Federal Emergency Management Agency (FEMA) officials help people with questions at the George R. Brown Convention Center which was a shelter for evacuees from Hurricane Harvey, in Houston on September 2, 2017. MANDEL NGAN/AFP/Getty Images
Economics of Disaster

The business of disaster: How does the U.S. spend relief money?

Peter Balonon-Rosen Dec 1, 2017
Federal Emergency Management Agency (FEMA) officials help people with questions at the George R. Brown Convention Center which was a shelter for evacuees from Hurricane Harvey, in Houston on September 2, 2017. MANDEL NGAN/AFP/Getty Images

When Hurricane Maria slammed into Puerto Rico — or Hurricane Irma into Florida, or Hurricane Harvey into Texas, or wildfires ravaged California — the federal government stepped in to help with recovery. It’s been quite a year.

And recovering from all those natural disasters, well, has had quite a cost.

Where does that money come from? We took a closer look at how the federal aid process works, from what triggers federal involvement, to how federal dollars are spent, to what happens when things don’t go according to plan. 

1) What has to happen to get the federal government involvement in a disaster?

First, a natural disaster has to be so big and so destructive that it overwhelms local resources.

If local officials believe the disaster is beyond their capacity to handle, a governor can ask the president for help. This can happen as soon as it’s obvious destruction is significant, often while the large scale weather event is still in progress.

Following the request, the Federal Emergency Management Agency makes a recommendation to the president. The president then chooses, based on FEMA’s recommendation, whether to declare the situation an emergency or a major disaster.

Depending on the type of declaration, federal disaster relief — and FEMA’s role — varies in scope and size.

2) Where does FEMA get money?

Each year Congress sends two pots of money to FEMA’s disaster relief fund. The first pot of money is generally for FEMA’s regular day-to-day operations and routine events. In fiscal year 2017, that base funding was $615 million.

The second pot of money Congress gives FEMA is bigger. It’s known as Major Declarations, and it’s based on the amount that was spent on disaster relief in the past decade. In fiscal year 2017, that funding was $6.7 billion.

From PolitiFact:

Together, base and major declaration funding totaled $7.3 billion in fiscal 2017. (FEMA can also carry over any unspent funds from the previous year.)

That may sound like a lot of money. But compared with an estimate by Moody’s Analytics, which places the combined damage from hurricanes Harvey and Irma at $150 billion to $200 billion, it’s a drop in the bucket.

3) Where does FEMA get money when disasters are more expensive than their funding?

Well, that’s up to Congress. Lawmakers can authorize supplemental appropriations for disaster assistance, which is what happened this year.

However, whether Congress should give FEMA supplemental funds has been the subject of debate, according to the Congressional Research Service. Critics say that it shows that FEMA is not funded well enough. Advocates say the severity of disasters can’t be anticipated, and giving FEMA more money would shift money from other programs.

4) Where can FEMA spend money once a disaster strikes?

After the president declares an event an emergency or major disaster, that triggers FEMA’s ability to spend their disaster relief fund. FEMA can spend money in any combination of three categories:

  • Individual Assistance: This includes disaster housing for displaced individuals, grants for needs not covered by insurance, crisis counseling, and disaster-related unemployment assistance.
  • Public Assistance: This is FEMA’s largest funded program and it helps communities absorb the costs of emergency measures such as removing debris and repairing or replacing structures such as public buildings, roads, bridges, and public utilities.
  • Hazard Mitigation: FEMA funds mitigation measures to prevent or lessen the effects of a future disaster through its Hazard Mitigation Grant Program.

The money from FEMA’s disaster relief fund can also be used to fund FEMA’s Fire Management Assistance Grant program. This allows federal assistance — in the form of equipment, personnel, or grants — to be sent to states or local governments to fight fire on any public or private forest or grassland.

Not everyone affected by disaster will receive disaster assistance. FEMA officials determine the need and provide assistance to those who are eligible. For instance, a household with access to alternative housing would be ineligible for housing assistance.

5) What are the limitations on FEMA funds?

When individuals, government agencies or contractors get FEMA money there are rules that govern what that money can be spent on. And money is often earmarked for specific causes, like housing or repairs.

Under FEMA rules, individuals can only use money to restore items to pre-disaster, not original, condition. For example, “repairs and rebuilding may not improve a home above its pre-disaster condition, unless such improvements are required by current building codes,” according to FEMA.

Money is also awarded to local governments and contractors for specific jobs intended to help residents and municipalities recover from disaster.

6) What happens when funds are misspent?

This is what’s supposed to happen: Money moves from Congress to FEMA to grants for recovery for individuals. But it doesn’t always end up this way.

Following Hurricane Sandy, private insurance companies profited an estimated $240 million to $406 million annually as homeowners struggled to get insurance money to repair homes, according to an investigation by NPR and Frontline.

A New York City recovery program funded with federal dollars paid workers little more than minimum wage, but charged the city based on rates of $40 to $100 an hour, according to the investigation.

And often money is simply spent incorrectly — or not at all.

Following Hurricane Katrina, FEMA ordered nearly $2.7 billion worth of travel trailers and mobile homes from 60 different companies. Following an epidemic of respiratory infections, the Centers for Disease Control and Prevention found that, on average, trailers had about 40 times the recommended levels of formaldehyde.

And when it comes to Hurricane Maria, a recent AP investigation found that Bronze Star LLC won more than $30 million in contracts from FEMA following Maria, but then failed to deliver promised emergency tarps and plastic sheeting to Puerto Rico. FEMA eventually terminated the contract.

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