oversight

Disaster Assistance: Federal Aid to the New York City Area Following the Attacks of September 11th and Challenges Confronting FEMA

Published by the Government Accountability Office on 2003-09-24.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                United States General Accounting Office

GAO                             Testimony
                                Before the Subcommittee on Clean Air,
                                Climate Change, and Nuclear Safety,
                                Committee on Environment and Public
                                Works, U.S. Senate
For Release on Delivery
Expected at 9:00 a.m. EST
Wednesday, September 24, 2003   DISASTER ASSISTANCE
                                Federal Aid to the New
                                York City Area Following
                                the Attacks of September
                                11th and Challenges
                                Confronting FEMA
                                Statement of JayEtta Z. Hecker, Director Physical
                                Infrastructure Issues




GAO-03-1174T
Mr. Chairman and Members of the Subcommittee:

I appreciate the opportunity to be here to discuss issues related to the
federal government’s response to recovery efforts regarding to the
September 11, 2001, terrorist attacks, particularly the role of the Federal
Emergency Management Agency (FEMA), as well as management
challenges facing FEMA as the agency adjusts to its transfer to the
Department of Homeland Security (DHS). The terrorist attacks resulted in
one of the largest catastrophes this country has ever experienced. The
federal government has been a key participant in the efforts to provide aid
after the attacks, and it has been providing the New York City area with
funds and other forms of assistance. The magnitude of the disaster in New
York and the size and scope of the federal government’s response in aiding
the city has generated significant interest in the nature and progress of this
federal assistance.

In my testimony today, I will focus on (1) how much and what types of
assistance the federal government provided to the New York City area
following the September 11 terrorist attacks, (2) how the federal
government’s response to this disaster differed from previous disaster
response efforts, and (3) the ongoing challenges FEMA faces as it, and its
mission, are subsumed into the Department of Homeland Security. My
comments will be based on the following GAO work on FEMA issues,
including our January 2003 Performance and Accountability Reports that
highlighted both FEMA and DHS management challenges and program
risks1 and our August 2003 report on FEMA public assistance we issued to
the Full Senate Committee on Environment and Public Works, as well as
ongoing work we are conducting for the Committee on the overall federal
assistance to the New York City area in the wake of September 11. (See
appendix 1 for further discussion of the objectives, scope, and
methodology.)

The President pledged, and the Congress authorized an estimated $20
billion in assistance to the New York City area following the terrorist
attacks.2 Many agencies of the federal government were involved in


1
U.S. General Accounting Office, Major Management Challenges and Program Risks:
Department of Homeland Security, GAO-03-102 (Washington, D.C.: January 2003) and
Major Management Challenges and Program Risks: Federal Emergency Management
Agency, GAO-03-113 (Washington, D.C.: January 2003).
2
 The $20 billion in federal assistance does not include the Victim’s Compensation Fund or
income tax deferrals.



Page 1                                                                     GAO-03-1174T
    administering this funding, but most of the federal aid—96 percent—has
    been provided through four sources: FEMA, the Department of Housing
    and Urban Development (HUD), the Department of Transportation (DOT),
    and the Liberty Zone tax benefits3. The assistance provided through these
    sources targeted different aspects of the response and recovery efforts,
    and in our work for the Committee, we have found that it is useful to
    discuss the federal aid to the New York City area in terms of four broad
    types of assistance instead of by each federal source of assistance.
    Consequently, I will discuss the aid in the following four broad categories:

•   Initial response efforts, which include activities to save lives, recover
    victims, remove debris, and restore basic functionality to city services;

•   Compensation for disaster-related costs and losses, which includes
    compensation for losses incurred by individuals, businesses, and
    governments;

•   Infrastructure restoration, which includes efforts to restore and enhance
    infrastructure that was severely destroyed by the collapse of the World
    Trade Center towers and the subsequent response efforts; and

•   Economic revitalization, which includes activities to help improve the
    lower Manhattan economy that was harmed by the disaster.

    In summary,




    3
     The Liberty Zone tax benefits are benefits primarily targeted to the area of New York City
    damaged on September 11, designated as the New York Liberty Zone



    Page 2                                                                      GAO-03-1174T
•   As of June 30, 2003, an estimated $20 billion of federal assistance has been
    committed to the New York City area, primarily through FEMA, DOT,
    HUD, and the Liberty Zone tax benefits. Figure 1 shows the amount of
    assistance in each of the four broad categories.

    Figure 1: Primary Purpose and Amount of Disaster Assistance Committed By
    FEMA, HUD, DOT, and Liberty Zone Tax Benefits




    a
     HUD’s plans for $1.16 billion have not been finalized. These funds are not included in the purposes
    listed above and according to HUD will mostly likely be directed to either infrastructure restoration or
    economic revitalization.


    The $2.55 billion for initial response efforts included numerous assistance
    programs, such as search and rescue operations, debris removal
    operations, emergency transportation measures, and emergency utility
    service repair. FEMA provided the bulk of the federal funds for initial
    response efforts—$2.20 billion—but DOT and HUD also provided funds.
    Compensation for disaster-related costs and losses totaled about $4.81
    billion. This funding, provided by FEMA and HUD, compensated state and
    local organizations, individuals, and businesses for disaster-related costs,
    such as mortgage and rental assistance to individuals and grants to
    businesses to cover economic losses. The amount committed for
    infrastructure restoration and improvement efforts is $5.57 billion. The
    majority of this funding is a combination of FEMA and DOT funds to
    rebuild and enhance the lower Manhattan transportation system, including
    the construction or repair of roads, subways, ferries, and railroads. HUD is
    funding efforts to improve utility infrastructure. Efforts to revitalize the
    economy in lower Manhattan include the Liberty Zone tax benefit plan—




    Page 3                                                                                 GAO-03-1174T
    an estimated benefit of $5.03 billion4—and $515 million in HUD funding for
    business attraction and retention programs. Once the city, state, and HUD
    finalize plans for the remaining $1.16 billion, these funds will most likely
    be directed to infrastructure restoration and improvements and/or
    economic revitalization.

•   The $20 billion to assist the New York City area differed from previous
    disaster response efforts in that it was the first time in which the amount
    of federal disaster assistance to be provided was set early in the response
    and recovery efforts, which resulted in two major changes to the federal
    approach. First, the specified level of funding for the entire federal
    response to this disaster changed the traditional approach to
    administering FEMA funds. In an effort to ensure that all FEMA funds
    were expended for this disaster, FEMA broadly interpreted its provisions
    within the Stafford Act, and the Congress authorized FEMA to compensate
    the city and state for costs such as increased security that it could not
    otherwise have funded within provisions of the Stafford Act. Secondly,
    this specific level of funding for the disaster prompted Congressional
    appropriations that authorized numerous forms of non-traditional
    assistance by agencies other than FEMA, such as the Liberty Zone tax
    benefit plan and improvements to the transportation infrastructure that
    exceeded normal replacement cost.

•   Simultaneous to FEMA’s efforts to assist the New York City area’s
    recovery from September 11, FEMA faced the challenge of being
    transferred into the newly formed DHS. As we previously reported in our
    2003 Performance and Accountability Series, FEMA faces ongoing
    management challenges resulting from its transfer into DHS, and DHS
    itself faces the daunting challenge of combining FEMA and 21 other
    agencies with various missions into an effective and collaborative agency.
    Recognizing the magnitude of the overall challenge in establishing DHS,
    GAO has designated the implementation and transformation of the
    department as high-risk. Several of the specific challenges that FEMA
    faces include the need to (1) ensure effective coordination of
    preparedness and response efforts, (2) enhance provision and
    management of disaster assistance for efficient and effective response,
    and (3) reduce the impact of natural hazards by improving the efficiency
    of mitigation and flood programs. We have ongoing work that is focusing



    4
     The Liberty Zone tax benefits are benefits targeted primarily to the area of lower
    Manhattan damaged on September 11, designated as the New York Liberty Zone. The
    amount of the tax benefit is an estimate prepared by the Joint Committee on Taxation.



    Page 4                                                                    GAO-03-1174T
             on FEMA’s challenges in each of these areas and will be reporting on these
             efforts in the near future.


             After a disaster, the federal government, in accordance with provisions of
Background   the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the
             Stafford Act)5,assists state and local governments with costs associated
             with response and recovery efforts that exceed a state or locale’s
             capabilities. FEMA is the agency responsible for coordinating federal
             disaster response efforts under the Federal Response Plan, an agreement
             among 27 agencies and the Red Cross to deliver federal disaster
             assistance. FEMA was established in 1978 to consolidate and coordinate
             emergency management functions in one agency. In November 2002, the
             Congress enacted legislation establishing DHS in an effort to consolidate
             numerous homeland security functions in a single entity, which involved
             subsuming 22 agencies, including FEMA. FEMA’s primary functions have
             remained intact and have been placed primarily in DHS’ Emergency
             Preparedness and Response Directorate.

             FEMA not only coordinates the federal disaster response, it also provides
             significant assistance through a variety of programs funded through its
             Disaster Relief Fund. This assistance is provided when disaster costs
             exceed state and local government capabilities to respond and insurance
             damage proceeds. These programs include FEMA’s individual assistance
             program that provides aid to victims affected by a disaster and its hazard
             mitigation program that provides funds to state and local governments to
             reduce the risk of damage from future disasters. However, FEMA’s public
             assistance program is typically the largest source of disaster relief. It is
             designed to provide grants to eligible state and local governments and
             specific types of private non-profit organizations that provide services of a
             governmental nature, such as utilities, fire departments, emergency and
             medical facilities, and educational institutions, to help cover the costs of
             emergency response efforts and work associated with recovering from the
             disaster.

             Many other agencies play active roles in federal disaster relief. For
             example, the Federal Highway Administration (FHWA), an agency of DOT,
             has existing authority to assist in disaster relief. FHWA can provide up to
             $100 million in emergency relief funding for each natural disaster or


             5
             Pub. L. No. 93-288, 88 Stat. 143 (1974), as amended.



             Page 5                                                          GAO-03-1174T
                        catastrophic failure event that is found eligible within the provisions of the
                        Emergency Relief Program. Other agencies within DOT, such as the
                        Federal Transit Administration (FTA) and the Federal Railroad
                        Administration, also have had roles in previous disaster relief efforts.
                        HUD, which has had authority to assist in disaster relief efforts at different
                        times in the last few decades, once again became actively involved in
                        providing disaster recovery assistance following Hurricane Andrew in
                        1992. Since that disaster occurred, the Congress has made available more
                        than $5.7 billion in 15 supplemental appropriations to HUD for disaster
                        assistance.6 Typically, HUD awards funds to the affected state or local
                        government, and then the funds are administered at the state or local level.

                        The President’s declaration of September 11 as a federal disaster activated
                        27 agencies, including the American Red Cross in response and recovery
                        efforts. On September 12, 2001, President Bush pledged to commit at least
                        $20 billion to help the New York City area recover. The President sent a
                        letter to the Speaker of the House requesting that the Congress pass
                        emergency appropriations to provide immediate resources. Over the next
                        11 months, the Congress enacted three emergency supplemental
                        appropriation acts that provided more than $15 billion in direct federal
                        assistance as well as an estimated $5 billion economic stimulus package
                        for the New York City area.


                        The greatest role in providing federal assistance fell to FEMA, HUD, and
Federal Disaster        DOT. The funds appropriated to these agencies, along with the Liberty
Assistance to the New   Zone tax benefits, constitute over 96 percent of all federal assistance
                        designated to the New York City area. FEMA, the largest single provider of
York City Area          assistance, was appropriated $8.80 billion for debris removal, rescue
                        efforts, and other assistance. Congress appropriated HUD $3.48 billion to
                        provide the New York City area assistance to aid businesses and
                        individuals and spur economic revitalization. DOT received $2.37 billion to
                        assist in the restoration and enhancement of the transit system in the New
                        York City area. The Liberty Zone tax benefits is estimated by the Joint
                        Committee on Taxation to reduce federal tax revenue—and in turn
                        increase the funds retained by taxpayers—by $5.03 billion. An additional
                        $0.82 billion in assistance to the New York City area has been appropriated
                        to 15 other agencies to conduct numerous activities, such as
                        environmental studies and federal building restoration. Figure 2 shows the


                        6
                        All dollars are in nominal terms.



                        Page 6                                                          GAO-03-1174T
                              amount of federal assistance, in both amount and percentage, committed
                              to the New York City area by the federal government.

                              Figure 2: Federal Assistance to the New York City Area by the Federal Government




                              Note: Numbers do not total 100 percent due to rounding.


                              As the large majority of federal assistance to the New York City area is
                              primarily through FEMA, DOT, HUD, and the Liberty Zone tax benefits,
                              I would now like to discuss the assistance these sources did, or will,
                              provide in the four board categories I discussed earlier: (1) initial response
                              efforts, (2) compensation for disaster-related costs and losses,
                              (3) infrastructure restoration, and (4) economic revitalization.


Initial Response Activities   Initial response assistance in New York City began immediately after the
Totaled $2.55 Billion         hijacked aircraft collided with the World Trade Center towers and totaled
                              $2.55 billion. This assistance was predominately funded by FEMA. Figure 3
                              shows the amount each agency funded in this category of assistance.




                              Page 7                                                             GAO-03-1174T
                          Figure 3: Amount of Assistance Committed to Initial Response Activities, by
                          Agency




                          a
                           HUD’s plans for $1.16 billion have not been finalized. These funds are not included in the purposes
                          listed above, and according to HUD, will most likely be directed to either infrastructure restoration or
                          economic revitalization.


                          Initial response activities included urban search and rescue; debris
                          removal operations; emergency transportation measures; other initial
                          response assistance by FEMA, such as cleaning buildings; and emergency
                          and temporary utility service.

Urban Search and Rescue   The terrorist attacks of September 11 prompted the largest search and
Operations                rescue operation in U.S. history, a $22 million effort. FEMA oversees 28
                          national Urban Search and Rescue Task Forces across the country and 20
                          were activated to respond to the attacks in New York. The teams operate
                          under FEMA authority and were deployed as part of the National Urban
                          Search and Rescue Response System. Almost 1,300 members of the Urban


                          Page 8                                                                                  GAO-03-1174T
                                Search and Rescue teams and 80 dogs worked at the World Trade Center
                                site.

Debris Removal Operations,      Immediately after the World Trade Center towers collapsed, the debris
Including Liability Insurance   removal operation began in order to help workers look for survivors. The
Coverage                        effort eventually transformed to a victim and evidence recovery operation
                                as well as a clean-up site. Debris removal operations totaled $1.70 billion,
                                although over one-half of those funds—$1 billion dollars—is to be used to
                                establish an insurance company with the intended purpose of covering the
                                City and its contractors for potential claims resulting from debris removal
                                at the World Trade Center site. The New York City Department of Design
                                and Construction and the New York City Department of Sanitation
                                completed the daunting task of removing debris piled from several stories
                                below street level to 11 stories above ground and weighing nearly
                                1.6 million tons, with support from FEMA, the Federal Highway
                                Administration, and the U.S. Army Corps of Engineers. FEMA provided
                                $630 million to reimburse the city for the costs associated with removal of
                                the debris from the World Trade Center site and barge it to a landfill on
                                Staten Island, New York, for screening, sorting, and disposal. Initial
                                estimates projected that the recovery effort and cleanup would take two
                                years and cost $7 billion; however, the effort was completed substantially
                                below these time and cost estimates. As of September 3, 2003, FEMA had
                                obligated $1 billion for the insurance program; however, no funds will be
                                disbursed until details for the establishment of the dedicated insurance
                                company are finalized.

Emergency Transportation        The collapse of the World Trade Center buildings and subsequent recovery
Measures                        efforts wreaked havoc on lower Manhattan’s transportation system:
                                subway stations and the PATH commuter rail terminal were destroyed,
                                sections of local roads became impassable due to damage or recovery
                                efforts, and subways and ferries were overcrowded as commuters
                                returned to work using different means or routes of transportation. FEMA
                                and DOT coordinated with a variety of transportation, public works,
                                public safety, and utility providers to plan emergency/interim projects to
                                address issues such as shifts in travel demand after September 11, capacity
                                issues, and system delays associated with revised travel patterns.7 Overall,




                                7
                                 As debris removal efforts were completed, FEMA and FTA released the “Emergency/
                                Interim Transportation Disaster Recovery Plan” in spring 2002, which identified 100
                                projects proposed by local agencies to use available FEMA and FTA funds.



                                Page 9                                                                   GAO-03-1174T
                                  FEMA and DOT provided approximately $299 million for emergency
                                  transportation measures, including:

                              •   Clean-up and emergency repair of local roads and tunnels,
                              •   Construction of a temporary PATH terminal,
                              •   Expanded ferry service, and
                              •   Capital projects to improve commuter transportation.

Other FEMA Initial Response       FEMA provided $285 million for other initial response assistance. For
Assistance                        example, as authorized by the Congress, FEMA entered into an
                                  interagency agreement with the Department of Health and Human
                                  Services to conduct a project to screen and monitor emergency services
                                  personnel for long-term health effects of work at the World Trade Center
                                  site.8 In addition, FEMA worked with EPA officials to conduct clean-up
                                  efforts that included vacuuming streets, parks, and other areas covered by
                                  dust from debris and fires and in conjunction with New York City officials
                                  conducted an indoor cleaning and testing program at private residences.

Emergency and Temporary           The collapse of the World Trade Center buildings and subsequent debris
Utility Service                   removal efforts resulted in widespread damage to the energy and
                                  telecommunications utility infrastructure. Utility firms worked to provide
                                  service for rescue operations in the days immediately following the
                                  disaster and to stabilize delivery of service to lower Manhattan, including
                                  the reopening of the New York Stock Exchange 6 days after the attacks.
                                  The Congress appropriated $250 million to HUD to reimburse utility
                                  companies for uncompensated costs associated with restoring service.
                                  Eligible firms will be reimbursed up to 100 percent of actual, incurred,
                                  uncompensated, and documented costs. These funds have not been
                                  disbursed to utility companies; however, HUD approved a city plan for
                                  distributing these funds on September 15, 2003, and HUD officials expect
                                  funds to begin being obligated.


Compensation for                  Approximately $4.81 billion in federal assistance is committed to
Disaster-Related Costs and        compensating state and local organizations, individuals, and businesses
Losses Totaled $4.81              for disaster-related costs and losses. The majority of the assistance
                                  provided under this category was provided by FEMA. Figure 4 shows how
Billion                           much each agency has committed to compensate for disaster-related costs
                                  and losses.



                                  8
                                  P.L. 108-7.



                                  Page 10                                                        GAO-03-1174T
Figure 4: Amount of Assistance Committed to Compensate Disaster-Related Costs
and Losses, by Agency




a
 HUD’s plans for $1.16 billion have not been finalized. These funds are not included in the purposes
listed above, and according to HUD, will most likely be directed to either infrastructure restoration or
economic revitalization.

Note: Numbers do not equal total due to rounding.


FEMA provided funds through its Public Assistance Program, as
congressionally authorized, non-traditional assistance to New York City
and State; under its Hazard Mitigation Grant Program; Mortgage and
Rental Assistance Program, Crisis Counseling Assistance Program,
Individual and Family Grant Program, and also through a variety of other
assistance efforts. HUD provided assistance under its residential grant
program and business assistance programs.




Page 11                                                                                 GAO-03-1174T
Public Assistance to New York   FEMA reimbursed New York State, City, and other organizations about
State, City, and Other          $1.49 billion through its public assistance program to compensate for
Organizations                   disaster-related costs and losses. Of this funding, $643 million was
                                provided to the New York City Police and Fire Departments to pay
                                benefits and wages to emergency workers during response and recovery
                                efforts and to replace vehicles and other equipment. As first responders,
                                these departments suffered heavy casualties and damages and received
                                compensation for overtime costs, death benefits, and funeral costs. FEMA
                                also reimbursed costs to the City to relocate several agencies’ offices;
                                establish a Family Assistance Center; reschedule elections that were being
                                held on September 11 and replace damaged voting equipment; and pay for
                                instructional time for students who missed school due to closures, delayed
                                openings, and school relocations.9

                                FEMA also provided assistance to other entities, including the Port
                                Authority, counties, and private nonprofit organizations; and it also
                                provided funds to the state of New Jersey. The Port Authority was
                                reimbursed for costs to replace equipment it lost when its World Trade
                                Center facilities were destroyed and for office relocation costs. Additional
                                assistance was provided to all New York counties for cancelled election
                                costs and to some private-non-profits, such as Pace University, for
                                temporary relocation. FEMA additionally provided $88 million to New
                                Jersey for emergency protective measures.

Congressionally Authorized      In addition to the traditional public assistance FEMA provided to city and
Non-traditional Assistance to   state agencies, the Congress also authorized FEMA to provide funding to
New York City and State         the city and state for expenses associated with the disaster, but were
                                unreimbursable under the Stafford Act. The legislation ensured that FEMA
                                would be authorized to spend the entirety of the appropriated assistance
                                for New York recovery efforts—$8.80 billion—by allowing the city and
                                state to be provided reimbursement for disaster-related costs that FEMA
                                otherwise could not have funded. Non-traditional assistance that FEMA
                                was authorized to fund included reimbursements for heightened security
                                in the aftermath of the terrorist attacks and cost-of-living adjustments to
                                the pensions of survivors of firefighters and police officers killed in the
                                line of duty in the attacks. In order for FEMA to determine how much
                                funding was available for non-traditional assistance, FEMA officials
                                implemented an expedited close-out process, identifying and deobligating
                                any funds unspent as of April 30, 2003. These funds—totaling over $1


                                9
                                    House Report 107-593.



                                Page 12                                                        GAO-03-1174T
                          billion—were just recently provided to both the city and state and they
                          will ultimately have discretion to use the funds as they deem suitable.

Hazard Mitigation Grant   FEMA also provided $377 million in hazard mitigation grants to New York
Program                   State. Created in 1988 by the Stafford Act, the Hazard Mitigation Grant
                          Program provides funds to states affected by major disasters to undertake
                          mitigation measures. At the time of the New York disaster, FEMA could
                          provide mitigation grants in an amount up to 15 percent on top of the total
                          amount of other assistance provided.10 However, in the New York recovery
                          effort, the President limited mitigation funds to 5 percent of the funds
                          appropriated within the total amount of funds. According to FEMA
                          officials, the agency reduced the percentage of hazard mitigation grant
                          funds available to New York initially because it was unclear how much the
                          disaster would actually cost in FEMA funds, and public assistance funds
                          were being provided at 100 percent Federal share. According to FEMA
                          officials, as a result of the broadened authority authorized in the
                          Consolidated Appropriations Resolution, New York has requested less for
                          the Mitigation Grant program—which contains a state and/or local
                          matching requirement—so that it could use funds to reimburse other
                          disaster-related costs.

Mortgage and Rental       Individuals suffering financial hardships as a result of September 11 could
Assistance Program        obtain mortgage and rental assistance from FEMA. Prior to September 11,
                          FEMA had provided a total of $18 million in mortgage and rental
                          assistance grants in all previous disasters, which provided rent or
                          mortgage payments to individuals in danger of losing their homes through
                          foreclosure or eviction as a result of a major disaster. In the wake of
                          September 11, this program increased tremendously, as FEMA provided
                          nearly $200 million in this type of assistance for the New York City area.
                          Initially, applicants were eligible if they resided in certain zones around
                          the World Trade Center site. FEMA, as directed by the Congress, extended
                          assistance to those working anywhere in Manhattan and to those whose
                          employers were not located in Manhattan but were economically
                          dependent on a Manhattan firm; and anyone living in Manhattan who
                          commuted off the island and who suffered financially because of post-
                          September 11 disruptions. The Mortgage and Rental Assistance program


                          10
                            The Disaster Mitigation Act of 2000 increases this amount to 20 percent of total estimated
                          federal assistance for states that meet enhanced planning criteria. For states without an
                          approved enhanced plan, the Consolidated Appropriations Resolution of 2003 reduces the
                          amount available for mitigation grants to 7.5 percent of the other assistance provided.
                          However, neither of these provisions were applicable on September 11, 2001.



                          Page 13                                                                      GAO-03-1174T
                               closed on January 31, 2003, and as of August 5, 2003, $194 million had been
                               disbursed of the $200 million available. FEMA officials expect all funds to
                               be disbursed as applicants receive monthly assistance.11

Crisis Counseling Assistance   The Crisis Counseling Assistance Program, funded by FEMA, led to the
Program                        creation of “Project Liberty.” Project Liberty, administered by the New
                               York State Office of Mental Health, provides short-term outreach,
                               education, referrals to mental health services, and a Regular Services
                               Program to provide support to individuals with longer-term issues. In the
                               past, only individuals from a declared disaster area were eligible to receive
                               counseling services; however, because of the broad impact of the disaster,
                               grants for this program were also provided to eligible individuals in New
                               Jersey, Connecticut, Massachusetts, and Pennsylvania. FEMA provided
                               more than $166 million for crisis counseling; this sum is more than all
                               previous counseling grants since 1974 combined. Of these funds, $99
                               million has been obligated and disbursed.

Individual and Family Grant    FEMA is authorized by the Stafford Act to provide individual and family
Program                        grants for individuals’ necessary expenses related to disasters that were
                               not covered through insurance, other federal assistance, or voluntary
                               programs. For the September 11 disaster, FEMA’s Individual and Family
                               Grant Program provided eligible residents of New York City assistance for
                               home repairs, replacement of personal property, reimbursement for air
                               quality products, and repair or replacement of air conditioners. The New
                               York State Department of Labor was tasked with implementing and
                               administering the program. The Individual and Family Grant program
                               closed on November 30, 2002. As of August 5, 2003, $97 million had been
                               disbursed of the $110 million available through this program.

Other FEMA Assistance          In addition to Mortgage and Rental Assistance and Individual and Family
                               Grants, FEMA also provided other temporary housing assistance,
                               including Minimal Home Repair and Transient Accommodations programs
                               totaling $34 million. Both programs address short-term needs such as
                               lodging expenses and temporary housing repairs. In addition, the Stafford
                               Act authorizes FEMA to provide unemployment assistance to individuals
                               who are unemployed as a result of the disaster but not eligible for regular
                               State Unemployment Insurance. For the New York City area, FEMA
                               provided $17 million for disaster unemployment insurance administered
                               by the State of New York.


                               11
                                Eligible applicants received up to 18 months of assistance as part of this program.



                               Page 14                                                                     GAO-03-1174T
HUD Funded Residential Grant   In addition to FEMA assistance programs, $281 million in HUD funds were
Program                        used for the administration of the Residential Grant Program to provide
                               compensation to those affected by the disaster who remained in the area,
                               address the vacancy rate increases, and provide incentives to attract
                               residents to the area.12 The program consisted of three different grants—a
                               two-year commitment grant, a September 11 resident’s grant, and a family
                               grant. Applicants could apply for all three types of grants; each grant’s
                               value depended on the applicant’s location and housing/rental costs. The
                               Residential Grant Program closed on May 30, 2003. As of June 30, 2003,
                               over 31,000 applications totaling $172 million were approved and $106
                               million had been disbursed in grants.13

HUD Funded Business            In addition, HUD funds were used for a variety of business assistance
Assistance Programs            programs, such as recovery grants and loans to compensate for economic
                               losses and recovery efforts. Almost 18,000 businesses in New York City,
                               representing approximately 563,000 employees, were disrupted or forced
                               to relocate as a result of the terror attacks. Approximately 30 million
                               square feet of commercial space was damaged or destroyed. While
                               businesses near the World Trade Center site suffered physical damage,
                               businesses all across the city felt the economic impact of the disaster. The
                               Empire State Development Corporation (ESDC), as a grantee for HUD
                               funds, administered five programs in cooperation with New York City to
                               compensate businesses for economic losses and to assist in their recovery.
                               HUD funds provided $683 million for business assistance programs, and as
                               of June 30, 2003, $510 million had been disbursed. The Business Recovery
                               Grant Program, HUD’s largest September 11 business assistance program,
                               closed December 31, 2003, and provided $488 million to over 14,000
                               businesses in lower Manhattan as of June 30, 2003.14 Other programs that
                               are still available include a $33 million plan to provide assistance to
                               businesses that lost a disproportionate amount of workforce due to the
                               disaster, and a $41 million Business Recovery Loan Program.



                               12
                                Although the Residential Grant program and its incentives helped to revitalize the
                               economy of lower Manhattan, we categorized it as compensation for disaster-related losses
                               because of its short-term nature and intended affect on the City in terms of restoring pre-
                               disaster occupancy rates.
                               13
                                In July 2003, HUD officials announced that $50 million unallocated from the Residential
                               Grant Program would be used for an affordable housing initiative in lower Manhattan.
                               14
                                 ESDC provided funds to small and large businesses through its recovery grant program.
                               In August 2003, HUD approved allocation of additional funds to allow full disbursement of
                               these programs, for a total of $578 million.



                               Page 15                                                                    GAO-03-1174T
About $5.57 Billion Has   The terrorist attacks at the World Trade Center severely damaged the
Been Committed for        public transportation system that was used by more than 85 percent of
Projects to Restore and   commuters to lower Manhattan—the highest percentage of people
                          commuting to work by public transit of any commercial district in the
Enhance Infrastructure    nation. About $5.57 billion has been committed for projects to restore and
                          enhance infrastructure in lower Manhattan and the amount of assistance
                          each agency has committed is shown in figure 5.

                          Figure 5: Amount of Assistance Committed for Infrastructure Restoration and
                          Improvement, by Agency

                                                        Total funds committed to specific projects.




                                Initial        Compensation                     Infrastructure                         Economic
                              response           for losses                       restoration                        revitalization


                               $2.55               $4.81                            $5.57a                             $5.54a
                               Billion             Billion                          Billion                            Billion




                                                                                              FEMA - $2.75 Billion




                                                                                              DOT - $2.24 Billion




                                                                                              HUD - $0.58 Billion
                          Source: GAO.
                          a
                           HUD’s plans for $1.16 billion have not been finalized. These funds are not included in the purposes
                          listed above, and according to HUD, will most likely be directed to either infrastructure restoration or
                          economic revitalization.


                          Infrastructure efforts being funded by FEMA, DOT, and /or HUD include
                          restoration and enhancement of the lower Manhattan transportation
                          system, including a new Port Authority Trans-Hudson (PATH) terminal
                          and new subway stations; permanent utility infrastructure repairs and


                          Page 16                                                                                      GAO-03-1174T
                                  improvements; and short-term capital projects, such as parks and open
                                  space enhancements.

Projects Planned to Restore       The Congress has appropriated a total of $4.55 billion for transit projects,
and Enhance the Lower             including $1.80 billion in Capital Investment Grants to FTA for replacing,
Manhattan Transportation          rebuilding, or enhancing the public transportation systems serving
System                            Manhattan,15 and $2.75 billion in FEMA funds. Under an August 2002
                                  Memorandum of Agreement between FTA and FEMA, FTA was designated
                                  the lead federal agency in charge of administration and oversight. The
                                  three largest projects identified are the restoration and improvement of
                                  the PATH Transit Terminal, and the enhancements of the Fulton Street
                                  Transit Center and South Ferry Subway Station.

                              •   PATH Transit Terminal—The PATH commuter rail terminal, located
                                  underneath the World Trade Center site, was completely destroyed in the
                                  terrorist attacks. The Port Authority is requesting $1.4 billion to $1.7
                                  billion to build a permanent PATH terminal that Port Authority officials
                                  report will be a substantial improvement over the destroyed World Trade
                                  Center terminal. This terminal will serve PATH commuter trains and four
                                  subway lines and is to be completed in the 2007 to 2008 timeframe.

                              •   Fulton Street Transit Center—The current Fulton Street—Broadway
                                  Nassau Subway Station Complex provides access to the most heavily used
                                  subway lines in lower Manhattan and lies one block east of the World
                                  Trade Center site. The complex is comprised of four separate subway
                                  stations that serve nine subway lines and 62,000 riders during weekday
                                  peak periods. The complex was not damaged on September 11, but
                                  according to FTA and Metropolitan Transit Authority (MTA) officials, it is
                                  difficult to navigate and not easily accessible. The MTA is planning a $750
                                  million project to improve the existing Fulton Street—Broadway Nassau
                                  Subway Station Complex to create a Fulton Transit Center designed to
                                  have a visible street level entrance pavilion, improved intermodal
                                  connectivity, expanded platforms and mezzanines, and new underground
                                  pedestrian concourses. The project is estimated for completion in
                                  December 2007.

                              •   South Ferry Subway Station—The South Ferry subway station, which
                                  is located a half-mile from the World Trade Center site, was not damaged
                                  on September 11; however, according to MTA officials, the South Ferry
                                  station is outmoded: only five cars of a ten-car subway train can open onto


                                  15
                                   PL 107-206.



                                  Page 17                                                        GAO-03-1174T
the platform at one time; the tunnel is curved in such a fashion that trains
have to slow down substantially to negotiate it; and it has no direct
passenger connections to nearby subway stations. MTA is planning to
improve the South Ferry subway station so that it would accommodate the
length of a standard ten-car subway train and would provide connection to
the Whitehall Street station that serves two other subway lines. FTA
officials anticipate that the project will cost $400 million and be completed
in the 2007/2008 timeframe.

The permanent PATH terminal, the Fulton Transit Center, and the South
Ferry station account for $2.55 billion to $2.85 billion of the $4.55 billion
designated for lower Manhattan transit projects. At this time, projects to
be funded with the remaining $1.7 billion to $2 billion have yet to be
determined. In April 2003, various New York City and State agencies16
released a report entitled Lower Manhattan Transportation Strategies that
identified priority transportation projects. However, the total cost of these
projects far exceeds the remaining federal transportation assistance funds.
High priority projects highlighted in the report include access to JFK
Airport and Long Island, enhancement of West Street, construction of a
tour bus facility, and construction of World Trade Center underground
infrastructure. To date no decisions have been made on which of these
projects will be funded within the $4.55 billion cap. A portion of remaining
$1.16 billion in HUD funds will most likely be directed to infrastructure
improvement activities depending on the results of on-going studies.

In addition to the transit system, the Congress appropriated $442 million
for restoration and improvements to the local roads and enhancements to
ferry terminals and railroad tunnels. The Federal Highway Administration
is overseeing plans for $242 million in resurfacing and reconstructing
lower Manhattan streets through the Emergency Relief program. These
streets were damaged by the direct impact of the collapsed World Trade
Center buildings as well as wear and tear from response vehicles and
debris removal activities, and from emergency telecommunications
repairs. Ferry terminals were not damaged on September 11; however,
FHWA was appropriated $100 million in Miscellaneous Highway funds for
ferry and ferry facility construction projects.17 Various ferry terminals are
under consideration for significant enhancements in both New York and


16
 LMDC, Port Authority of New York and New Jersey, Metropolitan Transit Authority, the
New York State Department of Transportation and the City of New York.
17
 PL 107-117.



Page 18                                                                 GAO-03-1174T
                              New Jersey. Further, the Federal Railroad Administration was
                              appropriated $100 million to renovate the New York rail tunnels. The
                              funds are to be used by Amtrak to modernize ventilation systems, install
                              communication systems, improve emergency exits from the tunnels, and
                              structurally rehabilitate four East River tunnels, two Hudson River
                              tunnels, and the subterranean section of Penn Station.

Permanent Utility             The Congress also appropriated HUD funds to provide assistance to utility
Infrastructure Repairs and    firms as they complete permanent repairs and improvements to the
Improvements                  damaged infrastructure around the World Trade Center site. In addition to
                              the $250 million for emergency repairs previously discussed, the Congress
                              appropriated $500 million to HUD to provide funds to affected utility firms
                              for permanent repairs and rebuilding. The goals of the permanent repair
                              program are to prevent businesses and residences from bearing the cost of
                              rebuilding and to enhance the redevelopment of lower Manhattan by
                              supporting investment in energy and telecommunication infrastructure.
                              New York State officials worked with utility firms, and state and local
                              agencies to develop the program in order to help utility firms while
                              developing an improved system to attract new businesses to the area.
                              Applicants will have until December 31, 2007, to apply for certain
                              programs.18

Short-term Capital Projects   A New York State Agency worked with community groups, local
                              businesses, and city and state governments to select short-term capital
                              projects for HUD funding as part of its effort to improve the accessibility
                              and appearance of lower Manhattan. A plan submitted to HUD was
                              approved on August 6, 2003, detailing $68 million of proposed projects that
                              could be completed within one year of approval, such as parks and open
                              space enhancements, West Street pedestrian connections, building and
                              streetscape improvements, and a new school, Millennium High School. In
                              addition, a portion of these funds will be used to conduct an outreach
                              campaign to keep residents informed of rebuilding efforts.


Efforts to Revitalize the     The terrorist attacks of September 11 disrupted New York City’s economy
New York Economy              and resulted in billions in lost [or forgone] income and tax revenues. The
Include Tax Benefits and      attacks caused tens of thousands of job losses and severely impacted
                              lower Manhattan’s commercial and retail sectors. In response, the
Assistance to Businesses      Congress enacted the Liberty Zone tax benefits, estimated by the Joint


                              18
                               HUD approved the utility plan September 15, 2003.



                              Page 19                                                       GAO-03-1174T
                            Committee on Taxation to be $5.03 billion in lost federal revenue, and
                            appropriated funds to HUD, of which $515 million will aid in revitalizing
                            the lower Manhattan economy. Figure 6 shows a breakdown of economic
                            revitalization assistance.

                            Figure 6: Estimated Amount of Assistance Committed for Economic Revitalization,
                            by HUD and Liberty Zone Tax Credits




                            a
                             HUD’s plans for $1.16 billion have not been finalized. These funds are not included in the purposes
                            listed above, and according to HUD, will most likely be directed to either infrastructure restoration or
                            economic revitalization.

                            Note: Numbers do not equal total due to rounding.


Liberty Zone Tax Benefits   In Title III of the Job Creation and Worker Assistance Act of 200219,
                            Congress instituted tax benefits primarily targeted to the Liberty Zone, the


                            19
                                Job Creation and Worker Assistance Act of 2002 (Public Law 107-147)



                            Page 20                                                                                 GAO-03-1174T
area of New York City most severely impacted by the terrorist attacks, as
shown in figure 7.

Figure 7: New York Liberty Zone




                                          Cana
                                              l St.



                         Liberty Zone

               WTC
               site




                                                      ge




Source: GAO.



The amount of benefits to New York that will result from the Liberty Zone
tax provisions is unclear and likely to remain unknown. Before the Job
Creation and Worker Assistance Act was passed, the Joint Committee on
Taxation estimated the amount of tax revenue projected to be lost to the
U.S. Treasury from the Liberty Zone provisions. However, an estimate of
potential lost revenue is not the same as an estimate of the benefits
received by taxpayers. Furthermore, there are uncertainties with any
estimate. As with many tax benefits, usage of the Liberty Zone tax benefits
will depend on a variety of difficult to predict economic factors that can
influence the magnitude of the benefits. For example, an economic
downturn could slow rebuilding efforts in the New York City area,
reducing the use of benefits such as depreciation allowances. Conversely,
an economic upturn could increase benefit usage above existing estimates.
Additionally, information on usage of most Liberty Zone tax benefits is not
being collected or reported by federal, state or local agencies, and the total
amount of the benefits accruing to New York is likely to remain unknown.


Page 21                                                         GAO-03-1174T
HUD Business Assistance         In addition to the Liberty Zone tax benefits, the Congress appropriated
Programs and Planning for       funds to HUD to revitalize lower Manhattan. New York State agencies are
Rebuilding and Permanent        administering $515 million to provide programs to attract and retain
Memorial                        businesses to the area and for other projects to revitalize lower Manhattan.
                                Damage around the World Trade Center site displaced an estimated 1,025
                                firms employing more than 75,000 workers, and many more were
                                displaced by subsequent recovery efforts. Of the $515 million committed
                                for a variety of economic revitalization efforts, $475 million is provided to
                                create incentives for existing small and large businesses to remain in the
                                area and to attract new businesses to lower Manhattan. As of June 30,
                                2003, $161 million had been disbursed for these programs, providing
                                assistance for 985 businesses. An additional $40 million had also been
                                committed to help plan and coordinate rebuilding and revitalization efforts


                                In its effort to provide assistance to the New York City area following the
The Designation of a            terrorist attacks, the federal government provided aid in all categories of
Specific Level of               assistance—initial response efforts, compensation for disaster-related
                                costs and losses, infrastructure restoration and improvements, and
Assistance                      economic revitalization—that differed from that provided in any previous
Contributed to a                disaster. However, the most significant difference in the federal
                                government’s response to this disaster was the designation of a specific
Unique Federal                  level of funding for disaster assistance. The designation of $20 billion to
Government                      assist the New York City area was the first time in which the total amount
Response for this               of federal disaster assistance was set early in the response and recovery
                                efforts, and resulted in two major changes to the federal approach to this
Disaster                        disaster.

                            •   Designating a specific level of funding for the entire federal response to
                                this disaster changed the traditional approach to administering FEMA
                                funds.

                            •   This specific level of funding for the entire disaster prompted
                                Congressional authorization of numerous forms of non-traditional
                                assistance to be provided by other agencies.
Designation of a Specific       The specific level of funding that was targeted by the President and passed
Level of Funding Altered        by the Congress changed the traditional approach taken to administer
the Traditional FEMA            FEMA funds. Ordinarily, FEMA assistance has no dollar limit . When a
                                qualifying disaster event occurs, the President declares that a major
Disaster Assistance             disaster or emergency exists. This declaration activates numerous FEMA
Process                         disaster assistance programs. The funding for responding to a specific
                                disaster is not set; instead, the only factor limiting the amount of
                                assistance for response and recovery efforts is reimbursement eligibility


                                Page 22                                                         GAO-03-1174T
under the Stafford Act. Historically, FEMA approves all applications for
grants and other assistance if—and only if—the applications meet the
program requirements under the act. For example, compensation to
rebuild a public road would be an eligible project, but compensation to
improve a public road would not be. Economic losses to a city from
reduced tourism associated with a disaster would not be eligible. Further,
as some projects can be long term and are reimbursed upon completion, it
may take years to fully reconcile how much assistance was provided for
certain disasters.

In responding to September 11, however, this traditional practice was not
followed, as the President pledged at least $20 billion in federal assistance
to New York, and subsequent to that pledge, the Congress, in authorizing
this specific level of federal assistance, appropriated over $8.80 billion to
FEMA—the first time that a specified amount of funds had been
designated to FEMA to respond to a disaster. Consequently, FEMA
officials viewed the amounts legislated as the amount of money to be
spent in responding to the disaster and administered their programs
accordingly to ensure that this amount of funding was provided to the
New York area.

In addition, in order to respond to the amount of damage resulting from
the attacks and to provide the entire appropriated amount for this disaster,
FEMA expanded eligibility guidelines for many of its programs. FEMA
officials said that they broadly interpreted the Stafford Act to provide
public assistance for several projects. For example, FEMA—in
conjunction with DOT—provided funds for lower Manhattan
transportation system improvements. Previously, FEMA only provided
funds to restore damaged infrastructure to its pre-disaster condition. In
recognizing the interdependence of lower Manhattan’s transportation
system, FEMA officials reported that they interpreted their guidelines to
allow maximum flexibility to permit the rebuilding of the transportation
system as a whole instead of only what was damaged. Another example of
the broadened guidelines FEMA followed in this case is its determination
that costs associated with an EPA program to clean the interior of private
residences—the first of its kind—were eligible for reimbursement under
the Stafford Act. In this instance, FEMA determined that the dust
associated with the collapse of the World Trade Center towers was a type
of debris, and therefore costs associated with interior cleaning could be
reimbursed.

Further, the Congress reinforced FEMA’s flexible approach to eligibility
for assistance in two ways. First, the Congress authorized FEMA to

Page 23                                                         GAO-03-1174T
expand the eligibility guidelines of certain programs due to the unique
circumstances of the disaster and the unprecedented amounts of
assistance available for response and recovery efforts.20 For example,
nearly a year after September 11, Congress authorized FEMA to make the
Mortgage and Rental Assistance program more broadly available and
directed FEMA to review applications that had been previously denied.
With these new eligibility requirements, FEMA provided funds to
individuals working anywhere in Manhattan and to those whose employers
were not located in Manhattan, but who were economically dependent on
a Manhattan firm. Further, the Congress authorized FEMA to establish an
insurance company to manage a $1 billion insurance fund and to settle
claims filed by, among others, city and contractor workers who suffered ill
health effects as a result of working on debris removal operations.21
Although FEMA regularly reimburses applicants for insurance costs that
are part of a contract for services, FEMA has never reimbursed for
insurance to cover a city for suits brought by its own employees.

Second, despite FEMA’s broadened eligibility guidelines interpretation and
the Congress’ authorization of certain activities, there were still not
enough projects eligible within the authority provided by the Stafford Act
for which the New York City area could be reimbursed to reach the $8.80
billion target level for FEMA assistance. As a result, the Congress passed
the Consolidated Appropriations Resolution that ensured that FEMA
would spend the entirety of the FEMA-appropriated assistance for New
York by authorizing the agency to reimburse costs that it otherwise could
not have funded. This is the first time that FEMA has been given such
expansive authority to fund projects outside of provisions of the Stafford
Act. New York officials believe this was necessary because the Stafford
Act was too restrictive for responding to a major terrorist event, as it does
not allow FEMA to reimburse affected communities for many costs
directly related to the disaster. With the authority granted by the
Consolidated Appropriations Resolution, FEMA adapted its programs and
conducted an expedited close-out process that allowed for disbursement
of remaining funds to New York years sooner than in past disasters. As
part of the expedited closeout process, FEMA provided funds for projects
that the city or state had already completed and paid for. New York City
and State officials will ultimately have discretion to use these federal


20
  Further discussion and additional examples of public assistance projects that we
identified as non-traditional can be seen in GAO-03-926.
21
 Public Law 108-7.



Page 24                                                                    GAO-03-1174T
                            funds as they deem appropriate, in contrast to the established process
                            under which FEMA officials oversee distribution of federal funds to assure
                            that only projects eligible within the provisions of the Stafford Act are
                            funded. The expedited close-out resulted in FEMA reconciling the most
                            expensive public assistance disaster in its history years before the process
                            is typically accomplished.

                            As a result of the different approach taken to respond to this disaster,
                            FEMA recently initiated an effort to develop a concept for redesigning its
                            public assistance program. As we noted in our August 2003 report on
                            FEMA’s public assistance program efforts in New York, a working group
                            of the Public Assistance Program Redesign Project was formed at the
                            request of the director of FEMA’s Recovery Division, and held its first
                            meeting in May 2003.22 Members included FEMA public assistance and
                            research and evaluation staff and state program managers to provide a
                            broader perspective on the issues and concerns. The project was
                            established to suggest proposals to improve the public assistance program
                            and make it more efficient and capable of meeting community needs for all
                            types and sizes of disasters, including those resulting from terrorism.
                            Among other things, the project seeks to transform the program to one
                            that is flexible enough to meet the demands of disasters of all types and
                            sizes and eliminate redundancies in decision-making and processes. The
                            working group will examine potential options for redesigning the program
                            that include an annual block grant program managed by the states, a
                            disaster-based state management program, and a capped funding amount.
                            The working group plans to develop a basic design concept for revising
                            the program by September 30, 2003.


Designation of a Specific   Not only was FEMA’s traditional disaster response effort changed in
Level of Assistance         assisting the New York area, but the specific level of funding that was
Spurred Congressional       targeted by the President and passed by the Congress also spurred
                            authorization of other forms of non-traditional assistance for the New
Appropriation and           York City area. The most notable of these is the Liberty Zone tax benefits.
Authorization of Other      To address the economic impact of the September 11 attacks on New
Forms of Non-Traditional    York, Congress passed the estimated $5.03 billion New York Liberty Zone
Disaster Assistance         tax benefit package.23 This was a unique way for the Congress to provide
                            assistance for the area affected by the disaster as, according to IRS


                            22
                             GAO-03-926.
                            23
                             Job Creation and Worker Assistance Act of 2002 (PL 107-147)



                            Page 25                                                        GAO-03-1174T
                        officials, the Congress has never before passed a tax benefits package in
                        response to a disaster. Further, this tax package was targeted to a
                        geographic area, which has not generally occurred in the past.

                        Additionally, DOT was authorized to fund transportation projects to
                        improve the overall transportation system substantially beyond pre-
                        disaster condition. In most disasters, DOT is authorized to provide funds
                        only to rebuild or restore damaged infrastructure back to its pre-disaster
                        condition. However, in response to September 11, the Congress authorized
                        DOT not only to restore transportation infrastructure directly damaged in
                        the disaster, but also to enhance the overall lower Manhattan
                        transportation system.

                        Further, the Congress also directed HUD to compensate businesses for
                        economic losses—the first time its funds have been used for this purpose.
                        In previous disasters, HUD funds were typically provided to address long-
                        term effects of the disaster, including economic redevelopment efforts.
                        However, after September 11, the Congress directed HUD to focus on
                        different aspects of relief efforts than in previous disasters, such as
                        compensating businesses and individuals for economic losses and funding
                        programs to promote tourism initiatives in lower Manhattan, which had
                        not been done before, according to HUD officials.


                        The integration of FEMA into DHS, a department whose focus is on
FEMA Faces Major        security against terrorism, while maintaining FEMA’s current roles is likely
Management              to present both FEMA and DHS officials with major challenges. In January
                        of this year, we published the 2003 Performance and Accountability
Challenges While        Series24 that focused on major management challenges and program risks
Making the Transition   facing the federal government. In that series, we published reports on
                        challenges to both FEMA and DHS. In our report on DHS, we noted that
to the Department of    the creation of DHS, involving the integration of FEMA and 21 other
Homeland Security       agencies specializing in various disciplines, is a daunting challenge; yet
                        only through the effective integration and collaboration of entities can the
                        synergy expected of the department be achieved. Recognizing the
                        magnitude of the overall challenge in establishing DHS, we designated the
                        implementation and transformation of the department as high-risk. Our


                        24
                         U.S. General Accounting Office, Major Management Challenges and Program Risks:
                        Department of Homeland Security, GAO-03-102 (Washington, D.C.: January 2003) and
                        Major Management Challenges and Program Risks: Federal Emergency Management
                        Agency, GAO-03-113 (Washington, D.C.: January 2003).



                        Page 26                                                              GAO-03-1174T
    Performance and Accountability report on FEMA pointed to specific areas
    where its homeland security and non-homeland security missions were
    being transferred to separate DHS directorates. This divisional separation
    could complicate FEMA’s historical all-hazards approach—a
    comprehensive approach focused on preparing for and responding to all
    types of disaster, either natural or man-made. The separation of disaster
    and emergency responsibilities across two directorates of the new
    department will present coordination challenges for the appropriate
    Undersecretaries within DHS.

    Our FEMA Performance and Accountability report noted a number of
    other challenges. These include:

•   Enhancing the provision and management of disaster assistance for
    efficient and effective response. FEMA has demonstrated its ability to
    quickly get resources to stricken communities and disaster victims, but
    has had problems ensuring the effective use of such assistance, according
    to the Office of Management and Budget (OMB). Among other things,
    FEMA will be challenged to (1) improve its criteria for determining state
    and local eligibility to receive federal disaster assistance, (2) assess the
    extent of and approach to assistance for future major disasters based on
    the recovery efforts undertaken in the New York City area, (3) enhance
    disaster assistance staff training and resource planning, and (4) improve
    its existing information system before it is used as a building block for a
    multi-agency disaster management website.

•   Reducing the impact of natural hazards by improving the efficiency
    of mitigation and flood programs. For many years, FEMA has focused
    increased emphasis on reducing the impact of natural hazards, not only to
    lessen the impact to property and individuals, but also to reduce federal
    disaster costs. Two of the agency’s major efforts in this regard have been
    its mitigation programs and the National Flood Insurance Program. These
    programs seek to strengthen structures against the effects of hazards or
    remove them from harm’s way and to minimize the need for future FEMA
    disaster assistance. However, concerns exist in both these efforts that may
    limit their effectiveness in achieving these objectives. Moreover, the
    placement of FEMA within DHS represents a substantially changed
    environment in which FEMA will conduct its missions in the future, and
    missions that focus on reducing the impacts of natural hazards, such as
    hazard mitigation and flood insurance, may receive decreased emphasis.
    Sustained attention to these programs will be needed to ensure they
    maintain or improve their effectiveness in protecting the nation against,
    and reducing federal costs associated with, natural disasters.



    Page 27                                                        GAO-03-1174T
We continue to view these areas as challenges for FEMA and expect to
assist the Congress in its efforts to examine these challenges. In this
regard, we have a number of assignments ongoing or planned that address
many of these issues, and we will be reporting on these in the near future.


Mr. Chairman, this concludes my prepared statement. I would be happy to
answer any questions you or Members of the Subcommittee may have.

For further information on this testimony, please contact JayEtta Z.
Hecker at (202) 512-2834 or William O. Jenkins at (202) 512-8777.
Individuals making key contributions to this testimony include Kevin F.
Copping, Matthew F. Ebert, Kara A. Finnegan-Irving, John T. McGrail, and
John R. Schulze.




Page 28                                                       GAO-03-1174T
Appendix I: Objectives, Scope, and
Methodology

              The Subcommittee on Clean Air, Climate Change, and Nuclear Safety,
              Senate Committee on Environment and Public Works, asked us to
              describe the federal government’s response and recovery efforts to New
              York City and how the federal government’s response to this disaster
              differed from previous disasters. Additionally, we were asked to describe
              the management challenges FEMA faces as it integrates into the
              Department of Homeland Security (DHS).

              In addressing the first and second objective, we limited our work to the
              four federal sources of assistance that comprise 96 percent of the $20
              billion in aid pledged by the President to help the New York City area
              response to and recover from the terrorist attacks. We used information in
              our August 29, 2003 report on the Federal Emergency Management
              Agency’s Public Assistance Program and our ongoing work on the overall
              federal response to the New York City area that we are conducting for the
              Senate Committee on Environment and Public Works. To develop the
              information for our ongoing work that we used in this statement, we
              reviewed relevant legislation and obtained and reviewed information from
              the appropriate budget documents, funding plans, status reports and other
              documents from the respecting agencies. We also reviewed available
              Executive Orders, Presidential correspondence, Office of Management and
              Budget reports, and Congressional Budget Office reports related to federal
              response and recovery efforts for New York City. We interviewed federal
              officials from the Office of Management and Budget, FEMA, the
              Department of Housing and Urban Development, the Federal Transit
              Administration, the Federal Highway Administration, the Federal Railroad
              Administration, and the Internal Revenue Service to get their perspectives
              on to what purposes the assistance has been and will be used. We also
              obtained pertinent documents from and interviewed officials with New
              York State and New York City agencies, including the Lower Manhattan
              Development Corporation, the Empire State Development Corporation,
              the New York State Department of Transportation, the Metropolitan
              Transit Administration, and Port Authority of New York and New Jersey.
              We also interviewed officials from nonprofit planning and research
              organizations in New York to gain their perspectives on use of the funding
              in the city’s redevelopment process. We reviewed relevant agency
              documentation of program plans and execution including budget
              documents and databases. We also compared agency historical data to
              documentation from the New York response and recovery.

              To address management challenges facing FEMA as it transfers to the
              Department of Homeland Security, we used information from two reports
              from GAO’s Performance and Accountability Series. These were Major

              Page 29                                                       GAO-03-1174T
           Management Challenges and Program Risks: Federal Emergency
           Management Agency (January 2003 GAO-03-113) and Major Management
           Challenges and Program Risks: Department of Homeland Security
           (January 2003 GAO-03-102.)

           The work we drew upon for this statement was conducted from July 2002
           through September 2003 in accordance with generally accepted
           government accounting standards.




(544083)
           Page 30                                                   GAO-03-1174T
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