As Congress and the nation consider how to rebuild shattered lives and destroyed neighborhoods after the Katrina disaster, it is important that taking action swiftly does not lead to steps that cause dollars to be used inefficiently or unwise decisions that will frustrate rather than achieve long term success. Congress should keep the following guidelines firmly in mind.

• The federal government should provide support and assistance only in those situations that are beyond the capabilities of state and local government and the private sector. State and local governments must retain their crucial role as first responders to disasters. The federal government should avoid federalizing state and local first response agencies and activities.
  
• Federal financial aid, when necessary, should be provided in a manner that promotes accountability, flexibility, and creativity. In general, tools such as tax credits and voucher programs, which allow individuals and families to direct funds, should be utilized to encourage private sector innovation and sensitivity to individual needs and preferences.

• Consistent with genuine health and safety needs, red tape should be reduced or eliminated to speed up private sector investment and initiative in the rebuilding of facilities and the restoration of businesses. Regulations that are barriers to putting people back to work should be streamlined or suspended.

• Congress should reorder its spending priorities, not just add new money while other money is being wasted. Now is the time to shift resources to their most important uses and away from lower priority uses to use dollars more effectively. It is critical that America focuses on building capabilities for responding to a catastrophic disaster, not catering to the wish lists of states and stakeholders.

• Private vision, not bureaucracy, must be the engine to rebuild. New Orleans and other ravaged cities will look different in a decade from now, even though they will retain their individual essences. The critical need now is to encourage investors and entrepreneurs to seek new opportunities within these cities. Bureaucrats cannot do that. The key is to encourage private sector creativity, such as declaring New Orleans and other severely damaged areas “Opportunity Zones” in which capital gains tax on investments is eliminated and regulations simplified or eliminated.

• Funding from the federal government for homeland security and disaster response and relief activities should focus on national priorities, better regional coordination and communication, and capitalizing federal assets.

• Catastrophic disasters will require a large-scale and rapid military response that only the National Guard can provide. The National Guard needs to be restructured to make it more effective and quicker to take action.

Specific Recommendations:

Redirecting Federal Spending

All emergency funding should be reserved strictly to provide relief for immediate victims of this immense destruction. There must be no “mission creep.”

This spending should be offset with reductions in other spending—just as Congress did following the California earthquake and the Oklahoma City bombing. Discretionary federal spending should be frozen for the remainder of the fiscal year, thereby forcing Congress to reassess priorities and offset emergency funding needs.

Clearing Away Red Tape

Declare New Orleans and other affected areas “Opportunity Zones.” For these zones, the President should direct an Emergency Board, drawn from federal, state, and local agencies, to identify regulations at all levels that impede recovery and propose temporary modification or suspension of these rules. Agencies should fast-track those recommendations, and Congress, as necessary, should enact legislation where a legislative waiver is required. At the state level, California’s governor used such emergency powers given to him to suspend regulations—even statutes—to cut highway reconstruction time after the 1994 Northridge earthquake from an estimated two years to just over two months.

The President should suspend Davis-Bacon requirements for affected areas, as he is empowered to do and as previous presidents, including Franklin Roosevelt, Richard Nixon, and George Bush (after Hurricane Andrew), have done after previous disasters. This would sharply reduce the costs of reconstruction and allow displaced Americans without jobs to work on federal projects to restore their neighborhoods.

Repeal or waive restrictive environmental regulations such as NEPA that hamper rebuilding.

Repeal or waive Clean Air Act regulations that hamper refinery construction or expansion.

Waive or repeal gasoline formulation requirements under the Clean Air Act and other regulations to allow gasoline markets to work more flexibly and efficiently and reduce costs.

Allow more drilling in the United States, including in ANWR and offshore areas along other coasts

Rebuilding Infrastructure

Rebuild bridges, schools, water, and sanitation in partnership with the private sector, which will vastly reduce the costs. Where states may need enabling legislation, they should be urged to enact such legislation immediately.

Rescind all of the more than 6,000 earmarked highway projects in the recent highway legislation and use the funds—nearly $25 billion—to rebuild higher priority infrastructure projects destroyed by Katrina.

Tax Changes to Spur Investment

In the declared Opportunity Zones in the Gulf Coast area, streamline or suspend parts of the federal tax code to promote rapid reconstruction and redevelopment. Specifically, eliminate the capital gains tax on all new investment for the next five years within these areas. In addition, allow Gulf Coast businesses in the zones to fully expense business investments for the next five years.

Repeal the death tax, or at the very least exempt Katrina victims from paying death taxes. After 9/11, Congress enacted legislation to increase the exempt amount for families of victims to $8.5 million and delayed their death tax liability for two years.

Eliminate tax depreciation lives of “old capital” in order to reduce the cost to firms of purchasing new and more productive equipment and structures.

Postpone payment of 2004 and 2005 individual and business income taxes for Katrina’s victims. Waive penalties for withdrawals from tax advantaged savings such as IRAs and 401(k) accounts, as Congress did for the victims of 9/11.

Promoting Permanent Health Care Coverage

Give displaced workers generous, refundable tax credits (direct subsidies) for the purchase of the kind of health insurance that best meets their personal needs.

Increase access to insurance coverage by streamlining tax laws and federal regulations to encourage displaced workers to enroll in insurance plans of their choice at either state unemployment offices or designated disaster relief offices.

The key to long-term coverage for Americans who have lost employment-based coverage is to change the law to let displaced Americans use the same tax breaks and other subsidies that apply to employment-based plans for coverage they can obtain through organizations they trust and are close to them. Amend tax laws and regulations to permit charitable agencies currently providing relief, such as religious organizations, to sponsor health plans in cooperation with insurers. This should include religious and faith-based plans, regardless of where these health plans are domiciled. Do the same for plans organized through other organizations, such as unions, farm bureaus, and school systems.

Providing Education

Federal K-12 education formula funds (such as Title I) should be made “portable” so that students may attend public or private schools in areas where they are forced to relocate. In that way money will “follow the child” to those schools that help displaced children, and those children will not become financial burdens on their new schools.

Use Opportunity Zones to spur school reconstruction. In particular,

• Deregulate and reallocate federal education funding, with incentives for similar state and local action;
  
• Promote the establishment of new education options through smaller public schools and charter schools, as well as private and religious schools; and
  
• Use tax relief within Opportunity Zones to encourage private providers to invest in the educational renaissance of major cities like New Orleans.

Encourage Civil Society and Faith-Based Outreach

Eliminate regulatory barriers and disincentives that block faith-based and other charitable organizations from engaging in the recovery and reconstruction process. Such organizations are typically the first ones that people turn to in time of crisis and need.

Improving the National Response System

The homeland security grant system and the billions given to state and local governments and the private sector have not improved the nation’s capacity to respond to catastrophic disasters like Hurricane Katrina. In most disasters, local resources handle things in the first hours and days until national resources can be requested, marshaled, and rushed to the scene. Catastrophic disasters are of a completely different character. State and local resources are exhausted from the onset. The administration needs the authority and organization to build an effective national response system.

Restructure the National Guard

Only catastrophic disasters—events that overwhelm the capacity of state and local governments—require a large-scale military response. These forces should mostly be National Guard soldiers, troops with the flexibility to work equally well under state or federal control. The National Guard, however, is not well structured and organized to respond to catastrophic disasters. The force needs to be large enough to maintain some units on active duty at all times for rapid response and sufficient to support missions at home and abroad. For catastrophic response, three components need to be particularly robust: medical, security, and critical infrastructure response. The Defense Department should restructure a significant portion of the National Guard into an effective response force.

Strengthen FEMA

The Department of Homeland Security needs an organizational structure that can prepare for and manage the aftermath of catastrophic disasters. The organization of the department established by Congress fragmented the preparedness and response missions among several agencies and offices. FEMA needs to be strengthened and made an independent agency of the department, eliminating a level of bureaucracy and focusing the agency squarely on its traditional role of planning and coordinating the national (not just federal) response to disasters. Congress should support full implementation of the Chertoff’s Second Stage Review, which seeks to address these problems.

Information Sharing and Coordination

The Department of Homeland Security lacks a regional structure for preparedness and responding to catastrophic disaster.DHS should create a regional framework, with the primary aims of enhancing information sharing and other coordination among the states, the private sector, and the headquarters in Washington. The first priority of this regional organization should be to support the flow of information and to coordinate training, exercises, and professional development for state and local governments and the private sector to respond to catastrophic terrorism.

U.S. Coast Guard Modernization

Recapitalize federal assets needed for disasters, especially the U.S. Coast Guard. The U.S. Coast Guard modernization program is inadequate to meet national needs. During the response to Hurricane Katrina the U.S. Coast Guard, part of DHS, proved why it is one of the nation’s most valuable assets. Coast Guardsmen, under the most harrowing conditions, rescued over 22,000 people and provided essential and immediate aid to communities all along the Gulf Coast. Funding for the Coast Guard’s Deepwater modernization program must be a national priority.

Engage the Private Sector

Over 85 percent of the critical infrastructure in the United States is controlled by the private sec­tor. The United States lacks an effective strategy to protect or reconstitute critical infrastructure, such as power grids, energy supplies, etc., in the event of catastrophic disaster. It is largely the responsibility of the owners and users to pay to protect these resources, minimize vulnerabilities, and mitigate disruptions, and this is not a problem that can be best by solved by throwing federal dollars at it. What the government can and must do is to remove the barriers to effective information sharing between the public and private sectors so that reasonable measures can be taken and plans made. It must also address private-sector liability issues.