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Katrina's costs will be shared by cities far beyond storm's path

As New Orleans deals with the storm waters that broke its levees last week, dozens of Southern cities from Baton Rouge to Pensacola are coping with a displaced populace numbering in the hundreds of thousands and awaiting the spillover of billions of dollars in disaster aid.

Natural disasters whipsaw local economies as they move from devastation and into rebuilding. That's nothing new. But this time, the disaster was a coiled snake that has lashed out at the nation. Gasoline prices soar, transportation snarls. Hurricane Katrina has already influenced most lives in small ways, but it could have a major influence to those along the migration path of a city of evacuees looking for family, friends and 275 stranger-filled shelters in Alabama, Arkansas, Florida, Louisiana, Mississippi, Tennessee and Texas.

How it will play out is anyone's guess. But in the short run, people and their pets are washing up on doorsteps everywhere. New Orleans hotel and spa owners Keith and Andre West-Harrison fled to family in Evansville, Ind., a 16-hour drive, with six dogs and a cat. Distant places such as Evansville might be able to absorb a few evacuees, but an overwhelmed Houston Astrodome is flashing the no-vacancy sign, sending 25,000 to Reunion Arena in Dallas, another 25,000 to a San Antonio warehouse that was once an Air Force base.

Some companies are erecting their own shelters. Chevron this past weekend planned a 500,000-square-foot tent city in Pascagoula, Miss., to house 1,500 employees and their families who were left homeless by the storm.

Katrina and the flooding triggered by levee failures will have a total economic cost of $100 billion, Risk Management Solutions, a catastrophe-risk-modeling firm, said Friday. Most of the damage done by the levee break is likely not insured. Still, bond-rating company Fitch said Friday that the insured portion of losses could go above $25 billion, surpassing the Sept. 11 terror attack ($20.1 billion in 2004 dollars) and Hurricane Andrew ($20.5 billion) as the largest insured loss in history.

The strain is everywhere. New Orleans had 32,400 school-age children in 2004 who will be landing somewhere. The Greater Houston Partnership, the city's primary business advocate, is calling Houston "the city of hope," and spokesman Charlie Savino says it is bracing for 150,000 temporary residents, comparable to absorbing the population of Chattanooga, Tenn. Providing for them will cost $6 million a day, assuming $40 a day is spent on each person for food, housing, health care and schooling.

Congress has approved $10.5 billion in emergency disaster relief, and much more is likely on the way. Private donations are rolling in. Need gives berth to opportunity, especially when mixed with money, yet little if anything about this disaster smacks of a windfall. There might be tens of thousands arriving in Texas cities, but, "It's certainly not going to be like (hosting) the Super Bowl," says Bill Gilmer, a senior economist at the Federal Reserve Bank of Dallas and an expert on the Gulf Coast economy.

For example, Fiesta Mart is within walking distance of the Astrodome, but it's not stocking up on food and staples, says CEO Louis Katopodis. Everyone will be fed three meals a day plus 24-hour snacks on the Dome's concourses. Papa John's is giving away 10,000 pizzas. Aramark, providing the primary concessions, said it isn't yet certain how it will be paid, but it doesn't seem overly worried.

Near Fiesta Mart is a Target store. But most evacuees are low on cash and are getting comfort kits that include soap, a toothbrush and other toiletries. Target won't get swarmed by displaced children in search of school supplies, either. Houston public schools require uniforms, which will help the evacuees fit in, says Houston Independent School District spokeswoman Adriana Villarreal. Businesses are lining up to donate uniforms, and Wal-Mart has pledged any school supplies necessary, Villarreal says.

Get on the bus

Houston charter bus company Sierra Trailways owns 13 of the 650 buses contracted by the Federal Emergency Management Agency (FEMA) to transport evacuees from New Orleans to Houston. They get paid a flat fee per mile, says Sierra President Patrick Conner, which will boost revenue during a slow time of year. But it's not about the money, says Conner, who was caught in Hurricane Alicia when it hit Houston in 1983, and there was "never a question" that his company was going to help New Orleans.

"But for the grace of God, this could be us," Conner said.

La Quinta's hotels from Texas to Arkansas were so filled that last week it phoned those who long ago booked Labor Day reservations and told them not to come because the company will not evict evacuees. Many evacuees can't afford their rooms, and the company is starting to turn to insurance companies, FEMA and the Red Cross for payment. La Quinta also faces losses from eight properties damaged and closed in New Orleans.

Like many companies, La Quinta doesn't know if it will make money or lose it in the disaster. "It's a wait-and-see thing," spokeswoman Teresa Ferguson says. "We're more worried at this point about doing what's right. It's right to take care of our employees and our guests."

La Quinta could well be a microcosm of the area's overall business community. It's difficult to tell which force is greater, the gain or the strain, economist Gilmer says.

Absorbing waves of new and primarily poor people is nothing new to Houston. The city has grown by 1 million people in a decade, 100,000 a year - and 60,000 of those move in from elsewhere, 47,000 from other countries.

"It's an immigration hub from Latin America," Villarreal says, a regular challenge to the school system.

What is new, however, is Houston's role as New Orleans' knight in shining armor. The two cities have been economic rivals for decades, economist Gilmer says, and since the 1950s, Houston has been the clear winner as the energy industry concentrated into Texas with well-paid engineering jobs. The poverty rate is 28 percent in New Orleans, vs. 19 percent in Houston, according to 2000 census data compiled by the Urban Institute. Houston, less than half the size of New Orleans in the 1920s, has grown to become the nation's fourth-largest city, while New Orleans has dropped to 37th.

Gilmer predicts Hurricane Katrina will accelerate Houston's relative dominance over New Orleans as companies that relocate employees to temporary offices decide to make the moves permanent.

When a Popeyes Chicken & Biscuits franchisee in California said it could use a couple of managers and assistant managers, it wasn't long before several who were washed out of New Orleans volunteered to relocate, says CEO Ken Keymer.

Houston already has the NFL's Texans, so New Orleans doesn't have to fear the city stealing the Saints. But the Saints can't play in the Superdome, so they're considering playing home games at Louisiana State University's Tiger Stadium in Baton Rouge or San Antonio's Alamodome.

Relocating, for now

Vacuum manufacturer Oreck, with headquarters in New Orleans, is moving 100 to 150 people to Dallas, mainly executives, staff and those who process orders, says Oreck CEO Tom Oreck. Another 40, mainly from the call center, are heading for Denver.

Hunter Blanks, head of office space leasing for CB Richard Ellis' Dallas office, has been fielding preliminary inquiries from companies in New Orleans looking for temporary office space. "This is going to have a very wide impact on commercial real estate," he said.

Gardere Wynne & Sewell, a law firm that specializes in oil and petrochemical law at its Houston office, has been working to find temporary office space and spare computer equipment for New Orleans law firms. Managing partner Steve Good says he doesn't expect to take clients away from New Orleans firms, but demand for legal services related to oil and petrochemical insurance claims will jump, he said.

Low-paid service workers from New Orleans might also stay away as they find opportunity. La Quinta has bused 250 now-homeless employees to Arlington, Texas, where they're staying in a corporate-owned conference center. Corestaff, a temporary employment company with headquarters in Houston, is encouraging those who have dispersed from New Orleans to apply with them or with state unemployment offices.

The headquarters of Popeyes is in Atlanta, but its heart is in New Orleans, where the chain began in 1972, says CEO Keymer. The storm closed 250 company-owned restaurants employing 800, plus many more owned by franchisees. About 150 have reopened, but some in the flooded area might be closed a long time. The company has created a database so a New Orleans employee who surfaces with relatives in Tennessee can see if Popeyes has something available there.

Information is a scarce commodity. Keymer says he has no idea how many Popeyes restaurants are in the flood zone and destined to remain closed. The Port of Houston Authority expects to absorb cargo that will be diverted from the Port of New Orleans and the Port of South Louisiana, the largest and fifth-largest ports by ton in the USA. But Port of Houston Authority Executive Director Thomas Kornegay says he still has no clue how much extra demand to expect, nor how much extra Houston can absorb. The Houston port already handles far more capacity than it was designed for, yet it figures out how to increase volume by 10 percent a year anyway, Kornegay said.

"The truth of the matter is, nobody knows where it's going to go. It's a big problem," Kornegay said.

Houston engineers will be so busy fixing the damage in the gulf, they'll be diverted from oil exploration for some time, Gilmer says. Houston will be overtaxed in more ways than one. But it will emerge stronger, while "New Orleans will be out of the game," he says.

The West-Harrisons were taking in $1,000 a day at their small hotel and spa in the French quarter. In Evansville, they are trying to figure out how to start a new business.

They have no money and one change of clothes. Last week, they stopped off at the local Red Cross office looking for a little money for food and clothing. While they were waiting to see someone, five donors dropped off checks. The West-Harrisons got tired of waiting and left with nothing.


Contributing: Kathy Chu