Disaster Recovery Policy Explained as Hurricane Season Starts

Happy Saturday morning.

With two named storms already targeting the western Atlantic, this is an opportune time to look at the state of disaster recovery policy.

In short, it’s a disaster in and of itself. Yes, the Hurricane Matthew and Hurricane Florence recovery effort led by Gov. Roy Cooper is especially slow. But under the current system, no recovery effort can meet any common definition of success. All will fail.

Brad Gair has managed federal recovery efforts for more than 20 years. He worked in Louisiana after Hurricane Katrina, New York City after 9/11 and Hurricane Sandy, North Carolina after Hurricane Floyd, and in multiple disaster-stricken foreign countries.

In frank testimony to the U.S. House of Representatives in 2016, Gair said this:

“The federal government often speaks of the sequence of delivery in disaster assistance as if there is a coherent plan behind it all, when in reality it is a series of patchwork programs that more than anything else confuse, frustrate and demoralize both those in need of aid and those trying to provide it.”

Not much has changed since then. The result is a status quo that wastes billions of federal dollars and leaves communities devastated for years, and sometimes forever.

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What’s the problem? Well, where should we begin.

First, there is no consensus as to the end goal of federal recovery programs, or if they should even exist. This lack of conclusive policy manifests itself in the “sequence” of recovery programs Gair described.

After every declared disaster, impacted residents can avail themselves of short-term and relatively small-scale assistance, first through FEMA and then through the Small Business Administration (SBA). FEMA offers various assistance grants, usually totaling in the low tens of thousands of dollars, and SBA offers subsidized loans to homeowners up to $200,000.

Sometimes, but not all the time, Congress passes a special bill authorizing billions of dollars in individual aid. These are the headline-grabbing relief packages we’re used to reading about in the weeks after a devastating disaster.

The scale of individual relief, then, depends entirely on the whims of Congress. If your home is one of seven destroyed in an isolated tornado, Congress isn’t going to come to your rescue with aid beyond what FEMA and SBA offer. But if your home is one of 7,000 destroyed in a hurricane, then Congress probably will.

And which federal agency handles those billions of dollars in extra aid when it does come – FEMA or SBA?

Neither. The U.S. Department of Housing and Urban Development (HUD) manages it through the Community Development Block Grant—Disaster Recovery (CDBG-DR) program, an entirely separate bureaucracy.

Three federal agencies, then, have shared responsibility for delivering relief dollars to impacted residents. That is not a recipe for efficiency, and it won’t change until policymakers reach consensus on exactly what role the federal government should have in disaster recovery: Should the feds be a lender of last resort? What sort of moral hazard are policymakers comfortable creating through generous grant programs? How much of the burden should be borne by state and local governments, which manage zoning and other policies that contribute to the scope of flood risk?

Only after answering these questions can lawmakers devise a coherent and consistent structure.

Which brings us to the second major problem: The “sequence” of aid delivery, as Gair described, confuses and frustrates even sophisticated beneficiaries.

Here’s just one paragraph from the hundreds of pages of federal rules governing how each agency’s assistance impacts the others: “Therefore, to calculate the total maximum amount of the CDBG–DR award, the grantee must: (1) Identify total need; (2) identify total assistance; (3) subtract exclusions from total assistance to determine the amount of the DOB [duplication of benefits]; and (4) subtract the amount of the DOB from the amount of the total need to determine the maximum amount of the CDBG–DR award.”

CDBG-DR benefits can’t duplicate SBA benefits which can’t duplicate FEMA benefits which can’t duplicate flood insurance benefits – except when changing federal rules offer a loophole, which happens from time to time.

In the aftermath of Hurricane Sandy, officials instructed devastated homeowners who exhausted their $30,000 FEMA grant to apply for low-interest SBA loans. Unbeknownst to those homeowners, though, approval for an SBA loan rendered them ineligible for the CDBD-DR grants that would be offered later.

Even those who declined SBA’s loan offer were still held accountable for it – the value of the offered loan was deducted from their eligible CDBG-DR grant award, while those who didn’t apply for an SBA loan could receive the full CDBG-DR grant with no penalty.

Congress changed the law in 2018 to permit aid recipients to repay their SBA loan with a CDBG-DR grant, but that only applied to disasters declared between 2016 and 2021.

Keeping up?

Below these byzantine federal rules sits yet another layer of bureaucracy: the state and local governments that receive CDBG-DR money from the feds and disburse it to their residents. They must create from scratch complex aid programs that comply with mountains of federal regulations, including environmental reviews and damage assessments. Just submitting a program plan for federal approval takes months.

State-level bureaucrats, then, must create from scratch what’s in effect a multi-billion corporation, complete with reporting and customer service and operations and HR – all while thousands of their citizens plead for help.

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This is just the tip of the iceberg for why federal policy yields failed recovery after failed recovery.

And what happens at the end? Most homes are rebuilt on the same lots, just waiting for the next hurricane to start the process all over again. Just 1% of properties in the National Flood Insurance Program comprise 30% of all flood insurance claims because they’re flooded again and again and again.

Innovative programs get mired in red tape and abandoned. One idea, for example, would see states use CDBG-DR funds to purchase destroyed properties at their pre-storm value (and maybe more), thereby making the homeowner whole. Instead of leaving the lot vacant, the state could recoup some of the taxpayer expense by reselling the acquired properties to developers with deed restrictions requiring more resilient homes built to high storm-resistant standards. Homes built properly fare remarkably well even in Category 5 storms. But this kind of program hasn’t been deployed at scale.

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Some policymakers are paying attention. North Carolina’s Rep. David Rouzer, for example, introduced the Natural Disaster Recovery Program Act, which would scrap the current federal process and replace it with a very-few-strings-attached recovery block grant to states to deploy as they wish.

This model would largely avoid the ad hoc rulemaking process that takes place after a special Congressional recovery appropriation. That, in turn, would offer far more predictability so states could create off-the-shelf recovery plans to deploy quickly after a disaster (instead of having to wait for new federal rules to come down weeks or months after the appropriation).

With more people living along America’s coastlines than ever before, the disaster recovery problem will only get worse.

Gair closed his 2016 testimony with this call to action:

“We are all here today for the exact same reason that many similar Congressional committees and subcommittees have been convened in the aftermath of virtually every major disaster over the past several decades – the system is broken, everyone is mad, and billions of dollars continue to be wasted.  The Post-Katrina Reform Act reformed next to nothing; the Hurricane Sandy Recovery Improvement Act improved far too little.  Now let’s try something different.”

Now is as good a time as any.