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Hurricane Katrina: One Year of Fraud and Waste

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One year after Hurricane Katrina made landfall on the Gulf Coast, waste, cronyism, and abuse have outpaced recovery and reconstruction, according to a recent report titled "Big, Easy Money" published by CorpWatch. With a death toll of over 1,800 and hundreds of thousands still displaced, Hurricane Katrina ranks among the worst natural disasters in US history. Still, the CorpWatch.org report notes, billions of dollars and much political rhetoric later, the people in the Gulf States, especially the city of New Orleans have little show to for it.

A recent poll conducted by ABC News indicates that two-thirds of the residents of New Orleans believe that the relief efforts have been mainly wasted. About 80 percent of the people in the damaged areas along the Gulf Coast are frustrated with the slowness of the recovery and reconstruction efforts.

They have good reason to be, according to the CorpWatch report. Cronyism and no-bid contracts are among the biggest causes of waste and abuse in the reconstruction process. The report cites numerous instances where large companies, mostly based far from the damaged areas, won expensive, no-bid contracts from the federal government because of their political ties to the Bush administration.

For example, Ashbritt, a company that does clean-up and recovery after natural disasters, raked in $500 million taxpayer dollars because of its relationship with Florida governor and presidential brother Jeb Bush and Mississippi governor and former Republican National Committee chair Haley Barbour. Fluor, another recovery corporation, took in $1.6 billion to build housing and for other reconstruction projects. On its board sits Suzanne H. Woolsey, wife of former CIA director James Woolsey turned Washington lobbyist.

Other companies like Americold and Carnival Cruise Lines won expensive contracts through their ties to former FEMA director James Lee Witt and Florida Governor Jeb Bush respectively. Akima, a company that won a contracts worth about $40 million to build 450 portable classrooms, has financial and political ties to former Department of Homeland Security head Tom Ridge.

Some companies like Emergency Disaster Services (EDS) were paid millions to provide meals to emergency workers. At one point in the contract, the report states, the contracted service works out to somewhere between $100 and $279 per meal provided. Instead of having EDS's contract withdrawn due to the immense waste of taxpayer dollars, it was renewed two more times.


Yet, as the report notes, "the Gulf continues to stagger along, wounded, with mattresses still in trees, no reliable electricity, boats on the shoulders of highways, crushed houses slumped and moldering where they fell, and public school instruction still being held in portable classrooms or tents, if at all, while some hospitals remain understaffed and others are too damaged to ever reopen." Because recovery and clean up have been so slow, many bodies in predominantly African American sections of New Orleans have yet to be identified, and, according to the report, some are still being discovered in the attics of destroyed homes a year later.

Environmental damage and dangers also remain. Studies indicate "the presence of arsenic, heavy metals, pesticides, diesel, benzene and other toxic compounds" in the soil, according to the report. "What had been an unhealthy place to live became far worse immediately after the hurricane."

In turn local businesses, who by federal law are mandated to get the majority of federal contracts received only 13% of the value of all federal contracts in the first wave of massive spending following the hurricane. By July 2006, after a storm of controversy and congressional investigations, "companies from Louisiana, Mississippi and Alabama had increased their share of the total contracts to a combined 16.6 percent."

Some companies profiting from the disaster have also abused their employees with impunity. Belfour USA Group, after winning its big government contract for clean-up operations, recruited thousands of immigrant workers for the job. Now, a group representing at least 1,000 of those workers is suing the company for refusing to pay overtime wages. Other labor groups say that many workers have been forced to live in cramped, rat-infested housing and have not been fully compensated for the work they do. They also say that some immigrant workers have been threatened with deportation if they complain.

The CorpWatch report states that runaway cronyism and waste have simply gone unchallenged by the Republican-controlled Congress and the Bush administration. "The lack of a competitive bidding system in the earliest days, the gutting of FEMA, and continued chaos on the Gulf Coast," the report argues, "has also made it nearly impossible to impose any meaningful accountability on those companies staking claim to the billions in federal recovery dollars."

Part of the problem lies with the right wing's anti-government ideology. For years, anti-government Republicans have promised to gut federal programs like FEMA as part of a downsizing of government. They believed that the private corporations could do the same jobs better. To accomplish this, the report points out, "FEMA was reconfigured and downsized in the 1990s under the guise of reform."

Under the Bush administration, "the agency has been primarily focused on counterterrorism, not natural disasters." As a result, FEMA was simply incapable of dealing with the disaster following the storm. The administration's misleading claims that the severity of the storm and the subsequent damage could not be foreseen, the report finds, are "laughable."

And still the majority of the money allocated by Congress for recovery and reconstruction has "yet to be designated for actual work, while the federal and local governments duke it out over a grand plan for rebuilding the region," the report notes.

"One year after disaster struck, the slow-motion rebuilding of the Gulf Coast region looks identical to what has happened to date in Afghanistan and Iraq. We see a pattern of profiteering, waste and failure due to the same flawed contracting system and even many of the same players," says CorpWatch Director Pratap Chatterjee.

The CorpWatch report comes just as other media outlets are reporting on additional corporate fraud related to the hurricane disaster. ABC News reported last week that the FBI is investigating accusations that State Farm Insurance bilked hurricane victims out of untold amounts of money claimed for damages caused by the storm. Two former insurance adjusters who worked with State Farm say the insurance giant purposely and systematically lost or destroyed damage reports in order to avoid paying policyholders' claims. They also say they saw State Farm supervisors pressure engineers to report that damage was caused by water not by wind in order to avoid paying claims, according to the ABC News report.

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--Joel Wendland is editor of Political Affairs.
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