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Inside the Government Program That Pays to Rebuild Neighborhoods After a Storm

When superstorm Sandy hit Toms River, N.J., in 2012, the damage went beyond homes and businesses. The resulting drop in property values—about $2 billion all told—also blew a huge hole in the budget of the coastal New Jersey township.

That left Toms River Mayor Thomas Kelaher with a choice likely to face many local officials in Texas and Florida after hurricanes walloped both states: raise taxes on storm-ravaged homeowners or cut police and other essential services when they’re needed most.

“We would have had people coming to the council meetings with torches and pitchforks to kill the mayor,” said Mr. Kelaher.

Mr. Kelaher’s lifeline came from a federal Community Development Block Grant. The program has long been used by Congress to help state and local governments recover from major disasters like superstorm Sandy. To offset losses from property-tax revenues, the state of New Jersey used $132 million out of its $4.1 billion grant to help communities like Toms River plug budget holes and avoid steep tax increases or service cuts. Toms River got $33 million over three years for its annual budget, which has totaled around $125 million in recent years.

After hurricanes Harvey and Irma, Community Development Block Grants could become more important than ever.

“Here it’s taken us five years and we’re still not 100% back. And as bad as Sandy was…compared to Houston that was a drop in the bucket,” Mr. Kelaher said. “I don’t know how they could survive without that kind of help, very honestly.”

Since 1993, Congress has approved more than $50 billion in disaster recovery funding from the Community Development Block Grant program—money aimed at the complex multiyear task of helping local economies recover. Communities affected by hurricanes Harvey and Irma would receive $7.4 billion of disaster recovery block grants to help rebuild homes, business and infrastructure under a bill signed Friday by President Donald Trump. More funds could be allocated in coming months.

Community Development Block Grants made up about 17% of total $120 billion in federal disaster aid paid out after 2005’s Hurricane Katrina. Texas Gov. Greg Abbott has said he expects Harvey recovery efforts to cost the federal government more than that. Texas Congresswoman Sheila Jackson Lee, a Democrat, has said $150 billion in aid could be a good starting point.

Unlike many sources of federal aid, the block grant money provides “incredible flexibility” that allows states to “do what you can to fit your needs,” said Samuel Viavattine, deputy commissioner of New Jersey’s Department of Community Affairs, which is administering the state’s share of the Sandy funds and has until 2022 to spend the money.

For example, communities can compensate home and business owners for repairs, invest in economic development, or rebuild damaged infrastructure. Federal officials typically require that 50% to 70% of those funds serve lower-income individuals. Local governments draft a plan for the funds, put the plan out for public comment, and then submit it to the Department of Housing and Urban Development for approval and fund disbursement.

Texas officials are already gathering photographs of hurricane-hit areas to use in the state’s application to HUD.

“We’re making sure that across the coast, our local leaders know that their communities need to document, document, document, because that helps with our request to the federal government,” said Brittany Eck, a spokeswoman for the Texas General Land Office, which administers the grant money.

The funds can also be used to ward off future devastation. After Hurricane Ike shut down Galveston’s water treatment plant for more than a week in 2008, Texas used block grant funds to build a new facility able to withstand future storms, Ms. Eck said. It continued to operate through Hurricane Harvey.

Even with substantial block grant dollars at work, progress hasn’t been smooth for everyone in New Jersey. Many homes are still in construction, and some owners faced unexpected surprises when they signed up for the funds.

Bridget Holmes, assistant executive director of the Ocean County Long Term Recovery Group, a Toms River nonprofit, said many homeowners who benefited from New Jersey’s block grants were unaware they would face clawbacks if they didn’t complete all the work required by their grants. That has left some owners scrambling to find extra funds.

These disaster recovery funds are separate from annual sums given to cities under the broader Community Development Block Grant program, which President Trump has said he wants to eliminate from the budget.

“The program is not well-targeted to the poorest populations and has not demonstrated a measurable impact on communities,” the Trump administration said in a May budget document justifying the cut.

The disaster recovery block grants, however, can be targeted as communities see fit. New Jersey allocated $1.3 billion of its Sandy funds on grants to help about 7,600 homeowners rebuild, through an effort known as the Reconstruction, Rehabilitation, Elevation and Mitigation Program, according to the state.

“For most people it made the difference in their ability to recover fully from the effects of superstorm Sandy or not,” said Ms. Holmes.

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