08/29/2012 06:19 pm ET Updated Oct 29, 2012

Seven Years After Hurricane Katrina: Who Owes Whom?

Right now Hurricane Isaac is thrashing New Orleans and the Gulf Coast, but the thoughts of many residents there are on another storm. Today marks seven years since Hurricane Katrina blasted ashore along the Gulf Coast. The storm's trail of destruction left at least 1,836 people dead and 80 percent of the city of New Orleans flooded, largely from the failure of the city's levee system.

Hurricane Katrina forever changed New Orleans economically, culturally, and environmentally and left the rest of the country with unforgettable images of damage and desperation. The federal government, especially the Federal Emergency Management Agency (FEMA), was roundly criticized for its bungled response to this unprecedented disaster.

Seven years later, New Orleans is still struggling to recover. Last week Professors Bill Quigley (who has written two articles about poverty and Hurricane Katrina for Clearinghouse Review: Journal of Poverty Law and Policy) and Davida Finger released their annual "Katrina Pain Index" to document the city's slow recovery. The numbers paint a bleak picture for low-income residents of the Big Easy:

  • 27 percent of New Orleans residents live in poverty.
  • 40 percent of poor adults work, including a quarter who work full-time yet remain in poverty.
  • 37 percent of New Orleans families are "asset poor," which means they could not survive for three months without income.
  • 42 percent of New Orleans children live in poverty.
  • New Orleans has the second highest rate of homelessness in the country.
  • New Orleans also has the second highest rate of income inequality, and the racial disparities are striking:
  • 30 percent of African-Americans live in poverty, as opposed to 8 percent of whites.
  • 50 percent of African-Americans in New Orleans are asset poor, followed by 40 percent of Latinos, 24 percent of Asians, and 22 percent of whites.
  • 65 percent of African-American children are poor, versus less than 1 percent of white children.

To be sure, New Orleans had its problems before Hurricane Katrina, but given these statistics and the failures of the U.S. Army Corps of Engineers and FEMA, one could argue that the United States owes a debt to New Orleans and survivors of Hurricane Katrina. Instead, in a twisted irony, the federal government has been trying to collect debts from Hurricane Katrina survivors.

In the current issue of Clearinghouse Review, Professor Finger chronicles FEMA's attempts to recoup alleged overpayments of post-disaster housing assistance and the challenges recipients have faced in contesting these collection efforts.

FEMA's initial attempts to terminate housing assistance and recover overpayments were almost as sloppy as its initial handling of the hurricane itself: It did not adequately notify those who had been overpaid about why it wanted its money back and what the overpaid recipient could do about it. In addition, housing-assistance recipients had no due process before their assistance payments stopped.

Professor Finger, through her work with the Loyola Law Clinic, teamed with pro bono counsel and brought a class action lawsuit against FEMA that led to a $2.65 million settlement to resolve FEMA's shoddy procedure for terminating housing assistance. FEMA also abandoned thousands of pending overpayment-collection efforts to review and revise its recoupment procedure.

In the summer of 2011, half a year after settling the class action suit against it, FEMA sent out a fresh batch of more than 80,000 notice-of-debt letters to people who had allegedly received too much housing assistance from the agency. Those who received the letters had two options: (1) within 60 days they could appeal FEMA's determination and submit evidence of their living situations six years prior -- a nearly impossible task for people whose housing had been in flux since Katrina -- or (2) they could request a "compromise" by demonstrating their current inability to pay, in which case FEMA would reserve the right to recoup the debt later if their financial circumstances changed.

After outrage grew over these insufficient remedies, at the end of 2011 Congress enacted the Disaster Assistance Recoupment Fairness Act (DARFA) to offer a more appropriate remedy. Under DARFA, an individual who received an overpayment from FEMA can obtain a complete waiver of this debt without the usual tax consequences of debt forgiveness. As Professor Finger explains, waivers are available when the overpayment was FEMA's fault and collecting the debt would be "against equity and good conscience," among other factors. Full waivers are available to those whose annual household adjusted gross income is less than $90,000, and partial waivers are available to those with higher incomes.

Unfortunately, FEMA's authority to waive debt under DARFA ends September 30, 2012. And it is unclear whether everyone who qualifies for debt waiver even knows about it. Professor Finger notes that FEMA sent out 90,000 letters to people about waiving their debts under DARFA; right away, 20,000 of those letters came back as undeliverable. Recipients of these letters have only 60 days to respond from the date on the letter. Southeast Louisiana Legal Services has been working to raise awareness of this debt-relief opportunity.

DARFA has brought relief to some people who were displaced by Hurricane Katrina and then pursued by FEMA, including at least one client of Professor Finger's legal clinic. After seven years, stopping FEMA's unwarranted recoupment efforts is one more step toward balancing the debts between hurricane victims and the federal government.