Did Hurricane Katrina Cost More Than the BP Oil Spill?

Posted in Home Insurance

August 31st, 2010

Recently, lawmakers in the House of Representatives proposed to pull back $400 million from the Louisiana Road Home Program–a program created largely to help rebuild areas affected by Hurricane Katrina–because they felt the money wasn’t being used and could better be applied to a $26 billion House spending bill.

While the Senate was able to stop the proposal and keep the money with the program, the idea that the money could be taken away made some question the commitment to rebuilding Katrina damage. This is because some of the funds would have gone instead to cleaning up waters affected by the BP oil spill, which some think may have been a more affordable cleanup.

What is the Louisiana Road Program?

The Louisiana Road Home program was created to provide compensation to homeowners in Louisiana who were affected by Hurricane Katrina or Rita and needed help repairing the damage to their homes. It is currently the largest single housing recovery program in United States’ history.

Homeowners are eligible to receive up to $150,000 to compensate for their losses and help get them back into homes if they had little-to-no home insurance. The program also offers assistance to those who are rebuilding and relocating.

How Much is Required to Help the Katrina Victims?

The victims of Hurricane Katrina were forced to endure a lot, but those who were not holding enough homeowners insurance suffered even more. Unable to pay for the damages to their homes, many were saved by the Road Home program, which allowed them to make home insurance claims to the program itself.

As of Aug. 2009, the program had provided almost $8 billion to an estimated 125,000 homeowners. However, thousands more still need help. In fact, nearly 20,000 families were still living in temporary trailers and apartments and in need of a permanent solution in June 2009.

With the average homeowner receiving around $60,000 for assistance, which in actuality isn’t enough, the $400 million that was recently returned to the program would only help roughly 6,600 residents. In other words, to help the 20,000 families, even with minimal assistance, there would need to be over $1 billion available to help.

Maybe this is the reason that the House thought it would be best to take back the unused funds held by the program and allot them to a more suitable cause.

Does the Oil Spill Cleanup Really Cost Less?

It’s ironic the BP spill just happened to affect the same area that Hurricane Katrina did–the Gulf of Mexico–giving the area something else to clean up. In the House’s argument to add more funds to the House spending bill, it found it appropriate to retrieve the funds from the Road Home program.

However, was there a greater reason to allocate the funds toward the spill?

A recent estimate of the cost to clean up the BP oil spill was around $4 billion, which is slightly higher than Hurricane Katrina would cost to rebuild. So how exactly would the $400 million have helped with the cleanup?

In actuality, $300 million would have been allocated to the cleanup while $100 million would have been dedicated to other aspects of the House spending bill, including financing the war in Afghanistan and replenishing FEMA’s disaster relief fund.

While some of the funds would have gone to other causes, according to the House, at least the funds would have been used for something.

To counter the argument, Louisiana said it planned to use that money to create a program to help homeowners who couldn’t complete rebuilding their homes despite earlier grants, including those who had Chinese drywall issues or those who had fallen victim to fraudulent contractors.

In other words, Louisiana had plans for it too, which is why the Senate agreed to return the funds and give the very costly rebuilding process in the area another shot.

Speaking of costliness, have we determined whether Katrina ended up costing more than the BP oil spill? Well, it looks as though the overall costs of the Katrina damage was more expensive ($8 billion as of Aug. 2009), though after so many homes have already been repaired and rebuilt, the remaining costs probably wouldn’t total as much as the $4 billion needed for the oil spill.

In any case, the debated on $400 million wouldn’t be enough to help either party fully. At least happy Louisiana residents now have a greater shot at seeing some funds head their way to repair their homes. In the meantime, the Gulf oil spill cleanup has progressed enough that Louisiana fishermen reported finding all clean seafood on their first day back to work.