Des Moines Water Works Sues FEMA for Flood Repairs

The Des Moines Water Works is suing the Federal Emergency Management Agency in federal court, claiming the agency promised to pay millions of dollars to help repair damage caused by the 2008 flood but later reversed the decision.

Water Works, which is run independently but owned by ratepayers and answerable to a mayor-appointed board, provides drinking water to about 500,000 people. It is one of many local organizations and government agencies across the United States dealing with FEMA’s practice of approving emergency funding only to later – sometimes years later – ask for the money back in what the agency terms de-obligation of funds.

FEMA in 2010 authorized giving Water Works nearly $7.6 million to go toward repairing river bank erosion along the Des Moines and Raccoon rivers.

The repairs were designed to rebuild and strengthen the river banks to protect six wells used to collect drinking water from underground aquifers. The city had spent nearly $2 million by the time FEMA rescinded its funding in 2011. The agency concluded after a review of the project that improvements on natural river banks do not meet funding requirements.

The Water Works board’s appeals in 2011 and 2012 to FEMA were denied. The board filed a lawsuit on Dec. 17 in U.S. District Court in Des Moines, asking the court to reverse FEMA’s action. The utility contends in its lawsuit that the decision to de-obligate funds previously approved “is not consistent with FEMA’s governing statutes, regulations and policies.” It also says FEMA has no authority to retroactively rescind funding once work authorized by the agency has been completed.

Water Works CEO Bill Stowe said FEMA sent inspectors to Des Moines to assess the damage from the massive 2008 flood and encouraged the utility to apply for funding.

“If they had discouraged us from getting into the application process we understand, that’s within their authority,” he said. “But to essentially solicit it, grant it, then de-obligate it is just a disastrous kind of thought process for us.”

State emergency management officials said de-obligation has been a FEMA practice since 2009 and is occurring more frequently in Iowa and elsewhere.

More than $90 million has been de-obligated by FEMA from four Iowa projects related to 2008 disasters, including the Des Moines Water Works project, said Mark Schouten, administrator for Iowa Homeland Security and Emergency Management, which helps coordinate federal emergency grants.

“We spend a lot of our time wrangling with FEMA on these exact issues,” he said.

Flooding in 2008 resulted in damage estimated at nearly $10 billion in Iowa, making it the state’s worst disaster on record. Federal disaster declarations were issued by FEMA for 80 of Iowa’s 99 counties.

A Cedar Rapids city project to demolish several flood damaged homes was given $13.6 million before FEMA took it back. In addition, the city’s construction of a water pollution control facility lost $67 million of a $78.5 million grant to de-obligation.

The project to rebuild Aplington-Parkersburg high school, which was destroyed in a 2008 tornado, saw a similar demand to return nearly $2 million, some of which was later restored.

FEMA promised the University of Iowa in January 2009 it would pay to replace buildings damaged in June 2008 when the Iowa River flooded. Last June, after the university had already spent $30 million, auditors from the Office of Inspector General of the U.S. Department of Homeland Security concluded that FEMA had improperly estimated costs and ordered the agency to take back $84 million. FEMA disagreed with the auditors and appealed the decision. A Homeland Security undersecretary overruled the de-obligation in October and the funding was restored.

FEMA spokesman Dan Watson said he could not discuss the Des Moines Water Works case because it is in litigation. Broadly, however, he said FEMA is authorized only to reimburse projects at their actual cost and sometimes concludes costs must be disallowed and money recaptured.

“Once a project closes, FEMA may de-obligate some funds provided to the grantee during a final financial reconciliation of the grant, as part of a project appeal effort, or at the recommendation of an auditor,” he said in a statement.

In some cases, funds are ordered returned after the Office of the Inspector General auditors conclude some grant funds were inappropriate, he said.

FEMA Administrator Craig Fugate said at a hearing before a House appropriations subcommittee on March 7, 2012, that by de-obligating funds from projects completed in 2010 and 2011, FEMA recovered more than $4.7 billion. Additionally, he estimated that FEMA will de-obligate $1.2 billion of previously appropriated funds during the government’s fiscal year 2013 which ends in September.

Schouten said many states have seen funding reversals and some emergency managers are discussing recommendations for FEMA to improve the process.

“It is a difficult way to do business,” Schouten said. “There are a number of states that would suggest this process could be changed in a way to give some certainty on the front end for those cities and schools who expect to do approved projects only to learn later that the projects that the money has been pulled back.”