- The Washington Times - Wednesday, September 21, 2005

Budgetary handwringing and gloomy prophesies of fiscal disaster as a result of Hurricane Katrina’s looming costs are a bit premature right now.

No one really knows the ultimate rebuilding and recovery costs, but they will likely be far less than the $200 billion pulled out of thin air by Capitol Hill big spenders.

The preliminary estimates are based partly on the return of hundreds of thousands of evacuees relocated in neighboring states and elsewhere. But there is growing evidence a large number, mostly low-income people, will not return.

The reason: better opportunities in the vibrant economies to which they have been sent, compared to the depressed, dysfunctional New Orleans economy where there were few jobs and thus no way to climb out of poverty.

A survey last week by The Washington Post found more than 40 percent of evacuees said they will resettle where they are now. That means many destroyed homes and neighborhoods will not be rebuilt. It also means less demand for the government-funded infrastructure these areas once required.

True, it will mean added resettlement social costs for receiving jurisdictions. President Bush has proposed funding for that. But resettlement will cost a great deal less than rebuilding homes and communities in storm-prone New Orleans.

Urban Institute President and former Congressional Budget Office Director Robert Reischauer is one questioning the cost estimates. “We don’t know the full extent of the damage. We don’t know the degree to which the private sector will step in to rebuild. We don’t know how many of the displaced residents will be coming back to that area,” he told me.

“The population of these areas could be 20 percent smaller than it was a week before the hurricane. Many will find themselves rooted and employed elsewhere and it will be difficult for them to move back to an area where there was no economic vitality. Polls say nearly half may not return. That suggests a very different set of needs,” Mr. Reischauer said, and a very different set of costs.

Other cost estimates have already been scaled back. The agriculture industry reports much less damage to farm land infrastructure and crops than previously feared. Katrina also destroyed thousands of acres of timber, but if felled trees are harvested quickly, losses will be minimized, timber experts said.

Surprisingly, none of this prudent spreadsheet analysis has found its way into this week’s explosive, political debate over how much all this would cost and add to the federal deficit.

Each side seemed to play its own game with the figures. Deficit hawks called for spending cut offsets, in order not to add to the red ink that saturates the budget. Soak-the-taxpayer liberals want Bush tax cuts rescinded to pay for the recovery.

Certainly there is plenty of room in a fat, waste-ridden budget for offsets that would pay for much if not most of the hurricane bills. How about the $23 billion in pork-barrel projects stuffed into the recently enacted highway bill? Another $80 billion could be carved out of the budget without anyone noticing: Billions in Community Development block grants, billions in corporate welfare, a cut in the National Aeronautics and Space Administration program, redirection of tens of billions of dollars in existing social welfare spending.

Some Republicans urged a delay in President Bush’s Medicare prescription drug benefits, but that was very unlikely as the Republicans prepared for what could prove a tough midterm election battle. Mr. Bush has endorsed offsets, but where they will come from remained uncertain.

Rescinding the tax cuts is of course a nonstarter. The cuts are responsible for the economic recovery that has increased annual economic growth to 31/2 percent and slashed unemployment to 4.9 percent.

Let’s not forget that stronger economic growth has significantly boosted federal tax revenues, which have sharply reduced the budget deficit in just the last two years.

The White House forecasts a $333 billion deficit this year, down by almost $100 billion from its February forecast. That’s still too high, but it is significantly smaller than the record $412 billion in 2004.

The nonpartisan CBO forecast an even lower deficit next year, a tad more than $300 billion, before Katrina struck, and it is possible we may be able to keep the deficit’s decline on track by gently applying the spending brakes.

A smaller bill for Katrina will help, too. That’s why my best guess is a complete inventory of the costs will not be anywhere near the bloated figures we’re hearing now.

Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.

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