The United States is unique in its far-reaching financial
assistance programs
for disaster-impacted areas. Communities that request and receive
presidential disaster declarations are eligible to receive
financial
assistance through the Federal Emergency Management Agency (FEMA)
for
specific recovery activities.The U.S. Departments of Agriculture
and Housing
and Urban Development and the U.S. Small Business Administration,
among
others, have disaster assistance programs, as well. Programs
include reimbursement
for emergency response costs such as overtime and financial support
for
the repair of damaged public infrastructure.While President
GeorgeW. Bush
provided 100 percent funding for emergency work for communities
impacted
by Katrina, other categories require some matching funds from the
devastated state and local governments.At the same time, these
local governments
are losing revenues as residents and businesses struggle to recover
from
the disaster.
Federal Aid and Local Financial Responsibility
The RobertT. Stafford Disaster Relief and Emergency Assistance Act
(42
U.S.Code 5121 et seq. as amended) aids disaster-damaged
communities through
public assistance programs.Following a presidential declaration of
a state of emerbygency or disaster, these programs may be accessed
by state
and local governments and by nonprofits fulfilling governmental
functions.Table 1 shows the activities that qualify
for federal financial support.The federal contribution
is consideredsupplementary assistance,so the federal share
is not less than 75 percent of eligible costs, and the state
determines how to apportion the remaining 25 percent
between the state and local governments. In California, for
example, the state pays 75 percent of the 25 percent remaining
after the federal reimbursement, and the local government
pays the remaining 25 percent of the cost share.
Category B,Emergency ProtectiveMeasures,is themost
comprehensive category. It includes pre-impact activities
undertaken to protect the community and its residents, as
well as immediate response to the disaster (Table 2).For example,
responding to animmediate threat,defined
by the federal government as something that
could happen within the next five years, communities may
open the emergency operations center to coordinate preparation
and response to the imminent disaster, activate emergency
communications systems, provide emergency
public transportation, and conduct post-disaster building
inspection. Reimbursable costs associated with Category
B include employee overtime,materials, equipment, and
contracts awarded for eligible work.
As shown inTable 3, eligible applicants may be governmental
entities or private,nonprofit organizations fulfilling
a governmental function.Direct federal assistance may also be
offered when the
severity of the disaster precludes response by local or state
government.The state may request that CategoryA or B
emergency work be performed directly by a federal agency.
FEMA uses the National Response Framework and emergency
support functions to assign the work, which may
be performed by federal employees, or through a federal
contractor.
On the basis of the severity of the event, the president
may raise the federal cost share for Category A and
B work up to 100 percent.For example, in theAugust 29,
2005, supplemental declaration for the state of Louisiana,
President GeorgeW. Bush ordered 100 percent federal
funding for emergency protective measures, including direct
federal assistance, for the first seventy-two hours after
the storm.This still leaves the state and local jurisdictions
with a significant financial responsibility for the cost of
response to and recovery from disasters. For example, after
the first seventy-two hours, the state was responsible
for 25 percent of the cost for the Coast Guard rescue work
and the logistics support of the Army. In Louisiana, the
state and federal governments disputed the $1.2 billion
state cost share of federally provided emergency assistance,
with the state auditing the federal purchases before agreeing
to an amount.Except for direct federal assistance, all other work
is
performed on a cost-reimbursement basis.This means that
the government making the contract with the vendor,usually
the local (municipal or county) government,must pay
for all of the costs and then request reimbursement from
FEMA for the federal share.Generally,FEMA pays about
80 percent of the requested amount pending an audit, at
which time the balance owed is paid on the basis of a determination
of allowable costs.This means that the local
government may have to wait several years to receive
the full federal share of the cost of the work and, in some
cases, for the states share.
Disaster Impact on Local
Financial Resources
Local governments in the United States rely on several
sources of income.The most common are real-estate
taxes, sales and use taxes, and the local share of state income
taxes.They are required to balance their budgets,
and they generally have little or no extra funding for disaster-
related expenses.This means that as soon as personnel
are placed on unexpected overtime or an emergency contract
is made, the local governments budget is out of balance.
Although the typical cost-share of disaster response
expenses is 75 percent federal, 18 percent state, and 7 percent
local, the local government must find the 7 percent
in its existing budget by eliminating some other service
or activity that was in the original plan.
Moreover, disasters often take revenue away from local
governments. For example, areas that rely on tourism
will see a decline in visitors immediately after a disaster,
thereby reducing tourism-related revenues, such as the transient
occupancy tax collected for hotel stays and sales tax
generated through restaurants and shops. Even though
FEMA employees may flood the area after a disaster, the
federal government pays neither the local sales tax nor the
transient occupancy tax for the hotel rooms.
Even communities without tourism as an economic
engine will see changes in the revenue profile. Severe
disasters may force businesses to close for a time, further
reducing retail and business-to-business sales taxes. Real
property may have to be reassessed downward on the basis
of severe damage from the disaster.For example, if the
building is destroyed by 50 percent or more, the property
assessment may be reduced to the value of the land.
In addition, the local government may have costs not
covered by the federal assistance programs, so it will have
to pay all the expenses.This may include activities suchas
replacement of lost trees or cleanup of office spaces
where hazard mitigation was not conducted.
Even when work is part of one of the eligible categories
of work, the local government will have to find its
7 percent share from its disaster-depleted revenue, while
at the same time trying to keep its employees paid. For
a small community with little excess income, this may be
devastating. Even New Orleans, with normal revenue of
$39 million per month in taxes and fees, $13 million per
month in sales taxes alone,was forced to lay off a substantial
percentage of its employees in the immediate aftermath
of Hurricane Katrina because of the significant loss of revenue.
In fact, at one point its only revenue was $2 million
per month from Harrahs Casino, which had a contractual
obligation to pay its taxes to the city whether or
not it was open.
Community Disaster Loans
Another type of federal assistance is the Community
Disaster Loan Program.This loan is available to a community
with a disaster-related drop in revenues of 5 percent
or more that can demonstrate the need for federal
assistance to maintain essential services.However, this assistance
is limited to no more than 25 percent of the annual
operating budget and to no more than $5 million.
Under some circumstances, the loan may be converted
to a grant after three years, but in the immediate recovery
period, the loan remains part of the local governments
financial portfolio and will impact its ability to borrow
from other sources.
Preparing for Disaster
Financial Recovery
Although disasters may not be preventable, local governments
can take steps to lessen the impact of similar future
events.
Mitigation
Disaster mitigation is a keystone of emergency preparedness.
As one of the four phases of emergency management,
mitigation offers agencies the opportunity to
take steps in advance of known threats that will lessen their
impact on the residents and infrastructure of a community.
Mitigation may include strengthening building
codes, changing land-use and zoning regulations, and infrastructure
development.
Financial mitigation is as important as physical mitigation
to the well-being of the residents and the ability
to recover community functions. Although few communities
can afford to develop an adequate rainy day
fund to protect themselves, reasonable steps can be taken
to mitigate the financial impact of a disaster.
Threat Analysis
Every community should undertake a thorough threat
analysis. Understanding the probabilities of various hazards
impacting the community will guide the level of expenditure
on mitigation activities. First, a community
should inventory the hazards in the area:hurricane, earthquake,
flood, wildland urban interface fire, and tornado
or human-caused disruptions.Second, it should determine
the likelihood and frequency of the hazards occurrence.
Third, it should inventory the impacts of the hazard to
people and property.
The community should then develop its emergency
plan on the basis of the hazards with a high frequency and
significant impact. Hurricane Katrina caused the loss of
four hundred thousand jobs along theMississippi Gulf Coast
alone.Biloxi suffered the loss of six thousand buildings,or
about 20 percent of its homes and business structures.
Emergency Management
Communities should invest in professional emergency
management.An emergency management staff should be
hired, or developed, with the skills to create a meaningful
emergency plan for the community and a functional
emergency operations center. The staff should be empowered
to train local government staff members in their
emergency response roles.Annual exercises of the emergency
plan keep it up to date and the staff knowledgeable.
In the post-disaster environment, the professional
emergency manager will be able to negotiate with the state
and FEMA on behalf of the local community to ensure
that appropriate financial assistance is received. Development
of an agreement with the state on the cost share
and creation of an initial project worksheet are both crucial
in obtaining the greatest state and federal assistance
for disaster response and recovery.
Revenue Analysis
Communities should carefully evaluate their sources
of revenue for disaster vulnerability.Real-estate and sales
taxes are especially vulnerable to disaster interruption or
reduction. Industries that produce the greatest revenue
streams for a community should be encouraged to develop
emergency response and business continuity plans and toobtain
business continuity insurance policies to aid their
rapid recovery to revenue generation.
For example, Biloxi, Mississippi, had as its three major
sources of revenue the 4 percent tax on gaming revenues,
ad valorem tax on real estate, and sales tax.The gaming
tax accounted for about $20 million annually, about
one-third of local revenue. Sales tax was one-quarter of
its income, and the property tax was less then 20 percent.
Moreover, about ten thousand jobs in Biloxi were related
to gaming and tourism.
Hurricane Katrina hit Biloxi one month before the
end of the fiscal year, so the greatest impact was felt in
200506.For that year, gaming revenue was down 45 percent,
and sales tax was down 24 percent.The city was
forced to suspend all nonstorm capital projects, reduce
staffing, and decrease municipal programs and activities
across the board, just when the demand for post-storm
services was highest.Although Biloxi received more than
$37 million in federal grant reimbursements that year, it
represented only 75 percent of its storm-related reconstruction
costs.The 25 percent matchhad to come from
the communitys storm-depleted revenue base.
A further impact was seen on Biloxis bond rating.Due
to its loss of revenue, the citys bonds went from an A
rating toBBBpost-Katrina.This means that all the bonds
sold to pay for recovery carried a significantly higher interest
burden than previous capital improvement bonds.
Selling as much bonded indebtedness as the city needed
to complete repairs was also difficult.
Public Education
Another important mitigation step is bringing residents
and businesses into the preparedness process.The
community should offer educational programs to encourage
every community member to be self-sufficient
for at least seventy-two hours.Community conditions may
dictate a longer self-sufficiency period.The emergency
management staff should ensure that residents are familiar
with the threats to the community and knowledgeable
about evacuation routes and probable shelter locations
(at least by category, such as high school gyms) and
have out-of-area phone contacts and a family emergency
response plan. FEMAs community emergency response
training offers excellent resources for community training
and preparedness. Residents and businesses can take
private mitigation steps to protect their own property before
the disaster.
Business Pre-Disaster Mitigation
Mitigation is especially important for tax-and-fee revenue-
generating members of the business community.
Their ability to stay in business is an important part of community
recovery.The jobs they support will help to keep
the community intact, allowing employees to recover and
keep their bills paid.The flow of tax revenue will support
the local governments disaster recovery.
However, small businesses are inevitably hard hit by
disaster.USAToday reported that 7,900 businesses in southeast
Louisiana, including New Orleans, closed between
the Katrina and the fourth quarter of 2006.The smaller
the company, the higher the failure rate, they noted.
Remaining businesses faced daunting problems with insurance
and the lack of employees, customers, and supplies.
Even larger businesses suffer when employees are
forced from their communities.A Public Entity Risk Institute
study of small- and medium-sized businesses found
that pre-disaster efforts at mitigation were a good predictor
of staying in business after the disaster.
Insurance
Insurance offers the best opportunity for rapid financial
recovery. Local governments should review their property
insurance policies regularly to ensure that they are
appropriate to the threat level and hazard type within the
community.For example,FEMA flood insurance provides
resources to quickly rebuild damaged facilities at a reasonable
premium. If a public facility has once been flood
damaged in excess of $5,000 value and received federal
financial assistance for repair, flood insurance is required
for that property.Workers compensation and liability insurance
policies should be written to include disaster clauses.
The risk management unit should be an active partner
in emergency planning in every community.
FEMA assistance does not cover insured property until
the proceeds of the policy are used.Communities should
select deductibles and extent of coverage with FEMAs
duplication of benefits policy in mind. Based on
StaffordAct requirements, anticipated insurance proceeds
are deducted from the eligible repair costs in determining
FEMAs share.
Financial insurance policies are also an important part
of the communitys emergency plan.Various instruments
are available to insure the community against an inability
to repay certain debts and loans.Revenue streams may
also be insurable.For example, the state ofMississippi lost
$500,000 per day when Hurricane Katrina destroyed itsfloating
casinos, putting fourteen thousand people out of
work. Because taxes on the gaming industry represented
35 percent of Biloxi,Mississippis, total revenue, the city
held a $10 million business interruption insurance policy
to protect their gambling revenues in the event the casinos
did not operate due to disaster.This was a critical element
in Biloxis rapid recovery from Hurricane Katrina,
as they ultimately collected more than $900,000 in gambling
revenue losses through this policy.
Conclusion
Biloxis experience demonstrates that pre-disaster planning
and mitigation can result in the ability to recover,
even after a catastrophic event.The inability to adequately
mitigate against catastrophe can leave a community
without revenue on which to base its recovery. Sales and
property taxes are directly affected by natural disasters, as
are the basic industries on which a communitys prosperity
is based. Communities should invest in adequate threat
assessment, emergency preparedness, and response capabilities
in concert with their major industries.They should
also undertake physical and financial mitigation measures
to lessen the damage and thereby speed the recovery of
the community after disaster.