising the question of whether the

agency will be able to improve the floodwalls’ reliability when repairing the damaged

levees and floodwalls for the 2006 hurricane season that begins in June.5

Disaster Relief Fund Activity

(Written by Keith Bea; x7-8672)

The President’s reallocation request would cancel $17.1 billion that Congress

appropriated to the Federal Emergency Management Agency (FEMA)’s Disaster

Relief Fund (DRF) and reallocate those funds to other federal agencies. The Federal

Emergency Management Agency of the Department of Homeland Security (DHS)

draws from the DRF, which serves as the source of funding for activities authorized

by the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford

Roll Call, “Cochran Pushes Katrina Funds,” December 7, 2005, p. 1; Clarion-Ledger,

“Cochran must snap fed purse shut,” editorial, December 14, 2005; Associated Press,

“Lawmakers Scramble for storm aid,” December 14, 2005; The Sun Herald, “Aid package

‘on track’; Mississippi officials more optimistic,” December 15, 2005; Times-Picayune,

Pressure is on for improved levees,” December 15, 2005; USA Today, “Money worries stall

help for Katrina victims,” December 15, 2005.

Congressional Budget Office, The Budget and Economic Outlook: An Update, August

2005, p. 2; [http://www.cbo.gov/showdoc.cfm?index=6609&sequence=0&from=7]

See CRS Report RL33188, Protecting New Orleans: From Hurricane Barriers to

Floodwalls by Nicole Carter; [http://www.congress.gov/erp/rl/pdf/RL33188.pdf]

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Act).6 The statute authorizes the provision of emergency management assistance,

including disaster relief, in two broad categories — direct federal aid and financial

assistance provided through grants.

Direct federal aid involves operations undertaken before and after significant

catastrophes occur, generally through “mission assignments” given to federal

agencies by the official designated to be responsible for managing the federal

response. Federal assistance provided to individual victims, states, tribal

governments, units of local governments, and certain nonprofit organizations is used

to provide mass care, restore damaged or destroyed facilities, clear debris, and aid

individuals and families with uninsured needs, among other activities. All funds

appropriated to the DRF remain available until expended; the DRF is a “no-year”

account.7

Activities Funded to Date. As of November 30, 2005, roughly $32

billion had been obligated from the DRF to provide emergency assistance to victims,

communities, and states affected by the hurricanes and other declared major disasters

and emergencies. Almost $40 billion remained unobligated as of that date.8 Of the

$32 billion obligated, $19.3 billion has been dedicated to needs resulting from

Hurricane Katrina, $2.7 billion for those from Hurricane Rita, and $800 million from

Hurricane Wilma.9

The obligated funds have been used to relieve the immediate suffering of

individuals and families, to clear debris, to reimburse federal agencies for the costs

of technical and direct assistance, and to support federal operations such as search

and rescue, delivery of consumables, and meeting immediate needs. The $19 billion

For background on the Stafford Act, major disaster, and emergency declarations see CRS

Report RL33053, Federal Stafford Act Disaster Assistance: Presidential Declarations,

Eligible Activities, and Funding, by Keith Bea. For information on the declarations see

“2005 Federal Disaster Declarations,” at [http://www.fema.gov/news/disasters.fema], visited

Dec. 5, 2005.

Money appropriated to the DRF remains available for all major disaster and emergency

declarations issued by the President. The $62.3 billion appropriated in the supplemental

appropriations legislation, plus other funds previously appropriated as well as the $2 billion

appropriated in P.L. 109-90 in the FY2006 appropriations legislation for the Department of

Homeland Security, resulted in a total of over $71 billion available since Hurricane Katrina

made landfall. For background on the types of federal budget accounts see CRS Report 98410, Basic Federal Budgeting Terminology, by Bill Heniff, Jr.

Because the hurricanes occurred toward the end of FY2005, the majority of funds

obligated from the DRF in that fiscal year were not used for activities caused by the

hurricanes. Funds are obligated “when contracts are signed, grants awarded, trips taken,

mission assignments signed,etc.”SeeDisaster Relief Terms Used,” at

[http://appropriations.house.gov/_files/FEMAstatusrpt1202.pdf], visited Dec. 7, 2005.

Table on FY2006 Disaster Relief Fund activity;

[http://appropriations.house.gov/_files/FEMAstatusrpt1202.pdf], visited Dec. 7, 2005.

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obligated as of November 30 in response to Hurricane Katrina has been obligated as

follows:

$8.0 billion for human service needs including unemployment

compensation, personal needs that are not met by insurance, and

temporary housing (including vouchers for hotel/motel rooms and

mobile homes);

$2.2 billion for debris removal, public building repair and

replacement, and damage inspections;

$4.4 billion for technical and direct assistance provided by federal

agencies;

$14.7 million for inspections and hazard mitigation; and,

$4.7 billion for administrative expenses, almost $3 billion of which

has been obligated for mission assignment operations undertaken by

other federal agencies at the direction of the federal officer

responsible for coordinating response activities.10

As a general rule, the obligation of funds from the DRF varies according to

the needs that result from a catastrophe. Aid to victims for immediate concerns

(housing, purchase of clothing, uninsured essential needs) is provided quickly; longer

term concerns, such as the reconstruction of facilities and development of new

infrastructure, can take years in order for completion of the federal commitment. The

devastation caused by Hurricane Katrina, and the need to consider the redesign and

components of many communities, including New Orleans, will likely result in

months if not years of plans and contracting negotiations. The quantity of the debris

that still exists, and, to some degree, the complications associated with the disposal

of hazardous material, constitute one major obstacle to prompt recovery and

rebuilding in the area.

Components of the President’s Request

Major components of the President’s $17.1 billion reallocation request are:

$6.3 billion to repair and replace federal facilities (about $3.5 billion

for the Department of Defense and $2.8 billion for other federal

agencies);

$1.8 billion to repair the levees, locks, and restore wetlands;

$2.3 billion to repair highways and roads;

$3.6 billion for various grant and loan assistance programs for states

and individuals;

“Katrina Declarations by Major Object Class,” Ibid. Mission assignments to federal

agencies included $165 million to the U.S. Coast Guard, $115 million to the Federal

Protective Service, over $3.5 billion to the Army Corps of Engineers, and $1.6 billion to the

Department of Defense. See “Katrina Mission Assignments,” Ibid.

CRS-5

$1.1 billion for military personnel costs including activating

reservists; and

$2.0 billion for higher Navy shipbuilding costs.11

Table 1 summarizes the appropriations made to the FEMA and other federal

agencies in the first two Katrina supplementals (P.L. 109-61 and P.L.109-62) and the

President’s reallocation and rescission proposals by department or Federal agency.

Table 1. Previous Appropriations and President’s Reallocation

and Rescission Request for Hurricane Katrina

In billions of dollars

Department/Federal Agency

FEMA Disaster Relief Fund

Defense

Army Corps of Engineers

Proposed FEMA

Cancellation

Proposed Reallocations

Agriculture

Commerce

Education

Defense

Energy

Health and Human Services

Homeland Security

Housing and Urban

Development

Interior

Justice

Labor

State

Transportation

Treasury

Veterans Affairs

Army Corps of Engineers

EPA

GSA

Intern. Assistance Programs

Broadcasting Bd of Gov.

P.L.

Total Reallocation Rescission

109-61 109-62 Approp.

Request

$10.0

$50.0

1.5

$60.0

1.9

See below

-17.1

0.5

1.4

1.9

0.5

0.1

6.6

-0.6

-0.1

-0.2

-0.1

0.6

-0.1

10.0

50.0

60.0

0.4

-0.3

2.2

-0.1

0.1

0.0

2.4

0.0

1.4

1.6

0.0

0.1

-0.3

-0.1

-0.2

CRS calculations based on President’s reallocation request; U.S. Executive Office of the

President, Office of Management and Budget, “Estimate No.13,”at

[http://www.whitehouse.gov/omb/budget/amendments/reallocation_package_10_28_05.pdf

CRS-6

Department/Federal Agency

P.L.

Total Reallocation Rescission

109-61 109-62 Approp.

Request

Corp. for Public Broadcasting

Federal Commun. Commiss.

NASA

SBA

Armed Forces Retire. Home

Judicial Branch

TOTAL

$10.5

$51.8

$62.3

0.3

0.5

0.1

$17.1

$-2.3

Notes and Sources: Totals may not add due to rounding. Below $100 million rounded to zero.

CRS calculations based on P.L. 109-61, P.L. 109-62, and Office of Management and Budget,

FY2006 Estimate No. 13, Reallocation package for Hurricane Katrina Relief and Recovery

(Various Agencies);

[http://www.whitehouse.gov/omb/budget/amendments/reallocation_package_10_28_05.pdf]

and OMB, FY2006 Estimate no. 14, Rescission package to Help Offset the Costs of

Hurricane Katrina (Various agencies), 10-28-05;

[http://www.whitehouse.gov/omb/budget/amendments/rescission_package_10_28_05.pdf]

Potential Issues in Reallocation Requests

This section discusses potential issues associated with the Administration’s

reallocation requests. Additional issues may be identified as developments warrant.

Proposal to Expand Transfer Authority For All Agencies

In the October 28 Reallocation request, the President proposes a

government-wide general provision that would permit any agency or department to

transfer “funds available in FY2006” between or within accounts to meet an

emergency requirement in response to Hurricane Katrina if the transfer is for “higher

priority items,” and not for a requested item that has been “denied by law.” Congress

would be notified within 15 days of all transfers.12

This proposed language would place no limits on the individual or total

amounts that could be transferred for Katrina-related emergencies, and would permit

the Administration to define which transfers are for a Katrina emergency since

Congress would only be notified after-the-fact.

The exclusion of items “denied by law” would allow the Administration to

Reallocation proposal, “Government-wide General Provisions.”

CRS-7

alter and reverse the detailed programmatic decisions of the appropriations

committees and Congress that are generally included in report language. After-thefact notification does not necessarily protect Congressional interests, and goes against

the general congressional practice of requiring prior approval by the Appropriations

Committees of certain types of transfers (moving funds between accounts) and

reprogrammings (moving funds within an account).13

Congress generally places limits on the amount and types of transfers of

appropriated funds by setting total funding caps for transfers each year and caps by

type of appropriation, as well as requiring advance notification to the relevant

congressional committees. Transfers generally are limited to a small percentage of an

agency’s funds such as five percent or less.

While some agencies have transfer authority to meet emergencies, such

authorities are limited to particular purposes and other conditions may apply such as

exhausting other funds, requiring replenishment through supplementals, and advance

notification to the Appropriations Committees. For example, some Department of the

Interior agencies can transfer funds for emergency replacement of buildings and

facilities damaged or destroyed by fire, flood, storm, or other “unavoidable causes”

provided that emergency funds are first exhausted and transferred funds are

replenished through a supplemental. The Forest Service in the Department of

Agriculture can transfer funds to the Wildland Fire Management account for various

fire emergency purposes if the Appropriations Committees are notified and if all other

wildfire suppression funds are obligated. The Administration’s proposed language

does not include these type of limits.

Another example is the authority for the Corps of Engineers for emergency

response to natural disasters (33 U.S.C. §701n) which permits transfer with some

conditions: “The Secretary of the Army may allot, from existing flood-control

appropriations, such sums as may be necessary for the immediate prosecution of the

[emergency disaster response] work herein authorized.” This language, however,

applies only to flood control monies in an emergency, whereas the proposed language

does not limit the purposes, the amounts, or the accounts from which funds may be

transferred.

Army Corps Of Engineers Reallocation To Cover Initial Costs.

(Prepared by Nicole Carter, x7-0854)

As a result of the first two Katrina supplementals, the Corps of Engineers has

received $400 million in direct appropriations and is estimated to receive $4.2 billion

in FEMA reimbursements for technical assistance, engineering, and construction

management, emergency contracting, power, roofing, repair of wastewater and solid

waste facilities, and monitoring and stabilization of damaged structures and the

CRS Report RL33151, Committee Controls of Agency Decisions, by Louis Fisher.

CRS-8

demolition of hazardous structures.14 The Administration’s proposal would provide

an additional $1.6 billion to the Corps of Engineers, including:

$1.3 billion for rehabilitation and repair of flood control, storm

damage reduction projects, and navigation facilities;

$250 million for Gulf coastal ecosystem projects that help

reduce storm damage risk; and

$5 million for an expedited study of reducing flood and storm

damages in the greater New Orleans metropolitan area.15

President Proposes $1.3 Billion For Flood Control and Navigation.

This $1.3 billion proposed reallocation is intended to cover at full federal expense

initial repairs to the existing federally-constructed flood control and navigation

projects. These funds would not cover the cost of actions to provide a higher level

of hurricane protection system for coastal Louisiana. The ongoing investigation of the

reasons for the failures is likely to affect what actions are taken to repair the levees

and the costs of those actions.

As of November 2005, only a preliminary analysis about how the New Orleans

levees failed has been completed. Analysis of what caused the foundation failures of

some of the levees protecting New Orleans (e.g. faulty design, poor construction) is

ongoing. The results of these investigations are likely to determine the long-term

actions that are taken to repair the levees, which could vary widely in cost. Estimates

of the cost of building a hurricane protection system for New Orleans from a Category

5 storm start at $3.5 billion with estimates for protecting coastal Louisiana as high as

$32 billion.

Initial Funding of Wetlands Restoration to Reduce Storm Damage.

The proposed reallocation of $250 million for coastal ecosystem studies and projects

to improve flood protection is expected to provide funding for the first steps in this

effort. Plans to respond to the loss of coastal wetlands range from $2 billion for nearterm actions to $14 billion for a more comprehensive approach.

Weekly Reports on the Allocation and Obligation of Appropriated Funds,” U.S. Army

Corps of Engineers, Report of December 1, 2005,

[http://appropriations.house.gov/_files/CORPSstatusrpt1202.pdf], visited Dec. 5, 2005.

The $5 million requested for a study of reducing flood and storm damage is similar to a

broader $8 million study already funded in the Energy and Water Development

Appropriations Act for FY2006 (P.L. 109-103).

CRS-9

Issues in Department of Defense Reallocations

(Written by Amy Belasco, x7-7627)

The Administration proposes that $6.6 billion be transferred from FEMA’s

Disaster Relief Fund to the Department of Defense (DOD) to pay for ship cost

overruns due to damage at shipyards, restore damaged defense facilities, and evacuate,

re-locate and provide for military and civilian personnel beyond the costs covered by

the $1.9 billion already appropriated to DOD in the first two Katrina supplementals

(P.L.109-61 and P.L.109-62).16

The $6.6 billion transferred to DOD would pay for the following:

$2.0 billion to pay shipbuilders for estimated increases in the cost of

11 ships under construction at Ingalls shipyard in Pascagoula, MS and

Avondale shipyard in New Orleans;17

$2.0 billion for urgent repair of facilities and equipment, and to

evacuate and temporarily re-locate military and civilian personnel;

$1.5 billion to replace facilities and family housing units on military

bases;

$550 million to activate reserve personnel for relief and recovery

efforts; and

$600 million for defense health and other costs.18

Few, if any, issues are likely to be raised about the request for military

personnel costs — primarily to cover the costs of deploying 40,000 military personnel

(including about 31,000 National Guard).19 DOD’s estimate assumes that the number

of activated reservists would be drawn down to about 5,100 by mid-January, and

Of the $1.9 billion appropriated to DOD in the first two Katrina supplementals, $1 billion

has been obligated including $400 million for military personnel, $430 million for facilities,

base support and supplies and equipment, and $84 million for humanitarian relief for DOD

civilian employees, military personnel and dependents; see DOD, Monthly Report on

Hurricane Katrina Estimated Costs, September 30, 2005.

The two damaged shipyards, Ingalls, Pascagoula, MS, and Avondale, New Orleans, LA

both belong to Grumman, which is responsible for final assembly of the ships; other

contractors, such as Lockheed Martin, provide subassemblies for ships assembled at these

yards.

CRS calculations based on Department of Defense, FY2006 Hurricanes Katrina & Rita

Budget Allocation Request and Rescissions, November 2005. Other includes health,

procurement, research, development, test and evaluation, and commissary repairs.

Since the Stafford Act cannot cover government salaries, DOD bears the cost of activating

reserves, who assisted in rescue and recovery efforts for both civilians and DOD personnel.

CRS-10

remaining at that level to early May.20 If higher or lower levels than planned

materialize, this estimate could change.

Nor are issues likely to be raised about DOD’s request for $1.95 billion in

Operation and Maintenance (O&M) funding that would be used to repair utility

systems and facilities at military installations, conduct hazardous waste disposal and

environmental cleanup, support teams supporting recovery, evacuate and sustain

civilian workers, and continue temporary operations, and replace equipment and

supplies. Facility restoration estimates are based on engineering assessments of the

cost to repair existing facilities deemed repairable.21 DOD typically exercises wide

discretion in handling O&M costs. See Table 3 for more details about DOD’s request.

Potential Oversight Issues in Ship Cost Increases

Navy’s Request. In the request, DOD asks for broad authority to transfer

$$2.0 billion from its Shipbuilding and Conversion, Navy

“for necessary expenses related to the consequences of Hurricanes Katrina and

Rita, which shall be available for transfer within this account to replace

destroyed or damaged equipment, prepare and recover naval vessels under

contract; and provide for cost adjustments for naval vessels for which funds

have been previously appropriated . . .”22

According to DOD’s justification material, the Navy’s $2.0 billion is expected

to cover:

$289 million for additional overhead charges because of downtime;

$543 million assuming a 25% increase in labor hours because loss of

skills, inefficiency, as well as higher wages to retain workers in

competitive environment;

CRS calculations based on data in OMB, Reallocation Request, October 28, 2005;

[http://www.whitehouse.gov/omb/budget/amendments/reallocation_package_10_28_05.pdf

Department of Defense, FY2006 Hurricanes Katrina & Rita Budget Allocation Request and

Rescissions, November 2005, p. 9.

Of the total, $1 billion is for the Navy, $605 million for the Air Force, $271 million for

the Army, $24 million for the Marine Corps and the remainder for defense wide activities;

see Department of Defense, FY2006 Hurricanes Katrina & Rita Budget Allocation Request and

Rescissions, November 2005, pp. 10-16.

The total Navy request is $1.987 billion, rounded to $2.0 billion in this discussion. Office

of Management and Budget, OMB, FY2005 Estimate No. 13, Reallocation of $17 billion

of FEMA funds for Katrina needs, hereinafter, OMB, Reallocation Request, October 28,

2005, entry for Department of Defense, Procurement, Shipbuilding and Conversion, Navy.

[http://www.whitehouse.gov/omb/budget/amendments/reallocation_package_10_28_05.pdf]

CRS-11

$715 million for replacing government and contractor-furnished

equipment;

$132 million for damage to naval vessels under construction;

$61 million for technical manuals and other items;

$246 million for estimated higher contract premiums and escalation

for LPDs 22 and 23.23

The language in the Navy’s request appears to cover a broad array of expenses and

would allow DOD to transfer funds between ships, which is unlike regular defense

appropriations bills where Congress designates the amounts for individual ships in

report language. Therefore, the breakdown of costs above is essentially illustrative,

in other words, it is an estimate which could change based on how the scope of

expenses actually develop. The Navy’s total estimate for higher ship costs due to

Katrina damage is $2.7 billion but apparently, a decision was made to request $2.0

billion from Congress initially with the remainder requested in a later supplemental.

According to a September 21, 2005 memo from then Assistant Secretary of the

Navy John J. Young to the Deputy Secretary of Defense, the rationale for the Navy’s

request was to take a “proactive” approach in order to preserve the skills of the

workforce, “limit the schedule slips, and associated inevitable long term cost

increases, on ships under construction,” and return the shipyards to “their capability,

and profit opportunities, prior to the day Katrina hit.” Young also noted that this

approach also “has the short-term benefit of contributing in a significant way to the

restoration of jobs and the economy in the Gulf Coast.”24

Questions About Navy’s Request. Several questions that could be raised

about the Navy’s request for $2.0 billion in funding that would go to shipbuilders

(primarily Northrop Grumman) to cover higher costs for the 11 ships under

construction at the Ingalls are:

Does the Navy’s request set any limits on the government’s liability

for higher costs due to “business interruption” resulting from the

damage in the shipyards, and if not, should language to impose limits

be added? Could a Navy decision to reimburse contractors for most

if not all higher costs due to natural disasters create new precedents

for other government contractors?

Is there some overlap between Northrop’s claims with its insurers and

Department of Defense, FY2006 Hurricanes Katrina & Rita Budget Allocation Request and

Rescissions, November 2005.

Assistant Secretary of the Navy, John J. Young, Memorandum, for Deputy Secretary of

Defense (Acting), “Hurricane Katrina,” September 21, 2005. The estimate of $2.7 billion

is from this memo.

CRS-12

the $2.0 billion requested by the Navy? If the Navy agrees to cover

these costs in advance, what incentive would Northrop have to

negotiate with its insurer? Would Northrop be required to reimburse

the Navy for any costs recovered from its insurers?

What are the assumptions underlying the Navy’s estimates and are

they reasonable? Would delaying the request allow the Navy’s

estimate to include fewer unknowns and allow insurance negotiations

to proceed further?

Why is the Navy requesting funds with a five year availability to deal

with an emergency? Should the Navy instead request one-year funds

in FY2007 in its “Cost to Complete” line item that is designed to

handle ship cost overruns?

Is there any potential for the Navy to use these funds to cover nonKatrina cost increases? How could Congress increase transparency

and tracking to limit the likelihood that other types of increases will

be covered with these monies?

Is the Navy’s current plan the most efficient business approach?

Would a full hiatus in shipbuilding efforts while the yards are fully

restored be more efficient and could the delays be acceptable for

ships which typically have a life of 30 years or longer?

Potential Overlap Between Government and Insurance Liabilities.

It appears that the Navy may not be liable for all higher ship costs due to Hurricane

Katrina. Northrop reportedly is currently in discussions with its insurer about the

extent and nature of its coverage for “business interruptions” — lost earnings due to

business disruptions resulting from the property damages. This could include, for

example, the higher costs because of delays and downtime because workers are

returning gradually and Northrop is devising workarounds because equipment is not

available to follow standard procedures. These problems are expected to delay

schedules by several months and increase costs.

Although Northrop has already collected $500 million for damage to its

facilities, the company has not yet submitted claims to its secondary insurer, which

covers costs in excess of $500 million, for the higher costs due to business

interruption. According to a SEC filing, Northrop and its insurance provider are in

“disagreement regarding coverage for certain losses above $500 million.” If the

contractor can show that costs are higher because of schedule delays attributable to the

damage to property from the storms, then the insurance company may be liable for

some costs.

CRS-13

The Navy appears to be assuming that the government is liable for all higher

production and overhead costs, damage to equipment, and escalation due to business

interruption. (Northrop is collecting from its insurance company for damages to its

facilities.) Citing a wartime, 1942 memo from Secretary of the Navy Knox, the Navy

claims that the government assumes the risk for loss or damage to Government-owned

property, which, in the case of ships, is defined as including “raw materials, work in

process, and completed products to which the Navy has taken title.”25

This assumption does not appear to take into account contractual limits on

costs. For cost-plus contracts, the government continues to pay higher costs up to the

amount appropriated. Once that limit is reached, the Navy would need to re-negotiate

its contract based on the funds appropriated. For fixed price, incentive-fee contracts,

the contractor and the government share costs that are above the target price on a

50:50 basis until the total level in the contract — which includes the fee or profit for

the contractor — is reached. At that point, the contractor is liable for all additional

costs.

In the case of cost-plus contracts, Northrop’s insurer is apparently expecting

that the government would be responsible for only part of the costs in fixed price

contracts. For both contract types, the amount or upward limit on the government’s

liability is not yet decided. If the Navy runs out of funds in its fixed price contracts,

those would need to be re-negotiated. For fixed prices, the Navy and Northrop will

need to reach a settlement about how costs may be shared. Of the Navy’s $2.7 billion

estimate of total costs, about 75% is for ships under fixed price contracts.26 If the

Navy and Grumman shared the cost overruns in the fixed price contracts, the Navy

may not need much of the roughly $1.5 billion in the request for those contracts, and

possibly some of the funds requested for cost-plus contracts.

If the Navy pays Northrop for such costs in advance, the company would have

little, if any, apparent incentive to engage in the complex, long-term negotiations with

its insurance company that are likely. As proposed, the language in the Navy’s request

(see above) does not appear to set any upward limits on the government’s liability and

does not require that Northrop reimburse the government for any payments it may

receive for higher costs due to business interruption.

Frank Knox, Secretary of the Navy, to the Chiefs of the Bureaus, Offices and Boards,

Navy Department on “Builder’s Risk Insurance - Ships,” June 12, 1942, and Chief of the

office of Procurement and Material, “PM Circular Letter 330-4 (Revised)” to the chiefs of

the Bureaus, Navy department, September 26, 1942. See also Navy response to CRS

questions, December 5, 2005.

CRS calculations based on table in Assistant Secretary of the Navy, John J. Young,

Memorandum, for Deputy Secretary of Defense (Acting), “Hurricane Katrina,” September

21, 2005; DDG, LCAC, T-AKE and LHDs are under fixed price contracts, and the LPD is

a cost plus incentive fee contract.

CRS-14

Uncertainties in Navy Estimates. Developed in mid-September only two

to three weeks after the storms, the Navy’s rough estimate includes an additional $833

million for higher overhead and labor charges, based on three months of downtime

and three months ramp up to the pre-Katrina workforce level, a 25% increase in the

number of labor hours needed to complete ships, and higher wages for skilled laborers

because of competition for those workers in other restoration efforts.27 The 25%

increase in labor hours is based on Grumman’s experience with change orders.

Originally, there were 20,000 workers at Ingalls, Pascagoula and Avondale

shipyards. After Katrina, there was a two-week hiatus when no workers could return

to the shipyards. By mid-October, about 16,000 workers had returned to work

including 2,700 who were working part-time.28 More recently, Northrop is estimating

that the Pascagoula yard will experience closer to one month of downtime and nine

months of ramp-up; there was much less damage in Avondale. The new assumption

would generate a different estimate of higher costs. The Navy and Grumman are

currently developing new schedules for each ship.

Some observers would argue that given the level of uncertainty from both

ongoing insurance negotiations and the effect of the damage on ship schedules, the

Navy could be better off waiting to develop its estimate of ship cost overruns. The

same argument could be made about the Navy’s estimates of $715 million to replace

government-furnished and customer furnished equipment — some of which may be

repaired and some replaced — and $132 million for damage to ships under

construction.

Urgency of Navy Request. As is customary, the Navy is requesting that

shipbuilding monies be available for five years even though the request is for

emergency funding. The Navy argues that a longer availability “allows the Navy to

more judiciously execute available funds,” that some contracts may require more than

six months to renegotiate and award, and that vendor issues and labor inefficiencies

could also take more than a year.29 These rationales may not be consistent with the

FY2006 budget resolution criteria that emergency funds are to be used for “urgent,

pressing, and compelling needs requiring immediate action,” or with OMB’s criteria

that the reallocation include only funds needed until May 2006.30 Since substantial

funds remain in the shipbuilding accounts for these ships, it is also not clear that the

Navy needs the funds immediately.

Some would argue that it could be more appropriate for the Navy to use its

“Cost to Complete” line item designed to cover unanticipated increases in ship costs.

Young, Memorandum, “Hurricane Katrina,” September 21, 2005; Navy response to CRS

questions, December 5, 2005.

Navy, “Briefing to Congressional staffers”, November 18, 2005.

Navy, “Response to CRS Questions,” December 5, 2005.

Sec. 402 (c) of the FY2006 Concurrent Budge Resolution (H.Con.Res. 95 ).

CRS-15

In that line, Congress designates specific funds for cost increases for individual ships

that are available for one-year.31 One-year funds are provided to ensure closer

scrutiny. The unanticipated costs due to Katrina could be considered a more extreme

version of other delays experienced in shipbuilding programs. If the Navy requested

funds in its FY2007 budget, it could also rely on later, and presumably more accurate

estimates.

Segregating Katrina-related Costs. As proposed, the language in the

Navy’s request does not include any mechanism that would require the Navy to show

that cost increases were attributable to Katrina damage rather than other factors.

Congress might want to consider adding reporting requirements where the Navy

would track and certify that ship cost increases funded with these monies were

attributable to delays related to damage from Katrina.

Efficiency of Navy’s Ramp-Up Plan. The Navy’s justification does not

include production schedules for ships in the two yards because those are currently

being developed.32 Northrop and Grumman appear to be pushing for workers to return

as quickly as possible and are looking to swapping work and workers between

shipyards, out-sourcing work where capacity or equipment is not available, and

developing workarounds. Northrop required that all workers return by October 17,

2005 in order to retain their seniority and benefits.33

The Navy does not appear to have considered any alternative approaches, such

as closing down the shipyards for six months to a year while repairs are underway, and

then starting up at a level closer to complete operations. Although such an approach

would raise concerns, including potential loss of skills among workers, it might be

more efficient and more appropriate particularly if environmental hazards and housing

shortfalls remain critical and if repairs to the levees are delayed. While the Navy

dislikes delays in receiving new ships, ships typically last at least 30 years; a

temporary delay might be acceptable if an alternative approach was more costeffective.

Critics of the Navy’s proposal have suggested that the funding requested may

be too high, that contractors should share costs and that allocating funds for this

purpose signals questionable government priorities.34 No hearings have been held on

these issues thus far.

See for example, Sec. 8099 in P.L.108-287.

Navy response to CRS questions, December 5, 2005.

Navy briefing to Congressional staff, “Hurricane Katrina Impact on Gulf Coast Shipyards,

November 18, 2005.

“U.S. Navy seeks hurricane aid for shipyard,” New York Times, November 18, 2005. Add

cites.

CRS-16

Issues in DOD’s Military Construction Request

DOD’s Request.

DOD’s $1.5 billion request for military construction and

family housing funding would be used to replace facilities and infrastructure in

Louisiana, Mississippi, and Florida that were severely damaged by the storm as well

as for repair and replacement of family housing. DOD’s rationale for its family

housing request is that there are not sufficient units available on the private market

that would be affordable to service personnel.

DOD’s request includes:

$414 million for the Army;

$570 million for the Navy;

$439 million for the Air Force; and

$45 million for Defense-wide facilities.

For more details, see Table 4 for funding by service and account.

Air Force and Navy facilities suffered major damage to facilities in Louisiana

and Mississippi as can be seen in Table 5. The facilities with the highest bills include

Naval Construction Battalion Training Center and Jackson Barracks in New Orleans,

Keesler Air Force Base and the Stennis Space Center in Mississippi and various

reserve facilities. See Table 5 for funding, types of projects, and the BRAC status of

individual bases.

Potential Issues in Military Construction Request. Several questions

could arise about the President’s request to reallocate $1.5 for military construction

and family housing needs due to Katrina, some similar to those for shipbuilding.

1) Why is DOD requesting funds to rebuild facilities that are being closed or

significantly realigned as part of BRAC? Should all facilities be returned to their

previous or upgraded status if there is capacity available at other bases to perform

certain functions?

2) Should DOD request one-year rather than five-year military construction monies

for emergency requests and to encourage closer scrutiny in light of the uncertainty of

quickly-developed cost estimates? Would some kind of reporting requirement be

merited because of the potential inaccuracy of estimates?

3) Is it wise to press to restore DOD facilities and return DOD military and civilian

personnel before repair of the levees is complete and utility and other services may not

CRS-17

be restored? Are all projects and needs equally urgent? For example, is replacement

of a DOD fitness center of equal importance as replacement of equipment repair

facilities?

4) What is the full amount of funding likely to be needed? And could DOD finance

some of these requirements from within existing resources?

Funds For Bases Affected by BRAC. DOD is requesting funds for

some projects on bases that are scheduled to close or be realigned. For example, $58

million is proposed to construct two new bachelor enlisted quarters at Naval Station

Pascagoula, MS, which is slated for closure, and $20 million for a new central energy

plant and $25 million for a new Diagnostic Center at Keesler Medical Center,

scheduled to be realigned to a community hospital.

DOD is also proposing to spend $86 million at Keesler Air Force base and

$313 million at Construction Battalion, Gulfport, MS for family housing on bases

where privatization initiatives are already underway. It is not clear why DOD would

request funds for these bases which are slated for closure or realignment or where

privatization of housing is already underway.

Emergency Nature and Visibility of Funds. DOD is requesting that

funds be available for the standard time periods for each accounts — five years for

military construction and shipbuilding, three years for RDT&E, two years for

procurement and one year for O&M and military personnel accounts. As with

shipbuilding, it could be argued that if military construction funds are an emergency,

then they should be available for one year.35 DOD would argue that retaining the

traditional time periods fits with how each type of funding is typically managed.

If Congress provides the funds as requested, the monies for Katrina-related

damage will be mixed with regular peacetime funding and wartime funding. That may

make it difficult, if not impossible, to track how funds are actually used and to ensure

that funds intended for one purpose are not used for another purpose. To increase

visibility, Congress could require that DOD set up separate accounts and require

quarterly reporting on use of the funds. This approach has been used in recent

supplementals when Congress provided funds for war where it was difficult to

estimate expenses in advance (for example, the Iraq Freedom Fund that included

initial Iraq war spending).

Unlike most military construction requests, estimates for these projects were

developed in a matter of weeks rather than months, creating questions about their

OMB, Reallocation Request, October 28, 2005, p. l, letter to the President from OMB

Director, Joshua Bolten, and passim for length of availability of different appropriations

accounts.

CRS-18

accuracy. Requests also do not include the amount of detail typically provided to

Congress on such projects. A potential precedent for dealing with such uncertainty

is the 15-day advance notification requirements added by Congress to war

supplementals in recent years in response to the uncertainties of military construction

projects needed in support of Iraq and Afghanistan.36

DOD has not provided Congress with an estimate of the full amount that may

be needed or a timetable that would outline the urgency for the funds. The timing of

a return of military personnel to bases may also depend on the time and effectiveness

of repairs to the levees, restoration of utilities, and dealing with environmental issues

in the region.

Department of Housing and Urban Development

(Prepared by Maggie McCarty, 7-2163)

The Administration’s October 28th reallocation package would transfer $2.2

billion to the Department of Housing and Urban Development including:

$250 million for an urban homesteading initiative;

$390 million to HUD’s Section 8 account for the Katrina Disaster

Housing Assistance Program (KDHAP);

$1.5 billion for Community Development Block Grants (CDBG); and

$70 million for HUD’s HOME Investment Partnerships program.

Urban Homesteading. (Prepared by Eugene Boyd, 7-8689) A speech made

by President Bush on September 15, 2005 included a new Urban Homesteading

proposal as a key feature of the government’s response to Hurricane Katrina. Urban

homesteading would allow Katrina evacuees to occupy a government-owned home

at a favorable mortgage rate, in exchange for their personal investment of sweat equity

in the property. Under this approach, defaulted housing or other property in the region

owned by the federal government would be conveyed to eligible citizens free of

charge, through a lottery. In return, homesteaders would pledge to rebuild on the lot,

with either a mortgage or help from a charitable organization like Habitat for

Humanity. HUD, in cooperation with other federal agencies, local governments, and

public housing authorities, would support the development of homes on federal

property in communities across the region, and would encourage nonprofit

organizations to commit properties as well.

The October 28th reallocation package submitted by the Administration

includes $250 million for urban homesteading. Of that amount $50 million would be

See Division B, Chapter 10, Sec. 1001 (a) and (b), P.L. 107-117; Sec. 1001 (a) and (b),

P.L. 107-206; Title I, Chapter 3, P.L. 108-11.

CRS-19

provided to the Self-Help and Assisted Homeownership (SHOP) account to finance

the construction or rehabilitation activities, subject to enactment of the Hurricane

Katrina and Rita Recovery Homesteading Act of 2005, introduced on December 13,

2005 as H.R. 4514. The remaining $200 million would be available to reimburse the

insurance funds of the Federal Housing Administration (FHA), the Housing Program

Account of the Department of Veterans Affairs (VA), and the Rural Housing

Insurance Fund Program Account of the Department of Agriculture (USDA) for

transferring the affected properties.

Katrina Disaster Housing Assistance Program (KDHAP). ( Prepared

by Maggie McCarty, x7-2163) KDHAP was created in early October and is currently

administered by HUD, but funded through a mission assignment from FEMA. It

provides special rental assistance vouchers to families that were displaced by

Hurricane Katrina and that were receiving HUD assistance or were homeless before

the storm. This includes families that had Section 8 vouchers and lived in public or

other assisted housing, as well as families that were living in homeless shelters. The

October 28th reallocation request proposes to transfer over $390 million from FEMA

to HUD’s Section 8 account for the KDHAP initiative. By transferring the funding

from FEMA to HUD, HUD would gain total control of the program. (For more

information on KDHAP, see CRS Report RL33173, Hurricane Katrina: Questions

Regarding the Section 8 Housing Voucher Program.)

Additional Block Grant Funds. In several past disasters, Congress has

provided emergency supplemental appropriations to HUD’s HOME Investment

Partnerships (HOME) program and Community Development Block Grant (CDBG)

program. HOME and CDBG are block grant programs through which HUD

distributes housing and community development funding to state and local units of

government. HOME funds can be used to build or rehabilitate owner- or renteroccupied housing and provide first-time home buyer or tenant-based rental assistance

to low and moderate income families. CDBG funds can be used for a much broader

array of activities including housing, community development, economic

development, public assistance, assistance to sub-recipients (including for-profit and

non-profit entities, and religion-based organizations), and disaster relief efforts

including short-term disaster relief, disaster mitigation, and long-term disaster

recovery efforts. The President’s reallocation proposal would provide $1.5 billion for

CDBG and $70 million for HOME. (For more information, see CRS Report

RL33078, The Role of HUD Housing Programs in Response to Disasters and CRS

Report RS22303, Community Development Block Grant Funds in Disaster Relief and

Recovery.)

CRS-20

Transportation Would Receive $2.4 billion

(Prepared by David Randall Peterman; x7-3267

The President proposes $2.4 billion in additional appropriations for the

Transportation Department, including $2.3 billion for the Federal Highway

Administration (FHWA)’s Emergency Relief Program to repair damaged highways

that are eligible for relief under that program. Funds would be available until

expended, state matching requirements would be waived, and the limit of $100

million for Emergency Relief projects in a single state for a single fiscal year could

be exceeded. If the $2.3 billion is more than is needed for Hurricane Katrina-related

projects, the remaining funds could be used for other emergency relief projects.

The President also requests $40.6 million, which would come from the Airport

and Airway Trust Fund, to fund the FAA’s Facilities and Equipment account to repair

air traffic control towers, buildings, and navigation aids damaged by Hurricanes

Katrina and Rita. The requests also includes $7.5 million to repair and reconstruct the

damaged Poland Street pier and warehouse in New Orleans, Louisiana, which are

owned by the Maritime Administration, and used by the U.S. Navy to support the

Ready Reserve Force Fleet, cargo ships that may be used for rapid deployment of

military forces.

$1.2B to Replace and Repair VA Hospitals

(Prepared by Sidath Panangala, x7-0623)

The Administration proposes to transfer $1.4 billion to the Department of

Veterans Affairs including:

$1.2 billion primarily to replace the VA medical center in New

Orleans and also add a new bed tower to the medical center in Biloxi,

Mississippi;

$198 million to replace pharmaceuticals and other medical equipment

in VA facilities; and

$24.9 million for activating new VA regional office in New Orleans,

Louisiana, as well as miscellaneous operating costs to continue

veterans benefits processing.

A portion of the Administration’s $1.2 billion construction request would

accelerate plans to add a bed tower to the VA medical center in Biloxi, Mississippi

because the nearby Gulfport VA medical center that had been slated for closure was

destroyed by the storm.37 Under the proposal, VA intends to replace clinical functions

The Capital Asset Realignment for Enhanced Services (CARES) Commission, a

commission that evaluated health care needs of veterans over the next 20 years, called for

CRS-21

at VA medical center in Biloxi, Mississippi within 2 or 3 years rather than by 2010.

Some observers have also suggested that Keesler Air Force Base Hospital in Biloxi,

Mississippi, which is two miles away from the VA hospital in Biloxi, could pick up

the VA workload.

The Administration is also proposing several general provisions for VA that

would make additional adaptive housing grants (e.g. for wheelchairs), extend

subsistence allowances for vocational rehabilitation, and expand other independent

living benefits veterans displaced by Hurricanes Katrina and Rita through FY2006.

Funds to Rebuild NASA Facility

(Prepared by Marcia Smith, x7-7076)

The President’s proposal includes $325 million for costs associated with

hurricane recovery at NASA’s Stennis Space Center in Mississippi, NASA’s primary

rocket engine test facility, and the Michoud Assembly Facility, a government-owned

facility in New Orleans, LA operated by Lockheed Martin, where space shuttle

External Tanks are manufactured. The funds would be used to repair and replace

equipment and infrastructure, environmental remediation and emergency operations.

According to its September 30, 2005 operating plan, NASA estimates that it will cost

$760 million to repair damages and relocate staff.

While NASA has shifted $100 million in FY2005 funds to begin hurricane

recovery efforts — with hopes that the accounts would be replenished from a later

supplemental appropriation — the funds shifted combined with the proposed

reallocation of $325 would still not equal NASA’s estimated costs.

Funds for Small Business Administration Loans

(Prepared by Eric Weiss, x7-6209)

The October Reallocation package would provide the Small Business

Administration (SBA) with:

$277 million for disaster loan funds for homeowners, renters and

businesses who are victims of Hurricanes Katrina, Rita or Wilma or

other natural disasters;

$189 million for SBA’s salaries and expenses account to pay for

additional staffing to process disaster loan applications; and

closure of the Gulfport facility and the transfer of patients to Biloxi, 8 miles away. For

detailed information on the CARES Program see, CRS Report, R.L.32961, Veterans’ Health

Care Issues in the 109th Congress, by Sidath Viranga Panangala.

CRS-22

$5 million for the SBA’s Office of the Inspector General, a 25%

increase that would be used to oversee the new loans and guarantees.

As of December 2, 2002, the SBA had approved $1 billion in disaster loan

applications, a higher rate than earlier. Some disaster victims are applying for SBA

loans expecting to be rejected because this rejection will make them eligible for grants

from FEMA and others.

Some observers have suggested that additional authority may be needed,

including a proposal by Representative Baker in H.R. 4100 to create the Louisiana

Reconstruction Corporation that would purchase property in Louisiana that was

damaged by Hurricanes Katrina and Rita for redevelopment including public

infrastructure. The seller would receive enough to pay off any existing mortgage or

other debt and would be given the right of first refusal to buy the property after it is

redeveloped. The Louisiana Reconstruction Corporation would be funded by Treasury

bonds subject to the appropriations process. The money borrowed would be repaid

from the proceeds of selling the property.

Environmental Protection Agency

(Prepared by David Bearden, x7-2390)

The Administration’s proposal would reallocate an additional $15 million to

EPA for its Leaking Underground Storage Tank Program that would be targeted at

areas affected by Hurricanes Katrina and Rita, including site assessments to speed the

identification and initiation of corrective actions to address human health and

environmental risks.

As of December 1, 2005, FEMA reports EPA obligations of $361 million for

its mission assignments in emergency hurricane response activities. Based on agency

statements, EPA appears to be using these funds for cleanup activities, mostly in

coordination with state and local officials, including environmental assessments,

sampling and analysis of contaminants, and removal and disposal of hazardous

materials.38 The scale of additional environmental activities needed in the wake of the

storm is not clear at this point.

The President’s Proposed Rescissions

In an effort to address concerns about the cost of the federal response to

For additional information, see CRS Report RL33115, Cleanup after Hurricane Katrina:

Environmental Considerations, by Robert Esworthy, Linda Jo Schierow, Claudia Copeland,

and Linda Luther.

CRS-23

disasters, the President submitted a proposed rescission package of $2.3 billion

together with his reallocation package. The President states, in his transmittal notice,

that the rescissions are to come from “lower-priority federal programs and excess

funds.”39 The President indicates the specific reasons for each rescission in his

proposal. The rescissions, if approved by Congress, would cancel a portion of the

funding for 12 departments and 5 agencies and other federal governmental entities.40

The amount of the rescissions would range from $4 million for the Broadcasting

Board of Governors to $641 million for the Department of Agriculture.

The specific rescission proposals appear to raise varying degrees of

controversy, and there have been different levels of interest in the impacts of the

proposed rescissions on agency programs and activities. How the rescissions would

be applied and their effects on funding levels also would vary. In some cases, the

proposals would reduce funding levels still further below last year’s appropriation,

and in other cases, funding would terminate programs. Further, the amounts of the

proposed rescissions are not necessarily an indicator of their potential for controversy,

as some of the rescissions are relatively small but may be of concern to Congress or

affected stakeholders.

Table 2 describes individual rescissions in the Administration’s October 28,

2005 package. The table was prepared by Amy Belasco with the help of James

Monke, Maggie McCarty, Stephen Cooney, Lynne Corn, Ross Gorte, Betsy Cody,

Larry Nowels, David Bearden, Eric Weiss, Ralph Chite, David Whiteman, Paul Irwin,

Jennifer Lake, and Pamela Smith.

U.S. Executive Office of the President, Office of Management and Budget, “Estimate

No.14,”available online at

[http://www.whitehouse.gov/omb/budget/amendments/rescission_package_10_28_05.pdf],

visited Nov. 1, 2005.

The departments that would be affected by the rescission include Agriculture, Commerce,

Defense, Education, Energy, Health and Human Services, Homeland Security, Housing and

Urban Development, Interior, Labor, State, and Treasury. The five agencies or other federal

governmental entities from which funds would be rescinded include the Environmental

Protection Agency, the Broadcasting Board of Governors, the Corporation for Public

Broadcasting, the Federal Communications Commission, and International Assistance

Programs.

CRS-24

Table 2. Proposed Rescissions to Offset the Cost of Hurricane

Katrina

(millions of dollars)

Federal

Agency

Department of

Agriculture

Department of

Commerce

Department of

Defense

Department of

Education

Department of

Energy

Department of

Health and

Human Services

Funds to

rescinded

Activities

$641

Rescinds $500M for Forest Service wildfire fighting

that could be needed in FY2006, and $9M for rural

development grants which the Administration has

proposed to terminate and Congress has restored.

Also rescinds $10M in conservation operations,

$40M in Rural Utilities Services grants, $45M in P.L.

480 foreign assistance, and $37M in food stamp

programs.

$55

Rescinds the $49M remaining in the Emergency Steel

Loan Guarantee Program that could be used to

guarantee up to $600 million in loans to financially

distressed steel mills; rescission would terminate a

program that Congress recently extended to the end of

2007.

$155

Rescinds $155M in unobligated funds unlikely to be

needed or funds for programs executing slower than

expected.

$151

Rescinds funds from the Literacy Program for

Prisoners ($5 million), the Individuals with

Disabilities Education Act ($51 million), the Smaller

Learning Communities program ($90 million), and

the Tech-prep Demonstration program ($5 million).

$100

Rescinds $100M in unobligated FY2005 funds for a

waste treatment plant at DOE’s former nuclear

weapons production site at Hanford in Washington

that Congress assumed would be available when it cut

DOE’s FY2006 funds; not clear whether would

further delay project which has experienced

construction difficulties.

$130

Rescinds funds from the following programs: Health

Resources and Services Administration for

construction facilities improvement, Health Centers

loan guarantees, and the Nursing Education Loan

Repayment Program ($8 million), the federal portion

of liquid assets of student loan revolving funds at

institutions of higher education participating in

certain health professions education programs ($100

million), the Centers for Disease Control and

Prevention for Individual Learning Accounts ($7

million) and the National Institutes of Health for

buildings and facilities ($15 million).

CRS-25

Federal

Agency

Department of

Homeland

Security

Department of

Housing and

Urban

Development

Department of

the Interior

Department of

Labor

Department of

State

Department of

the Treasury

Funds to

rescinded

Activities

$261

Rescinds $261M for accrual payments for Medicareeligible employees in the Coast Guard which the

Administration says have already been made.

$130

Rescinds funds from Housing for Persons with

Disabilities ($100 million), Brownfields community

redevelopment grants ($24 million), and Community

Development loan guarantees ($6 million).

$306

Rescinds $183M from Bureau of Reclamation funds

for restoration of the Walker River Basin in Nevada,

which would stall the project, $35M from Bureau of

Land Management firefighting programs that could

be needed, $34M or 10% cut to the National Park

Services’ construction funds, $28M for state grants to

the Land and Water Conservation Fund that would

eliminate all but administrative funding, as well as

smaller grants programs in the Fish and Wildlife

Service (FWS), including $6M from the Cooperative

Endangered Species Conservation fund, where the

Administration is seeking to increase state

participation. Also cut would be $5M rescission from

$226M for Payments in Lieu of Taxes, a program that

compensates local governments for federal lands in

their jurisdictions where they cannot collect taxes,

which the President has proposed to cut and which, in

most years, Congress has increased in response to

local concerns.

$70

Rescinds funds from Job Corps construction,

rehabilitation, and acquisition ($25 million) and the

Responsible Reintegration of Youthful Offenders

program ($45 million).

$75

Rescinds $50M from embassy security programs,

$16M from narcotics control, including $12M from

research on using mycoherbicides in eradication

efforts, which has run into opposition from the UN,

Colombia and Afghanistan but which Congress has

supported; and $9M from FY2005 funds for the

Andean Counterdrug initiative for, a high priority

initiative to eradicate drugs and establish alternative

development programs in Colombia, Bolivia, Peru,

Ecuador, Brazil, Venezuela, and Panama

$20

Rescinds $10M from Internal Revenue Service’s

processing and $10M from its health insurance tax

credit administration.

CRS-26

Federal

Agency

Funds to

rescinded

Activities

$166

Rescinds $166M from EPA’s Clean Water State

Revolving Fund , which awards grants to states, based

on a statutory formula, to provide seed monies to

issue loans to localities for constructing and

upgrading sewage treatment plants and other

wastewater infrastructure. The rescission would

reduce funding to $730 million, $190 million below

the FY2006 enacted level and almost $360 million

below FY2005. The rescission would eliminate the

Congressional add in FY2006 that responded to state

concerns that more federal funding is needed to meet

water quality standards.

International

Assistance

Programs

$20

Rescinds $20M for transition assistance to the former

states of the Soviet Union, which the Administration

sought to reduce to $482 million but Congress

approved $514 million for FY2006.

Broadcasting

Board of

Governors

Rescinds $4M in unobligated capital improvements

funds.

Corporation for

Public

Broadcasting

$10

Rescinds $10M as part of enacted advance

appropriation.

Federal

Communication

s Commission

$13

Rescinds $13M in regulatory fee collections that may

not be needed to support FCC activities.

Environmental

Protection

Agency

Notes and Source: Administration’s rescission package and other sources; Office of Management

and Budget,EstimateNo.14;

[http://www.whitehouse.gov/omb/budget/amendments/rescission_package_10_28_05.pdf]].

CRS-27

Table 3. DOD’s $6.6 billion Re-Allocation Request

in millions of dollars