$60 billion to spend on disaster recovery – what could go wrong?
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While the Carolinas assesses their losses from Hurricane Florence, the people of Puerto Rico and the U.S. Virgin Islands just marked the first anniversary of Hurricane Maria. That dangerous storm knocked out an entire power grid, obliterated infrastructure and homes, brought government and commerce to a virtual standstill, and led to almost 3,000 deaths. A year later, the recovery effort is still, inexplicably, in its early stages.

Communities that suffer widespread devastation face a daunting recovery timeline and extraordinary cost: It will take years, possibly well over a decade, and a massive funding influx to rebuild the ruins left in the wake of Hurricane Maria. Puerto Rico, in a report to Congress, estimates the total cost of recovery at $139 billion

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While close to $60 billion in disaster relief funds are currently available to Puerto Rico through the Federal Emergency Management Agency (FEMA) and the U.S. Department of Housing and Urban Development (HUD), very little has been disbursed. Given the devastation and urgent needs of the population, this delay is most distressing.

In the meanwhile, recovery efforts have been marred by gross mismanagement, including a $300 million contract awarded to (and taken away from) a company with only two full-time employees, and tens of thousands of unopened, and now contaminated, water bottles sitting untouched on a lonely Puerto Rico runway. With so much money at stake and intense pressure to fund many projects in a compressed time frame, the key to preventing further mistakes is proper planning and careful attention to federal grant rules.

Federal grants, like those offered by FEMA and HUD, come with strings attached. Those spending the funds (grantees or sub-grantees) must demonstrate to the federal government that the money is being spent for its intended purposes, that it is not being wasted or spent recklessly, and that any vendors or partners follow suit, among other requirements. Those rules apply to any organization or entity – from non-profit groups to local government authorities and municipalities – receiving and expending federal grant funds. The rules extend to vendors and contractors paid with federal funds, even if they are not the recipient of the original grant.

Compliance with federal grant rules can be challenging: organizations must correctly interpret and apply federal statutes, regulations, and guidance, and adhere to certain cost principles and procurement rules. Grantees must also prepare for and respond to federal agency reviews, audits, cost disallowances, false claim actions and other oversight or enforcement measures. The expected surge of funding in Puerto Rico will carry with it unprecedented demand for accountability across multiple programs administered by several federal agencies. Many future grantees are unprepared for the accompanying level of scrutiny.

Case in point: Congress has already authorized HUD to allocate up to $20 billion in Puerto Rico disaster recovery grants to rebuild homes, restore communities, and meet urgent economic and infrastructure needs. Under the Bipartisan Budget Act of 2018 (Public Law 115-123) (“BBA”), approval of federal grants is conditioned upon proof that policies and procedures (1) ensure effective financial controls and procurement processes; (2) prevent duplication of benefits; (3) guarantee timely expenditure of funds; and (4) detect and prevent waste, fraud and abuse of funds. In addition, Section 21210 of the BBA requires the governor of Puerto Rico to submit an economic and disaster recovery plan that “is consistent with programmatic guidance” issued by FEMA and “promotes transparency and accountability.” This past July, HUD announced the approval of the first disaster recovery plan for Puerto Rico, representing $1.5 billion of initial federal funding.

Few would advocate further delay in putting federal recovery money to good use in Puerto Rico; however, a successful recovery effort requires that all recipients of federal disaster funds understand their new status as grantees (sub-grantees or contractors) and the heightened responsibility that accompanies the big checks. Statistics from Hurricane Maria are grim enough; recipients of grant funding need to heed the cautionary tale of early mistakes. Instead of rushing to disburse funds, pause and plan. The time to start complying with grant conditions is now, before the first dollar of federal money is disbursed.

As Puerto Rico, the Carolinas and other jurisdictions work to recover from storms, fires and other cases of devastation, let’s make sure it is done right.

Phillip A. Escoriaza is Of Counsel for Feldesman Tucker Leifer Fidell LLP.