NEW ORLEANS (Reuters) - Three years after Hurricane Katrina wrecked parts of New Orleans, all that separates the biggest successes and failures in the city's revival is a short drive.
Fifteen minutes by car takes you from the elegant streets of a French Quarter once more bustling with tourists -- albeit fewer than pre-Katrina -- to areas like New Orleans East, where Ronald Wattigny is still at work.
Wattigny's home was flooded by 4 feet of water when the Katrina-lashed levees broke in August 2005, flooding 80 percent of New Orleans and killing almost 1,500 people. The category 3 hurricane caused $125 billion in wind and flood damage along the Gulf of Mexico coast.
"It's been three years, and I need to get back in here," Wattigny, 62, said as he worked on the structure last month, sweat pouring off him in the hot, humid air.
Prolonged exposure to water rotted all the wood in Wattigny's home, from the floor to the roof. He has replaced the roof and is working on building new walls, and aims to move back in by the end of the summer.
Wattigny has been out of work since Katrina struck, as he focuses on trying to get back into his home. He has received nearly $60,000 in rebuilding aid from the state and also gets help from volunteers at the local high school.
"This is very much a tale of two cities," said Arnie Fielkow, a member of the New Orleans city council since 2006 and credited by many here with pushing the city to improve recovery efforts. "The tourist areas of town have been open for business for a long time," he said. "But getting people back into hard-hit neighborhoods is one of the challenges we still face."
Mardi Gras tourists flocked back to the French Quarter in February, bringing much needed dollars. But while the tourist hot spots look like the storm never hit, lower-income areas like New Orleans East and Holy Cross, a neighborhood of the flooded-out Lower 9th Ward, are struggling to get people to return. Just 300,000 people live in New Orleans, down from 500,000 before Katrina.
In Holy Cross, less than 15 percent of the buildings have been rebuilt and are inhabited. Old wooden houses slowly rot, still bearing on their walls the painted marks left by the U.S. military after Katrina to show whether corpses were inside.
In areas near where the levees broke, only concrete patches remain, showing where houses were washed off their foundations. In places, vegetation grows thick and wild where homes once stood.
"It's a chicken-and-egg situation," said Charles Allen of the Holy Cross Neighborhood Association. "People won't come back unless there are jobs for them, while companies aren't going to move here unless there are people to work for them."
The Road Home, a Louisiana state program aimed at providing federal funds to owners of homes damaged or destroyed by the storms of 2005, has so far distributed $6.6 billion in federal funding to some 114,615 applicants, including Wattigny's nearly $60,000. But, three years on, 42,000 applicants have still not received any funds.
"The worst affected are people in the lower-income brackets who don't know how to navigate their way through the system where the rules seem to change from day to day," said Davida Finger, an attorney at Loyola University's Law Clinic, which gives free advice to lower-income residents.
Paul Rainwater, executive director of the Louisiana Recovery Authority and head of Road Home since January 2008, said he has improved the appeals process for applications that are rejected or seen by homeowners as too low.
"Unfortunately, this is a state program and I simply can't get rid of all the bureaucracy," he said. "But I can streamline the processes and tighten deadlines to make the program run faster."
Rainwater said he aims to have most remaining applications handled by the summer of 2009, when the program is due to end. Road Home has nearly $3 billion in funds left to distribute.
Mayor Ray Nagin's administration has also struggled with a mammoth rebuilding task. Edward Blakely, executive director of recovery management in New Orleans, said the city's most pressing need is for infrastructure: basic services such as hospitals, plus repairing city buildings and roads.
Blakely has $1.3 billion in federal funding available for those projects. "I'd like 20 times that," he said.
As for luring back residents, Blakely said he has created incentive programs for businesses that set up in the city. But community activists say it may be too little, too late.
"Many people have moved on and won't come back," said James Ross, a management consultant at non-profit NeighborWorks. "This will not be a city of half a million people again for a very long time. For New Orleans, the best way forward is to let go of the past and look to a different future."
For some in the city government, a new future would consist of trying to attract new businesses and develop the city's port, while other groups are looking to boost small businesses to reduce the local economy's reliance on tourism.
"New Orleans has all its eggs in one basket and we need to move away from that," said Ted Williamson, president of The Idea Village, a volunteer group that brings entrepreneurs together to solve problems. Williamson estimates the group has helped create 1,200 jobs locally.
Over in the Lower 9th Ward, the Holy Cross Neighborhood Association is working on a plan to attract businesses and residents based on sustainable development, including the use of renewable and energy efficient building practices.
The association has also started holding a weekly farmer's market to attract visitors to the neighborhood.
"We have to give people a reason to come here," Charles Allen said. "If we show them the neighborhood is alive and we are pursuing a path of sustainable development, that is a step in the right direction."
(For a FACTBOX on changes in New Orleans since 2005, click on)
Reporting by Nick Carey; Editing by Peter Bohan and Eddie Evans