Budgeting for Disasters: Approaches to Budgeting for Disasters in Selected States
Published: 2015-03-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In recent years, natural and human-made disasters have increased in the United States in terms of both numbers and severity. For presidentially declared disasters, the federal government generally pays 75 percent of disaster costs and states cover the rest. As a result of this trend, governments at all levels have incurred increased costs for disaster response and recovery. An understanding of the approaches states take to budget for disaster costs can help inform congressional consideration of the balance between federal and state roles in funding disaster assistance.
GAO was asked to examine how states typically budget for costs associated with disasters and any changes to those budget approaches during the past decade. This report reviewed (1) the approaches selected states use to budget for and fund state-level disaster costs; and (2) how, if at all, state disaster budgeting approaches have changed over time.
For this review, GAO selected 10 states based on criteria such as the number of major disaster declarations and denials for each state from fiscal years 2004 to 2013. GAO reviewed state statutes, budgets, and other documents explaining states' approaches to budgeting for disaster costs and interviewed state officials. Although GAO's findings are not generalizable, they are indicative of the variation in budget mechanisms among the states.
GAO is not making recommendations. GAO received and incorporated, as appropriate, technical comments from the Department of Homeland Security and the 10 selected states.
section_title: What GAO Found
paragraphs: The 10 selected states in GAO's review—Alaska, California, Florida, Indiana, Missouri, New York, North Dakota, Oklahoma, Vermont, and West Virginia—had established budget mechanisms to ensure the availability of funding for the immediate costs of unforeseen disasters and the ongoing costs of past disasters. All 10 states provided disaster funds at the start of the fiscal year and then as needed during the course of the fiscal year. Each of the selected states had its own combination of budget mechanisms that generally fell into four categories:
Statewide disaster accounts . These accounts provided the 10 states with the flexibility to fund disaster expenses across state entities or for local governments. States typically funded these accounts through general fund revenue. Six states also used other sources, such as revenues from oil and gas taxes and fees on homeowner's and commercial insurance. The amounts appropriated to these accounts at the start of the fiscal year were based on a range of considerations, such as estimates of disaster costs based on past events and emergency response costs for unforeseen disasters.
State agency budgets . Nine of the 10 states also covered a portion of unforeseen disaster costs through the operating or contingency budgets of state agencies with missions relevant to disaster response and recovery. For example, West Virginia's Division of Homeland Security and Emergency Management used its operating budget to cover disaster response costs. Florida's Department of Environmental Protection had a disaster contingency account funded through user fees on state parks.
Supplemental appropriations . When advance funding proved insufficient to cover disaster costs, eight of the 10 states provided supplemental funding to pay for the remaining costs. While reserve accounts such as rainy day funds could be used to provide this funding if general funds were unavailable, budget officials said their state rarely tapped these funds.
Transfer authority . All 10 states in our review allowed designated officials (i.e., the governor, budget director, or a special committee) to transfer funds within or between agencies or from statewide reserve accounts after the start of the fiscal year.
None of the 10 states in GAO's review maintained reserves dedicated solely for future disasters. Some state officials reported that they could cover disaster costs without dedicated disaster reserves because they generally relied on the federal government to fund most of the costs associated with disaster response and recovery.
While some states have increased the oversight and availability of disaster funds, all 10 states' approaches to budgeting for disasters have remained largely unchanged during fiscal years 2004 through 2013. Specifically, three states—Alaska, Indiana, and North Dakota—changed their budgeting processes to ensure that funding for disasters was appropriated before rather than after a disaster occurred. In addition, legislatures in three states—Missouri, North Dakota and West Virginia—took steps to increase their oversight of disaster spending.

section_title: Letter
paragraphs: In recent years, the number and severity of major natural and human- made disasters has increased in the United States. From fiscal years  2004 through 2013, there were 32 percent more presidentially declared  major disasters than during the preceding 10 fiscal years. This trend  resulted in unprecedented costs for federal, state, and local governments  as they provided disaster response and recovery assistance. For  example, the Federal Emergency Management Agency (FEMA)—which  leads federal efforts to respond to disasters—reported that from fiscal  years 2004 through 2013 it spent more than $95 billion from the Disaster  Relief Fund (DRF) to help states and localities with disaster-related  costs.
As we reported in 2012, the growing number of major disaster  declarations contributed to increased federal disaster assistance  expenditures. In addition, the United States Global Change Research  Program has reported that the impacts and costliness of weather  disasters—resulting from floods, drought, and other events such as  hurricanes—will increase in significance as what are considered rare  events become more common and intense due to climate change. As a  result of these impacts, the federal government is expected to face  increased fiscal exposure—responsibilities, programs, and activities that  may legally commit or create the expectation for future federal  spending—in many areas, including but not limited to its role in aiding  disaster response. In 2013, we added managing fiscal exposure due to  climate change to our High Risk List in part because of concerns about  these increasing costs. The issue remains on our 2015 High Risk List.The trends described above, combined with ongoing fiscal pressures  facing all levels of government, have placed a renewed focus on  budgeting for and funding disaster response and recovery. An  understanding of the approaches states take to budget for disaster costs  can help inform congressional consideration of the balance between  federal and state roles in funding disaster assistance.
You asked us to examine how states typically budget for state-level costs  associated with disasters and any changes during the past decade  regarding state approaches to budgeting for disasters. For this report, we  examined (1) the approaches selected states use to budget for and fund  state-level disaster costs; and (2) how, if at all, state disaster budgeting  approaches have changed over time, including the factors influencing  those changes and any challenges states encountered in budgeting for  state-level disaster costs.
To determine how selected states budget for and fund state-level disaster  costs, we conducted semistructured interviews with budget officers and  emergency management officials in 10 states: Alaska, California, Florida,  Indiana, Missouri, New York, North Dakota, Oklahoma, Vermont, and  West Virginia. We selected these states based on the number of major  disaster declarations and denials for each state during a 10 year period  (federal fiscal years 2004 through 2013); the Public Assistance per capita   and geographic  damage assessment threshold applicable to each state;dispersion. We focused on the fiscal year 2004 through 2013 time frame  because it reflected the most current data for major disaster declarations.  Figure 1 shows the characteristics of the 10 selected states included in  our review.
To determine how, if at all, state disaster budgeting practices have  changed during the past decade, including the factors that have  influenced those changes, we included related questions in  semistructured interviews with state budget officers and emergency  management officials. Such questions included, for example, how states’  budgeting approaches have changed during the past decade, factors  influencing any changes, and any challenges states face in funding  disaster assistance. We focused our questions on the period covering  fiscal years 2004 through 2013.
We also analyzed FEMA data related to major state disasters to identify  possible trends in the frequency, severity, type, and cost of state disaster  events during this time. We assessed the reliability of the FEMA data by  discussing with another GAO team their recent access and use of the  data in a prior year’s report and their determination that the data provided  reliable evidence to support findings, conclusions, and  recommendations. We also discussed data quality control procedures  with FEMA officials who were knowledgeable about the specific types of  data recorded in the database. Based on how we intended to use the  information, we determined that the data were sufficiently reliable for the  purpose of selecting states for our study.
In addition, for both objectives, we reviewed related state statutes,  budgets, and other documents explaining states’ approaches to  budgeting for state-level disaster costs. The results of our study are not  generalizable to state budgeting approaches for all states and the District  of Columbia.
We conducted this performance audit from April 2014 to March 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives. For more information on our  objectives, scope, and methodology, see appendix I.
subsections: section_title: Background
paragraphs: The Robert T. Stafford Disaster Relief and Emergency Assistance Act  (Stafford Act), as amended, defines the federal government’s role during  disaster response and recovery. The Stafford Act also establishes the  programs and processes through which the federal government provides  disaster assistance to state, tribal, territorial, and local governments, as  well as certain nonprofit organizations and individuals. According to the  act, the President can declare a major disaster after a governor or chief  executive of an affected tribal government finds that a disaster is of such  severity and magnitude that effective response is beyond the capabilities  of the state and local governments and that federal assistance is  necessary. That is, when the governor of a state or the chief executive  of an Indian tribal government requests a declaration for a major disaster,  FEMA evaluates the requests and makes a recommendation to the  President, who decides whether or not to declare a major disaster and  commit the federal government to provide supplemental assistance.  Generally, state and local governments are responsible for the remaining  share of disaster costs.
subsections: section_title: Federal Disaster Assistance to States
paragraphs: If the President declares a major disaster, the declaration can trigger a  variety of federal assistance programs for governmental and  nongovernmental entities, households, and individuals. FEMA provides  disaster assistance to states, tribal governments, localities and individuals  through several programs including: the Public Assistance (PA) and the  Individual Assistance (IA) programs.disaster assistance programs. It provides grants to fund debris removal,  and the repair, replacement, or restoration of disaster-damaged facilities.  PA also funds certain types of emergency protective measures that  eliminate or reduce immediate threats to lives, public health, safety, or  improved property. To determine whether to recommend that a  jurisdiction receive PA funding, FEMA relies on a series of factors  including the statewide per capita impact indicator.
PA is the largest of FEMA’s  FEMA’s IA program ensures that disaster survivors have timely access to  a full range of programs and services to maximize their recovery, through  coordination among federal, state, tribal and local governments,  nongovernmental organizations, and the private sector. Among other  things, IA programs provide housing assistance, disaster unemployment  assistance, crisis counseling, and legal services. households may be eligible for financial assistance or direct services if,  due to the disaster, they have been displaced from their primary  residence, their primary residence has been rendered uninhabitable, or  they have necessary expenses and serious needs that are unmet through  other means, such as insurance. The IA program provides assistance up  to $32,900 for fiscal year 2015 to eligible individuals and households who,  as a direct result of a major disaster or emergency, have uninsured or  under insured necessary expenses and serious needs that cannot be  addressed by other means, such as through other assistance programs  or insurance.
Specific IA programs and areas of responsibility include: the Individuals and Households  Program, including Housing Assistance and Other Needs Assistance; the Disaster  Unemployment Assistance Program; Disaster Legal Services; the Crisis Counseling  Assistance and Training Program; the Disaster Case Management Program; Mass Care  and Emergency Assistance Coordination; Voluntary Agency Coordination; and Disaster  Recovery Center and Disaster Survivor Assistance Coordination.
If approved for federal disaster assistance, states, tribal governments,  and localities are expected to contribute toward disaster response and  recovery costs. The usual cost share arrangement calls for the federal  government to pay not less than 75 percent of the eligible PA costs of a  disaster and for nonfederal entities (e.g., state and local governments) to  pay the remaining nonfederal share of 25 percent. The federal  government covers 100 percent of the Individuals and Households  Program but requires states to contribute 25 percent to the Other Needs  Assistance component of this program. This component covers repair or  replacement costs for personal property including furniture and personal  belongings, and some uninsured medical, dental, funeral, and  transportation expenses as well as child care and other expenses.
section_title: State Budgets
paragraphs: If states are denied federal disaster assistance, they may choose to cover  some of these costs. Disaster funding, like most other state expenditures,  is typically part of a state’s annual operating budget providing  appropriations through the fiscal year. Disaster costs typically compete  with other state priorities unless states establish a separately sourced  disaster fund outside of the funds tied to their state’s balanced budget  requirements. Most states have constitutional or statutory provisions  requiring that they balance their operating budgets, commonly referred to  as their general fund.
section_title: Selected States Had Budget Mechanisms to Cover Disaster Costs for the Current Fiscal Year, but Did Not Maintain Reserves for Future Disasters
subsections: section_title: Selected States Used a Range of Budget Mechanisms to Cover Unforeseen Disaster Costs during the Course of the Fiscal Year
paragraphs: All 10 states in our review used a range of mechanisms to ensure the  availability of funds for unforeseen disaster costs during the fiscal year or  current budget cycle. While each state had its own set of budget  mechanisms, all of the selected states provided disaster funds at the start  of the fiscal year and as needed during the course of the fiscal year. The  types of unforeseen disaster costs states encountered depended, in large  part, on the kind of disaster, but were typically related to emergency  response activities. For instance, the costs of clearing debris and  repairing roads along with emergency policing were typical expenses that  states incurred after a major storm. Many of those expenses qualified for  federal reimbursement under a presidential disaster declaration.
Statewide disaster accounts. Statewide disaster accounts provided  funding for disaster expenditures across state agencies or for localities.  As shown in figure 2, all 10 states in our review established one or more  types of statewide disaster accounts that received funds from general  fund appropriations or from other revenue sources. All 10 states funded  these statewide accounts through general fund revenues and 6 states— Alaska, California, Florida, Indiana, North Dakota, and Vermont—used  other revenue sources in addition to general fund revenues to cover  unforeseen costs that arose during the fiscal year. For example, Florida  imposed an annual surcharge on homeowners’ residential insurance  policies and on commercial and business owners’ property insurance  policies, which the state then deposited into a trust fund to be used for  emergency management purposes. In addition, one of Indiana’s  statewide disaster funds relied on public safety fees generated through  the sale of retail fireworks, while North Dakota funded its statewide  disaster account through a biennial appropriation from the revenues of  the state’s share of oil and gas taxes.
The states in our review based initial funding levels for statewide disaster  accounts on a range of considerations, such as estimates of disaster  costs based on past events and emergency response costs for  unforeseen disasters. Although some statewide disaster accounts allow  unexpended balances to be carried over into future fiscal years, states  typically budgeted these costs for a single budget cycle. For example,  based on its past disaster costs, Alaska typically budgeted disaster relief  funds to cover the costs of two state-declared disasters (totaling $2  million) and two federally-declared disasters (totaling $5 million to $6  million). Some states, such as North Dakota and California, may also  establish funding amounts in statute. Specifically, North Dakota’s Disaster  Relief Fund receives an appropriation of $22 million every 2 fiscal years  or each biennial budget cycle, while California’s Disaster Response- Emergency Operations Account receives an annual appropriation of $1  million at the beginning of each fiscal year, consistent with the state’s  budget cycle.
In establishing statewide disaster accounts, states typically defined the  criteria under which the account funds could be used. For example, in  Oklahoma, the governor is authorized to distribute funds from the state’s  disaster account to agencies that requested funds for emergency  situations including: (1) destruction of public property; (2) operation of the  National Guard; (3) matching funds for federal disaster relief programs;  (4) asbestos removal from public buildings; and (5) emergency response  necessary to protect the public health, safety, or welfare of livestock or  wild animals. In North Dakota, the state’s Disaster Relief Fund could be  used to reimburse state agencies for disaster-related expenses incurred  above the agencies’ normal operating costs.
Budgets of state agencies. Nine of the 10 selected states also covered  a portion of unforeseen disaster costs through the operating budgets of  state agencies with missions relevant to disaster response and recovery,   For example, in West Virginia,  such as public safety and transportation.the state’s Division of Homeland Security and Emergency Management  within the Department of Military Affairs and Public Safety used its regular  operating budget to cover disaster response costs. Other agencies in  West Virginia, such as the state’s transportation and police departments,  also used funds in their operating budgets to cover major disaster costs.  These agencies then submitted these costs to the emergency  management office for reimbursement.
As was shown in figure 2 earlier, of the 10 selected states, seven  maintained contingency accounts for disasters. For example, Florida’s  Department of Environmental Protection established a disaster  contingency account funded through user fees on Florida’s state parks. In  addition, the contingency fund for California’s Department of Forestry and  Fire Protection typically received an appropriation based on the average  emergency cost from the previous five years.
Supplemental appropriations. Eight of the 10 states in our review made  use of supplemental appropriations when the funds appropriated to  statewide accounts or agency budgets at the beginning of the fiscal year  were insufficient. When states’ general funds served as the source of  supplemental appropriations, these funds were unavailable to spend on  other budget areas. Statewide multipurpose reserve accounts, such as  budget stabilization funds (also referred to as rainy day funds), could also  be tapped in the event that funds were not available through other means.  A few states expanded the conditions for which budget stabilization funds  could be tapped to include similar unanticipated expenses not directly  related to revenue shortfalls or budget deficits. For example, although  initially intended to offset revenue shortfalls, West Virginia’s budget  stabilization fund was subsequently modified to allow the state legislature  to make appropriations from the fund for emergency revenue needs  caused by natural disasters, among other things. However, budget  officials from several states in our review told us that it was uncommon to  access budget stabilization funds to cover disaster expenses because  their state could generally provide disaster funding from a combination of  general fund revenues and spending reductions in other areas. For  example, despite having expanded its acceptable uses to include natural  disasters, West Virginia only accessed its budget stabilization fund once  since 2005 to cover disaster-related expenses. Similarly, in Florida, the  state’s budget stabilization fund was last used for disaster costs during  the 2004 and 2005 hurricane seasons.
Funding transfers. In addition, nine states in our review had  mechanisms to allow designated officials (e.g., the governor, budget  director, or a special committee) to transfer funds within or between  agencies or from statewide reserve accounts after the start of the fiscal  year. For example, in Indiana, if funds within an agency’s budget are  insufficient to cover the unexpected costs of a disaster, a special finance  board can authorize a transfer of funds from one agency to another. In  addition, the state’s budget director can transfer appropriations within an  agency’s accounts if needed for disaster assistance.
subsections: section_title: Authorities for Releasing Disaster Funds Varied Across States
paragraphs: The authority to release funds from disaster accounts varied by state and  resided with the governor, the legislature, or special committees. As we  have previously reported, a state where the legislature is in session for  only part of the year might give the governor more control over the  release of disaster funds.legislature is out of session, the presiding officers of the legislature can  agree in writing to suspend the $1 million limit placed on the Governor’s  disaster spending authority.
For example, in the event that the Alaska  Also, if a state legislature already appropriated a portion of general fund  or other revenues to a disaster account, the governor or budget director  can exert greater control over access to the reserves. For example, in  California, a gubernatorial emergency declaration grants the state’s  Director of Finance the authority to tap into any appropriation in any  department for immediate disaster response needs.
section_title: All Selected States Budgeted for Ongoing Costs Associated with Past Disasters
paragraphs: All states in our review budgeted for ongoing costs associated with past  disasters. Typically, these ongoing costs included recovery-related  activities, such as rebuilding roads, repairing bridges, and restoring public  buildings and infrastructure. Costs associated with past disasters included  the state’s share of federal disaster assistance and disaster costs the  state would cover in the absence of a federal declaration.for the costs of past disasters, all 10 states determined their budgets  based on cost estimates for the upcoming fiscal year, even though each  disaster declaration could span several budget cycles.
As was shown in figure 2, all selected states used a range of budget  mechanisms to cover the cost of past disasters. These mechanisms were  similar to those the states used to budget for unforeseen disaster costs.  States used some of the mechanisms to appropriate funds at the start of  the fiscal year and used other mechanisms to provide disaster funds  during the course of the fiscal year. For example, in Missouri, multiple  agency accounts funded the expenses from past disasters incurred by  state agencies, while a separate statewide account covered the non- federal match of disaster programs.
The funding levels in states’ accounts varied from year to year depending  on annual estimates of expected disaster costs, primarily determined  through the project worksheet process—the means by which the  estimated costs are determined by FEMA and the state. For example,  Florida’s emergency management agency forecasts the ongoing costs  associated with past disasters for three future fiscal years and reports  these cost estimates on a quarterly basis. In New York, the Governor’s  budget office, along with its emergency management agency, periodically  estimated the amount of disaster program costs the federal government  would cover in addition to costs the state would have to bear.
subsections: section_title: Most Selected States Had Established Cost Share Arrangements with Localities
paragraphs: Most states in our review had established cost share arrangements with  localities and passed along a portion of the required nonfederal cost  share to them.  Two states—Alaska and West Virginia—covered the 25  percent cost share for federally declared disasters while only one state— Indiana—passed the 25 percent nonfederal cost share onto its affected  localities. In Vermont, municipalities that adopted higher flood hazard  mitigation standards could qualify for a higher percentage of state funding  for post-disaster repair projects, ranging from a minimum of 7.5 percent to  a maximum of 17.5 percent. In Florida, the state typically evenly splits the  nonfederal share with local governments but would cover a greater  percentage of the nonfederal share for economically distressed  localities.each state in our review.
section_title: Selected States Did Not Maintain Reserves for Future Disasters
paragraphs: None of the 10 states in our review maintained reserves dedicated solely  for future disasters outside of the current fiscal year. As discussed earlier  in this report, although funds in some states’ statewide disaster accounts  could be carried forward into the future, funding for these accounts was  typically intended to fund a single fiscal year. For example, unexpended  balances from Indiana’s State Disaster Relief Fund—which receives an  annual appropriation of $500,000, could be carried forward from one year  to the next. Similarly, North Dakota’s Disaster Relief Fund, which receives  a biennial appropriation, can carry forward unexpended fund balances  into the next biennial cycle. According to a North Dakota state official, this  procedure was established in statute to provide a ready source of disaster  funding. Otherwise, according to this official, the state legislature would  need to identify large amounts of funding from the general fund account  at the start of each budget cycle.
Some state officials reported that they could cover disaster costs without  dedicated disaster reserves because they generally relied on the federal  government to fund most of the costs associated with disaster response  and recovery. During the past decade, the federal government waived or  reduced state and local matching requirements during extraordinary  disasters such as Hurricanes Katrina and Sandy. For Hurricane Sandy,  however, 100 percent of the federal funding was only available for certain  types of emergency work and for a limited period of time. As we have  reported in our prior work on state emergency budgeting, natural  disasters and similar emergency situations did not have a significant  effect on state finances because states relied on the federal government  to provide most of the funding for recovery.
section_title: Some Selected States Funded Their Own Disaster Programs
paragraphs: Alaska’s individual assistance program also provides reimbursement for personal  property loss and assistance with housing repairs at 50 percent of the annual approved  amounts for the federal IA Program. provided disaster assistance to localities on several occasions after being  denied federal assistance.
section_title: Although Some States Increased Oversight and Availability of Funds, State Approaches to Budgeting for Disasters Remained Largely Unchanged during the 10-Year Period under Review
subsections: section_title: Some Selected States Took Steps to Increase the Availability and Oversight of Disaster Funds, but Did Not Make Major Changes to Budgeting Approaches
paragraphs: Overall, states did not make major changes to their approaches to  budgeting for disaster costs between fiscal years 2004 and 2013. Some  states in our review did take steps to increase the availability of disaster  funds, while others changed procedures related to legislative oversight.  Although the national economic recession occurred during this time  (officially lasting from December 2007 to June 2009) and resulted in state  revenue declines of 10.3 percent—states in our review reported that they  were able to ensure the availability of funding to cover the cost of  disasters. Officials in Alaska and North Dakota, for example, reported that  state revenues generated from oil and gas taxes buffered their states  from much of the fiscal distress that other states had experienced during  the 2007 to 2009 recession.
Three states in our review—Alaska, Indiana, and North Dakota—changed  their budgeting approaches to further ensure the availability of disaster  funding prior to a disaster rather than after a disaster. While these moves  did not provide funding for future disasters beyond the current fiscal year,  they did improve the availability of funds for disaster response within the  current fiscal year. For example, Alaska established a statewide disaster  fund in the late 1960s to ensure the availability of disaster funding. Prior  to 2010, Alaska primarily funded the disaster fund through supplemental  appropriations after a disaster had occurred and after the state’s  administration and emergency management agency had requested  funding. However, according to a state official, this approach did not  provide funding timely enough for state agencies and localities to respond  quickly to a disaster. Rather, the approach involved waiting for the state  legislature to appropriate funds to the state’s disaster account, which  could have taken weeks, particularly if the legislature was not in session.  At that time, Alaska experienced multiple concurrent disasters. In  addition, the nature of Alaska’s climate and the remote location of many  of its communities resulted in a need for the state to take swift action to  respond to disasters so that residents were able to repair or rebuild their  damaged homes before the onset of winter. Consequently, the state  began to forward fund the disaster fund to have more money available  immediately after a disaster. According to this state official, the change in  approach relied on cost estimates of multiple disasters to develop an  annual budget figure.
In 2006, Indiana began appropriating funds to its State Disaster Relief  Fund from the revenues it generated from firework sales to ensure the  availability of a dedicated source of disaster funding. Although the state  established the disaster relief fund in 1999, it did not appropriate funds to  the account due to fiscal constraints. In 2006, the state began dedicating  funds from the sale of fireworks. Then in 2007, the state established in  statute that the fund would receive an annual appropriation of $500,000  from revenues generated from the firework sales. Prior to 2006, the  state relied on general revenue funds to pay for disasters on an as- needed basis.
North Dakota established its Disaster Relief Fund during its biennial  legislative session (2009 to 2011) to ensure the availability of funding in  the event of a disaster. The state appropriated money to the fund at the  beginning of the state’s biennial budget cycle with revenues generated  from the state’s tax on oil and gas production. In order to respond to  disasters prior to the establishment of this fund, state agencies with  emergency response missions, such as the Department of  Transportation, had to request funding directly from the state legislature  during the time it was in session.session, state agencies were required to obtain a loan from the Bank of  North Dakota to cover their immediate disaster costs. Then, to repay the  loan, the agencies needed to request a supplemental appropriation when  the state legislature reconvened. A North Dakota state official told us that  this process was inefficient, so the state legislature established the  Disaster Relief Fund to provide an easier means for accessing disaster  relief funds.
However, if the legislature was out of  Legislatures in three of our review states— North Dakota, Missouri, and  West Virginia—took steps to increase their oversight of disaster spending.  After North Dakota established a dedicated revenue source to ensure the  availability of disaster funding, the state legislature took subsequent steps  to increase the oversight of disaster relief funds. In particular, the  legislature required state agencies to submit a request to the state’s  Emergency Commission in order to receive disaster funding. Established  in 2011, the Emergency Commission, comprised of the Governor,  Secretary of State, and the House and Senate majority leaders, has the  authority to approve the appropriation of supplemental funding when  there is an imminent threat to the safety of individuals due to a natural  disaster or war crisis or an imminent financial loss to the state. Prior to  2011, the state’s emergency management agency had been authorized to  access disaster relief funds directly without approval from the  Commission. According to a state emergency management official, the  legislature took this action in response to a number of instances in which  federal PA funds initially awarded to the state were deobligated, leaving  the state with unanticipated disaster response costs. In one instance, for  example, federal PA funds were deobligated because the state did not  properly document the pre-existing conditions of a parking lot damaged  by the National Guard in responding to a disaster. In this particular case,  the state had to appropriate funds from their disaster relief fund to cover  the cost of repair, rather than rely on federal PA funding to cover these  costs.
To provide more oversight for disaster expenditures, the Missouri  legislature changed its requirements for accessing funds from the State  Emergency Management Agency (SEMA) budget. Specifically, the  legislature required that the administration seek legislative approval for all  supplemental appropriations to the SEMA budget. According to Missouri  budget officials, SEMA used to submit a budget request that represented  a rough estimate of anticipated costs for the upcoming fiscal year. If  actual costs exceeded SEMA’s appropriation, the administration had the  authority to appropriate additional money from general revenues for  specific line items on an as-needed basis without additional legislative  approval.
West Virginia’s legislature increased oversight of disaster funding by  restricting the use of funds appropriated to the Governor’s Contingent  Fund. In prior years, the legislature appropriated funds to the Governor’s  Contingent Fund as a civil contingent fund—a very broad term, according  to a state budget official. Over the last few years, the legislature changed  the appropriations bill language to limit spending flexibility for money  appropriated to the fund. For example, appropriations bill language  specified that funds were being appropriated for “2012 Natural Disasters”  or “May 2009 Flood Recovery.”
section_title: Concluding Observations
paragraphs: States rely on the assurance of federal assistance when budgeting for  disasters. Based on current regulations, policies, and practices, the  federal government is likely to continue to provide federal funding for  large-scale disasters. In light of this federal approach to funding disaster  response and recovery, the states in our review designed their budgeting  approaches for disasters to cover the required state match for federal  disaster assistance as well as the costs they incur in the absence of a  federal declaration. For unforeseen disaster costs and for ongoing costs  associated with past disasters, these states relied on a number of budget  mechanisms including statewide disaster accounts, state agency budgets  and supplemental appropriations, to ensure the availability of funding for  disasters. However, none of the states in our review maintained reserves  dedicated solely for future disasters outside of the current fiscal year.  More frequent and costly disasters could prompt reconsideration of  approaches to dividing state and federal responsibilities for providing  disaster assistance. Given the fiscal challenges facing all levels of  government, policymakers could face increased pressure to consider  whether the current state and federal approach for providing disaster  assistance balances responsibilities appropriately. Absent federal policy  changes, the experience of the 10 states we reviewed suggests that  states will likely continue to rely on federal disaster assistance for most of  the costs associated with the response to large-scale disasters.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretary of the Department of  Homeland Security for review and comment. The Department of  Homeland Security generally agreed with our findings and provided  technical comments, which we incorporated as appropriate. Additionally,  we provided excerpts of the draft report to budget officers and emergency  management officials in the 10 states we included in this review. We  incorporated their technical comments as appropriate.
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section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of our review were to determine (1) the approaches  selected states use to budget for and fund state-level disaster costs; and  (2) how, if at all, state disaster budgeting approaches have changed over  time, including the factors influencing those changes and any challenges  states encountered in budgeting for state-level disaster costs.
To address the objectives, we selected a nonprobability sample of 10  states from the 50 states and the District of Columbia. To select the  states for our sample, we obtained data from the Federal Emergency  Management Agency’s (FEMA) Integrated Financial Management  Information System on major disaster declarations by state during fiscal  years 2004 through 2013. We focused on this time frame because it  contained the most current data for major disaster declarations. We  assessed the reliability of the FEMA data by discussing with another GAO  team their recent access and use of the data in a prior year’s report and  their determination that the data provided reliable evidence to support  findings, conclusions, and recommendations. We also discussed data  quality control procedures with FEMA officials who were knowledgeable  about the specific types of data recorded in the database. Based on how  we intended to use the information, we determined that the data were  sufficiently reliable for the purpose of selecting states for our study.
We sorted the data obtained based on the total number of major disaster  declarations approved by state. We calculated the median number of  major declarations approved by FEMA and identified states directly above  the median. For those states, we also identified the number of major  disaster declarations that had been denied by FEMA during the same  time period, which ranged from zero denials to seven denials. We then  calculated the statewide Public Assistance per capita amount of funding,  based on FEMA’s statewide per capita indicator of $1.39 and the U.S.  Census Bureau’s 2013 population estimate for each state. That is, we  multiplied the 2013 population estimate for each state by the PA per  capita indicator of $1.39. We then grouped the states according to low,  medium, and high per capita threshold levels. To ensure geographic  dispersion and a range of per capita amounts, we selected 10 states— four low per capita states (Alaska, North Dakota, Vermont, and West  Virginia), two medium per capita states (Missouri and Oklahoma), and  four high per capita states (California, Florida, Indiana, and New York)  (see table 1 for additional information). The results of our study are not  generalizable to state budgeting approaches for all states and the District  of Columbia.
We then developed and administered a semistructured interview to state  budget officers and emergency management officials in the10 selected  states regarding the approaches they used to budget for and fund state- level disaster costs and how, if at all, approaches changed over time.
To address the first objective, we analyzed information from the  semistructured interviews about selected states’ approaches to budgeting  for disasters. We also obtained and analyzed state budget and other  relevant documents to determine how states estimate, authorize, and  appropriate state disaster funds, the extent to which states share costs  with affected localities, and how cost share arrangements with affected  localities are determined.
To address the second objective, we analyzed information from the  semistructured interviews about how states’ budgeting approaches have  changed during the past decade, factors influencing any changes, and  any challenges states face in funding disaster assistance. We focused  our questions on the period covering fiscal years 2004 through 2013. We  also analyzed FEMA data regarding major state disasters to identify  possible trends in the frequency, severity, type, and cost of state disaster  events during the period from fiscal years 2004 through 2013.
For both objectives, we analyzed relevant state statutes and regulations  that govern the use of state disaster funds. In addition, we interviewed  FEMA officials who participate in making recommendations to the  President as to whether state requests for federal disaster funding should  be approved or denied.
We conducted this performance audit from April 2014 to March 2015 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Summary of Selected Disaster Funds, Disaster Programs, and Cost Share Arrangements in 10 Selected States
paragraphs: The 10 selected states in our review used a range of budget mechanisms  to cover the costs of disasters. This appendix provides additional detail on  the range of disaster-specific funds, disaster assistance programs, and  cost share arrangements in the 10 states.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Stanley Czerwinski, Brenda  Rabinowitz (Assistant Director), Kathleen Drennan (Analyst-in-Charge),  Mark Abraham, Liam O’Laughlin, and Robert Yetvin made key  contributions to this report. Aditi Archer, Amy Bowser, Jeffrey Fiore,  Robert Gebhart, Carol Henn, Donna Miller, Susan Offutt, and Cynthia  Saunders also contributed to this report.