Louisiana's Timetable for Recovery
Louisiana State Treasurer John Kennedy is organizing his state's efforts to recover financially from the damage wrought by Hurricane Katrina. First elected in 1999, Kennedy grew up in Zachary, just north of the state capital, Baton Rouge. He worked for four years for former Governor Buddy Roemer and served as secretary of the state's Revenue Dept. for three years before running for treasurer.
As the evacuation operations wind down, he's shaping state and federal aid packages and trying to ensure that all current debt obligations are met while funds are available to restore the state's infrastructure. He recently spoke with BusinessWeek's Aaron Pressman. Edited excerpts of their conversation follow:
What's your view of the storm's economic impact on the state?
If you look at the statistics, in every state that has been hit by a major hurricane, they've had negative gross domestic product in that quarter. And in every case, they recovered it in the [next] quarter because of the rebuilding.
I'm not saying that will happen this time -- this storm is unprecedented. We will not recover in the fourth quarter. But I've heard people talking about decades of recovery, and I think that's nonsense. Months, maybe a year or longer. We will have a disruption of the state's income -- it could be as high as $40 billion out of $125 billion. I don't think it will be that high. I think it will be less, but it's going to hurt. In the long run, it will be back.
You've said that the state has ample funds to meet its debt service, including a rainy-day fund of $387 million and $3.5 billion in other trust funds that could be tapped with legislative approval. Does that mean bondholders are secure?
The state is prepared to meet all of its current and future obligations. We're in good shape to do that. We're also looking to receive, and I think will receive, substantial unprecedented federal help.
Our biggest challenge is our colleagues in local government. We have a lot of local political subdivisions that have issued bonds, including the city of New Orleans, and the question has been raised how can they possibly make payments on those bonds.
Some people have talked about bankruptcy filings or a municipal-bond market "Armageddon." What do you make of that kind of talk?
It's nonsense. It's nonsense on a stick. It's not going to happen. It's not even in the realm of possibility.
But how can the smaller local governments continue to meet their payment schedules?
We're looking to pursue federal legislation to give relief to those units of local government that for a short period of time don't have the wherewithal to make payments. This was done after the 9/11 tragedy in New York.
The Federal Reserve is another avenue we're pursuing. Through grants or credit guarantees, we could basically give local governments some liquidity for months or, if needed, several years. The money would be paid back once the tax base is reestablished.
I would also like to see emergency vouchers for federal housing that our evacuees could use wherever they are, in Texas or Arkansas. I'd like to investigate a hurricane-recovery bond program. There are a lot of things that Congress can do, and I expect will do, to help us rebuild.
What's your assessment of the damage to New Orleans, where the worst flooding took place?
There are parts of New Orleans that are perfectly fine. The French Quarter is in great shape. The central business district had a little bit of water. Not 9 or 10 feet, a couple of feet. They're already turning on the electricity there and cleaning it up. The Garden District and Uptown was dry. It's still in fine shape.
Have you been personally involved in the rescue efforts?
I was in New Orleans on Saturday or Sunday -- the days are kind of running together. I was helping to evacuate people in the middle of the city. We had a situation with a lot of those folks that may seem minor but was important to them. They had been told they couldn't take their pets on the buses. So in order to get people on the bus, we collected their pets with their names and addresses and set up two refuge centers for the pets.
That may seem minor, but one lady looked me in the eye, and she said: "They've taken my house, my car, and my job, and you are not taking my pet."
What will be needed to get the economy back on its feet as quickly as possible?
We need to have rebuilding begun by Jan. 1. And our first efforts ought to be to try to restore our tourism base. We won't bring it back immediately. With the French Quarter intact, downtown intact, the aquarium intact, the zoo, the uptown Garden District, we can start explaining to people that New Orleans is still here. We survived. Come on back.
The other thing we need to do immediately is get the port up and running. New Orleans was founded because of the port. That needs to be a first priority.
The national economy is at risk because of damage to the energy sector in the Gulf region. How fast will that come back on line?
Look at the facts: About 30% of the nation's oil comes out of the Gulf, and 20% of our natural gas. Ten percent of refining capacity is in Louisiana. A lot of that has been damaged, but not as much as has been reported in some cases. I'm told that 90% of the rigs in the gulf are working just fine.
We do have some damage to the pipelines that's being repaired as we speak. I'm not sure they know the extent of it. Refineries are already taking steps to get up and running. In a matter of weeks, they will be back to close to full capacity.