FEMA’s Community Disaster Loan Program: History, Analysis, and Issues for Congress

Jared T. Brown
Analyst in Emergency Management and Homeland Security Policy

The core purpose of the Community Disaster Loan (CDL) program is to provide financial assistance to local governments that are having difficulty providing government services because of a loss in tax or other revenue following a disaster. The program assists local governments by offering federal loans to compensate for this temporary or permanent loss in local revenue. The CDL program is managed by the Federal Emergency Management Agency (FEMA). First authorized in the Disaster Relief Act of 1974 (P.L. 93-288), the Community Disaster Loan program is currently codified in Section 417 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. §5184, as amended). The program is funded through the Disaster Assistance Direct Loan Program account, rather than the Disaster Relief Fund (DRF) that funds the majority of other Stafford Act programs. In sum, 249 loans were issued to 200 local governments under 26 different disaster declarations from 1974 to 2010. An approximate total of $1,615 million in principal was offered to these governments in loans, of which roughly $1,326 million was borrowed by the governments. Through the program, FEMA may also cancel the repayment of the loans if certain financial conditions prevailed after the three fiscal years following the disaster. Through its cancellation authority, FEMA has forgiven approximately $879 million of the $1,326 million in principal advanced to local governments since program inception.

This report compares and analyzes three different categories of loans issued in different time periods in the program’s history: “traditional” loans issued between 1974-2005, in 2007, and between 2009-2011 (TCDLs); “special” (SCDLs) loans issued in 2005-2006 following Hurricanes Katrina and Rita; and loans issued under unique provisions in 2008 (2008 CDLs). As authorized by Congress and administered by FEMA, the SCDL and 2008 loan categories had different provisions than traditional loans to guide the eligibility of local governments and dollar size of the loans. SCDLs also had unique provisions that slightly altered the purpose of the loans, lowered the interest rate charged on the loans, and clarified the cancellation procedures for the loans.

In the original legislation authorizing and appropriating the SCDLs, the loans were not allowed to be cancelled. However, Congress later amended the law to allow cancellation for SCDLs. Some controversy has arisen over FEMA’s administration of the cancellation authority for these special loans. Table 8 and Table 9 provide several measures for comparing the cancellation rates of TCDLs to SCDLs. In summary, TCDLs had a lower percentage of loans fully cancelled or with some level of cancellation than SCDLs (32.7 % and 45.5% versus 44.2% and 59.7%, respectively). On average, TCDLs also had lower dollar amounts of principal forgiven per loan than SCDLs (37.8% versus 52.4%). However, as a function of total dollar amount of principal cancelled in each loan category, TCDLs had a much higher cancellation rate than SCDLs (97.2% versus 67.3%).

Congress may consider changes to the CDL program in the future. Options could include altering future authorization and appropriations for the program in favor of more tailored disaster assistance programs, or converting the loan assistance into a grant program. There are also options for amending the program less significantly, including changing the way loan funds may be used by local governments, changing the total dollar size of the loans, and altering how the cancellation authority can be applied by FEMA.


Date of Report: May 10, 2012
Number of Pages: 47
Order Number: R42527
Price: $29.95

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