FEMA works to draw line on high-cost disaster consultants five years after flood

CEDAR RAPIDS - Weathered consultants with Hurricane Katrina on their resumes showed up here almost instantly as city, county and school district leaders new to giant natural disasters picked themselves up and began the work to recover from the city's historic flood of 2008.

More than five years later, the Federal Emergency Management Agency and the local governmental entities are still tussling over consultant pay, which at one point early on here had one consultant referred to as Mr. $425-an-hour.

The ongoing pay dispute is about more than it seems, and it centers on the issue of just how thoughtful - or how aggressive and street-wise - local jurisdictions need to be in using outside consultants to help FEMA decide the size of a local community's federal disaster relief.

And in the end, taxpayers are left to wonder if some disputes might be worthy ones, and to ask if they are for the home team or for the federal government.

Consultants in question

In quick order in Cedar Rapids in the weeks after the 2008 flood, disaster recovery consultant John Levy attracted notice when it came to light that the city had agreed initially to pay Levy $425 an hour for his expertise in the immediate aftermath of the flood emergency.

“John was a problem-solver and had the moxie and street smarts to get it done,” Greg Eyerly, the city's flood-recovery director from July 2009 through January 2011, says for anyone who wants to question Levy's value.

“If I was stranded on a deserted island with one phone call to make, I'd call John Levy,” Eyerly says. “I wouldn't ask how he did it, but I know I'd hear chopper blades thumping in the distance in a couple of hours.”

By September of 2008, the city of Cedar Rapids, following guidelines set out by FEMA, sought proposals from firms that could help the city with the administration of longer-term flood recovery and with the claims that the city would be submitting to FEMA for payment. The city hired two firms. The winning proposals came from Levy's newly created company, Base Tactical Disaster Recovery Inc., of suburban Detroit, and from Adjusters International Inc., of Utica, N.Y.

The contracts set out a top rate to be paid to Levy of $225 an hour, and later $235 an hour, and to his top assistant of $195 an hour, and later $200 an hour, and a top rate of $285 an hour for Adjusters International's top employee.

Linn County and the school district also signed up Adjusters International to help them at $285 an hour for a top employee.

FEMA ruling

Now, five years later and with the consultants already paid by the local entities, FEMA's headquarters in Washington, D.C., has informed the local entities, as FEMA's regional office did previously, that FEMA is willing to pay only so much in direct administrative costs, or DACs, for outside administrative consultants - a determination that state of Iowa officials say could cost the city of Cedar Rapids, in particular, a “significant” amount of money.

Casey Drew, Cedar Rapids' finance director, reports that the city has paid Adjusters International about $2 million in DACs; Base Tactical about $2.2 million; and Globe Midwest, the firm John Levy worked for when he came to Cedar Rapids, $772,114. Drew points out that part of the work that Base Tactical did for the city was not related to DACs, and he notes that only part of these payments is for work above the rate FEMA is calling its top “reasonable” rate for DACs unless otherwise justified.

That FEMA number is $155 an hour.

As for Linn County, Steve Estenson, the county's risk manager, estimates that the county paid Adjusters International about $600,000 in DACs, with the firm's top consultant working for $285 an hour. So the county faces the loss of some money, too, he says.

However, Steve Graham, the school district's chief financial officer, says the district stands to lose out on a relatively small portion of the $586,000 it paid Adjusters International based on the $155-an-hour issue. The district, he says, pretty quickly used Adjusters' employees at the $155-an-hour level after it had hired the firm.

Continued appeals

The issue of DACs has come to light now because of recent denials of second appeals from Cedar Rapids, Linn County and the Cedar Rapids school district by FEMA's headquarters in Washington, D.C.

In the appeal denials, FEMA has called into question whether some of the work performed by consultants qualifies to be paid at all by FEMA.

Local jurisdictions create FEMA project work sheets to address damage to individual buildings and other public infrastructure, and the FEMA appeal denials address only a small number of those work sheets from the 2008 flood. Even so, the denials provide direction for all of the city's 350 or so project work sheets, the county's 134 work sheets and the school district's 56 work sheets, that may call for payment of administrative consultants at a rate of more than $155 an hour.

Linn County's Estenson, for one, thinks FEMA is making a larger point in its recent denials. Or as he puts it: “Approving a rate higher than $155 an hour would open the door to allow such a charge for all of the work sheets.”

The appeal denials so far have specifically denied all DACs paid to Adjusters International, not just those at a rate of $285 an hour.

However, the denials are expected to apply to the billings in the city's contract with John Levy's Base Tactical Disaster Recovery and to the firm he initially worked for, Globe Midwest, when he first arrived in Cedar Rapids in June 2008.

Resubmitting claims

In denying payment, FEMA is now also telling the city, county and school district that they can resubmit the claims for DACs with additional detail to try to justify them anew.

Joe O'Hern, the city of Cedar Rapids' executive administrator for development services and formerly the city's flood-recovery director, says the city will do as asked and resubmit the requests with additional detail. In so doing, he says the city will continue to try to make the case for why the city's top-skilled outside consultants needed to be paid more than $155 an hour.

The resubmissions will go back to FEMA's regional office in Kansas City, Mo., which is very familiar with the local project work sheets from the flood of 2008 and which first rejected the requests for payment above $155 an hour at least a year ago.

For now, Michael Cappannari, spokesman for FEMA's regional office, will only say this: The $155-an-hour figure is the maximum rate that FEMA would consider “reasonable” for DACs “absent further justification.”

In the bigger picture, Cedar Rapids' former flood-recovery director, Greg Eyerly, says FEMA in some ways would just as soon not pay anything for consultants hired by jurisdictions to help FEMA determine how much the jurisdiction deserved in disaster payments.

“From FEMA's perspective, it provided all the expertise we needed,” says Eyerly, who is now Wastewater Treatment Division manager for the city of Salem, Ore. “In fact, FEMA was happy to fill out the project work sheets for us and we just had to sign them. ... But having FEMA fill out your project work sheets is like having your spouse's divorce attorney fill out your divorce settlement for you.”

Competitive bids

Cedar Rapids' O'Hern and Drew and Linn County's Estenson say the city and county and school district did all that FEMA asked, only to have FEMA change its mind.

Back in 2008, they say FEMA told the city and county and school district that they should seek competitive proposals for consulting project administrators and that FEMA would cover the costs if they did so. It was about two years later when the “the $155 number came into play,” Drew says. By then, much of the work of the consultants was done, he adds.

Estenson says every consultant that submitted a proposal to Linn County came in with a rate above $155 per hour.

“So the market for that profession is above the $155 rate, and we were aware of that when we went out for proposals,” Estenson says. “FEMA really stressed that we needed three bids. We followed that. Yet they still won't acknowledge or support that.”

Patrick Hall, Recovery Division administrator at the Iowa Department of Homeland Security and Emergency Management, stops short of saying that FEMA headquarters' denials of second appeals for DACs would prevent Cedar Rapids, Linn County and the Cedar Rapids school district from filing another round of appeals trying to secure payment for consultants above the rate of $155 an hour.

However, he says payment for rates above $155 an hour “could be in jeopardy at this point in time.”

After consulting with his staff, Hall says the city of Cedar Rapids stood to lose “a substantial amount of money” in FEMA payments for DACs.

The state agency is the intermediary between FEMA and local Iowa jurisdictions, and Hall says his agency reviews all payment requests and appeals to FEMA and approves some and sends them on to FEMA and modifies some as well.

One of his staff members, Katie Ewing, a deputy public assistance officer with the state agency, says a top rate of $155 an hour rate “seems to be the standard” in FEMA's Kansas City region.

“I have not seen anything approved above $155,” Ewing adds.

Cedar Rapids' O'Hern says the state's Hall has told him that FEMA has been struggling for some years to figure out how to regulate and oversee requests for DACs submitted by local jurisdictions and states.

“ ... And now, four and five years after the incident, we're getting caught up in this sort of never-never land of trying to get reimbursement for costs that were incurred three, four and five years ago,” O'Hern says.

At the same time, he gives FEMA this: He says FEMA certainly has a “right, a duty” to examine high-cost consultant claims to see how much of the work could have been done by someone other than a firm's highest-paid employee. But to cut the price off at $155 an hour for all the work doesn't make sense, O'Hern says.

FEMA's letter to the city of Cedar Rapids in July drives home the point that the agency said it has been making since September 2009 to the state of Iowa and to local Iowa jurisdictions about DACs and reasonable costs.

In its July letter to the city of Cedar Rapids, FEMA states: “There is no indication ... provided by the applicant (the city) that the administrative grant management tasks for these projects were complex. ... From a grant management standpoint, ... (this work) did not require the skills or experience of a senior consultant compensated at $285 an hour ... (A) junior or midlevel technical or program specialist is appropriate for the effort.”