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Time for an Honest Accounting of Our Disaster Budget

8:10 AM, Sep 13, 2011 • By IKE BRANNON
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A host of liberal politicians and pundits have taken House Republican leader Eric Cantor to task for daring to insist that any disaster spending allocated to pay for the damage done by Hurricane Irene be offset in the budget elsewhere. They view Cantor as injecting politics into the country’s disaster management programs.

fema

Yet, precisely the opposite is true. The current ad hoc method for funding the government’s response to natural disasters was derived precisely for political reasons and has no redeeming characteristics whatsoever. Congress has been playing a game with disaster spending for decades that has basically hidden the true cost of our country’s obligations and allowed them to avoid making difficult decisions about prioritizing spending.

While disasters are unpredictable, if we look across the scope of our vast country and over the horizon of the last couple of decades we can come up with a decent estimate of the annual expected cost of responding to natural disasters with some degree of reliability. A National Bureau of Economic Research paper written by David Cummins, Michael Suher, and George Zanjani found that over the last twenty-five years, the average annual cost of disaster relief to the federal government has been about $17.5 billion. An annual appropriation of that amount into a FEMA contingency fund could be counted on to be sufficient for the government to handle all but the costliest disaster over the next decade or two. Funds would accrue in low disaster years and be available in years with multiple costly disasters that exceed the annual FEMA appropriation.

However, instead of using a modicum of foresight and planning, Congress merely allocates $2 billion or so to FEMA in the regular budgeting process—just enough for the agency to operate and make contingency plans—and then passes emergency legislation several times a year to fund the various disasters that occur.

Congress confers onto itself two advantages by responding to disasters in such a piecemeal way, neither of which benefit the populace. First, it can show itself “responding” to various disasters by magnanimously allocating funds for the poor victims of the most recent hurricane or flood or blizzard or plague. Second, this approach effectively takes disasters off budget. What does the government have to give up in order to pay for FEMA? Virtually nothing, since the budget Congress debates each year (and occasionally even passes) pretends we will have virtually no disasters.

The problem with this approach is that it means no hard decisions are made about our spending on disasters. Just about everyone in Congress wants a FEMA that has enough resources at its disposal to help communities respond to any disaster that might overwhelm the community’s ability to withstand it.  Conservatives and liberals can (and should) have a spirited debate about whether FEMA’s response has the potential of “crowding out” state, local, and private incentives to respond to disasters, and whether the breadth of the assistance it gives needs to be circumscribed in some way as well as how to fund a necessary government response to these disasters. But the current system forecloses such a discussion.

With the move by the House GOP leadership toward an honest accounting of disasters, we may be about to have precisely such a debate.

The perpetual underfunding of our disaster response means that disasters are, in a very real way, an unfunded liability of the U.S. government. Cummins, Suher, and Zanjani estimate in their National Bureau of Economic Research report that the fifteen billion dollar gap in a typical year between money allocated to FEMA and other disasters and the actual money spent represents a present value in future unfunded disaster obligations of over a trillion dollars.

How should Congress deal with this legacy of budget chicanery? To make things right, the appropriations committee should stop pretending that our disaster obligations are going to cost only $2 billion a year and allocate something closer to the annual average cost of disasters. But in the meantime, Congress is right to face up to the dire budget straits we are in and recognize that resources given to FEMA is not free money.

Ike Brannon is director of economic policy at the American Action Forum.

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