In June, an AP investigation found that officials implementing the plan in one county spent millions of federal dollars on sewage plants and water tanks that may not be needed for decades.
The AP found the state-hired engineering firms based the plan on projections of huge growth in many areas. However, other studies estimated much more modest growth, and populations in many coastal areas actually declined, in part because Katrina displaced thousands of residents whose homes were destroyed.
The Harrison County Utility Authority used eminent domain to take private property to build its sewage system and left some landowners complaining of strong-arm tactics. The utility is made up of the mayors of the five cities in Harrison County, or their designated representatives, and two members from the Harrison County Board of Supervisors.
Officials who defend the project say it was meant to encourage long-term growth, and much of the infrastructure was put in the northern part of the county with the expectation that the population would move further inland to higher ground. But some plants and water tanks in those areas don't have enough customers to justify using them.
Jim Simpson, lawyer for the authority, said the audit is not a criminal matter.
The audit could simply lead to recommendations for the future, or it could lead to criminal investigations. If the auditors find evidence of a crime, that information would be handed over to HUD's criminal investigators and could ultimately be handed over to the U.S. Justice Department for prosecution.
Simpson said that among projects being audited by HUD is the use of $457,000 by officials in Harrison County to buy a half-acre parcel for a new water tank, apparently overlooking the fact that the land had been used for as an electrical transformer site, which raised questions about whether it was contaminated.
A warning sign on the site was taken down after the AP began asking questions about the land. Wilbur, the spokesman for Mississippi's environmental agency, said testing did not find contaminants on the site. Still, some officials have said the site could leave the utility authority vulnerable to being sued if someone in the area gets sick, even if it isn't directly caused by substances at the site. And the utility will have to pay to have power lines moved if it decides to use the property.
That site is between a low- to moderate-income neighborhood and a sprawling property that was once home to Biloxi's iconic Broadwater Hotel. Plans call for the 1 million-gallon water tank to provide water to the Broadwater property, but not the nearby neighborhood, said Kamran Pahlavan, the utility's executive director.
The Broadwater Hotel was a fixture for decades, but the property now sits empty. It was purchased by the President Casino, which eventually went bankrupt. Broadwater Development LLP, a partnership of businessmen W.C. "Cotton" Fore and Roy Anderson III, bought the land out of bankruptcy for $82 million before Katrina hit, according to bankruptcy court records.
Fore and Anderson did not respond to messages.
Just 700 feet from the half-acre water tank site that cost $457,000, the utility authority bought a parcel of land that was a third of the size but cost only $25,200. That smaller site is to be used for a sewage pump station.
Robert Bull, who owned the land used for the pump station, said the utility threatened to take his land with eminent domain before he agreed to sell.
"I had a feeling at the time, when they were throwing around eminent domain, that something shady was happening," Bull said.
The utility authority has spent about $2.8 million to buy small portions of the Broadwater property and install water lines there. Pahlavan said that total could eventually top $5 million. The water lines are on land zoned for residential housing, meaning any homes built later could easily be hooked up to water service once the water tank is built. Developers typically pay for their own water infrastructure.
The property owners had planned a massive casino development on the property, which is more than 200 acres. It would have included stores, entertainment and housing, but those plans didn't materialize after Katrina struck. An August 2009 appraisal of the utility site said the entire Broadwater property was under "unofficial contract" for an undisclosed price at that time. It's not clear what happed to that deal.
A legislative committee also has looked into the Broadwater project and said in a 2010 report that the water tank site and other infrastructure may lead people to believe it was picked to encourage future development at Broadwater.
The utility authority had considered even more expensive land on the Broadwater property in an area zoned for casinos, but MDEQ rejected it because the price exceeded the project's $5 million budget, according to the committee.
The Broadwater project ended up in the Gulf Region Water and Wastewater Plan because Biloxi officials asked to incorporate an engineering study the city had commissioned before Katrina. Biloxi officials told the legislative committee that less-expensive sites were considered off the Broadwater property, but couldn't provide documentation to back up the claim.
Biloxi Mayor A.J. Holloway, a member of the utility board, has declined repeated interview requests. The city's engineer also declined an interview.
In a statement through Vincent Creel, a city spokesman, the mayor blamed the Broadwater problems on engineers but wouldn't say who.
Creel said the city commissioned the study before Hurricane Katrina to be sure it had the capacity to handle growth at a time when developers were proposing big developments on and near the Broadwater property.
Creel said he couldn't recall if the study considered less-expensive sites.
Marlon Ladner, a Harrison County supervisor and member of the utility authority, said it appears engineers didn't look at the half-acre Broadwater site before recommending it because there was a fence with a sign warning that it could be contaminated. There were also power lines over the site.
"That should have sent up red flags immediately," Ladner said.
Long Beach Mayor Billy Skellie, new president of the utility authority, said board members base decisions on the recommendations of lawyers, engineers and appraisers. There was also pressure from the state to get the projects done quickly, he said.
"We depend solely on professionals bringing us information back," Skellie said.