Feds: NOLA should give back $2 billion

And the report says the federal government should get that money back– an amount equivalent to $5,200 for every man, woman, and child in the city.

"Even though FEMA attributed the damages to the water distribution system directly to Hurricanes Katrina and Rita in 2005," writes Acting Inspector General John McCoy, "we concluded that FEMA did not have sufficient documentation to support its decision.

The OIG's report says the streets and water system were in bad shape before the storms and that FEMA agreed to repairs that go far beyond the amount the federal government– and ultimately American taxpayers– should have to pay.

"In fact, evidence shows," writes McCoy in the report, that the city's "infrastructure was old and in poor condition even before the hurricanes. Eligibility for FEMA funding requires that damages be the direct result of the declared disaster, and it is the applicant's responsibility to show that the damages are disaster-related. "

While the Inspector General's report claims that FEMA should not have awarded the money in the first place - $758 million dollars initially and $1.25 billion in the years since then– the report puts part of the blame on New Orleans officials, for not providing "credible evidence" to justify putting the federal government on the hook for the repairs.

"Neither the City nor the S&W Board provided evidence that the disasters were the direct cause of the infrastructure damages, says the OIG report and, "since FEMA worked directly with the S&W Board to return the water distribution system to its pre-disaster condition, it was unable to independently evaluate or validate the documentation that demonstrated the damages were directly caused by the hurricanes."

The OIG report noted that some damage, like water lines pulled apart by uprooted trees, could be directly linked to the hurricanes but alleges that the "broad scope of work" agreed to by FEMA basically means the entire replacement of "an aging and poorly maintained system of sewer, water, and roads" - on the federal government's tab.

How much is too much repair work? The OIG breaks the number down to an eye-popping amount. "This massive investment," says the report, "represent(s) almost $5,200 for every man, woman, and child in New Orleans."

Still, the OIG report pits one branch of the federal government against another, and, not surprisingly, FEMA's response to the report is thanks for the review- but no deal.

According to George Robinson, FEMA Regional Administrator, "FEMA believes accepting the OIG recommendations would result in an unjustified de-obligation of funding for eligible City (of New Orleans) infrastructure projects."

While acknowledging the "complexity" of proving "causation," the response does not suggest that any money will be leaving New Orleans– to go back to the federal treasury.