When tens of billions of dollars suddenly become available for disaster relief, and few questions are asked, it’s a pretty good bet that lots of money will be spent unwisely and at least some of it fraudulently. It happened in Iraq and it’s certain to happen along the Gulf Coast.

Katrina has become a blank-check disaster, starting with the outpouring of individual donations now running more than $1 billion and followed up by the federal effort, which could hit $200 billion or more. As of this writing, Hurricane Rita was shaping up to cause its own devastation.

It may seem churlish to talk about waste and fraud at a time of such need until you accept the hard-hearted notion that the act of giving, whether at the federal, corporate or individual levels, is a zero-sum game. The money that goes towards rebuilding New Orleans inevitably comes out of someone else’s pocket.

Nobody will fess up to that reality quite yet. In fact, the sudden recognition of our vulnerability to natural disasters has inspired any number of state and local officials to appeal to Washington for additional help among them L.A. County Sheriff Lee Baca, who is pushing for 1,200 new deputies, and California Sen. Barbara Boxer, who is bringing back long-lost legislation that would give cops and other emergency workers the networks that would allow them to communicate with each other.

Lots of luck. President Bush has ruled out raising taxes for the costs of the recovery effort and Congressional Republicans have signaled no intention of derailing plans to make permanent a series of tax cuts mostly aimed at the rich and costing $1.4 trillion over 10 years. That leaves either jacking up the federal budget deficit an option not embraced by conservatives of either party or offsetting that $200 billion by budget cuts in other programs. “It’s going to take a sacrifice of all the American people,” Senate Majority Leader Bill Frist told reporters last week, without offering specifics about how the reconstruction effort will be paid for.

Free money


If we’ve learned anything about disasters over the years, it’s that Washington hasn’t figured out how to monitor the way its relief money gets spent. The South Florida Sun-Sentinel found that between 1999 and 2004, the Federal Emergency Management Agency poured at least $330 million into communities that suffered little or no damage from fires, hurricanes, floods and tornadoes.

That includes $168.5 million to Detroit residents for a 2000 rainstorm that the then-mayor doesn’t even remember, $21.6 million to Cleveland-area residents for a storm that brought less than an inch and a half of rain, and $5.2 million to Los Angeles-area residents for wildfires that burned 25 miles away.

It turns out that scamming FEMA is pretty routine. “All you have to do is say something was damaged,” the newspaper quoted Tasha Williams, a mother of three and tenant of L.A.’s Imperial Courts public housing development. “It’s free money.”

But many of us who went through the Northridge quake already know about free money. Between FEMA and private insurers, homeowners in the San Fernando Valley and elsewhere remodeled kitchens, added guestrooms and otherwise enhanced the value of their properties as a result of handouts that were often less than legitimate. (And with those ill-gotten checks came a remarkable lack of guilt at least in my circle as if by some cockeyed logic these homeowners had concluded that the money was owed them.)

Businesses, too, have been known to take advantage. The Wall Street Journal reported last week that a Texas ambulance service under investigation by the FBI in connection with a Medicaid fraud scheme and forced into bankruptcy was hired as a subcontractor to provide ambulances for parts of storm-ravaged Louisiana.

FEMA supposedly has a procedure for reviewing contracts, but the agency is obviously cutting corners, especially as it involves contractors and subcontractors who are hired by state and local governments (later to be paid by the feds). FEMA doesn’t even know how many companies have been hired for the rebuilding work, much less who they are.

Congress, in fact, has authorized FEMA to award all contracts under $250,000 without any competitive bidding, which has led some companies to parcel their work into increments below that amount. Now there’s a recipe for trouble.

Sidestepping catastrophe


It’s true that a certain amount of waste and fraud is inevitable in the early stages of a catastrophic event like Katrina and that, in some cases, the benefits of cutting deals quickly and expediently exceed the few rotten apples that are bound to surface. And not just at the federal level: Would the American Red Cross consider shutting down its solicitation efforts just because a couple of low-lifes, posing as representatives of the relief agency, set up a donation table outside a Best Buy in Burbank the other week and allegedly collected hundreds of dollars?

The problem with this cost-benefit reasoning, however, is that it masks the systemic problems in how the United States handles disasters. Which is, in a nutshell, quite badly, whether it’s long-term preparedness (infrastructure stuff) or relief and coordination during the event itself, or, perhaps most glaringly, post-disaster rebuilding efforts. Unlike, say, the Japanese, whose preparedness mindset is practically ingrained at birth, Washington chooses to sidestep future catastrophes and then, when they finally happen, to throw buckets of money at the problem until it goes away. For an elected official, why invest all those dollars on something that might not even materialize on your watch (and which would result in an inevitable pushback among constituents)?

There’s an insidious logic to this quite appealing to the hoodlums looking to make a fast buck on other people’s misery. But as a matter of public policy, the blank-check approach is expensive, inefficient and immoral. Can’t we figure out a better way?

*Mark Lacter is editor of the Business Journal. He can be heard every Tuesday morning at 6:55 and 9:55 on KPCC-FM (89.3).