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Friday, February 14, 2014

Damage Control

Improper uses of disaster aid follow like day to night

Natural disasters raise the threat of disease by disrupting water supplies and sewage systems. But they nearly always spread corruption throughout every political system that touches relief funds. That’s why the allegations against New Jersey governor Chris Christie—that he diverted Hurricane Sandy relief funds into advertising and marketing during his reelection campaign in 2013—are hardly surprising.

For instance, the state of Hawaii was recently asked to refund up to $4.2 million in disaster relief paid out after flooding and landslides all the way back in 2006. Hawaii officials allocated disaster relief funds to various construction projects that were unrelated to emergency relief. They also skipped mandatory competitive bidding processes when selecting contractors. The Department of Homeland Security’s inspector general’s report found that the state’s Department of Design and Construction explicitly granted projects to specific contractors.

Then there’s Katrina. Even six years after the hurricane, the Federal Emergency Management Agency (FEMA) was still reviewing 154,000 cases of potential fraud involving $600 million that was mistakenly allocated to individuals who did not meet the requirements for assistance. The money had been allocated for disaster victims of the 2005 Hurricanes Katrina, Rita, and Wilma. Under political pressure to deliver results, FEMA officials omitted even basic property inspections and did not check whether an applicant’s insurance company had already covered the damage. Thousands of unqualified individuals improperly secured funds.

This on top of a 2013 report saying that nobody knows what happened to $700 million out of the $1 billion that the Department of Housing and Urban Development granted to Louisiana’s Road Home program. More than 24,000 homeowners could not demonstrate that they used appropriately the $30,000 they each received to elevate and repair their homes.

The Katrina examples might have come down to relaxed protocols and human error, but evidence suggests that disaster aid is often distributed for reasons apart from reported losses and demonstrated need. Peter Leeson and Russell Sobel (2008) found that each additional $100 in per capita disaster assistance a state receives increases that state’s average corruption level by over 100 percent.

It’s not hard to see why relief funds are ripe for corruption: Sudden injections of money meet a surge of demands and an urgent situation full of confusion; traditional protocols are often streamlined; applicants know their claims will receive little if any scrutiny.

Post-disaster contexts also draw political pressure. Those in charge of the funds are encouraged to open the spigot. In fact, Thomas Garrett and Russell Sobel (2003) found that states that are electorally strategic to the President are more likely to receive presidential disaster declarations. Garrett and Sobel also found that, prior to FEMA’s reorganization under the Department of Homeland Security, states with representatives on FEMA oversight committees were more likely to receive disaster funds.

Private disaster relief—from churches, charities, and businesses—avoids many of these problems, beyond simply being more effective in general at addressing the local needs of disaster-stricken communities. Private aid is less susceptible to political corruption, and  organizations have more incentive to ensure that funds are not dispersed inappropriately. Local private groups are also better situated to know the local community, the damage suffered, and the people in the community, and thus to recognize potential aid abuses.

For instance, following the 2011 tornado, College Heights Church in Joplin, MO, and other churches and charities in the Joplin area started using Charity Tracker to prevent abuse of private relief. Charity Tracker is a program that allows churches and charities to record assistance given to specific individuals. The system provides alerts if the same individual is requesting similar aid from multiple charities and churches in rapid succession, indicating potential abuse by the recipient.

Additionally, Charity Tracker allows churches and charities to share information on recipients to tailor assistance to their needs. One Joplin church leader told us that “you have a moral obligation to make sure that what is being donated, it goes to those who actually are . . . survivors of the tornado.” In Tuscaloosa, churches relied on the Tuscaloosa Prayer Network and Love, Inc.—two previously existing networks of pastors and churches—to avoid duplicating assistance to the same disaster victims.

Samaritan’s Purse, which sent both immediate disaster relief and home-rebuilding teams into New Orleans, Joplin, and Tuscaloosa (among other disaster-stricken areas), has case managers investigate every work case submitted to it for authenticity and need. They even include drug tests and credit checks to ensure that donations to their disaster-relief efforts are used as effectively as possible. Samaritan’s Purse often partners with local churches, such as the First Baptist Church in Tuscaloosa, in order to work with people who know the local community’s residents and needs.

While FEMA struggled with transitioning disaster victims from trailers intended to be only temporary living quarters following Hurricane Katrina, 90 percent of the estimated 5,000–7,000 displaced households from the Joplin tornado were accommodated by families, friends, and even welcoming church and charity members, mitigating the potential for long-term abuse of disaster relief. Additionally, disaster victims seeking refuge with private citizens received friendship and assistance to address the deeper emotional scars of the storm, and they potentially avoided exposing children to some of the health and social side effects associated with FEMA trailer parks.

While the recent wave of reports uncovering new abuses of disaster aid are disturbing, they weren’t unexpected. The good news is that there’s a superior alternative already at work.

  • Laura Grube is a visiting instructor of economics at Beloit College and a Ph.D. candidate and Mercatus Fellow at George Mason University.
  • Daniel J. Smith is an Associate Professor of Economics at and the Associate Director of the Johnson Center at Troy University. He is a member of the FEE Faculty Network