Both the Road Home program and the Entergy bankruptcy are complicated issues that hit New Orleanians squarely in the pocketbook. Both also are threshold items that must be addressed before the recovery can truly take off. The steps taken last week by the LRA, in our opinion, were reasonable -- but they were only first steps. We think additional measures could help the recovery process even more.
The change in the Road Home rules to allow senior citizens to "cash out" without having to commit to rebuilding represents a major policy change that will simplify the process for persons 65 years of age and older. Many seniors, especially those who already survived Hurricane Betsy, simply don't have another recovery in them. Some are moving into assisted living centers, while others are moving in with family members. There's no reason to penalize them for that. They have already paid their dues. It's fitting to give them a break. In addition, the homes that older citizens owned pre-Katrina can now be sold to younger families who will raise another generation of New Orleanians. Removing the penalties thus will help neighborhoods come back faster.
The LRA's Road Home program was designed to promote the idea of residents returning to their flood-ravaged neighborhoods and rebuilding them. The reality, however, is that many people cannot or don't want to return. As initially crafted, the program imposed a 40 percent reduction in potential compensation to homeowners who choose not to return to their original homes or buy homes elsewhere in Louisiana. That "carrot-and-stick" approach may have the unintended consequence of stifling people's decisions and thus slowing down the recovery process. We think Louisiana would be well served by removing any and all obstacles to putting flooded property back into commerce, and we encourage the LRA to consider further loosening the restrictions on Road Home grants.
In recommending $200 million for Entergy New Orleans, the LRA had to take the opposite approach. That is, it rightfully saw the need to place tight restrictions on any public money going to the bankrupt utility. For example, if approved by HUD and state lawmakers, none of the money could be used to profit Entergy's parent company, Entergy Corporation, and none of it could be used to increase the utility's "rate base," which is the basis for rates charged to customers (and rate increases). The CDBG funds also could not be subject to existing or future liens held by any of Entergy New Orleans' bondholders, and the money must be spent on "reasonable and necessary" repairs that are independently audited and certified.
If approved, the CDBG money is intended to provide capital assistance to a utility so that its customers will not be stuck with the tab for the utility's failure to maintain adequate reserves and/or insurance coverage. With that in mind, we suggest that the LRA require Entergy New Orleans' parent company, Entergy Corporation, to match dollar-for-dollar any assistance provided by the LRA. After all, every dollar that the LRA gives to Entergy is one less dollar that could be spent elsewhere on the Louisiana recovery. Moreover, as Louisiana recovers, so can Entergy Corporation and all its subsidiaries.
We say this not to punish or beat up on Entergy and its affiliates, but the fact remains that Entergy Corporation has taken hundreds of millions of dollars in profits out of Entergy New Orleans in the past decade -- and given it to many investors outside of Louisiana in the form of dividends. Some of those millions could have been left as reserves for Entergy New Orleans to tap in the event of a catastrophic loss such as the one much of the Entergy system sustained during Katrina and Rita. Given the fact that so much has been taken out of New Orleans by Entergy Corporation investors in past years, and given the fact that risk is an inherent part of investing in the marketplace, there's absolutely no reason for taxpayers and ratepayers to shoulder the entire burden of rebuilding Entergy New Orleans' infrastructure. Some assistance is warranted, and we think the LRA's proposal is reasonable. Now it's Entergy Corporation's turn -- and its investors' turn as well -- to show some good faith.
Since it was first established, the LRA has taken a lot of hits for the slow pace of recovery. Recent news reports show that things are going no faster in Mississippi. We all need to recognize that the recovery is going to be a marathon, not a sprint. We're all in this for the long haul, and the decisions we make today -- if we make them wisely -- will pay dividends for generations to come.