A Flood of Money
In the Gulf, a gold rush for government funds
There's a price for luxury. Just ask the Federal Emergency Management Agency. On September 1, when FEMA officials thought they would have thousands of evacuees from Hurricane Katrina to house and feed, along with hundreds of emergency workers, the disaster management agency signed a no-bid contract with the Carnival Corp., owners of a fleet of luxe cruise ships. The deal: The feds would get three ships, Holiday, Ecstasy, and Sensation, with food included, all for a cool $236 million for six months.
But now watchdog groups are howling. The cost, they say, is astronomical, and a census last week showed that more than half the slots on the ships were vacant. Add one more thing for Congress to take a look at in the government's lackluster response to Katrina. The devastation wreaked by the storm is being answered by what will surely be the most expensive government rebuilding exercise in history. But how some of the money is being spent is already raising eyebrows. Inspectors general from a variety of government agencies, keeping a close eye on many of the contracts in the immediate aftermath of Katrina, went to Capitol Hill last week and tried to reassure members of Congress worried about disaster-related spending run amok. The government gumshoes will no doubt get more money and staff for oversight, but how much is enough? Washington is spending at least hundreds of millions of dollars a day on relief and recovery efforts, and big-money contracts continue to fly out the door at a stunning pace.
Make no mistake: The scale of the Katrina recovery contracts will be staggering. Congress has already appropriated more than $62 billion--roughly $15 billion more than the Department of Homeland Security's entire budget for this fiscal year, and way more than the nearly $44 billion appropriated for immediate post-9/11 recovery efforts. The next congressional funding could bring the total to more than $200 billion. A controversial bill proposed by Louisiana Sens. Mary Landrieu and David Vitter asks for $250 billion for hurricane relief for their state alone, including projects critics say are unrelated to hurricane relief, like $25 million for a sugar-cane research lab, $25 million for timber and Christmas tree farms, and $35 million to market Gulf Coast seafood. Gripes Tom Schatz, president of Citizens Against Waste, a watchdog group: "It seems like blatant pork profiteering and business as usual."
Clearly, the money chase is on. At a Katrina reconstruction summit recently, some 300 people gathered in the Hart Senate Office Building on Capitol Hill to learn how to get in on the Katrina gold rush. Edward Badolato, a retired Marine colonel who is now an executive with the Shaw Group, reportedly reassured attendees. "Trust me," he said, "there' s going to be enough for everybody down there."
Some of the government contracts already let have gone to firms that critics consider the "usual suspects," big outfits that have controversial records in Iraq, for instance. Halliburton subsidiary Kellogg Brown & Root, a company that charged the Pentagon $100 for each 15-pound bag of laundry, has netted $60 million in Katrina contracts. "Despite what we've been told," says Danielle Brian, executive director of the Project on Government Oversight, a watchdog group, "the favored few are not the only companies capable of doing major construction and engineering work." A spokesperson for Halliburton says KBR is doing Katrina work under two pre-existing and competitively bid contracts. Complaints of overcharges on the firm's Iraq work, the spokesperson said, are "uninformed and flat wrong."
Relationships. This doesn't mean that connections don't count, however. Joe Allbaugh, a former FEMA director and a campaign manager for President Bush's 2000 campaign, has advised both the Shaw Group and KBR on hurricane relief, though he has emphasized that he had no role in helping them close the deals. Ashbritt Environmental, a Florida company that won a $568 million Pentagon competitive contract to move debris in Mississippi, paid $40,000 to a lobbying firm founded by Mississippi Gov. Haley Barbour during the first five months of this year, according to Senate lobbyist filings. But overall, 4 out of 5 of FEMA's hurricane-related contracts were awarded with little or no competition.
The price tags on some of the contracts, some critics say, are also suspect. Clark Kent Ervin, a former inspector general at the Department of Homeland Security, says officials there are making some of the same mistakes as they did after the 9/11 attacks. "When they issue rapid-fire, no-bid contracts," Ervin says, "they're basically asking companies to gouge them." Carnival has said that the company is making no extra money from the FEMA deal for its three cruise ships, but staffers for Oklahoma Sen. Tom Coburn allege that an evacuee could take an all-amenities Caribbean cruise on a Carnival ship for less than half what the government is paying per person. In Mississippi, one community that opted out of the high-priced Ashbritt debris-removal contract signed up a smaller firm that is hauling its shattered housing stock and other materials for roughly $4 less per cubic yard.
Government spending for trailers and mobile homes is also being scrutinized. FEMA has issued more than $2 billion in contracts to buy more than 120,000 trailers, but a spokesman in the Louisiana governor's office told the New York Times that only 109 Louisiana families had been relocated to the temporary housing by late last week. FEMA has now frozen many of the trailer contracts.
DHS Secretary Michael Chertoff, a former prosecutor, vows an aggressive effort to keep tabs on all the money. Richard Skinner, the Homeland Security Department's inspector general, says he's working with a dozen IG s from other agencies to police both contracts and spending patterns. "They've got a very strong exhortation from me," Chertoff says, "to go out and make sure that they're scrubbing these [contracts]." If the government isn't getting the "best bang for the public buck," Chertoff continued, he will order contracts to be renegotiated.
Full plate. Skinner and his team of inspectors have their work cut out for them. This week, Skinner will welcome a new head for the Office of Hurricane Katrina Oversight. He has also set up satellite auditing offices in Baton Rouge; Montgomery, Ala., and Jackson, Miss. Auditors and investigators working for the Pentagon's acting inspector general, Thomas Gimble, will also help with the oversight effort. Apart from criminal inquiries, auditors will review how contracts are being awarded and whether proper controls are in place. Auditors also will evaluate how effectively the military and the Pentagon's civilian personnel are being used in supporting relief efforts. "We have a lot of people signed up on this thing," says one official. Adds another: "Things are moving fast and furious."
Skinner acknowledged in an interview that the inspectors are "very apprehensive about what we're seeing." In some cases, he says, contracts were sealed orally with no paper trails. There's reason to be concerned. Earlier this year, the Government Accountability Office said that the DHS's financial operations lacked "adequate internal controls" and were characterized by "unclear accountability."
Which means that Skinner and his team of bean counters are going to have to be unusually vigilant. Every big, sole-source contract let during the past month, he says, will be examined, and from now on, his team of inspectors will monitor every hurricane-related contract. That's a lofty goal, since soon it will also encompass billions in individual assistance grants. Congress has handed Skinner only $15 million in new money to do all this work, but Ervin, the former inspector general at DHS, says much more is needed.
Congress, too, wants a hand in managing the oversight effort. There are at least nine bills pending on Capitol Hill that would remake the organization chart for oversight of Katrina and Rita contracts. The one gaining the most traction proposes naming a chief financial officer for all hurricane-relief operations to sign off on all contracts before they're issued.
For now, though, the spotlight is on Skinner and his inspectors. Congress mandates that inspectors general be appointed "without regard to political affiliation" and "solely on the basis of integrity and demonstrated ability," but a report last year by the Democratic staff of the House Government Reform committee said that 64 percent of the inspectors general appointed by President Bush had past political experience--more than a third of them working in Republican White Houses--and only 18 percent had prior experience conducting audits. Skinner and Matthew Jadacki, the new head of the Hurricane Katrina Oversight Office, both worked as senior officials at FEMA for years, but Skinner says concerns about their previous ties to FEMA are "completely unfounded." So they're off to work, with their pencils and green eyeshades. American taxpayers had better hope they're up to the task.
With Edward T. Pound
This story appears in the October 10, 2005 print edition of U.S. News & World Report.