Federal inspector general to audit S&WB use of Katrina recovery funds

By Jeff Adelson

December 18, 2017

The Sewerage & Water Board will open the new year facing both a federal audit of its post-Hurricane Katrina spending and a $56.6 million deficit in its funding for drainage projects.

Though unrelated, the two new revelations show continuing problems at the beleaguered utility and the possibility of more intense federal scrutiny over why parts of the system remain in a deplorable state a dozen years after the flood and after it was awarded hundreds of millions of federal dollars earmarked for repairs.

The Aug. 5 flood, which left many New Orleans neighborhoods inundated from heavy rains that fell far short of a tropical storm, raised key questions about spending at the S&WB, including why much of the federal money remains unspent long after Katrina and why much has been spent on projects — such as turbine repairs — that ended up far exceeding their original budgets.

The Office of Inspector General within the Department of Homeland Security, which oversees FEMA, informed the S&WB of the audit last month. It was disclosed to the utility’s board and the public during a committee meeting Monday.

The news brought little reaction from board members.

In a letter, the Office of Inspector General said “our objective is to determine whether the (board) accounted for and expended FEMA funds according to federal regulations and FEMA guidelines.” The office did not respond to requests Monday for more information.

Mayor Mitch Landrieu’s administration sought to downplay the significance of the audit.

“Audits are standard when it relates to the spending of federal funds, and much of the FEMA and HUD funding awarded to the city and government agencies since Hurricane Katrina has undergone some type of auditing,” Landrieu spokesman Craig Belden said in an email. “The city will work with the Sewerage & Water Board to ensure full compliance with any and all requests.”

It won’t be the first time Homeland Security’s inspector general has been critical of FEMA funding for S&WB projects. Earlier this year, the office questioned the $2 billion settlement FEMA and the city reached to cover repairs to underground utility lines and streets, saying that the “very poor” condition of many streets before Katrina — rather than the flood — was likely the reason for their current state.

The new audit comes as the S&WB faces a 2018 budget with a giant asterisk next to what has become a top concern for New Orleans residents: maintenance, repairs and upgrades to the city’s drainage system.

The $346.5 million capital budget for 2018 presented to the S&WB’s Finance Committee on Monday includes $83 million for drainage work. Federal funds will account for about $25 million of that, and the S&WB will kick in another $1.8 million. But that leaves about $56 million in projects with a funding source “to be determined.”

A lack of funding for the drainage system has historically been a problem for the S&WB, which has traditionally pushed off that unfunded work to the future, said Katie Dignan, who oversees a project team that oversees both the S&WB and the city’s Department of Public Works.

For the coming year, Dignan said she has been talking with bond attorneys about issuing about $27 million in bonds, though that would provide only about half of what’s needed and would leave the funding for future years in question.

That didn’t sit well with some on the committee.

“If we know we don’t have adequate revenue for all these projects in drainage, how can we move forward?” member Ralph Johnson said.

Typically, the S&WB prioritizes projects and does only those that it has funding for or else borrows money from the water and sewerage systems to pay for drainage repairs, said Ron Spooner, the head of engineering for the utility.

The board is expected to be briefed on some options for making up the shortfall in January.

Officials have declined to say where the needed money could come from. But the most likely source would be some sort of drainage fee on properties in the city.

At present, the S&WB’s drainage system is paid for through three property taxes, while its water and sewer systems get their money by billing customers directly for their water usage. But officials have suggested they need more money to keep up with the costs of running and maintaining the drainage system.

The S&WB was making the first tentative moves toward building support for a new drainage fee before the August flooding. A report from the nonpartisan Bureau of Governmental Research that recommended various ways a fee could be implemented was praised by former S&WB Executive Director Cedric Grant and some board members earlier this year.

After the summer floods, some again raised the possibility of raising money through fees.

Mayor-elect LaToya Cantrell made drainage fees the central funding mechanism for the infrastructure plan she unveiled during her campaign. Those fees, she said, should initially be applied to nonprofits that now pay no property taxes. But she suggested that such fees could be extended to other properties once trust in the S&WB improves.

Cantrell, however, does not appear to think that trust is there yet. When S&WB officials appeared before the City Council last week, she criticized their agency for a lack of transparency and public accountability, something she said would be crucial for building the support needed to bridge “gaps in financing and funding.”

“Recently I was informed about the idea of floating a fee, even on a ballot in March,” Cantrell said. “But again, we can’t have those conversations when people don’t know what’s going on … when there isn’t trust in the community.”

After the meeting, S&WB officials denied that there had been plans to put such a measure forward and suggested Cantrell was referring to BGR’s report.

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