A City on the Brink

Long before Hurricane Katrina, New Orleans faced a fierce economic storm.

Once considered the jewel of the South, the storied city was losing tourism and energy activity to other locales. Much of its office space was vacant, and it was falling back as a regional financial center. Its population was declining, and it suffered one of the nation’s highest poverty rates. It was hobbled by neglect and dogged by a history of corruption.

Remaking the Big Easy won’t be easy -- some have even questioned the wisdom of rebuilding a city that lies below sea level near a hurricane-prone coastline. But New Orleans’ political and business leaders and outside experts hope that a massive rebuilding effort will provide the city with an opportunity to come back even better than before.

The city could be revived by making its three core industries -- tourism, transportation and energy -- the most efficient and modern in the country, said Steve Cochrane, regional economist with Economy.com, a research firm in West Chester, Pa.

New Orleans could retain its unique cultural flavor, embodied by its French Quarter and renowned cuisine, and possibly attract more visitors by enhancing its gaming industry and convention facilities, leaders and experts say. It could rebuild its port rapidly and take advantage of anticipated demand for shipments of building materials for reconstruction.

The area’s vast oil and gas operations will continue to be a vital supplier of the nation’s energy needs. And the region could also develop other industries, such as aerospace, technology, healthcare and movie production.

Rebuilding after Katrina is a “perverted opportunity” that will lead to the building of “a great city into a greater city,” said Michael J. Olivier, Louisiana’s secretary of economic development.

Such ambitious plans must overcome formidable challenges. The region must fortify its levees and other infrastructure so that businesses, visitors and residents can feel confident the city can withstand another major disaster.

The city must rebuild and repair housing, medical facilities, stores and schools. Workers must be attracted with sufficient housing and at least some good-paying jobs. Businesses must be enticed to return.

In the meantime, rivals such as Houston, Dallas and Atlanta are likely to lure away more of New Orleans’ economic activity.

The city and region also must overcome decades of corruption, neglect, a high crime rate and other woes. Pre-Katrina efforts to improve the city often went awry, victims of bureaucratic inaction or other problems.

Things must be done more smartly and creatively than in the past, experts say.

“The rebuilding has to be master-planned,” said William Hudnut, a senior resident fellow at the Urban Land Institute, a Washington think tank devoted to real estate issues. “You can’t just go in and do over that street and this sewer.”

In all, the massive recovery effort is expected to take several years. Paying for it will depend on direct federal aid and bond sales to finance redevelopment, as well as tax breaks designed to encourage workers and companies to return, state economic development chief Olivier said.

“We are developing a very ambitious tax relief package that will be based on the 9/11 scenario,” Olivier said. He also hoped to get authorization from Congress for tax-free bonds like the Liberty Bonds sold after the World Trade Center terrorist tragedy.

Workers are also expected to be drawn back to the city by construction jobs, some of which are likely to be high-paying, officials said. Temporary housing can be provided until permanent housing is available; local oil refineries are considering setting up tent cities to house workers.

“People are going to follow the money,” said Loren C. Scott, a Louisiana State University economist who also runs an economic development consulting firm in Baton Rouge, La.

He also predicted that many baby boomers who might have retired would continue working to take advantage of the construction jobs created by rebuilding tens of thousands of homes.

Certain buildings, businesses and other parts of the city that were marginal in economic value or in disrepair before Katrina might not be rebuilt -- making the revitalized city smaller but more economically viable, analysts said.

Although some businesses that relocated to Baton Rouge or elsewhere might not return, others say they will come back, and some even plan to expand.

Santa Monica-based real estate investor Judah Hertz, who recently became the largest owner of high-end office buildings in New Orleans, said he viewed commercial real estate there as a bargain and planned to buy more as a bet on a turnaround. He estimated that his five downtown office towers and New Orleans Centre mall near the Superdome were worth more than $300 million before Katrina struck.

Hertz has a reputation as a contrarian investor who buys properties in depressed markets and sells them when the neighborhoods turn around. He bought several downtown Los Angeles office buildings starting in 1996 that he sold at substantial profits a few years later. New Orleans now is his main focus, he said.

“Rebuilding the city will be very exciting, and we’d certainly like to be part of it,” he said, adding that he “most definitely” plans to buy more New Orleans property.

Many local leaders and outside analysts agree that the city should retain what it’s best known for: its tourist sector and culture.

Any revitalization effort must “aim to restore the customs and traditions that make Louisiana special,” Louisiana Gov. Kathleen Babineaux Blanco said in a letter Monday to President Bush outlining a long-term economic rebuilding plan.

Fortunately, the city’s biggest tourist attraction -- the French Quarter and its raucous Bourbon Street -- was largely spared serious damage, as were the city’s riverfront convention center and downtown hotels.

The 1.1-million-square-foot convention center, one of the nation’s largest, hosted 12 of the 200 largest trade shows in Canada and the United States last year, according to industry journal Tradeshow Week. Although it is dirty and somewhat damaged, it could be back in operation by spring, the New Orleans Convention & Visitors Bureau said.

Smaller meetings using hotels might be possible after Jan. 1 as many hotels “will be back in pristine condition in less than 30 days,” the bureau said.

Although indelible images of looting and dead bodies near the convention center might repulse some prospective visitors, others might now have an even stronger desire to visit. Indeed, other cities hit by natural or man-made disasters -- including Los Angeles after its 1992 civil disturbances and 1994 Northridge earthquake -- have found visitors eager to return after the negative images wore off.

Tourism will rebound fairly quickly because “a lot of people will be curious to see how it looks,” said Peter Ambros, manager of Astor Crowne Plaza hotel in the French Quarter. The disaster has inspired a lot of goodwill toward New Orleans, Ambros said.

And it won’t be hard to revive New Orleans’ party image, locals contend. “If we get the girls here, we’ll have no problem making money,” said Saint Jones, manager of three strip clubs on Bourbon Street.

Mardi Gras, New Orleans’ signature festival, will be back next year, state development chief Olivier said. “You can’t keep Mardi Gras from Louisiana, though it might not be as big” as in the recent past, he said.

Some local leaders would like to make their city a Las Vegas of the South by adding more casinos. New Orleans has many of the elements that transformed Vegas into the nation’s top tourist destination: a strong convention business, large hotel inventory, a world-class culinary and entertainment tradition and a “sinful” reputation with Bourbon Street.

But the city currently has only one major land-based casino, operated by Harrah’s Entertainment Inc. Other gaming firms have been deterred by high taxes and other regulations, and casinos on the nearby Mississippi coast have lured visitors away from New Orleans. The Mississippi gaming facilities were damaged by Katrina, but they may be able to get up and running before New Orleans is fully reopened to tourists.

Las Vegas Sands Corp., owner of the Venetian hotel-casino, might consider the New Orleans market if “conditions were right and if it would fit our business model,” spokesman Ron Reese said.

But other gaming companies may not be so eager to jump into New Orleans.

With gaming within easy reach of almost every metropolitan market, “its attraction as a draw” for conventions and tourists is slipping, said Adam Schaffer, publisher of Tradeshow Week.

There’s no question, however, of the wisdom of New Orleans leveraging its massive port complex. With more than 2,000 vessel calls per year, the Port of New Orleans supports 107,000 jobs and $13 billion in annual spending. New Orleans and nearby ports, including the Port of South Louisiana, handle most of the country’s grain exports and the most overall tonnage of any U.S. port

“New Orleans was founded along the Mississippi River because the river is a great transportation resource, and it is important that we use the river to help rebuild the city and its economy,” Port of New Orleans President Gary LaGrange said.

LaGrange and others expect the port to continue to stress its advantages in handling grain exports and such imports as oil, steel, rubber and coffee.

New Orleans had lost ground in recent years to rival ports as more products began arriving from overseas in massive metal containers. The largest containerships are too big to travel scores of miles up the Mississippi -- New Orleans is 100 miles from the river’s outlet on the Gulf of Mexico -- and all such ships need more sophisticated loading equipment.

Local and state officials built a $100-million container facility that opened last year and proposed a massive “Millennium Port” for container ships much closer to the gulf that could cost $2 billion or more. But the plan never attracted sufficient funding and the proposed site was wiped out by Katrina and is now underwater, LaGrange said.

Repairing the region’s extensive refineries and petrochemical plants -- some still shut down after being pounded by Katrina -- is also seen as a vital part of the economic recovery. The gulf region accounts for about one-third of U.S. oil production and more than 20% of its natural gas output.

Refinery operators in the region all plan to stay put despite the constant threat of hurricanes, said Larry Wall, spokesman for the Louisiana Mid-Continent Oil & Gas Assn., a trade group for the region’s energy sector. These facilities already have enormous capital investments behind them.

“You can’t build new ones, so you keep what you have,” Wall said, noting that no new refineries have been built in the U.S. in 29 years, in large part because of environmental opposition.

Some leaders also see upgrading the region’s transportation links as a crucial priority. One proposal is to build a light rail line linking New Orleans with Baton Rouge 70 miles away.

“Light rail is something that’s been discussed for years” but never built, said Charles Landry, a New Orleans attorney working with local business leaders on economic redevelopment. It’s now back on the table, he said, because it could benefit workers in a rebuilt New Orleans and help evacuate the city in another calamity.

The city also hopes to revive pre-Katrina plans to revitalize its riverfront area with a mile-long park along the Mississippi River.

Larry Schmidt, New Orleans field director for the Trust for Public Land, said creating new green space along the city’s waterfront could spark the redevelopment of new riverfront neighborhoods and the revival of old ones. It also would be another tourist attraction.

The region also hopes to preserve its shipbuilding and defense sectors. Lockheed Martin Corp. said it planned to reopen its Michoud facility in New Orleans East, possibly as soon as Sept. 26. The plant, one of the world’s largest manufacturing facilities, makes the external tank for NASA’s space shuttle and employs about 2,000.

Century City-based Northrop Grumman Corp. said its shipbuilding operations in New Orleans suffered significant storm damage, but it expected to begin a phased resumption of activity this month.

Officials also hope the region can grow other industries.

While Gov. Blanco wants to reestablish the region as a global leader in energy, shipping and tourism, she also wants to encourage development of technology, including emerging fields such as nanotechnology and biotechnology.

Southern Louisiana and the entire Gulf Coast region, including Mississippi, Alabama and the Florida Panhandle, can develop synergies to move into new areas such as biotech and communications, Olivier said.

He said the state hoped to take advantage of research at Tulane University, Louisiana State University and Xavier University to commercialize cancer research.

The region also hopes to develop its budding film industry. Movie facilities, including a soundstage in Metairie west of New Orleans, survived the storm with slight damage, and shooting for now will shift to the Shreveport area, Olivier said.

The region also could develop its video game industry, which potentially could make more money than movies, said Stephen Moret, president of the Greater Baton Rouge Chamber of Commerce.

To attract videogame developers, Louisiana recently created a tax credit for “digital interactive media,” Moret said.

But some outside experts think that the region is overreaching in trying to expand aggressively in sectors outside its core specialties of tourism, trade and energy.

“To go out and grab high tech and biomedical from others doesn’t make sense,” said Phil Hopkins, regional economist at Global Insight, a consulting firm in Waltham, Mass. “Everybody’s into that game, and I’m not sure New Orleans has any kind of advantage.”

Instead, Hopkins said, “you’ll see a more specialized city that focuses on things that are more unique to New Orleans.”

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Mulligan reported from New Orleans and Sing from Los Angeles. Times staff writers Joseph Menn in San Francisco, Marc Lifsher in Sacramento and Jerry Hirsch, Molly Selvin, Roger Vincent and Peter Pae in Los Angeles contributed to this report.