When the immediate rescue needs in post-Hurricane Harvey Texas finally diminish, Congress should consider a long-term relief strategy that President George W. Bush unwisely rejected after Hurricane Katrina.
The free-market-friendly idea inexplicably rejected by the Bush administration was pushed by conservative then-Rep. Richard Baker, R-La. It would have set up a "Louisiana Recovery Corporation," essentially a revolving loan fund to promote redevelopment and home ownership in areas devastated by the storm. I described it back then as a way to "jump-start the housing market while bringing back whole neighborhoods at a time."
In massively flooded areas, property values obviously decline precipitously – so nobody has effective equity against which to borrow for rebuilding purposes. A federal property-purchasing program, designed to help upgrades and re-sales, would send a surge of cash flowing through existing market institutions to encourage rebuilding.
Unlike ordinary "disaster relief" of the sort usually favored by the feds – direct grants, funneled through inefficient bureaucracies, that help (if at all) just the one time it reaches its recipients – this money would effectively be recycled multiple times. It would thus provide much better "bang for the buck" for taxpayers and much more dynamic, creative, regulation-unencumbered incentives for people intent on revitalizing their communities.
After speaking to Baker back then, I described how it would work:
The semi-private LRC, overseen by a board appointed by President Bush, would borrow money from the U.S. Treasury, buy Louisiana properties, bring them up to new environmental and zoning requirements, and resell them to developers. The money earned from those sales would return to the Treasury, to be borrowed again for the next round of properties. It's akin to the lines of credit many businesses use routinely. The taxpayers would get the bulk of their investment back — rather than just making direct grants never to be repaid — while the property owners, and the financial institutions that hold their mortgages, avoid foreclosures and crushing debts.
Alas, for whatever reason, the Bush administration fought against this idea. It was a major opportunity missed – and to this day, the New Orleans recovery, while generally good in the long run, has been somewhat uneven. And the rest of the Gulf Coast areas harmed by Katrina took significantly longer to fully recover than they had after the devastating Hurricane Camille in 1969.
(To be clear: Although it took longer than it should have, and cost far more – at least $114 billion in federal aid – than it should have, the Bush approach, led by an office of Gulf Coast Rebuilding that was created instead of the revolving loan approach pushed by Baker, ended up being widely praised for being rather well-managed and did achieve more successes than it was commonly credited with.)
Disaster-relief experts and policy-makers have learned a lot, of course, since Katrina. And because the immediate responses in Texas have been far better than were the ones in Katrina, the human toll (as opposed to the property damage) may not be nearly as bad as the psychological and health crises caused by Katrina. Still, in terms of raw numbers of homes damaged, Harvey this year probably will end up being displacing some three (or more) times as many people as Katrina did in 2005.
Those home-recovery efforts take a long, long time. After Katrina, my grandmother's house in Pass Christian, Miss., with a relatively mild two feet of water inside, took nearly a year of my uncle's hard work to be anywhere near back to normal.
But even with insurance money in some cases flowing in, and even with normal types of federal disaster relief, entire neighborhoods effectively become red-lined without something to re-jump-start the mortgage-lending market.
Blight begets blight, with all the attendant problems of fire hazards, rodents, and other health risks.
Southeast Texas thus could use a Baker-like revolving fund, or perhaps something modeled on the very similar Resolution Trust Corporation that worked well to resolve the Savings & Loan crisis of the late 1980s. The goal, as was described in a 2008 Wall Street Journal column by former Treasury Secretary Nicholas Brady, is to "restore liquidity to the marketplace and help markets to function more fluidly again."
Markets work better than governments. But in the wake of major disasters, it may take the resources of government to provide stability, very temporarily, for those markets to re-establish themselves.
Congress should use this approach in response to Hurricane Harvey, and watch Texas set major speed records for recovery.
Quin Hillyer (@QuinHillyer) is a contributor to the Washington Examiner's Beltway Confidential blog. He is a former associate editorial page editor for the Washington Examiner.
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