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Introduction

Hurricane Katrina created the largest natural disaster in the United States in a generation. More than one million people fled, and in New Orleans, as many as 50,000 houses are completed destroyed. Many of the remaining 130,000 homes in the city are severely damaged. Louisiana and Mississippi, the states hardest-hit, are the nation's poorest, both with approximately 1 in 5 residents living in poverty.

ICCR members responded quickly. Faith-based disaster relief services such as Lutheran Disaster Relief and Church World Service were on the scene immediately. Investors such as the Shefa Fund and Christus Health moved quickly to make deposits in local financial institutions so they would remain viable through the immediate crisis. Later, socially responsible mutual fund leader Calvert released a set of principles specifically addressing the unique issues of corporate citizenship after Katrina.

This paper intends to build on those actions and sketch out the possibilities for corporate responsibility advocacy on a 6 to 24 month time horizon. It is based on key informant interviews with financial professionals, legal experts, community leaders, faith leaders, and policymakers in the affected areas broadly - with a focus on New Orleans.

Justice Work on the Gulf Coast After Hurricane Katrina

As Peter Dreier writes in the March 2006 issues of Urban Affairs Review, "Katrina was not an equal opportunity disaster. There were clear class and race fault lines." Before Katrina, New Orleans was the third-poorest city in the nation, and one of its most racially segregated. This clearly played out during the flooding, when institutional racism, indifference, incompetence, and sheer partisanship led to needless deaths and gut-wrenching images.

However, the Gulf Coast has a strong core of justice and faith-based organizations and they have moved quickly to play a strong role in the rebuilding process.

In the wake of hurricane displacement, both PICO, a national faith-based community organizing network, and the Association of Community Organizations for Reform Now (ACORN, whose national headquarters was in New Orleans prior to Katrina) released studies based on their members' experiences.

PICO, which spoke to 2,000 displaced members from the 100 congregations where they have a presence, found major breakdowns by almost all the major players - the Federal Emergency Management Agency, the Red Cross, insurance companies, reconstruction companies, and governments at all levels - in their "Research Report and Covenant: Rebuilding Louisiana (October 4th 2005)."

Specifically, PICO found half of homes had no flood insurance. Tragically, because newer homeowners were required to have insurance, it is residents who have owned their homes longest who are least likely to have protection. In addition, PICO found insurers - with reported reserves of $402 billion - have "ample reserves to meet the needs of policy holders," but were failing to make payouts. Federal reconstruction contracts also drew fire - five companies received no-bid contracts, and most large national companies have since brought in (undocumented) workers instead of using first-source hiring policies, which would create jobs for Louisiana residents. Host communities with minimal hurricane damage were also hit hard - Baton Rouge grew by 150,000 people in the space of several days, with little federal support.

The report, "Another Crisis In The Making" (September 22, 2005), is based on counseling provided to 500 homeowners and follow-up conversations with 42 prime and sub-prime lenders and mortgage servicers. Community organizations found substantial disparities between the customer service, post-hurricane suspension periods, and enrollment policies of prime and sub-prime lenders experienced by mortgage holders. In general, holders of prime mortgages were automatically enrolled in payment suspension programs typically exceeding 90 days. These policy-holders did not have to contact their banks to enroll. Sub-prime mortgage clients typically had to contact their banks in order to begin payment suspension programs, and those programs were only 30 days in length.

Finally, as local groups have observed, New Orleans was a severely segregated city prior to the disaster, and African-Americans were three times more likely to have sub-prime loans (including both purchase and refinance).

ICCR has since learned that sub-prime lenders have improved their policies substantially. Both ACORN and PICO's initial research were immediate attempts at describing challenges facing severely impacted communities, by organizations rooted in those communities. Additional research is needed to determine the long-term CSR challenges and opportunities.

The Response of Government:

Federal Responses
Key leaders in New Orleans were of the almost universal opinion that they have been forgotten by the federal government. In a state notorious for political discord, virtually everyone supported Representative Baker's Louisiana Recovery Corporation. The LRC would be a federally chartered corporation which would purchase land and homes at $0.60 on the dollar (from owners, mortgage holders, or institutions) and then oversee development and re-sale of the properties. Community organizations are seeking assurances that displaced residents will be able to buy back in at affordable prices. But they are by and large supporting the bill.

Nonetheless, the administration is not supporting this bill, as of their announcement on January 27th, although proponents believe if they get a bill to the President he will be politically unable to veto it. On January 13, 2006, the date of the most recent Presidential visit, the Wall Street Journal reported that 20% of prime-rate mortgages in Louisiana were delinquent and personal income in Louisiana had declined 25% due to the hurricane. Despite traditional federal aid such as Community Development Block Grants, without an innovative and massive federal response, prospects for rebuilding are bleak.

Local Responses
State and local officials are, as one resident put it, "far from perfect," but they have managed to convene an inclusive process - Bringing New Orleans Back - involving a wide range of leaders to envision the rebuilding process. Along with traditional urban planning and economic development issues, these commissions have also tackled health care, education, environmental issues, and culture.

Nonetheless, the process has been hampered by widespread distrust, rooted in class and racial divisions. The City clearly wants to consolidate New Orleans into a smaller city in both population and geography (something leaders I spoke with clearly knew was necessary). But without a buyout mechanism such as the stillborn LA Recovery Corporation, no way exists to do so. Poor residents have widespread fears of a "land grab." Residents have lost everything except the right to their homes, and can not emotionally or financially afford to lose those as well.

Corporate Responsibility Challenges:

There is a very real possibility that New Orleans as we knew it will not return, and that as a center of American culture, commerce, and community New Orleans will die, or more accurately limp along as a shadow of its former self. The only entity which can prevent that sorry state is the federal government.

Nonetheless, corporate America has a large role to play in the rebuilding process. My interviews led to several possible corporate responsibility opportunities. Briefly, they are:

Lending
Local banks with a knowledge of their customers and the community are in a position to make new loans to individuals and businesses, but are stymied by a lack of capacity (especially staff) and capital. Infusions of capital for lending which partner the financial power of large national banks with the local skills necessary to navigate the post-Katrina Gulf states would have an immediate impact on the region. I found little evidence that such partnerships are in the works.

Large national banks could also be far more vocal about the Baker bill. Because the bill pays mortgage holders 60%, some financial firms have expressed reluctance (mostly quietly). But 100% of nothing is, well, nothing. A strong case can be made that Baker's proposal is a smarter medium-term business decision.

Sub-prime mortgage holders were clearly treated differently by lenders, sometimes dramatically differently, than prime customers and continuing justice issues surrounding that disparity could also be explored.

Insurance
The primary source of capital for rebuilding on a firm and household level will come from insurance payments, but insurance companies have been reticent to pay policyholders. The vast majority of people whom I spoke to have yet to receive any money, and many are contemplating legal action. Rebuilding requires a critical mass of others who also rebuild. So insurance companies who nickel-and-dime individual policyholders could create a macro-economic climate where rebuilding is impossible.

Payments are only one piece of the puzzle: insurance companies also need to participate in the post-Katrina marketplace. If insurance companies exit the market in large numbers or homeowners policies become impossible to get, the real estate market can not recover.

Oil & Gas
Two major issues surround the extractive industry in the Gulf: revenues and remediation. There are widespread fears from the health community in New Orleans that the flood creating environmental health hazards which have not been addressed or even examined. Most of those are related to the petrochemical industry.

In light of the record quarterly profits reported just last week by Exxon-Mobil and Royal Dutch Shell, politicians have begun looking to oil & gas companies as an expanded revenue source to pay for reconstruction. This requires legislative changes or executive action by the Governor or both, but firms have a great deal of control over their productive involvement in the policy debate.

Contracting
FEMA and Army Corps of Engineers contractors, mostly large corporations on retainer to the agencies, are the primary implementors of federal reconstruction or clean-up efforts. These companies have been bringing in migrant labor, with allegations of horrid living and working conditions. But the multi-year labor needs provides an opportunity to bring a large number of long-term unemployed people into the formal economy with solid skills in the building trades.

Conclusion:

New Orleans remains a vibrant city in the areas that have been rebuilt. Even institutions hit very hard have put plans in place which will make them stronger post-Katrina than they were before. But the city feels abandoned and continues to be dramatically divided along racial and class lines. Frustration at the lack of direction is draining the energy from those who want to rebuild or come back.

The hurricanes have created a deep communal trauma, and one is constantly reminded - blue tarps on roofs, water-lines on the houses, trailers in driveways, entire neighborhoods dark at night, friends and colleagues scattered to the wind - of the scars.

Descriptions, analysis, photographs, and conversations simply fail to do justice to the scope of the disaster. Perhaps that is why so many I spoke with ended the conversation with "Come back. And bring others. Everyone should see this for themselves."

Article written by By Daniel Rosan, Program Director, ICCR's Access to Capital Working Group