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NEW YORK (CNN/Money) -
Hundreds of thousands of businesses and individuals in the region hit by Hurricane Katrina are on the brink of a financial disaster as money to pay workers dries up, banks get tougher on borrowers who were allowed to skip payments immediately after the storm and the flow of government assistance is slowed by bureaucratic snafus, according to a published report.
The Wall Street Journal reports that the financial peril represents a second crisis for those forced to abandon their homes and businesses when Katrina hit Louisiana and Mississippi Gulf Coast in late August.
The Federal Emergency Management Agency (FEMA) estimates it has paid more than $3.1 billion so far to about one million households affected by the hurricanes, according to the paper. But the average payment of $3,100 from FEMA likely won't be enough to save some people from financial catastrophe, especially if employers can no longer pay them.
The number of bankruptcy filings in Louisiana and Mississippi, the two states hit hardest by Katrina, soared to more than 68,000 in the week ended Sept. 30, up 24 percent from the previous week, according to Michael Staten, director of Georgetown University's Credit Research Center. But it isn't clear how many of the filings resulted from Katrina or Rita, which slammed into Louisiana and Texas on Sept. 23. Much of the increase likely reflects people and businesses seeking protection from creditors before toughened bankruptcy laws take effect Oct. 17, he told the paper.
More than 183,000 workers filed for unemployment benefits during the week ended Sept. 24, the paper says, up from about 29,000 the week before Katrina hit. State officials are bracing for another surge of jobless filings as companies that kept workers on the payroll after the storm decide they can't afford to keep paying, according to the Journal.
Banks which let homeowners and owners of rental property miss mortgage payments immediately after the storm will start demanding payments in November and December, the paper reports. Washington Mutual (Research), the nation's largest thrift that is active in the New Orleans market, contends that it has offered all borrowers a forbearance period through Dec. 1, and said it is negotiating with customers on a case-by-case basis to work out individual repayment plans.
Still as many as 30,000 of the 70,000 businesses operating in New Orleans before Katrina hit are "significantly at risk" for failure, said Mark Drennen, CEO of GNO Inc., the city's chamber of commerce.
Help from Small Business Administration is not "moving into people's hands very quickly," a spokesman acknowledged to the paper. Part of the problem is that SBA borrowers are required to show proof of a building permit, flood insurance and a contractor hired to do the work before they can get the government aid. But USA Today reported Friday that problems with a new computer system being used by the SBA is also slowing the processing of applications for assistance.
In addition to problems with businesses, many government employees are losing their positions. New Orleans Mayor Ray Nagin has announced plans to lay off about 3,000 workers, or half the municipal work force, due to a decimated tax base and huge costs associated with the storm, the Journal reports. Orleans Parish School District employees, including more than 3,700 teachers, were put on unpaid leave the day the storm struck. Employees will have health benefits until the end of October but no other benefits or reimbursement for sick leave, vacation or retirement.
Louisiana Gov. Kathleen Blanco asked President Bush last month for permission to use FEMA aid earmarked for units of government to cover payrolls of certain government employees, instead of just overtime costs as federal rules now permit. Louisiana and Mississippi officials also are seeking a federal extension of unemployment benefits beyond the 26-week limit.
A White House spokesman told the paper officials are studying the payroll request. And there still is time to deal with the request for extended unemployment benefits.
The Bush administration is "optimistic that the job market is going to return" to the hurricane-battered region, "and it's going to be a hot market," the spokesman told the paper.
For more on the problems with the SBA computer system slowing relief to hurricane victims, click here.
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