A Conservative New Deal For The Gulf Coast

Bush's plan for relief mixes big spending with goals held dear by the Right. Will it work?

Air Force One flew toward the Hurricane Katrina disaster zone on Sept. 15, Mississippi Republican Senator Trent Lott was ushered into President George W. Bush's cabin. Nearby, top advisers, including Chief of Staff Andrew H. Card Jr., Counselor Dan Bartlett, and chief White House lobbyist Candida Wolff, were hashing out details of one of Bush's most important speeches, set for New Orleans' French Quarter that evening -- a pledge to do "whatever it takes" to rebuild the ravaged region. Lott, whose Pascagoula home had been washed away, suggested three guiding principles for the address: Bush should acknowledge mistakes, show "passion and compassion" for the victims, and employ conservative ideas to revive the region's economy.

A few hours later in front of the cameras, Bush hit all the marks as he outlined the most ambitious and potentially costly domestic initiative since President Lyndon B. Johnson's War on Poverty. The Gulf reconstruction plan is a huge gamble for a President scrambling to recover from his Administration's chaotic response to the disaster. The scope of Bush's ringing pledge to rebuild the Gulf Coast, cost be damned, shocked fiscal conservatives in his party -- especially as a second storm, Hurricane Rita, threatened to wreak still more destruction. Yet Bush's vision of stimulating business investment to lift thousands out of poverty is a far cry from classic Washington-directed pump-priming. Instead, it is something of a conservative New Deal, a radically rethought version of Big Government that bends its spending to conservative goals: lower taxes, less regulation, more local control, and bootstrap capitalism.

In crafting their aid package, Bush and key officials -- political guru Karl Rove, chief economic adviser Allan B. Hubbard, and domestic policy chief Claude A. Allen -- focused not only on short-term political salve but also on transformational ideas that will make the Gulf region an economic laboratory for the country. The result: a mix of business tax breaks to spur reconstruction and such Ownership Society concepts as urban homesteading, where Bush would give coastal residents title to more than 4,000 government-owned housing units in exchange for promises to improve the properties with "sweat equity" and the help of nonprofit groups.

Of course, the bulk of an estimated $200 billion reconstruction tab will be spent on infrastructure. Bush has pledged that Washington will pick up almost all of the cost of repairing highways, sewers, levees, and waterways. Yet there, too, the President is applying a conservative twist, by seeking more local control over rebuilding priorities and by sending in SWAT teams of federal auditors to root out waste. To speed the work, he also waived a raft of labor and environmental rules.


In reshaping the region, the White House senses an opportunity to push conservative programs to the max. "Bush wants to try out ideas, under the color of an emergency, that he hasn't had success with so far," says Will Marshall III, president of the Progressive Policy Institute, a centrist think tank. Voucher-style aid, for instance, for all schools that take in students evacuated from the hurricane zone -- including private schools -- will stir strong opposition from teachers' unions and their Democratic allies.

Bush's other ideas, though, may go down a little easier with Dems. Take the plan for a "Gulf Opportunity (GO) Zone." It builds on the concept of tax-favored enterprise zones, which try to entice businesses to invest in depressed areas by offering preferential rates on local property levies and state corporate taxes. Bush is proposing the largest enterprise zone ever -- covering swaths of three states -- and the first to offer relief from federal taxes. Businesses could take accelerated depreciation for investments in equipment and structures, with small companies deducting up to $200,000 a year and larger companies writing off 50% of investments immediately. The White House wants the breaks to last only through 2007, but Big Business will fight to extend them.

Will the GO zone induce enough go-getters to get the Gulf economy humming? Local enterprise zones have a decidedly mixed record. They fare best at creating new businesses and jobs in suburban areas. But in remote or depressed locales where companies are wary, "taxes are too small a piece of corporate finance to make much of a difference," says Donald Hirasuna, an analyst for the Minnesota House of Representatives and author of a study of enterprise zone performance.

But relief from the federal corporate tax, now at 35%, offers a bigger incentive than local tax breaks provide. What's more, the GO Zone is designed mainly to bring companies back to their old locations -- "an efficient way to help subsidize rebuilding through the tax code," says Peter S. Fisher, professor of urban planning at the University of Iowa. One compromise Bush may have to accept: supplementing business-tax breaks for new equipment with credits for hiring. "More resources should be targeted on the household level," says Michael W. Sherraden, professor of social development at Washington University in St. Louis.

Another key reconstruction idea is Bush's proposed Urban Homesteading Act. The goal: giving government-owned lots and foreclosed apartments to low- income owners who promise to improve them, just as post-Civil War homesteaders turned the Great Plains prairie into farmland. Trouble is, the small scale of the program -- 4,000 homes so far, including just 1,000 units scattered across New Orleans -- won't solve the problems of a half-million displaced, mostly poor, residents.

Pouring big bucks into disaster relief is no doubt good politics as TV images of human suffering bring the damage home. But shaping that spending to meet conservative goals will be much harder, especially for a President at the nadir of his popularity. Yet Bush has little choice. With his Administration still reeling from the fallout of a botched response to Katrina, he needs to try something big to regain momentum. That's why the fate of Gulf reconstruction and the Bush legacy are now inextricably linked.

By Richard S. Dunham, Mike McNamee, and Eamon Javers, with Lee Walczak and Paul Magnusson, in Washington

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