States: Stop Subsidizing FEMA Waste and Manage Your Own Local Disasters

Abstract: All disasters are local. Or so many politicians proclaim. Yet 29 states send their tax money to FEMA only to end up footing the disaster-response bill for the other 21. Unfair? Incredibly so -- and inefficient -- explains Heritage homeland security expert Matt Mayer. Instead of nationalizing disaster management, states should keep their FEMA taxes -- and fund and manage their own local disasters. Mayer explains how to amend the Stafford Act to make this happen.

In 1996, the Federal Emergency Management Agency (FEMA) issued more disaster declarations (157) than in any year before or since.[1] As President Clinton's FEMA administrator, James Lee Witt, remarked, "Disasters are very political events."[2]

As Chart 1 shows, beginning in 1993, the federal government played an ever-increasing role in natural disasters across America. In the short span of 16 years, the yearly average of FEMA declarations tripled from 43 under President George H. W. Bush, to 89 under President Clinton, to 130 under President George W. Bush. With President Barack Obama's current pace of 139 declarations this year -- the fifth-highest in FEMA history -- despite the absence of any hurricanes or other major disasters, it appears the march toward a de facto national emergency management agency is inevitable.[3] (NEMA -- the existing National Emergency Management Association will have to change its name.)

This nationalized disaster response agency would be a colossal mistake given that (1) most response resources are locally owned, (2) response from Washington, D.C., is always slow, and (3) other than hurricanes, disasters do not provide notice of their arrival until they have arrived, so any federal response will be well after the fact. An even more significant reason a nationalized disaster response agency would be a stupendous mistake is that, even today, a majority of states do not benefit from FEMA's largesse. Rather, a minority of states receive the majority of declarations -- which means a majority of states send their disaster-response taxes to Washington, D.C., so that FEMA can subsidize the disaster responses in a minority of states.

The worse part about this tax-redistribution policy is that the politicians from the subsidizing states support this policy despite how unfairly it affects their own states.

Federal Disaster Policy Creates Incentives to Nationalize Disasters

The controlling federal statute for disasters is the Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988 (Stafford Act).[4] Under the Stafford Act, the federal government pays at least 75 percent of the disaster response so long as FEMA has issued a declaration. The key provisions of the Stafford Act, which create enormous incentives for governors to seek disaster declarations from FEMA, are:

• Section 402(5): the federal government pays 100 percent of the costs to save lives, prevent human suffering, or mitigate severe damage;
• Section 403(b): the federal government pays not less than 75 percent of eligible assistance essential to meeting immediate threats to life and property;
• Section 404(a): the federal government pays not less than 75 percent of hazard mitigation efforts;
• Section 406(b): the federal government pays not less than 75 percent of eligible costs to damaged facilities;
• Section 407(d): the federal government pays not less than 75 percent of eligible debris removal costs; and
• Section 408(g): the federal government pays 100 percent of individual assistance (up to $25,000 per household).[5]

Without a FEMA declaration, these costs are borne entirely by the state and local governments affected by the disaster. With a FEMA declaration, at least 75 percent of the above costs are shifted to the other 49 states not affected by the disaster.

Given these incentives, it should not be a surprise to anyone that governors quickly -- within five years of its enactment -- figured out how to manipulate the Stafford Act and FEMA and turn local disasters into national occasions, and why Presidents, given their electoral interests, have been eager participants in this redistribution game. By shifting their costs to other states, these governors are adopting a "spread the wealth" mentality. The problem with this approach, however, is that it fails to take a step back from the trough long enough to figure out that the gains for many of the states are illusory.

FEMA's Winners and Losers

The exact percentage of annual federal taxes that represent funds for "disaster response" -- taxes used by the federal government to execute the Stafford Act -- is unknown. What is known is that a majority of states would be better off if they just kept their disaster response taxes and funded their own emergency management operations. Specifically, because a majority of states receive a smaller share of FEMA declarations in proportion to their populations, these states subsidize the minority of states that receive a greater number of FEMA declarations in proportion to their populations. (See Table 1.)

Take Oklahoma, which since 1993 has received 90 FEMA declarations -- an average of 5.45 declarations per year. These 90 FEMA declarations equate to 5 percent of all FEMA declarations across the country in that period of time. In contrast, Oklahoma's population of 3,642,361 represents only 1 percent of the total U.S. population. Roughly 40,471 Oklahomans footed the bill for each disaster declaration for their state.

At the same time, Michigan, which has 3 percent of the U.S. population, received only 1 percent of FEMA declarations in 1993. Specifically, Michigan has a population of 10,003,422 and received only 14 FEMA declarations, which averages to 0.85 declarations per year. On average, roughly 714,530 Michiganders paid disaster response taxes to support each of those FEMA declarations, or, stated another way, 674,059 more taxpayers in Michigan sent money to Washington, D.C., for each FEMA declaration in Michigan as compared to taxpayers in Oklahoma. That means that more Michigan citizens will pay higher taxes, and other states will receive more money from FEMA. Much of the money that Michiganders pay in taxes subsidizes small disasters in other states that should not have received FEMA disaster declarations in the first place.

Based on this analysis, Michigan is paying far more into the disaster response tax bucket than it gets out of it each year as people in Oklahoma pay far less into the bucket than they get out of it. Although an admittedly simple comparison, Oklahoma is clearly winning (defined as getting the federal government to redistribute its costs to other states) and Michigan is clearly losing (defined as disproportionately paying the costs of other states' disasters).

Using this percentage of all FEMA declarations compared to the percentage of total U.S. population as the metric, as Map 1 shows, under the current policy, there are more states that lose (have the same or lower percentage of FEMA declarations as a percentage of total U.S. population) than win (have a higher percentage of FEMA declarations as a percentage of total U.S. population).

Some argue that the current policy makes sense because there are more winners than losers (assuming those who break even should not care). This argument, however, ignores the reality that states that lose or break even are better off if they keep their disaster response funds because they will then have full control over their disaster responses, which is arguably better than being controlled by Washington, D.C.

This argument also does not stand up to the fact that the minority 21 states and District of Columbia "winners" have received 942 FEMA declarations since 1993, which represent 53 percent of all FEMA declarations during that time. Of those states, only Louisiana, Texas, and the District of Columbia have experienced disasters that can be classified as catastrophes with nation-wide effects (Hurricanes Katrina and Ike and the September 11 attack). The other 19 states have experienced routine disasters, such as tornadoes, floods, fires, and storms that they can manage without federal involvement. Natural disasters rarely, if ever, involved the federal government from 1787 to 1993.

But, the "more winners than losers" argument ignores an even more basic calculation: demographics. Because many of the "winning" states are sparsely populated, their allocation of U.S. House and Senate members is also small. Using the Electoral College numbers for each state, the losing states hold 303 votes (271 representatives and 32 senators) and the winning states hold only 144 votes (104 representatives and 40 senators). This allocation means that the losing states have more than enough votes (218) in the U.S. House to amend the Stafford Act to make it more equitable for their own taxpayers.

The U.S. Senate is where the tougher challenge to change the Stafford Act lies. Of the break-even states, Arkansas (25 declarations since 1993), Connecticut (10), Idaho (11), Iowa (19), Mississippi (23), Nebraska (25), South Carolina (15), Utah (15), and West Virginia (26) have averaged fewer than two FEMA declarations per year since 1993. These states hold the 18 votes needed to amend the Stafford Act. If the remaining five states determine that retaining 100 percent control over their disaster response is in their best interest, a filibuster-proof majority of 60 votes is within reach.

Despite the fact that a clear majority of states and their congressional members do not come out ahead under the current system, advancing a real FEMA reform agenda has fallen on deaf ears. Perhaps with the data in this paper, more Members of Congress will be interested in putting in place the reforms necessary to ensure that states and localities regain their primary role in disaster response and, as important, stop subsidizing the routine localized disasters across America.

Nationalization of Disasters Leaves States Ill-Prepared

Often overlooked in the discussion on the role of FEMA is the impact that nationalization has on the overall preparedness of both the states and FEMA. In addition to the incentive noted above for governors to nationalize disasters so they can spread the costs of their disaster management to other states, the nationalization of disasters also undermines the preparedness of state and local emergency management agencies.

As discussed more fully in my book Homeland Security and Federalism: Protecting America from Outside the Beltway:

[w]hen FEMA federalizes routine natural disasters, states and localities lose the incentive to prepare for those events. As a result, FEMA will inherit the load. At the same time as changes were happening in Washington that caused substantial complaints from the emergency management community, states, responding to the federalization of disasters, were cutting emergency management budgets by an average of almost 25 percent.[6]

These cuts leave states with too few disaster response capabilities, which only create more incentives to nationalize routine disasters. This ratchet-down effect places all but the smallest disasters outside the reach of the Stafford Act.

The nationalization of routine disasters requires FEMA to get involved with a new disaster somewhere in the United States every 2.8 days. This operational tempo keeps FEMA perpetually in a response mode, leaving too little time and resources to adequately focus on catastrophic preparedness. With staffing levels and budgets only nominally larger than the pre-1993 levels, it should be no surprise that FEMA is not able to handle a catastrophic disaster.[7]

In fact, an audit in 2008 found that "FEMA continues to perform well responding to non-catastrophic or 'garden variety' disasters; however, it still has much to do to become a cohesive, efficient, and effective organization to prepare for and respond to the next catastrophic event."[8] "In the nine critical areas reviewed in the audit, in the almost three years since Hurricane Katrina, FEMA had 'made moderate progress in five of the nine areas, modest progress in three areas, and limited progress in one area.'"[9] The bottom line is that this heightened pace is putting an undue burden on FEMA staff and systems.

The surprise should not have been the failures that occurred while responding to Hurricane Katrina; rather, the surprise should have been that FEMA was able to paper over enormous capabilities deficiencies from Hurricane Andrew in 1992 to Hurricane Floyd in 1999 to Hurricane Katrina in 2005.

A Fairer -- and Better -- Way to Manage Disasters

It is clear that the current definition used by FEMA to issue declarations is routinely ignored. After all, no reasonable person would concede that the vast majority of the 2,864 FEMA declarations involved disasters that were "of such severity and magnitude that effective response [wa]s beyond the capabilities of the State and the affected local governments and that Federal assistance [wa]s necessary."[10] In some cases, the FEMA declarations were issued months after the disaster struck, further highlighting the reality that FEMA declarations are mostly about the money.

In 2008, Ohio experienced a strong snowstorm from March 7 to March 9. It was not until April 24, however, that Ohio received a FEMA declaration. By that time, the snow had long since melted and the emergency was over. As further proof of the inanity of the whole process, in the FEMA press release almost seven weeks later, FEMA Administrator David Paulison proclaimed "that federal funding is available on a cost sharing basis to save lives and protect public health, safety and property over a continuous 48-hour period during the incident period. Snow removal and emergency protective measures will be provided at 75 percent Federal funding" (emphasis added) as if the FEMA declaration had been issued on March 7.[11] Issuing a declaration was not about saving lives or protecting property. It was all about the money. Period.

The bottom line is that it is fundamentally unfair for taxpayers in the rest of the United States to subsidize the routine disasters that occur in a smaller group of other states. In order to reverse this nationalization of disasters, Congress should amend the Stafford Act and:

• Establish clear requirements that limit the types of situations in which FEMA declarations can be issued. One way to accomplish this is to align declarations with the various international scales used for disasters (for example, the Saffir- Simpson Scale, the Richter Scale, or the Fujita Scale). Limiting disaster declarations to Category 1 hurricanes and above, for instance, would eliminate declarations for all tropical storms that cause moderate damage, but are not "of such severity and magnitude that effective response is beyond the capabilities of the State and the affected local governments and that Federal assistance is necessary."[12]
• Eliminate certain types of disasters from FEMA's portfolio entirely. For example, burdening FEMA with allocating money to farmers for crops destroyed by freezing temperatures is highly inefficient. Insurance markets and state and local governments can deal with such disasters more efficiently than the federal government can. Finally, while severe storms and tornadoes cause property damage and cost lives, they rarely outstrip the abilities of state and local governments.
• Reduce the cost-share provision for all FEMA declarations to no more than 25 percent of the costs. This change will ensure that at least three-fourths of the costs of a disaster are borne by the taxpayers living where the disaster took place. The current policy is simply unfair to those Americans living in states that do not experience many disasters. For catastrophes with nationwide impact disasters, such as 9/11 and Hurricane Katrina, a relief provision could provide a higher federal cost-share where the total costs of the disaster exceed a certain threshold amount.

Over the last 16 years, politicians on both sides of the aisle and from across the country viewed the increasing federalization of FEMA declarations as another way to get federal funds into their states. As the data demonstrate, however, the current FEMA disaster-declaration process produces fewer winners and more losers, resulting in the large-scale subsidization of 21 states by the taxpayers in the other 29 states. It is time for policymakers to stop clamoring for money and to start living by the motto they all proclaim: "All disasters are local."

Almost all disasters are indeed local, which is why the vast majority of them should be responded to, run by, and funded by state and local governments and their taxpayers. Save FEMA and federal funds for the exceptional catastrophes that do require the federal government to step in.

Matt Mayer is a Visiting Fellow at The Heritage Foundation and president of the Buckeye Institute for Public Policy Solutions in Columbus, Ohio. He has served as Counselor to the Deputy Secretary and Acting Executive Director for the Office of Grants and Training in the U.S. Department of Homeland Security. He is author of Homeland Security and Federalism: Protecting America from Outside the Beltway.