Bill would bar feds from forcing Sandy victims to repay disaster funds
A bill introduced by U.S. Reps. Frank Pallone and Andy Kim, both D-N.J., would prevent the federal government from trying to recoup aid from superstorm Sandy victims more than 7½ years after the storm struck the Shore.
The "Security After Sandy Act" would bar the government from recouping debt related to Sandy or other declared disasters between 2006 and 2020, except in cases where fraud can be proven. U.S. Sen. Robert Menendez, D-N.J., is expected to introduce a companion bill in the Senate.
Another section of the act would forgive millions of dollars in federal Community Disaster Loans that helped support local governments in Sandy's aftermath. Toms River, Little Egg Harbor and Berkeley are among the towns struggling to repay those loans as municipal revenues have plunged during the statewide shutdown due to the COVID-19 pandemic.
FEMA has recently pressed municipalities to start repaying the loans; Toms River, which borrowed $5 million from the disaster loan program, has included $1.5 million in town's 2020 budget as a partial repayment.
With the lockdown caused by the COVID-19 pandemic leaving the state's economy in shambles, Menendez, Kim and Pallone said it's unreasonable to expect municipalities — or individual homeowners — to repay funds that were intended to help them recover from Sandy while they are dealing with the economic pain caused by the virus.
"As New Jerseyans and the communities they call home struggle to flatten the curve and fight this pandemic, the last thing they should have to worry about is facing federal government clawbacks from the assistance they needed to recover from a previous natural disaster like superstorm Sandy,” Menendez said.
Hundreds of homeowners who received grants through New Jersey's main rebuilding program for Sandy-impacted primary homeowners — the Reconstruction, Rehabilitation, Elevation and Mitigation (RREM) program, as well as the program for lower-income homeowners, the Low-to-Moderate-Income Homeowners Rebuilding Program — have received letters from the state saying they received more money than they were entitled to, and must repay some of it.
The state calls the process recoupment, while Sandy survivors refer to it as a "clawback." In October 2018, Gov. Phil Murphy announced that the state was freezing the clawback process and would no longer be seeking repayments from homeowners.
Even though the repayments have been frozen, they have prevented RREM from closing homeowners out of the program. That means a deed restriction — or covenant, in the state's parlance — prevents the homeowner from selling the house, or even refinancing the mortgage, unless the clawback is repaid.
"New Jersey is recovering from two crises right now; the impact of COVID-19 on our state and the lingering effects of superstorm Sandy," Kim said. "It’s time we took action to help our local mayors and homeowners to give them a fighting chance to stay on their feet during these historically tough times."
Sandy advocacy groups, including the New Jersey Organizing Project, have been lobbying for the state to stop seeking repayments — known to Sandy victims as clawbacks and to state officials as recoupment — saying the process was unwieldy, confusing and filled with errors.
Smith, Van Drew introduced similar bill
The legislation introduced by Kim and Pallone is similar to the "Equity for Disaster Victims Act," sponsored by U.S. Reps. Chris Smith and Jeff Van Drew, both R-N.J. The measure introduced by Smith and Van Drew in early April also mandates disaster loan forgiveness for municipalities, and would clarify that a federal Small Business Administration loan is not a so-called "duplication of benefit."
Since the rebuilding programs for homeowners were funded with federal money, the state Department of Community Affairs has said that the RREM and LMI programs operate under the auspices of the federal Stafford Act, which bars homeowners from receiving more funds than necessary to repair damaged houses.
The law also bans so-called "duplication of benefits," which means other sources of aid, including SBA loans, insurance proceeds and money intended to be used to elevate homes, are included in the calculation of the amount of money a Sandy homeowner should receive to rebuild.
Before RREM and LMI grant recipients are closed out of the program, the state is required by HUD to conduct an audit to make sure a homeowner's initial grant should not be reduced by the amount of any extra funds — including insurance payments or loans — that were received after the grant was awarded.
Many Sandy survivors took out SBA loans during the difficult weeks immediately following the storm, without realizing that the loan amounts would be subtracted from the total grant they could receive under the RREM program.
“These two Sandy-era programs should be fixed so that our towns and residents—many now out of work — can focus on the crisis at hand,” said Smith. “As the second-highest impact area for coronavirus, we need to meet the demands going forward. Instead of pressuring our towns, the federal government needs to accept responsibility for its past mistakes and work with us to address the future.”
Little Egg Harbor resident Estelle Stolz, a New Jersey Organizing Project member, said she is facing a clawback after not realizing Increased Cost of Compliance money she received from the National Flood Insurance Program would be subtracted from her RREM grant.
"I followed all the guidelines presented to me by the RREM program, I followed the rules in my recovery and fought hard to finally make it home," Stolz said. "My nightmare continues because now I’m being told I owe money back for a grant that was supposed to help me get home."
It's not clear exactly how many homeowners received clawback letters and are affected by the freeze on repayments. In "The Long Road Home," a report issued on the fifth anniversary of Sandy by the New Jersey Resource Project, 20% of the families surveyed in the RREM and LMI programs said they had been asked to repay money.
“Over seven years has passed and we are still suffering the effects of superstorm Sandy," said Jody Stewart, who works with Sandy-impacted families at the organizing project. "Our families, our communities must be able to heal and move forward to recover. The clawbacks are putting financial burdens once again on those who have already lost so much from the storm."