State and Federal Disaster Relief: Expect the Best But Prepare for the Worst?

As Hurricane Sandy bears down on the East Coast, it seems like an opportune time to revisit federal disaster relief. Even in an election year, this may be one of those rare topics where most Americans can agree. There is a strong argument for the federal government serving as a backstop against risk, and pitching in when natural and human induced catastrophes outstrip local capacities to respond.

The current federal disaster response system dates to the mid-20th century. Before that, Congress responded to floods, earthquakes, and fires on an ad hoc basis – usually by passing specific legislation authorizing the purchase and distribution of aid. (This legislation was not always popular: President Grover Cleveland vetoed a bill providing drought assistance to Texas. Backing him was Clara Barton, founder of the Red Cross, who thought local and private actors had the situation well in hand.)

This all changed as the federal government grew and began amassing other responsibilities during the Great Depression and World War II. Congress passed the first general disaster relief act in 1947 and it created a permanent disaster relief fund in 1950. It elaborated on this basic structure throughout the 1960s and 1970s culminating with passage of the Stafford Emergency Assistance and Disaster Relief Act in 1988.

With some bells and whistles added post Hurricane Katrina, the Stafford Act remains the centerpiece of federal disaster response today. It establishes the framework we have come to know: At a governor’s request, the President grants a declaration of emergency (before an event) or disaster (afterwards). The Federal Emergency Management Agency (FEMA) then quarterbacks the response, which can include assistance for infrastructure repair, temporary housing, crisis counseling, unemployment benefits, and future hazard mitigation. Other federal agencies such as the Small Business Administration (SBA), Department of Housing and Urban Development (HUD), and Department of Agriculture (USDA) may also be involved.

The Stafford Act sets out various cost shares, or floors on federal versus state and local spending, based on assistance type. For example, the federal government bears 100 percent of all eligible housing costs and at least 75 percent of other categories like debris removal. It may not surprise many people that FEMA and Congress have acted repeatedly to adjust cost shares after a crisis hits.

Politics can also enter the picture earlier. Research suggests governors are more likely to seek federal disaster declarations in presidential election years, especially when they preside over a swing state, but not when they themselves are ineligible for re-election (because of state term limits). Still, local trumps national politics: governors are no less likely to request aid when it will help the other party’s presidential incumbent. This situation was vividly illustrated with Governor Lawton Chile’s initial refusal, then acceptance of Hurricane Andrew assistance from then President George H.W. Bush.

Why does this all of matter? Federal disaster relief is roughly $18 billion per year, a drop in the federal budget bucket (please forgive the pun). However, it is perhaps the ultimate example of “particularistic” government spending , or spending that benefits a small area but whose costs are borne generally. When these conditions apply, incentives abound, especially in the heat of a crisis, to spend freely.

To prevent abuses, the federal government typically requires local matching funds or establishes procedural hurdles for disaster and other forms of grants in aid. It did the same thing with state fiscal relief under the 2009 stimulus package. The flip side of these mechanisms, however, is that some places will not get the aid they need, when they need it.

Perhaps the solution, in economic as in natural disasters, is to set up an early warning system. For example, some have advocated an expanded set of automatic stabilizers or federal programs that direct resources to affected states and regions immediately when local unemployment rates turn south.

The appropriate design of state countercyclical fiscal policy is surely a conversation worth having. But not today. As we in the DC area wait for our power to go out (again), I can’t help but think of this 1993 quote from then Missouri Governor Mel Carnahan as Congress debated assistance for flood victims: “This is not a time for debating the fine points of long-term policy.” Amen.