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The New Orleans Economy Ten Years After Katrina

The Wall Street Journal. logo The Wall Street Journal. 8/26/2015 Leslie Eaton, Cameron McWhirter
© Ben Depp for the Wall Street Journal

NEW ORLEANS—For Paul McGoey, Hurricane Katrina delivered the unlikely opportunity of a lifetime.

A month into the flood, Mr. McGoey heard from the owners of three suburban hamburger joints: Their managing partner had left town for good. Would Mr. McGoey run the chain in exchange for an ownership stake?

Mr. McGoey, at the time a restaurant consultant, took the deal and now employs 600 people at 15 restaurants and cafes across the metropolitan region.

“I say proudly but not braggadociously that we are the largest-growth restaurant company in the city, post Katrina,” said the 50-year-old Mr. McGoey, wearing jeans, Prada glasses and a mulberry-colored blazer at the bar of his Legacy Kitchen on Tchoupitoulas Street in the city’s hip warehouse district.

Mr. McGoey’s good fortune reflects the city’s resurgence in the decade since Katrina—as well as its shortcomings. Many say New Orleans has emerged more entrepreneurial and energetic. Along the Mississippi River, crowds fill city streets, even in the soggy summer heat.

In the years since the storm forced out about half the metropolitan area’s residents, the population has rebounded to 1.25 million people, 90% of its pre-Katrina level.

But as the $135 billion rebuilding winds down, federal employment data reveal a local economy increasingly skewed to low-wage jobs, especially restaurant work, one of the few sectors now employing more people than before Katrina. Those jobs drag down average incomes, analysts say, widening the economic divide between whites, who are generally richer than before, and blacks, who aren’t.

The number of jobs in the metropolitan region is close to 91% of pre-storm levels. But the region lost 3,800 jobs in the year that ended in July, while most U.S. metropolitan areas of more than a million residents gained jobs, federal data show.

In the city, meanwhile, there are almost 100,000 fewer black residents, who now make up 59% of the population, down from 67%, according to the local Data Center analysis group. And there are now proportionally more poor black households—44% compared with 42% in 1999—with incomes below $21,000.

“The poverty level is just as high as pre-Katrina,” said Allison Plyer, the demographer who runs the nonprofit Data Center.

The city now has a greater proportion of white residents—about 31% compared with 27% before the storm—and the percentage of white families with top-tier annual incomes—more than $105,000—has risen to 30% from 25% a decade ago, according to the Data Center.

New Orleans hasn’t yet become the high-tech mecca promised by the hopeful sobriquet Silicon Bayou or an economy transformed by entrepreneurs and artisans, among the dreams leaders espoused after Katrina.

Civic boosters these days trumpet the city’s new levees, revamped educational system and a new medical center that they hope will anchor a biotech corridor on Canal Street, the city’s main drag.

But even the most sanguine admit that the magnitude of change needed to fix an economy ailing even before the storm takes generations, not a decade. One of the most concerning facets of the new New Orleans is its shortage of middle-class work.

Creating a diversity of jobs is “kind of the fundamental challenge, over time,” said Michael Hecht, president of Greater New Orleans Inc., the local economic development agency. Well-paying jobs are needed, he said, to keep New Orleans from returning to the days when it risked “becoming, essentially, Key West, beloved but not important.”

For now, the economy is driven largely by waiters and others in food services. Restaurants employ nearly 60,000 people, according to federal data, making up more than 10% of the 558,000 jobs in the region, a higher proportion than in 2005.

Restaurant employees in Louisiana eligible for tips make a minimum of $2.13 an hour in base pay, though their bosses are supposed to make up the difference to the federal minimum wage of $7.25 an hour if customers are stingy. These workers in and around New Orleans made an average of $17,378 last year, not including cash tips, less than half of the region’s average pay of $48,437, said Raymond Brady, an economist and vice president of the New Orleans Regional Council of Business Economics.

The local economic challenges predate Katrina and echo those in other U.S. cities that have lost manufacturing and industrial jobs. New Orleans never recovered from the oil bust of the 1980s, as the energy business shifted to Houston. By the time Katrina hit, the local economy depended on tourism, government, small business and colleges; the two largest private employers were hospital chains.

Regional employment peaked in 2001 at just under 635,000. New Orleans has since experienced a decline, made worse in recent years after the loss of a shipyard and its thousands of well-paying jobs. The port is bustling but water transportation jobs have dwindled. So has government work. The one major public company with a New Orleans headquarters is Entergy Corp., a regional utility.

For a while, many doubted that medical facilities would recover after the storm forced the closure of nursing homes and hospitals. Dr. Ricardo Febry, an internist, said the city’s medical society had lost about a third of its members by the time he was president in 2007.

The medical community has since stabilized, Dr. Febry said, though the remaining hospitals compete for insured patients with medical centers in Houston and elsewhere. Attracting young doctors is tough, he said, “though if you don’t mind potholes and broken sidewalks, everything else is delicious.”

Employment losses have been masked somewhat by the boom in construction after Katrina. While the number of workers employed in home-rebuilding projects are hard to track, those hired for major projects rose to 34,000 in 2006; the number has since dropped to 28,600, below pre-storm levels.

The rebuilding created local opportunities in environmental remediation, shoring up levees and restoring wetlands. The government tallied more than 33,000 jobs in scientific and technical services, which tend here to be in engineering and architecture, experts here say.

While those jobs may dwindle as rebuilding ends, some firms are finding new work—in the northeast, for example, after Hurricane Sandy. And local firms are likely to benefit from the billions of dollars BP PLC has agreed to pay for wetland restoration after the 2010 Deepwater Horizon disaster.

The city also is home to a budding tech industry, though the number of new jobs so far is small. Among the pioneers is Barrett Conrad, the 35-year-old owner of software engineering company CotingaSoft. He graduated from Tulane University in 2002 with a degree in computer science, and though he interviewed for West Coast jobs in 2005, he decided after the storm to stay.

Mr. Conrad has three employees and anticipates hiring more. “We’re in a growth phase,” he said. “It’s for real now.”

New Orleans tourism remains an economic anchor. Leisure and hospitality accounted for more than 86,000 jobs in the region the summer before the storm, when floodwaters inundated about 80% of the city, including many of the poor- and middle-class neighborhoods where hospitality workers lived.

The number of visitors in 2006 fell to 3.7 million from 10 million in 2004, according to the tourism and convention board. Mardi Gras drew a third of its usual one million revelers.

State and federal governments responded to the crisis by shelling out $30 million to re-image the city, focusing on the French Quarter—and food. Led by a convention of librarians in June 2006, visitors began returning to the city. Even the financial crisis and recession didn’t stop tourists. Last year, 9.5 million visitors spent a record $6.8 billion, according to the New Orleans Convention and Visitors Bureau.

Despite the crowds of visitors, there are about 2,000 fewer hotel jobs, which generally pay better than restaurants, despite hundreds more rooms, according to federal data. John A. Williams, dean of the College of Business Administration at the University of New Orleans, said hotels have become more efficient with their staff.

Food service has made one of the biggest employment rebounds, which makes sense in this dining-obsessed region. The number of full-service sit-down restaurants has grown to 1,408 from 809 before Katrina hit, according to Tom Fitzmorris, a radio host and local dining authority. Only in the past eight months has the boom showed signs of leveling off, he said: “Quite a few new restaurants have opened, but an equal number have quit the business.”

In prospering neighborhoods from the Garden District to Bywater, new restaurants offer Brazilian, Vietnamese, Cuban, tapas, Indian and vegetarian cuisine, just to name a few.

Stan Harris, president of the Louisiana Restaurant Association, said that people who complain that the city is becoming too dependent on the industry don’t understand New Orleans food culture.

“Shipbuilding, manufacturing, they’re not here,” he said. “The people are still here and they need to have jobs. The hospitality industry filled that void.”

Matthew Fultz, a 36-year-old chef at Marcello’s Restaurant & Wine Bar isn’t sure how long the boom will last. “Not to be a pessimist but the bubble’s got to burst at some point,” he said. “I mean, how many restaurants can you have? But you’ll drive around some times and everybody’s packed.”

There is also the question of wages. The Brookings Institution in a new report found that New Orleans and its suburbs added close to 50,000 new jobs from 2010 to 2014. But 70% were in industries that paid less than the average annual wage in the region. Leisure and hospitality created the most jobs—more than 10,000—and had the lowest wages, about $25,000 a year.

William Parker, 28 years old, grew up in the city and worked as a waiter at a restaurant in the French Quarter. He said a good week earned him about $150 to $200 in wages and another $500 to $600 in tips.

Mr. Parker, who has a high school diploma, got no health benefits and is obligated to pay child support for four children. During a slow week in July, he made a total of about $300, which he described as “nothing but a smile.” He recently left to become a cook at another restaurant.

The financial squeeze also has an impact on workers in neighborhoods gone chic since Katrina. Robert Barnard is the 32-year-old sous chef at the Press Street Station restaurant that opened this year on the boundary of the Faubourg Marigny and Bywater neighborhoods. He said he couldn’t afford to rent where he works, citing “the whole hipster gentrification thing.”

Restaurants have opened even in the city’s hardest-hit areas, though success is more of a struggle. Tia Henry, age 36, studied biology at Xavier University, but with her contractor husband and his sister, she borrowed money to buy an old corner store in the Ninth Ward, near where her husband’s grandmother lived. It is now Café Dauphine, the only restaurant in the neighborhood.

Permits alone took four years, Ms. Henry said, in a break from her late-lunch customers. “I love it, it’s hard,” she said of the business, which is open seven days a week in a neighborhood where freshly painted houses square off with wrecked buildings and vacant lots.

Many of Ms. Henry’s 12 employees bicycle to work from nearby. Her own house is in New Orleans East, the storm-slammed neighborhood that had been home to much of the black middle class before Katrina. The cafe covers costs but is yet to provide Ms. Henry with a steady paycheck, she said.

“I thought after 10 years the city would be rebuilt better than it is,” Ms. Henry said.

Life is rosier for Mr. McGoey, who worked years for the Brennan restaurant clan. He got the phone call from the owners of the New Orleans Hamburger & Seafood Co. chain, clients of his consulting work, asking for help a month after the storm.

A few weeks later, he and his team reopened one of the chain’s restaurants in Metairie, offering up gumbo and fried-shrimp sandwiches. “At 10 a.m., there were 100 people in line before we unlocked the door,” he said.

By 2008, he had raised money from friends and investors to open more restaurants in suburbs booming with folks displaced from the city.

Two years later he established his first New Orleans location, on St. Charles Avenue, including a coffee bar serving chocolate versions of the traditional fried beignets. His latest venture, Legacy Kitchen, offers a lobster roll made with Creole rémoulade sauce.

Mr. McGoey’s waiters get base pay of $2.13 an hour that with tips, he said, can total $15 to $40 an hour. “They can leave with $200 cash and go their merry way, and do that day after day after day,” he said.

Restaurants, he said, are leading an economic revival in many neighborhoods. “Three days after the storm, I said, ‘Man, it’s going to take 10 years for the city to come back,’ ” he said. “It came back for the average citizen five years ago. It’s exploding now.”

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