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Tuesday, November 19, 2013

An Examination of Federal Disaster Relief Under the Budget Control Act

Bruce R. Lindsay
Analyst in American National Government

William L. Painter
Analyst in Emergency Management and Homeland Security Policy

Francis X. McCarthy
Analyst in Emergency Management Policy

On August 2, 2011, the President signed into law the Budget Control Act of 2011 (BCA, P.L. 112- 25), which included a number of budget-controlling mechanisms. As part of the legislation, caps were placed on discretionary spending for the next ten years, beginning with FY2012. If these caps are exceeded, an automatic rescission—known as sequestration—takes place across most discretionary budget accounts to reduce the effective level of spending to the level of the cap. Additionally, special accommodations were made in the BCA to address the unpredictable nature of disaster assistance while attempting to impose discipline on the amount spent by the federal government on disasters. The BCA created an allowable adjustment specifically to cover disaster relief (defined as the costs of major disasters under the Stafford Act), separate from emergency appropriations.

The limit established by the BCA on adjustments to the caps for disaster relief is based on the average funding provided for disaster relief over the last ten years, excluding the highest and lowest annual amounts, calculated by the Office of Management and Budget. If Congress spends less than that average on disaster relief in a given fiscal year, the caps can be further adjusted upward by the unspent amount in the following year. The existence of this “allowable adjustment” for disaster relief has changed the way that the Disaster Relief Fund is structured, and resulted in a Disaster Relief Fund with substantial funding at the start of FY2013, a departure from historical precedent.

On October 29, 2013, Hurricane Sandy came ashore, causing loss of life and billions of dollars in damage. The Administration proposed a relief package that exceeded the allowable adjustment for disaster relief under the BCA. The Administration requested, and Congress for the most part agreed, to designate the Hurricane Sandy supplemental as emergency spending outside of the limited disaster relief adjustment made available under the BCA. The history of the legislative response to this disaster demonstrated that while the BCA included an accommodation to provide dedicated additional funding for many disasters, catastrophic events such as Sandy remain a challenge to those developing long-term budgeting strategies.

This challenge could be compounded by the fact that by design, the methodology used by OMB to calculate the allowable adjustment could not capture the full range of disaster relief spending, and that the structure of the formula for calculating the average provides smaller allowable adjustments in future years. The sizeable initial disaster relief expenditures for Hurricane Katrina and the other 2005 storms will begin to lose relevance in calculating the allowable adjustment for disaster assistance for FY2016, and will no longer impact calculations for the allowable adjustment in FY2017. Once FY2005 and FY2006 rotate out, there will be a corresponding drop in the allowable disaster assistance adjustment.

In the face of these challenges, Congress could choose to continue to use emergency funding to meet unbudgeted disaster relief needs, or change the allowable adjustment mechanism, the formula for calculating the allowable adjustment. Another potential option would be to take other steps to mitigate the impact of federal disaster relief spending on the budget, including altering the underlying laws, if Congress believes further legislative controls for federal disaster relief expenditures are a priority.

Date of Report: November 8, 2013
Number of Pages: 22
Order Number: R42352
Price: $29.95

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