Katrina recovery program seeks to alter distribution of funds

BATON ROUGE, La. - An $849 million Hurricane Katrina recovery program, hobbled by red tape and the national credit crunch, will seek to issue rebuilding money directly to small landlords without the involvement of banks, officials said yesterday.

The Louisiana Small Rental Program was designed to restore 18,000 properties, but has distributed only 433 grants so far because of existing bureaucratic restrictions. The program had required banks to issue rebuilding loans to small landlords, who then applied for reimbursement grants through the program.

The owners of shotgun homes and cottages that kept rent cheap in New Orleans for generations found it virtually impossible to obtain the loans and the credit crunch only exacerbated the problem. Beset with a shortage of affordable housing in New Orleans, especially after demolition began on public housing projects, state officials were pressed to get the rental program funding flowing.

The Associated Press reported in November that not a single financial lender recommended by the program was still issuing the loans. Meanwhile, a housing shortage in New Orleans has contributed to a 40 percent spike in rents, pushing the federal government to distribute $28 million a month in rental aid to hurricane victims.

Under the new guidelines, applicants will now be able to receive direct funding if they meet inspection requirements and use a qualified contractor.

"When coupled with the current national economic crisis, it was clear that we had to make major changes to get money in the hands of landlords," said Paul Rainwater, executive director of the Louisiana Recovery Authority.

The LRA is the state's flagship agency for recovery from Katrina and Rita in 2005. Its program is intended to pay for rebuilding the storm-damaged property as long as landlords rent the units at below-market rates.

The overhaul of such programs usually requires approval of the US Department of Housing and Urban Development, which funds the effort. Rainwater said changes announced yesterday will not require HUD approval.

HUD spokesman Brian Sullivan confirmed yesterday that the state could move ahead with the changes, largely because the program still complies with rules that say low-income residents must benefit from the effort.