Disasters are increasingly wreaking havoc in costlier ways than in the past. Climate change may be fueling stronger storms, but human development patterns are amplifying their destructive potential and elevating costs. We see examples in the death and destruction caused by recent hurricanes.
The rising costs of disasters underscore the urgent need for the United States to strengthen its fiscal health. As I discussed in a previous Forbes.com article, effective crisis management requires substantial investment and sustained support. A fortified financial position would help to ensure funding is available over the long run for crucial disaster preparedness, response, and recovery activities.
Disaster Severity On The Rise
The severity and cost of extreme disaster events has soared this century. While the number of declared disasters and emergencies by the Federal Emergency Management Agency has held relatively steady, averaging about 125 annually, there has been a surge in mega-disasters. Once rare, billion-dollar-loss events – a threshold Hurricane Helene will almost certainly surpass and Milton may cross – have become commonplace. As the pace of such severe events accelerates, there is a need to reconsider the incentives (and lack of disincentives) to build in risky areas. With government responses and taxpayer costs growing, there is also a need to reconsider how best to structure U.S. emergency management-related activities.
Disaster severity trends are unmistakable. The number and cost of billion-dollar disasters have multiplied since the 1980s, according to data from the NOAA National Centers for Environmental Information. And taxpayers are hit with a large share of those costs.
To explain the trend, the National Oceanic and Atmospheric Administration points to a combination of more assets at risk, more damage at given event intensities such as wind speed and flood levels, and more extreme impacts from climate change. Increases in population, migration to warmer though more disaster-susceptible areas in the U.S. South and West, and rising material wealth have all been contributing factors to rising costs. Moreover, the development and enforcement of building codes to reduce damage has not kept pace with rising risks.
According to NOAA, extreme weather events including droughts, wildfires, heavy rainfall, tornadoes, and rising sea levels that exacerbate storm surge drive an increased need to focus on where building occurs and whether such construction is designed for a 21st-century climate.
Is The Disaster Relief Fund Sufficient?
FEMA typically leads federal disaster response and recovery efforts. Among other responsibilities, it distributes aid to state and local governments to repair damaged infrastructure and rebuild communities in ways that reduce future losses. It also provides immediate assistance to disaster survivors with essential items like food, water, temporary housing, and emergency supplies.
Such expenses are paid for through FEMA’s Disaster Relief Fund. That money can only be used to carry out FEMA’s duties under the foundational law governing federal disaster responsibilities, the Stafford Act. Use for any other purpose requires congressional approval except in extraordinary circumstances where an imminent threat is posed to human life or property. DRF spending has increased substantially since that law was passed in 1988.
Based on an analysis I performed using 35 years of presidential budget requests, spending increased from an inflation-adjusted annual average of $7 billion during the first 15 years the law was fully in effect (1990 to 2004) to $18 billion in the following 15 years (2005 to 2019). Recent spending trends, averaging $61 billion since 2020, are impacted by the COVID-19 pandemic when the DRF was tapped for the first time for a nationwide public health emergency. But even without pandemic spending, DRF spending continues to rise.
The White House Office of Management and Budget annually requests funding for the DRF to ensure adequate funds are available for non-catastrophic events. Rather than attempting to estimate highly uncertain severe disaster events at the beginning of a fiscal year, OMB uses a 10-year rolling average to budget for the cost of non-catastrophic events – those with price tags that are less than $500 million.
Consequently, the DRF is intentionally underfunded on a year-to-year basis. In fact, for every year since 1990, more money has been spent through the DRF than initially estimated in the president’s budget. As a result, most disaster relief money is provided through supplemental appropriations – and added to the rapidly growing U.S. national debt without much concern for how it will repaid. That will be the case for Helene (and likely Milton) assistance as well. The only uncertainty is the timing and amount of funding.
The increasing pace of mega-disasters impacts spending well beyond the DRF. Increased demands and budgetary pressures are building across other FEMA activities, such as the National Flood Insurance Program, which has struggled to maintain solvency and has been forced to borrow billions from the U.S. Treasury. While a recent overhaul of how FEMA sets premiums to more closely align them with flood risks may strengthen actuarial soundness, the Government Accountability Office and others have voiced concerns that affordability may drive a need to provide flood insurance on a means-tested basis.
Is It Time To Reform Federal Disaster Management?
Beyond FEMA, departments as diverse as Agriculture, Commerce, Defense, the Environmental Protection Agency, Housing and Urban Development, Interior, the Small Business Administration, and Treasury at times play roles in disaster preparedness and response. Other agencies are pulled in as needed, as was the case with public health-related agencies during the pandemic. The Internal Revenue Service also comes into play given disasters have the potential to reduce tax collections through diminished economic activity and, like with Helene, delaying tax payments. Coordinating so many players is no easy task.
The Brookings Institution has described the government’s disaster management structure as “labyrinthian” with responsibilities spread across agencies deploying dozens of programs. In a series of essays, Brookings suggests a wholesale reconsideration of how the government defines, prepares for, manages, funds, and responds to disasters. Given the rising incidence and cost of catastrophic events, such matters have received consideration from policymakers, though a clear path to a comprehensive solution has not yet been found.
With a growing list of catastrophes, there is a compelling need to better align development incentives with disaster risks and to improve how the government takes preventative action, plans for, and responds to such events. Finding ways to adapt to these rising risks should be a priority for the next president and Congress.