Federal Disaster Assistance: Improved Criteria Needed to Assess a Jurisdiction's Capability to Respond and Recover on Its Own
Released: 2012-09-12T00:00:00

Letter

Background

During this time, we reported preliminary observations on opportunities to reduce the costs to the federal government related to major disaster declarations. See GAO-12-342SP. 321-328. governments, tribes, and certain nonprofit organizations and individuals.

In addition to its central role in recommending to the President whether to declare a disaster, FEMA has primary responsibility for coordinating the federal response when a disaster is declared as well as recovery, which typically consists of providing grants to assist state and local governments and certain private nonprofit organizations to alleviate the damage resulting from such disasters.

FEMA’s disaster declarations process is implemented by FEMA headquarters as well as its 10 regional offices. FEMA’s Administrator, in accordance with the Post-Katrina Emergency Management Reform Act of 2006 (Post-Katrina Act), appoints a Regional Administrator to head each regional office. and tribal governments, and other nongovernmental organizations— oversee emergency management activities within their respective geographical area. Joint Field Offices (JFO) are temporary FEMA offices established to respond to declared disasters and are headed by Federal Coordinating Officers (FCO) who, among other things, coordinate the activities of the disaster reserve workforce deployed for a particular disaster. Once a disaster is declared, FEMA deploys Disaster Assistance Employees and any other employees needed to the affected jurisdiction(s). FEMA provides assistance through the PA, IA, and Hazard Mitigation programs as well as through Mission Assignments. For instance, some declarations may provide grants only for IA and others only for PA. Hazard Mitigation grants, on the other hand, are available for all declarations if the affected area has a FEMA-approved Hazard Mitigation plan.

6 U.S.C. § 317.

The Changing Disaster Declaration Environment

According to FEMA, the agency is evolving from originally focusing on grants management to being an organization implementing increasingly more complex programs, with an increasingly sophisticated and specialized workforce and procedures in response to changing circumstances and expectations. As illustrated by figure 1, the number of disaster declarations has significantly increased since 1953, when the first presidential disaster declaration was issued. See appendix I for more information about the number of disaster declarations.

Various factors have contributed to the increase in disaster declarations. Population growth has occurred in U.S. geographic areas that are vulnerable when a disaster hits, such as those near coastlines. FEMA officials also cited more active weather patterns as a factor. FEMA guidance to states and localities and the enhanced capabilities and professionalization of state and local emergency management personnel have also been factors. For example, in 1999, FEMA published a list of factors that it considers when evaluating disaster declaration requests. According to FEMA and state emergency management officials from two states, the guidance, along with state and local emergency management officials’ additional knowledge about the process and the enhanced transparency of the process for federal disaster declarations, has helped state and local officials better justify a request for federal disaster assistance. Increased media attention on disasters, especially those in which there have been casualties or deaths, has also been a factor, according to FEMA and state emergency management officials for two states.

Disaster Declaration Process

The disaster assistance process generally starts at the local level, proceeds to the county and state levels, and then to the federal level. The Stafford Act states that the governor of the affected state shall request a declaration by the President that a disaster exists. FEMA is the primary federal disaster assistance agency, but others can have major roles, such as the U.S. Army Corps of Engineers, which can provide engineering and contracting support to FEMA.

As part of the request to the President, a governor must affirm that the state’s emergency plan has been implemented and the situation is of such severity and magnitude that effective response is beyond the capabilities of the state and the affected local governments and that federal assistance is necessary, among other things.

Before a governor asks for federal disaster assistance, state and local officials typically conduct an initial PDA to identify the amount of damage and determine if the damage exceeds their capability to respond and recover without federal assistance. Based on the initial PDA findings, a joint PDA, in which FEMA participates, may be requested by the governor. FEMA uses the joint PDA in its evaluation of the state’s need for federal assistance and makes a recommendation to the President as to whether the request for a disaster declaration should be approved or denied. Later in this report, we discuss in more detail how FEMA evaluates the need for PA. To evaluate the need for IA, FEMA considers various factors, including insurance coverage; the extent to which volunteer agencies and state or local programs can meet the needs of disaster victims; concentration of damages due to the disaster; number of deaths and injuries; amount of disruption to normal community services; amount of emergency needs, such as extended or widespread loss of power or water; and special populations, such as elderly or low-income people. Figure 2 shows the basic process that is followed from the time a disaster occurs until the President approves or denies a governor’s disaster declaration request.

Over 500 Disasters Were Declared during Fiscal Years 2004 through 2011 with Total Obligations of Over $90 Billion Anticipated

During this period, FEMA received 629 disaster declaration requests and approved 539 of them. Most disaster declarations were for severe storms. FEMA anticipates that when all disasters declared during fiscal years 2004 through 2011 are closed, its total obligations for these disasters will exceed $90 billion.

Most Declarations for Severe Storms, Highest in Southeast and Central Midwest

The President received requests from governors during fiscal years 2004 through 2011 for 629 disaster declarations and approved 539 of them, or 86 percent, as shown in table 1.

Governors can appeal a decision when the President initially denies a disaster declaration request. During fiscal years 2004 through 2011, governors made 629 requests for disaster declarations, and the President ultimately denied 90 of them, or 14 percent.

FEMA has 10 regions throughout the United States that, among other things, provide technical assistance to state and local officials and make recommendations to FEMA headquarters as to whether a disaster declaration is warranted. Individual FEMA regions had varying numbers of disaster declarations during fiscal years 2004 through 2011. The two FEMA regions that had the most disaster declarations were Region IV in the Southeast and Region VII in the central Midwest, which together accounted for 163, or 30 percent, of the 539 declarations. The two FEMA regions that had the fewest declarations were Regions IX and X along the west coast, including Alaska, which together accounted for 71 declarations, or 13 percent. See appendix I, figure 10, for a map that shows the number of declarations by FEMA region.

During fiscal years 2004 through 2011, the average number of disaster declarations was 9.3 for each of the 58 jurisdictions—that is, the 50 states, the District of Columbia, 5 territories, and 2 Freely Associated States. However, our analysis shows that some jurisdictions had over 20 disaster declarations, while other jurisdictions had 3 or fewer disaster declarations during this period. For example, Oklahoma had the most disaster declarations at 25, while Colorado and Guam had 1 each and the Marshall Islands did not have any. In addition, the 5 jurisdictions with the highest number of disaster declarations accounted for 105, or 19 percent, of the 539 declarations during fiscal years 2004 through 2011, whereas the 4 jurisdictions with the lowest number of disaster declarations accounted for 4, or less than 1 percent. See figure 3 for the number of disaster declarations for each jurisdiction.

As reported by FEMA, severe storms accounted for 71 percent of declarations during fiscal years 2004 through 2011. According to FEMA officials, a disaster is classified as a severe storm when multiple storm- related incidents (for example, floods or heavy rains) affect a jurisdiction, but no single incident type is responsible for the majority of the damage.

See appendix I, table 11, for the number and percentage for each of the incident types that occurred during fiscal years 2004 through 2011.

For each disaster declaration, various types of assistance can be approved. For example, the President can approve PA only, IA only, or PA and IA for each declaration. As shown in figure 4, during fiscal years 2004 through 2011, 6 percent of the declarations were awarded for IA only, while a total of 94 percent of declarations were awarded for either PA only or IA and PA.

Through January 31, 2012, FEMA obligated $80.3 billion, or an average of about $10 billion a year, from the DRF for 539 disasters declared during fiscal years 2004 through 2011; and FEMA anticipates that when all 539 declarations are closed, obligations will be about $91.5 billion. Thirteen of these declarations had incurred obligations of over $1 billion each. Almost half of the $80.3 billion in obligations was for Hurricane Katrina. Excluding obligations of $39.7 billion for Hurricane Katrina, FEMA obligated $40.6 billion for the other disaster declarations during fiscal years 2004 through 2011, or an average of about $5 billion a year. Total obligations are higher for fiscal years 2004, 2005, and 2008 than for the remaining 5 years primarily because of hurricanes that occurred with more frequency or force during those years. For example, over half of the $8.8 billion for disasters declared in fiscal year 2004 was due to four hurricanes, over half of the $44.9 billion for disasters declared in fiscal year 2005 was for Hurricane Katrina, and about half of the $10.3 billion for disasters declared in fiscal year 2008 was for Hurricanes Ike and Gustav. Table 2 shows the obligations by fiscal year.

Obligations for disaster declarations during fiscal years 2004 through 2011 varied greatly by FEMA region and jurisdiction. FEMA Region VI had the highest obligations at $40.0 billion. However, when excluding obligations from all FEMA regions due to Hurricane Katrina, FEMA Region IV had the highest obligations at $13.2 billion. FEMA Region X had the lowest obligations at $0.6 billion. As shown in figure 5, the amount of obligations also varied greatly by jurisdiction for disasters declared during fiscal years 2004 through 2011. For example, Louisiana had the highest obligations, at $32.3 billion, but after excluding obligations for Hurricane Katrina, Florida had the highest obligations, at $9.3 billion, while for the jurisdictions with the lowest obligations, Guam had $1.9 million and the Marshall Islands did not have any. As a comparison, the nationwide average obligations per jurisdiction were $1.38 billion, and decreased to $700 million when obligations for Hurricane Katrina were excluded. Appendix I, figure 10, shows the obligations by FEMA region for fiscal years 2004 through 2011.

Furthermore, obligations for individual disaster declarations declared during fiscal years 2004 through 2011 varied greatly. For example, as of January 31, 2012, FEMA had obligated $28.5 billion for Louisiana’s fiscal year 2005 Hurricane Katrina disaster declaration compared with about $803,000 for a South Dakota disaster declaration during that same fiscal year. Disaster declarations can take over a decade to close; therefore, to obtain a more comprehensive and longer-term perspective, we analyzed obligations for 811 disaster declarations during fiscal years 1989 through 2011 that had been closed as of January 31, 2012. Of the 811 closed declarations, we found that 440, or 54 percent, had obligations of less than $10 million (see table 3).

For those disaster declarations approved during fiscal years 2004 through 2011, we analyzed the total obligations as of April 30, 2012, for closed disasters, and the total projected obligations—actual to date and estimated—for those declarations that remained open as of April 30, 2012. Specifically, for open declarations as of April 30, 2012, instead of analyzing how much FEMA had obligated as of that date, we analyzed the amount FEMA had obligated plus the amount FEMA anticipated it would obligate from the time a declaration was approved through its closure. On the basis of our analysis, when all 539 declarations that were declared during fiscal years 2004 through 2011 are eventually closed, FEMA anticipates that 193, or 36 percent, will have total obligations of less than $10 million, thus signifying that these were relatively small disasters (see table 4).

Eligibility for Assistance Is Primarily Determined Using a Damage Estimate Indicator

The per capita damage indicator FEMA uses to assess a jurisdiction’s eligibility for PA is the primary factor on which disaster declaration decisions are based. However, the per capita damage indicator is artificially low. In addition, FEMA’s process to determine eligibility for federal assistance does not comprehensively assess a jurisdiction’s capability to respond to and recover from a disaster on its own.

FEMA Relies Almost Exclusively on a Single Indicator

According to FEMA and state emergency management officials, FEMA has primarily relied on a single indicator, the statewide per capita damage indicator, to determine whether to recommend that a jurisdiction receive PA funding. In fiscal year 2012, the per capita indicator is $1.35. Thus, a state with 10 million people would generally have to incur $13.5 million in estimated eligible disaster damages to public structures for FEMA to recommend that a disaster declaration for PA is warranted. However, other factors could also influence the recommendation, such as whether a jurisdiction has incurred multiple disasters within a short period of time. Of the 58 jurisdictions for fiscal year 2012, based on population, California has the highest statewide indicator total, at $50.3 million, while Wyoming has the lowest amount at $760,895.total PA per capita indicator amounts for each of the 58 jurisdictions.

See appendix III, table 15, for the FEMA’s method to determine the affected jurisdictions’ capabilities to respond without federal assistance relies on a governor’s certification and damage estimates. The Stafford Act requires that a governor’s request for a disaster declaration be based on a finding that the disaster is of such severity and magnitude that an effective response is beyond the capabilities of the jurisdiction and that federal assistance is necessary. FEMA officials stated that governors must certify in their letter to the President requesting a disaster declaration that the disaster is beyond the capabilities of the jurisdiction. FEMA regulations list quantitative and qualitative factors, such as recent disasters within the same jurisdiction that the agency considers when determining whether a disaster declaration is warranted. However, in describing the declarations process, FEMA and emergency management officials in two states said that FEMA uses the statewide per capita indicator as the primary determining factor for PA funding. This damage indicator, which FEMA has used since 1986, is essentially a proxy fiscal measure of a state’s capacity to respond to and recover from a disaster, rather than a more comprehensive assessment of a state’s fiscal capacity.

According to our analysis of readily available indicator data, as well as officials in two FEMA regions and state emergency management officials in two states, the principal factor used to determine eligibility for a disaster declaration was whether the damage estimate exceeded the PA per capita indicator. Our analysis of 246 disaster declarations during fiscal years 2008 through 2011 identified the PA per capita indicator as having been the primary determining factor—essentially being used as an eligibility threshold. Specifically, 244 of the 246 approved disaster declarations that we reviewed, or 99 percent, had PA damage estimates that met or exceeded the PA per capita indicator in effect in the year in which the disaster was declared. Seven gubernatorial requests for a disaster declaration during fiscal years 2008 through 2011 had a damage estimate higher than the PA per capita indicator yet were denied for various reasons, such as the damage being a result of multiple storms or the normal depreciation of structures rather than a single disaster.

FEMA’s Per Capita Indicator Used to Assess Eligibility Is Artificially Low

Because FEMA’s current per capita indicator does not reflect the rise in (1) per capita personal income since it was created in 1986 or (2) inflation from 1986 to 1999, the indicator is artificially low. In 1986, FEMA proposed a $1.00 per capita indicator for PA as a means of gauging a jurisdiction’s fiscal capacity. The indicator was based on the 1983 per capita personal income nationwide, then estimated at $11,667. Current FEMA officials were unable to explain how per capita personal income was used to establish the indicator level at $1.00. However, FEMA documentation noted that the agency thought it reasonable that a state would be capable of providing $1.00 for each resident of that state to cover the damage from a disaster. While the proposed rule was not codified in 1986, FEMA began to use the $1.00 per capita indicator informally as part of its preliminary damage assessment efforts and did not adjust the indicator annually for either inflation or increases in national per capita income. In 1998, FEMA considered adjusting the PA indicator to $1.51 to account for inflation since 1986, but because of input from state emergency management officials, FEMA decided not to do so.

In 1999, FEMA issued a rule codifying the per capita indicator at $1.00, which was stipulated to include an annual adjustment for inflation, but the rule was silent on whether the indicator would continue to be based on nationwide per capita personal income. As a result, the indicator has risen 35 percent from $1.00 to $1.35 in the 13 years since FEMA began its annual inflationary adjustments. Figure 6 shows the actual increases in the per capita indicator for PA from 1986 to 2010 compared with the increases that would have occurred if FEMA had adjusted the indicator for inflation or the increase in per capita personal income during this period.

FEMA officials stated that the rise in construction and other costs to respond to and recover from disasters have outpaced the rise in the per capita indicator. In jurisdictions with smaller populations, damage to a single building or facility, such as a water treatment facility, could result in a damage estimate sufficient to meet the per capita damage threshold and warrant a disaster declaration. For example, the damage from Hurricane Katrina to a single water treatment facility in Carrollton, Louisiana, exceeded Louisiana’s 2005 per capita threshold. In addition, the Washington National Cathedral incurred approximately $15 million of damage during the August 23, 2011, earthquake in Washington, D.C., which has a per capita damage indicator threshold of less than $1 million.

The Stafford Act requires that conditions due to a disaster be beyond a jurisdiction’s (state and local) capability to respond effectively before disaster assistance from the federal government is warranted. however, prohibits FEMA from denying federal assistance solely by virtue of an arithmetic formula or sliding scale based on income or population. According to Standards for Internal Control in the Federal Government, activities should be established to monitor indicators and controls should be aimed at validating the propriety and integrity of such indicators. Had the indicator been adjusted for inflation beginning when FEMA started using it in 1986, the indicator would have risen more than 100 percent, from $1.00 to $2.07 in 2012. Had the indicator been adjusted for increases in per capita personal income since 1986, the indicator would have risen over 250 percent, from $1.00 to $3.57 in 2011, based on 2011 national per capita personal income of $41,663.

42 U.S.C. § 5170.

Our analysis included FEMA’s projected obligations as of April 30, 2012, for only those 508 disaster declarations that had received PA and had been declared during fiscal years 2004 through 2011. We did not analyze the 31 disaster declarations that received IA only. We analyzed obligations instead of PDA damage estimates for PA because FEMA officials stated that estimating the damage from a disaster is sometimes stopped when the estimate equals or exceeds the PA per capita indicator. Therefore, we concluded that conducting the analysis using projected obligations would be more accurate than using incomplete PDA damage estimates for PA. of the 508 disaster declarations would not have met the PA per capita indicator if adjusted for inflation since 1986. Thus, had the indicator been adjusted annually since 1986 for personal income or inflation, fewer jurisdictions would have met the eligibility criteria that FEMA primarily used to determine whether federal assistance should be provided, which would have likely resulted in fewer disaster declarations.

In discussions with FEMA officials about raising the per capita damage indicator, they noted that updating the indicator completely in a single year could create problems for jurisdictions, which, in response, may need to increase their rainy day fund or take other actions to adjust to the change. However, FEMA officials stated that adjusting the indicator in a phased approach over several years would be more feasible for jurisdictions. The current annual inflation adjustment generally increases the damage indicator incrementally. However, were the “catch-up” inflation adjustment (from $1.35 to $2.07) implemented in a single year, the increase would be considerably more than the annual inflation adjustments since 1999. For example, for a jurisdiction with a population of 5 million, fully implementing the catch-up adjustment for inflation would raise the damage indicator from $6.75 million to $10.35 million. Adjusting the indicator in phases over several years could help FEMA examine future requests for disaster declarations in a manner that reflects changes in per capita income or inflation since 1986 and provide jurisdictions more time to plan for and adjust to the change.

FEMA’s Eligibility Process Does Not Comprehensively Assess a Jurisdiction’s Capability to Respond and Recover

Reliance on the PA per capita indicator to determine a jurisdiction’s eligibility for federal assistance—whether the indicator is artificially low or adjusted for increases in personal income or inflation—does not provide an accurate measure of a jurisdiction’s capability to respond to or recover from a disaster without federal assistance. Determining a jurisdiction’s fiscal capacity is important because a jurisdiction with greater resources should be able to more easily recover in the aftermath of a disaster than a jurisdiction with fewer resources. Further, a jurisdiction’s fiscal capacity is an important component of the jurisdiction’s overall response and recovery capability.

In 1999, when the rule was codified to set the per capita indicator at $1.00, FEMA stated that it recognized that a straight per capita figure may not be the best measurement of a state’s capability, but that it provided a simple, clear, consistent, and long-standing means of measuring the severity, magnitude, and impact of a disaster while at the same time ensuring that the President can respond quickly and effectively to a governor’s request for assistance. As we reported in 2001, per capita personal income is a relatively poor indicator of a jurisdiction’s fiscal capacity because it does not comprehensively measure all income potentially subject to jurisdiction taxation and is not necessarily indicative of jurisdiction or local capability to respond effectively without federal assistance. For example, it does not include income produced in a jurisdiction unless it is received as income by a jurisdiction resident. Thus, profits retained by corporations for business investment, though potentially subject to jurisdiction taxation, are not included in a jurisdiction per capita income measure because they do not represent income received by jurisdiction residents. In 2001, we recommended that FEMA consider alternative criteria. FEMA’s response noted that we provided valuable input for the FEMA team that was reviewing the disaster declaration process and the criteria used to assess jurisdiction damages. According to FEMA, in 2001, the President’s budget for fiscal year 2002 included a provision for the development of improved guidelines for disaster assistance that provided jurisdictions with meaningful criteria that must be met to become eligible for federal disaster assistance. FEMA undertook a review of disaster declaration guidelines; however, no changes to the established declaration guidelines were adopted, and ultimately, FEMA did not change its reliance on the per capita indicator.

The Post-Katrina Act required FEMA to develop a set of preparedness metrics that could be used to assess operational preparedness capability. Also, Presidential Policy Directive-8 (PPD-8), issued in March 2011, required the Secretary of Homeland Security to develop a national preparedness system to, in part, define existing capabilities and capability gaps, and drive investments to close those gaps across the nation’s federal, state, local, tribal, and territorial governments. Much of the growth in disaster declarations has occurred at the same time (that is, since the terrorist attacks of September 11, 2001) that the federal government has provided more than $37 billion to state and local governments to enhance their preparedness to protect against, respond to, and recover from disasters of all types. However, FEMA has not yet finished developing metrics to assess state preparedness capability, a fact that limits its ability to comprehensively assess jurisdictions’ disaster preparedness and capabilities.

GAO, Federal Emergency Management Agency: Continuing Challenges Impede Progress in Managing Preparedness Grants and Assessing National Capabilities, GAO-12-526T (Washington, D.C.: Mar. 20, 2012).

FEMA officials, FEMA does not have any plans or policies in place to use preparedness data to inform its recommendations regarding presidential disaster declarations. Metrics to assess a jurisdiction’s disaster preparedness and capabilities could augment the PA per capita indicator, and other relevant information, to provide a more comprehensive understanding of a jurisdiction’s capacity to respond to and recover from a disaster without federal assistance.

The 2011 state preparedness reports provide some potentially useful information to understand a state’s response capabilities. However, FEMA does not use these reports or an assessment of a jurisdiction’s response capabilities to determine eligibility for disaster assistance, and the FEMA Administrator stated that state and local governments are capable of handling much of the workload related to responding to a declared disaster, which has allowed FEMA to mostly focus on recovery efforts. Recovery refers to efforts aimed at restoring an area to its prior status, including the reconstruction of damaged structures, including its housing stock, business establishments, public facilities, and the environment. The availability of funds is critical to these efforts; however, FEMA does not conduct an assessment of a jurisdiction’s fiscal capacity to fund a recovery effort without federal assistance before determining whether to award federal assistance.

GAO-01-837. jurisdiction’s fiscal capacity, adjustments for TTR growth would vary by jurisdiction. FEMA could also use other measures of fiscal capacity, such as state personal income or gross state product, to more accurately determine a jurisdiction’s ability to pay for damages to public structures without federal assistance. Table 5 describes three potential approaches to measure a jurisdiction’s fiscal capacity. Federal departments and agencies have used some of these approaches to help determine a jurisdiction’s fiscal capacity and the extent to which a jurisdiction should be eligible for federal assistance. For example, the Department of Health and Human Services’ Substance Abuse and Mental Health Services Administration’s block grant program and Community Mental Health Service use TTR. Also, personal income is used by many federal grant programs.

Without an accurate assessment of a jurisdiction’s capabilities to respond to and recover from a disaster without federal assistance, including a jurisdiction’s preparedness capabilities and fiscal capacity, FEMA runs the risk of recommending that the President award federal assistance to jurisdictions that have the capability to respond and recover on their own. Reexamining the basis for the PA indicator and the usefulness of preparedness metrics and jurisdiction fiscal capacity could help FEMA more accurately determine whether a jurisdiction should be eligible for federal assistance. In appendix IV, we provide additional information about the three approaches to measure a jurisdiction’s fiscal capacity as well as examples of how these fiscal measures could assist FEMA in more accurately determining whether the magnitude of damage is beyond the capacity of the jurisdiction.

FEMA Does Not Have Specific Criteria to Evaluate Some Cost Share Adjustment Requests and Does Not Track Additional Costs for All Adjustments

According to the Stafford Act, the usual cost share arrangement for disaster declarations calls for the federal government to pay not less than 75 percent of the eligible PA costs of a disaster and nonfederal entities (that is, state and local governments) to pay the remaining 25 percent; at a governor’s request, the President can adjust this cost share. FEMA has specific criteria to evaluate a request to adjust the federal share from 75 percent to 90 percent, but does not have specific criteria to evaluate a request to adjust the federal share to 100 percent. Adjusting the federal share to 100 percent is typically done for emergency work such as life- saving activities and debris removal projects through FEMA’s PA program. In addition, FEMA does not know the additional costs (that is, the costs of paying an additional 15 or 25 percent) associated with either type of cost share adjustment because the agency does not track these costs.

Governors can request that the President reduce the 25 percent cost share for nonfederal governments to 10 percent or 0 percent. FEMA generally follows the same process to evaluate a request from a governor for a cost share adjustment as it follows to evaluate a request for a disaster declaration, according to FEMA officials. FEMA makes a recommendation to the President as to whether the request for a cost share adjustment should be approved or denied and the President makes the decision.

For the 539 disaster declarations during fiscal years 2004 through 2011, governors requested that the President adjust the usual federal/nonfederal (that is, state and local government) cost share 150 times. As shown in table 6, 109 of the 150 requests, or 73 percent, were approved during this period. However, 23 of the 109 cost share adjustments were required by provisions in law; therefore, FEMA’s recommendation was not a factor in whether these cost share adjustment requests were approved or denied. For example, 10 of the 23 cost share adjustments required by law were for Hurricanes Katrina, Wilma, Dennis, and Rita.

Our analysis shows that 64 of the 109 cost share adjustments during fiscal years 2004 through 2011 were for the following six disasters: 23 for Hurricane Katrina, 11 for Hurricane Rita, 9 for Hurricane Ike, 8 for Hurricane Ivan, 7 for midwest flooding in fiscal year 2008, and 6 for Hurricane Dennis. Furthermore, 34 of the 109 cost share adjustments involved a single adjustment, whereas 23 cost share adjustments involved multiple adjustments. FEMA officials explained this by stating that a 100 percent cost share adjustment could be approved for a 72-hour period and the governor could subsequently request another 100 percent cost share adjustment for another 72-hour period, which the President could approve. For example, the disaster declaration in Louisiana in fiscal year 2005 for Hurricane Katrina had 8 cost share adjustments and the disaster declaration in Mississippi in fiscal year 2005 for Hurricane Katrina had 9 cost share adjustments.

According to FEMA officials, although the process is similar, the agency uses different criteria to evaluate a request from a governor to increase the federal government share for PA up to 90 percent than it does for requests up to 100 percent. Specifically, FEMA may recommend to the President that the federal cost share be increased up to 90 percent when a disaster is so extraordinary that actual federal obligations, excluding FEMA administrative costs, meet or exceed a qualifying threshold. To determine the threshold, the jurisdiction population is multiplied by a per capita amount, which is $135 for calendar year 2012 (or 100 times the 2012 per capita damage indicator of $1.35). Forty-one of the 109 cost share adjustments increased the federal cost share to 90 percent and reduced the nonfederal share to 10 percent. According to FEMA’s regulations, if warranted by the needs of the disaster, FEMA may recommend up to 100 percent federal funding for emergency work, such as debris removal and emergency protective measures, for a limited period in the initial days of the disaster irrespective of the per capita amount.federal cost share to 100 percent.

Sixty-eight of the 109 cost share adjustments increased the Unlike its evaluation of a request that the federal share be increased from 75 percent up to 90 percent, FEMA does not use specific criteria to evaluate requests to adjust the federal cost share up to 100 percent. FEMA officials stated that a recommendation to the President for up to a 100 percent cost share adjustment is based on a subjective assessment of the jurisdiction’s needs and that it is usually pretty obvious when a jurisdiction needs debris removal and emergency protective measures, although the officials acknowledged that FEMA’s recommendation is a judgment call. According to FEMA, it does not use the same criteria to evaluate a request for a 100 percent cost share adjustment as it uses for a 90 percent cost share adjustment because the criteria for the 90 percent adjustment are based on actual federal obligations. FEMA officials explained that they would not be able to apply those criteria for the 100 percent adjustment in the initial days of a disaster because there would not be much, if any, funding obligated at that point. However, criteria for assessing a request for a 100 percent cost share adjustment for PA (that is, emergency work) do not have to be the same criteria FEMA uses to assess requests for 90 percent cost share adjustments. For example, FEMA’s IA grant program uses multiple factors to determine whether to recommend to the President that a jurisdiction be granted IA.

We have previously reported that clear criteria are important for controlling federal costs and helping to ensure consistent and equitable eligibility determinations. For example, if a 100 percent cost share adjustment is approved, the federal government could pay millions of dollars more than it ordinarily would for a single disaster declaration. Furthermore, Standards for Internal Control in the Federal Government state that internal control activities help ensure that management’s directives are carried out and that actions are taken to address risks.

Moreover, internal control standards state that control activities should be an integral part of an entity’s accountability for stewardship of government resources. Without such activities, FEMA is at risk that its recommendations related to 100 percent cost share adjustments may not be justified. Further, relying on professional judgment only, FEMA is at risk of making inconsistent, and potentially inequitable, recommendations to the President about whether to grant 100 percent cost share adjustments.

In addition, FEMA officials stated that they do not know the costs associated with the 109 cost share adjustments because the agency does not track the costs for all cost share adjustments, although on rare occasions, at the request of congressional staff, FEMA officials have identified the costs associated with cost share adjustments, such as those for Hurricane Katrina. The officials stated that they have not routinely tracked the additional costs associated with cost share adjustments because they did not see a need for this information. According to Standards for Internal Control in the Federal Government, program managers need financial data to determine whether they are meeting their goals for accountability for effective and efficient use of resources. Financial information is needed for both external and internal uses, and on a day-to-day basis to make operating decisions, monitor performance, and allocate resources. Pertinent information should be identified, captured, and distributed in a form and time frame that permits people to perform their duties efficiently. Because FEMA does not track the costs associated with cost share adjustments, FEMA does not know the financial impact of its recommendations to the President on whether to increase the federal cost share for PA. Understanding the financial impact of FEMA’s recommendations to the President for cost share adjustments would enable FEMA to make more informed recommendations and estimate the impact of the adjustments on available DRF balances.

Costs of Providing Disaster Assistance Have Increased, but FEMA Is Working to Reduce Costs

FEMA’s administrative cost percentages have often surpassed its targets for all sizes of disasters and have doubled in size since fiscal year 1989. FEMA provided guidance for administrative cost targets but does not assess how well the targets were achieved. The agency is working on three short- and long-term initiatives to deliver disaster assistance in a more efficient manner.

Administrative Cost Percentages Often Exceeded FEMA’s Targets and Have Doubled since Fiscal Year 1989

Our analysis of the 539 disaster declarations during fiscal years 2004 through 2011 shows that 37 percent of the declarations exceeded administrative cost percentage targets established in guidance prepared by FEMA in 2010. Administrative cost percentages varied widely among disaster declarations that required a similar amount of federal financial assistance, suggesting that certain declarations may have been administered more efficiently than others. In addition, FEMA’s average administrative cost percentage for disaster declarations has doubled since fiscal year 1989.

FEMA’s administrative costs relate to the delivery of disaster assistance programs, such as the PA or IA programs, and are primarily obligated from the DRF. Examples of administrative costs include the salary and travel costs for the disaster reserve workforce, rent and security expenses associated with JFO facilities, and supplies and information technology support for JFO staff. According to FEMA officials, the agency’s administrative costs are primarily due to activities at JFOs; however, administrative costs can also be incurred at FEMA regional offices, headquarters, and other locations.

We analyzed actual administrative costs for disaster declarations that were closed as of April 30, 2012, and, for declarations that were still open as of April 30, 2012, we analyzed actual obligations as of April 30, 2012, plus the amount that FEMA projected to obligate in the future until the declarations are eventually closed. FEMA categorizes disaster declarations using three event levels, essentially small, medium, or large based on the amount of federal funding obligated for the disaster, and has established target ranges for administrative cost percentages for each. Our analysis shows that FEMA frequently exceeded the administrative cost percentage targets established by FEMA guidance for all three sizes of disaster declarations during fiscal years 2004 through 2011. Specifically:

For small disaster declarations (total obligations of less than $50 million), the target range for administrative costs is 12 percent to 20 percent; for the 409 small declarations that we analyzed, 4 out of every 10 had administrative costs that exceeded 20 percent.

For medium disaster declarations (total obligations of $50 million to $500 million), the target range for administrative costs is 9 percent to 15 percent; for the 111 declarations that we analyzed, almost 3 out of every 10 had administrative costs that exceeded 15 percent.

For large disaster declarations (total obligations greater than $500 million to $5 billion), the target range for administrative costs is 8 percent to 12 percent; for the 19 large declarations that we analyzed, over 4 out of every 10 had administrative costs that exceeded 12 percent.

For small declarations that we analyzed, administrative cost percentages averaged 20 percent and ranged from less than 1 percent to 73 percent. Thus, on average, small disaster declarations were within the upper limit of FEMA’s target range. However, 12 small declarations had administrative cost percentages greater than 50 percent, which means that FEMA obligated more for administrative costs than for disaster assistance. For example, if FEMA required $6 million to deliver $4 million in disaster assistance to a jurisdiction, then the related administrative cost percentage would be 60 percent of the total DRF obligations of $10 million. For medium declarations that we analyzed, administrative cost percentages averaged 12 percent and were, therefore, in the middle of the target range. However, administrative cost percentages for medium declarations ranged from less than 1 percent to 55 percent and, for 1 medium declaration, FEMA obligated more for administrative costs than for disaster assistance. For large declarations that we analyzed, administrative cost percentages averaged 13 percent—slightly above the upper limit of the target range— and ranged from 3 percent to 25 percent; therefore, none of the large declarations we analyzed had obligations for administrative costs higher than disaster assistance.

FEMA’s administrative cost percentages also differed significantly depending on the type of assistance delivered to a jurisdiction. For example, for disaster declarations during fiscal years 2004 through 2011, the average administrative cost percentage for disaster declarations that involved only IA was 34 percent, while the average was less than half of that, at 16 percent, for declarations with only PA. Disaster declarations that included both IA and PA had an average administrative cost percentage of 18 percent.

According to FEMA, incidents of similar size and type have witnessed growing administrative costs since 1989. medium, and large disaster declarations during fiscal years 1989 through 2011 confirms this increase. As discussed in more detail later in this report, administrative costs have increased dramatically because of a number of factors, including the number of staff deployed to a disaster, which tripled during fiscal years 1989 through 2009. Since fiscal year 1989, the average administrative cost percentage for the 1,221 disaster declarations doubled from 9 percent in the 1989-to-1995 period to 18 percent in the 2004-to-2011 period as shown in table 7.

Conclusions

Disaster declarations have increased over recent decades, and FEMA has obligated over $80 billion in federal assistance for disasters declared during fiscal years 2004 through 2011, highlighting the importance of FEMA’s assessment of jurisdictions’ capabilities to respond and recover without federal assistance. The PA per capita indicator is artificially low because it does not reflect the rise in per capita personal income since 1986 or 13 years of inflation from 1986, when the indicator was set at $1.00 and adopted for use, to 1999. By primarily relying on an artificially low indicator, FEMA’s recommendations to the President are based on damage estimates and do not comprehensively assess a jurisdiction’s capability to respond to and recover from a disaster on its own. For example, on the basis of FEMA’s actual and estimated disaster assistance obligations, more than one-third of the 539 major disasters declared during fiscal years 2004 through 2011 are expected to have total DRF obligations of less than $10 million, and more than 60 percent are expected to have total obligations of less than $25 million. Therefore, many of these declarations were for relatively small disasters. At a minimum, adjusting the existing PA per capita indicator fully for changes in per capita income or inflation could ensure that the per capita indicator more accurately reflects changes in U.S. economic conditions since 1986, when the indicator was adopted. Making the appropriate inflation adjustment to the indicator would raise it from $1.35 to $2.07. A change of this size in 1 year could present challenges for jurisdictions, which could find that disasters with PA damage estimates that would now qualify for PA would no longer qualify. Thus, phasing in the adjustment over several years could provide jurisdictions time to take actions, such as increasing any rainy day funds, to adjust to the effects of higher qualifying indicators.

A more comprehensive approach to determine a jurisdiction’s capabilities to respond to a disaster would be to replace or supplement the current indicator with more complete data on a jurisdiction’s fiscal resources, such as TTR, and would be informed by data on a jurisdiction’s response and recovery assets and capabilities. Because FEMA’s current approach of comparing the amount of disaster damage with the PA per capita indicator does not accurately reflect whether a jurisdiction has the capabilities to respond to and recover from a disaster without federal assistance, developing a methodology that provides a more comprehensive assessment of jurisdictions’ response and recovery capabilities, including a jurisdiction’s fiscal capacity, could provide FEMA with data that are more specific to the jurisdiction requesting assistance. For example, developing preparedness metrics in response to the Post- Katrina Act and Presidential Policy Directive-8 could provide FEMA with readily available information on jurisdictions’ response and recovery capabilities. Without an accurate assessment of jurisdictions’ capabilities to respond to and recover from a disaster, FEMA runs the risk of recommending to the President that federal disaster assistance be awarded without considering a jurisdiction’s response and recovery capabilities or its fiscal capacity. As we recommended in 2001, we continue to believe that FEMA should develop more objective and specific criteria to assess the capabilities of jurisdictions to respond to a disaster. Given the legislative and policy changes over the past decade, we believe that including fiscal and nonfiscal capabilities, including available preparedness metrics in its assessment, would allow FEMA to make more informed recommendations to the President when determining a jurisdiction’s capacity to respond without federal assistance.

Making informed recommendations to the President about whether cost share adjustments should be granted is important for FEMA and the requesting jurisdictions because every cost share adjustment has financial implications for both entities. A specific set of criteria or factors to use when considering requests for 100 percent cost share adjustments would provide FEMA a decision-making framework and enable more consistent and objectively based recommendations to the President. Also, when FEMA recommends that a cost share adjustment be approved and the President approves it, the federal government assumes the financial burden of paying 15 percent or 25 percent more in PA, which could total millions of dollars. Tracking the additional costs to the federal government because of cost share adjustments would allow FEMA to better understand the financial implications of its recommendations to the President.

FEMA’s average administrative costs as a percentage of total DRF disaster assistance obligations have risen for disasters of all sizes. The agency recognized that delivering assistance in an efficient manner is important and published guidance to be used throughout the agency to help rein in administrative costs. However, FEMA has not implemented the goals and does not track performance against them. Over time, reducing administrative costs could save billions of dollars—dollars that could be used to fund temporary housing, infrastructure repairs, and other disaster assistance. Therefore, incentivizing good management over administrative costs by adopting administrative cost percentage goals and measuring performance against these goals would help provide FEMA with additional assurance that it is doing its utmost to deliver disaster assistance in an efficient manner.

Recommendations for Executive Action

To increase the efficiency and effectiveness of the process for disaster declarations, we recommend that the FEMA Administrator take the following four actions: 1. Develop and implement a methodology that provides a more comprehensive assessment of a jurisdiction’s capability to respond to and recover from a disaster without federal assistance. This should include one or more measures of a jurisdiction’s fiscal capacity, such as TTR, and consideration of the jurisdiction’s response and recovery capabilities. If FEMA continues to use the PA per capita indicator to assist in identifying a jurisdiction’s capabilities to respond to and recover from a disaster, it should adjust the indicator to accurately reflect the annual changes in the U.S. economy since 1986, when the current indicator was first adopted for use. In addition, implementing the adjustment by raising the indicator in steps over several years would give jurisdictions more time to plan for and adjust to the change. 2. Develop and implement specific criteria or factors to use when evaluating requests for cost share adjustments that would result in the federal government paying up to 100 percent of disaster declaration costs. 3. Annually track and monitor the additional costs borne by the federal government for the cost share adjustments. 4. Implement goals for administrative cost percentages and monitor performance to achieve these goals.

Agency Comments and Our Evaluation

We provided a draft of this report to DHS for comment. We received written comments from DHS on the draft report, which are summarized below and reproduced in full in appendix V. DHS concurred with three recommendations and partially concurred with the fourth recommendation.

Regarding the first recommendation, that FEMA develop and implement a methodology that provides a more comprehensive assessment of a jurisdiction’s capability to respond to and recover from a disaster without federal assistance, DHS concurred. DHS stated that a review of the criteria used to determine a state’s response, recovery, and fiscal capabilities is warranted and that such a review would include the need to update the per capita indicator as well as a review of alternative metrics. DHS stated that any changes would need to be made through the notice and comment rulemaking process and that, if changes are made to the per capita indicator, FEMA’s Office of Response and Recovery will review the feasibility of phasing them in over time. However, the extent to which the planned actions will fully address the intent of this recommendation will not be known until the agency completes its review and implements a methodology that provides a more comprehensive assessment of a jurisdiction’s capability to respond and, if the per capita indicator continues to be used, adjusts the per capita indicator to accurately reflect annual changes in the U.S. economy since 1986. We will continue to monitor DHS’s efforts.

Regarding the second recommendation, that FEMA develop and implement specific criteria or factors to use when evaluating requests for cost share adjustments that would result in the federal government paying up to 100 percent of disaster declaration costs, DHS concurred with the recommendation and stated that FEMA’s Office of Response and Recovery will review specific cost share factors or criteria and develop guidelines to support decision making. These actions, if implemented effectively, should address the intent of the recommendation.

DHS concurred with the third recommendation, to track and monitor the additional costs associated with cost share adjustments, and stated that FEMA’s Office of Response and Recovery will be responsible for tracking these costs on an annual basis. DHS stated that such actions would provide valuable information for budgetary purposes and for decision makers who consider requests for cost share adjustments. We agree. Thus, these actions, if implemented effectively, should address the intent of the recommendation.

DHS partially concurred with the fourth recommendation, to implement goals for administrative cost percentages and monitor performance to achieve these goals. Specifically, DHS stated that it agrees that setting goals and monitoring performance for achieving these goals is a good practice in any program and can help ensure more effective and efficient operations. However, DHS stated that it plans to conduct a review to better understand and describe its current measures. DHS stated that a number of factors affect administrative costs, which can present difficulties when trying to implement a simple measure of percentage of administrative costs to total costs. For example, DHS noted that the types of assistance provided and the location of the JFO would affect the percentage of administrative costs. DHS also stated that establishing meaningful administrative cost percentage goals will be challenging because of the many factors involved and that a suite of measures to track administrative cost percentages could help ensure more effective and efficient operations. Thus, DHS is pursuing development of such a suite of measures. We agree that a number of factors affect the percentage of administrative costs and that establishing meaningful administrative cost percentage goals can be challenging. In developing a suite of measures, it is important that FEMA’s leadership be able to use them to effectively monitor a disaster declaration’s overall administrative costs in addition to the factors that affect administrative costs. If these measures allow FEMA to monitor overall administrative costs as well as the factors that affect such costs, then development and implementation of such measures should meet the intent of the recommendation.

DHS also provided technical comments, which we incorporated, as appropriate.

We will send copies of this report to the Secretary of Homeland Security, the FEMA Administrator, and appropriate congressional committees. If you or your staffs have any questions about this report, please contact me at (202) 512-8777 or JenkinsWO@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other key contributors to this report are listed in appendix VI.

Appendix I: GAO Analyses of the Number of Disaster Declarations and Amount of Obligations

Disaster declarations can take a decade or more to close because of a number of factors, including the Federal Emergency Management Agency’s (FEMA) reimbursement process for Public Assistance (PA) infrastructure projects, which can take a long time to finish. In addition, some projects are delayed because of disagreements, and sometimes litigation, over the appropriate amount that should be obligated, according to FEMA officials. As shown below in table 9, the oldest open disaster dates back to 1992, making it 20 years old, and only 54 percent of disaster declarations from fiscal year 2001 were closed as of January 31, 2012. All disaster declarations prior to fiscal year 1992 are closed. Table 9 shows the number of major disaster declarations by fiscal year that were open as of January 31, 2012, and the percentage of declarations that have been closed for each year since fiscal year 1992.

Fifty-nine jurisdictions received major disaster declarations during fiscal years 1953 through 2011. Texas had the most, with 86 declarations, while Palau had 1. Wyoming, Utah, and Rhode Island had the fewest declarations for a state, each with 9 declarations. Table 10 identifies the number of disaster declarations for all jurisdictions during fiscal years 1953 through 2011.

The number of major disaster declarations and total obligations varied among FEMA regions during fiscal years 2004 through 2011. For example, FEMA Region X had 32 declarations, while FEMA Region IV had 87. In addition, obligations for FEMA Region VI during this time, which was affected by Hurricane Katrina, reached nearly $40 billion, while FEMA Region X had obligations of $647 million. See figure 10 for more information.

FEMA classifies major disaster declarations by incident type, and these types include floods, tornadoes, and hurricanes, among other types of disasters—both natural and man-made. As shown in table 11, the most frequent type of incident was, according to FEMA data, severe storms, which accounted for 71 percent of the declarations during fiscal years 2004 through 2011.

FEMA obligates funds from the Disaster Relief Fund (DRF) to help jurisdictions respond to and recover from declared disasters. FEMA classifies these funds into five categories: PA, Individual Assistance, Hazard Mitigation, Mission Assignments, and Administration. Table 12 shows the obligations for each category by jurisdiction.

Obligations on a per person basis varied for disasters declared during fiscal years 2004 through 2011. For example, including Hurricane Katrina, Louisiana had the highest per capita obligations at $7,236, but excluding obligations for Hurricane Katrina, American Samoa had the highest obligations at $3,795 per person. For the lowest obligations per person, Colorado had 81 cents and the Marshall Islands had zero. See tables 13 and 14 for obligations on a per person basis for all 58 jurisdictions when including and excluding obligations for Hurricane Katrina, respectively.

Appendix II: Objectives, Scope, and Methodology

This report addresses the following questions: (1) For each fiscal year from 2004 through 2011, how many disaster declaration requests did FEMA receive, how many were approved, for which types of disasters, and how much were the associated obligations from the DRF? (2) What criteria has FEMA used to recommend to the President that a disaster declaration is warranted for PA, and to what extent does FEMA assess whether an effective response to a disaster is beyond the capabilities of state and local governments? (3) How does FEMA determine whether a cost share adjustment recommendation for PA is warranted and how much additional federal assistance did jurisdictions receive during fiscal years 2004 through 2011 because of cost share adjustments? (4) What were FEMA’s administrative cost percentages for disaster declarations during fiscal years 2004 through 2011, how have they changed over time, and what actions is FEMA taking, if any, to reduce the costs of delivering disaster assistance funds?

To determine how many disaster declaration requests FEMA received, how many were approved, for which types of disasters, and how much the associated obligations were from the DRF, we obtained data for each disaster declaration approved during fiscal years 2004 through 2011. We focused on this time frame because it contains the most current data for disaster declarations. It also comprises the time period after FEMA was merged into the newly created DHS, on March 1, 2003, and predates Hurricane Katrina in 2005. We focused primarily on fiscal years 2004 through 2011; however, to provide historical context and to compare results across similar periods, we also reviewed obligations data from fiscal years 1989 through 2011. In addition, to provide further historical perspective, we include information on the number of disaster declarations by jurisdiction from the first presidential disaster declaration in fiscal year 1953 through fiscal year 2011 in appendix I. FEMA provided data to us from its National Emergency Management Information System (NEMIS) and Integrated Financial Management Information System (IFMIS). To determine whether the data were reliable, we reviewed the data that FEMA officials provided and discussed data quality control procedures to ensure the integrity of the data with them. We determined that the data we used from these systems were sufficiently reliable for the purposes of this report.

To determine the criteria that FEMA used to recommend to the President that a disaster declaration was warranted for PA, and to what extent FEMA assessed whether an effective response to a disaster was beyond the capabilities of jurisdictions, such as state and local governments, we examined FEMA policies, regulations, and other documents related to the disaster declarations process. To determine the probability of a disaster declaration request being approved for PA if the Preliminary Damage Assessments (PDA) met or exceeded the PA per capita indicator, we obtained and analyzed data on FEMA’s PDAs from fiscal years 2008 through 2011. For this analysis, we used 4 years of data (fiscal years 2008 through 2011) instead of 8 years of data (fiscal years 2004 through 2011) that we used for other analyses because FEMA did not have data for fiscal years 2004 through 2007 in an electronic format. We believe that our analysis of 4 years of data is sufficient for purposes of this report. Specifically, we analyzed 246 disaster declarations during fiscal years 2008 through 2011, and excluded 293 declarations during fiscal years 2004 through 2007 because FEMA had readily available data only for PDAs for fiscal years 2008 through 2011. For each of the 246 disaster declarations, we reviewed the PDAs to determine whether a state requested PA, whether the President approved it, and the extent to which the PA damage estimate exceeded the PA per capita indicator.

In addition, we conducted an analysis to determine whether disaster declarations from 2004 through 2011 would have met the PA per capita indicator if adjusted for the change in per capita personal income since 1986. Our analysis included FEMA’s projected obligations as of April 30, 2012, for only those 508 disaster declarations that had received PA and had been declared during fiscal years 2004 through 2011. We did not analyze the 31 disaster declarations that only received IA. We analyzed obligations instead of PDA damage estimates for PA because FEMA officials stated that estimating the damage from a disaster is sometimes stopped when the estimate equals or exceeds the PA per capita indicator. Therefore, we concluded that conducting the analysis using projected obligations would be more accurate than using incomplete PDA damage estimates for PA. In addition, we separately analyzed actual obligations for 144 closed disaster declarations because closed declarations would be either complete or very close to being complete. To determine whether the data were reliable, we reviewed the data that FEMA officials provided and discussed data quality control procedures to ensure the integrity of the data with them. We determined that the data we used from PDAs were sufficiently reliable for the purposes of this report.

To determine how FEMA evaluated whether a cost share adjustment recommendation was warranted and how much additional federal assistance states received during fiscal years 2004 through 2011 because of the adjustments, we obtained and reviewed relevant laws, regulations, and policies. We also obtained and analyzed the cost share adjustments and types requested, approved, and denied during fiscal years 2004 through 2011. In addition, we interviewed FEMA officials who process cost share adjustment requests and participate in making recommendations to the President as to whether the requests should be approved or denied. We also reviewed internal control standards for the federal government related to ensuring management directives are carried out and that actions are taken to address risks. To determine whether the data were reliable, we reviewed the data that FEMA officials provided and discussed data quality control procedures to ensure the integrity of the data with them. We determined that the cost share adjustment data were sufficiently reliable for the purposes of this report.

To determine FEMA’s administrative cost percentages for disaster declarations, we obtained DRF actual obligations, projected obligations, and related data for all 1,221 disaster declarations from fiscal years 1989 through 2011. While the focus of our objective was fiscal years 2004 through 2011, we obtained obligations data back to fiscal year 1989 to assess potential trends over time because FEMA only maintains obligations data since then. To assess FEMA’s current practices, we compared FEMA’s administrative cost percentages for disaster declarations during fiscal years 2004 through 2011 with FEMA’s target ranges for administrative cost percentages. To identify potential trends over time, we compared FEMA’s administrative cost percentages during fiscal years 1989 through 2003 with FEMA’s administrative cost percentages during fiscal years 2004 through 2011 and with FEMA’s target ranges. According to FEMA officials, administrative costs are typically higher in the early months of a declaration, typically decreasing as the declaration matures (that is, as labor-intensive response activities decline). In order to ensure the results of both analyses were not skewed by declarations that had not yet matured and whose administrative costs were high, we analyzed actual administrative costs for disaster declarations that were closed as of April 30, 2012. For declarations that were still open as of April 30, 2012, we analyzed actual obligations as of April 30, 2012, plus the amount that FEMA projected to obligate in the future until the declarations are eventually closed. To determine whether the data were reliable, we reviewed the data that FEMA officials provided and discussed data quality control procedures to ensure the integrity of the data with them. We determined that the DRF data were sufficiently reliable for the purposes of this report. To determine what actions FEMA is taking, if any, to reduce the costs of delivering disaster assistance, we interviewed FEMA officials and reviewed relevant policies, documents, and briefings.

In addition to conducting interviews with officials in FEMA headquarters for all four objectives, we conducted site visits to two FEMA regions— Regions IV and VI, which had the highest total obligations during fiscal years 2004 through 2011. The regional administrative offices were located in Atlanta, Georgia, and Denton, Texas, respectively. At each region, we interviewed the Regional or Deputy Administrator and various other personnel. In addition, we visited the emergency management agencies for Georgia and Oklahoma—one state within each of the two FEMA regions. We selected the two state emergency management agencies—Georgia and Oklahoma—based on their respective proximity to FEMA’s regional offices, their high level of experience with disasters, and their availability for a visit during September 2011. We wanted to avoid states that were actively responding to a disaster during that time. While the information we obtained on these site visits is not generalizable, the visits provided important insights into the disaster declaration process.

We conducted this performance audit from July 2011 through September 2012 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.

Appendix III: Total Public Assistance Indicator Amount for Fiscal Year 2012, by Jurisdiction

FEMA uses a PA per capita indicator to help determine a jurisdiction’s need for federal assistance in the wake of a disaster. Table 15 shows how the indicator is calculated for each jurisdiction. FEMA multiplies the 2010 population for each jurisdiction by the PA per capita indicator for the fiscal year in which the disaster occurs. In fiscal year 2012, the PA per capita indicator is $1.35. The results of these calculations are the total indicator amounts in table 15. If the PA damage estimate exceeds the total indicator amount, a jurisdiction is likely to receive a major disaster declaration.

Appendix IV: Description of Three Approaches to Measure a Jurisdiction’s Fiscal Capacity

The Stafford Act requires that a governor’s request for a major disaster declaration be based on a finding that the disaster is of such severity and magnitude that an effective response is beyond the capabilities of the jurisdiction and that federal assistance is necessary. In the wake of a disaster, FEMA prepares dollar estimates of the damage to public infrastructure incurred in an area that would be eligible for federal assistance under a federal major disaster declaration. Currently the key metric for determining eligibility for federal disaster assistance is a “per capita indicator,” which, since 1999, has been adjusted annually for inflation. For 2012, the indicator is $1.35 per capita (that is, total estimated damages eligible for federal PA divided by the jurisdiction’s population equals $1.35 or more). Damage estimates in excess of this number typically result in FEMA recommending that the President issue a major disaster declaration, which makes jurisdictions eligible for federal reimbursement of at least 75 percent of certain repair and replacement costs. The per capita indicator FEMA currently uses is not a measure of a jurisdiction’s fiscal capacity to address the damages caused by a disaster. Rather, there is an assumption that generally jurisdictions are unable without federal major disaster assistance to rectify damages that equal or exceed $1.35 per capita.

Jurisdictions’ abilities to finance their own disaster relief and recovery vary with their fiscal capacity, among other factors. A jurisdiction’s fiscal capacity is defined as the ability of a government to raise revenue from its own sources, by taxes, license fees, user charges, and public enterprises, among other devices. Fiscal capacity is usually expressed as a percentage of the national average for the 50 states plus the District of Columbia, in the form of an index number. For example, if a jurisdiction’s capacity is equal to 100 percent or 90 percent of the national average, its index number would be 100 or 90, respectively. In general, the ability of jurisdictions to pay for public services increases with the size of their economies. The simplest application of fiscal capacity criteria to disaster assistance is an adjustment of the per capita indicator for every jurisdiction. “Richer” jurisdictions—those above the national average— would have a higher level, reflecting their greater ability to pay, while “poorer” jurisdictions would have a lower level. The fiscal capacity index could be converted into a percentage (for instance, 110 = 110 percent or 90 = 90 percent) and applied to each jurisdiction’s per capita indicator ($1.35 times the population) to get an adjusted indicator. For example, a jurisdiction with a population of 10 million would have a per capita indicator of $13.5 million dollars ($1.35 times its 10 million population). If the jurisdiction’s capacity index was 100 percent, its capacity threshold would be the same as the current indicator—$13.5 million. However, if the jurisdiction’s fiscal capacity index was 110 (indicating a fiscal capacity index 10 percent above the national average), its damage threshold would be $14.85 million—$13.5 million plus 10 percent of $13.5 million. The variation in the results could be narrowed, if desired, by setting upper and lower limits to the adjustments, among other possible methods. However, adjusting the per capita indicator according to a jurisdiction’s fiscal capacity would not necessarily reduce total federal spending. It is possible that disaster assistance adjusted by fiscal capacity, and focused on jurisdictions with below-average fiscal capacity, could increase total federal spending. How total annual spending is affected would depend on the specific disasters taking place for that year, as well as the affected jurisdictions.

In addition to the theoretical aspects of comparing and contrasting various measurements of fiscal capacity, there are other matters to consider. Specifically, there are certain attributes that are desirable in a fiscal capacity measure. These attributes could help FEMA determine the extent to which the agency could use measurements of jurisdiction fiscal capacity when determining a jurisdiction’s eligibility for federal assistance. These attributes include the following: Simple and easy to calculate: For political acceptance and analytical ease, the methodology of measurement should be as simple as possible. For practicality and transparency, a measure should be easy and inexpensive to calculate.

Convenient, available, and timely: Ideally the data for a measure would be routinely collected, checked, and published by a government agency on a timely basis. For example, the measurement should be possible on an annual basis with as little a time lag as possible, in order to provide the most timely indicator of jurisdictions’ capacities.

Comprehensive: A measure should be comprehensive with respect to the implementation of its approach. Incompleteness could bias results.

Analytically sound: The principal analytical choice in capacity measurement is between economic measures that aim for comprehensive measurement free of double-counting, and tax base measures that in some way take account of governments’ choices in how to tax. There is debate among economists as to which type of measurement (economic or tax base) is more analytically sound.

Does not affect or is not affected by any individual jurisdiction’s fiscal choices: Capacity measures should not be affected by or affect a jurisdiction’s actual fiscal choices, in terms of what to tax, how to tax, or how much to tax. In principle a government’s fiscal behavior could affect its own tax bases. No capacity measure makes any adjustments based on the impact of taxes on a state’s economy because of the extreme difficulty of arriving at a simple method of making such adjustment that would earn political consensus.

Fiscal Capacity Measurements

The three fiscal capacity measures discussed below provide various methods that can be used to determine a jurisdiction’s fiscal capacity. Each of these measures has benefits and potential shortcomings regarding the extent to which they measure a jurisdiction’s fiscal capacity.

State personal income (PCI): As a measurement of a jurisdiction’s fiscal capacity, state personal income is simple, available, and timely. The personal income of all residents of a jurisdiction consists of labor earnings, proprietors’ and partnership income, rent, interest, dividends, and transfers (public cash benefits). It is the most commonly used measure in the United States for federal grants. PCI is simple and familiar to most people, and it is routinely calculated and published by the federal government on a jurisdiction-by-jurisdiction basis. More local measures of personal income are less comprehensive, for lack of data. Some jurisdictions may choose to tax only part of income, or not to tax it at all.

PCI aims to be a comprehensive measure of residents’ personal income, without regard to how they are taxed.

PCI is not a comprehensive measure of a jurisdiction’s fiscal capacity and is affected by a jurisdiction’s fiscal choices. The principal shortcoming of PCI is its failure to reflect a jurisdiction’s ability to raise tax revenue from nonresidents, also known as tax exporting. For example, a jurisdiction government may tax nonresident commuters, property owners, shoppers, and tourists. The ability to export taxes varies sharply across jurisdictions. Also, data on one component of personal income, accrued capital gains, is not available. More generally, changes in asset values are not captured in any fiscal capacity measures, because of lack of data. Another missing element in PCI is the net income of a jurisdiction’s government enterprises. An example is state-owned liquor stores, whose profits never pass through private hands. Another example is royalties paid to governments by extractive industries, such as oil, gas, and uranium. These scenarios amount to income received by a jurisdiction’s residents, through their government. In one state (Alaska), a share of such revenue—a “bonus” payment—is paid directly to state residents, which would appear as part of PCI. To a limited extent, PCI is biased to the extent to which a jurisdiction government finances transfer payments with taxes on income, since this income is counted twice, once by source and the second time by receipt.

Gross state product (GSP): As a measure of a jurisdiction’s fiscal capacity, GSP is simple, available, timely, and not affected by a jurisdiction’s fiscal choices. Also called gross domestic product by state, GSP consists of all income “produced” in a state. It includes labor earnings of those who work in a jurisdiction, irrespective of their residence, the net income of business firms operating in a jurisdiction, indirect business taxes paid to the governments of the jurisdiction, and the output of the public sector (in national income accounting, government output is valued at cost). GSP partially captures the ability of a jurisdiction to export taxes, since it includes income received by nonresidents and by the residents’ own governments directly. As with PCI, with the benefit of government publication, the data are available on a timely basis and are easily converted into a fiscal capacity index. It is less affected by a jurisdiction’s fiscal choices than PCI because it does not double-count income.

Similar to PCI, GSP is not a comprehensive measure of a jurisdiction’s fiscal capacity. More specifically, PCI includes income received by a jurisdiction’s residents, but not income generated in a jurisdiction but received by nonresidents. GSP does not include income received by a jurisdiction’s residents that originates elsewhere.

Total taxable resources (TTR): As a measure of a jurisdiction’s fiscal capacity, TTR is comprehensive, available, and not affected by jurisdictions’ fiscal choices. According to the Department of the Treasury (Treasury), the object of TTR is to capture the unduplicated sum of PCI and GSP that is susceptible to taxation by a jurisdiction’s government. By this means the entirety of income potentially exposed to taxation is measured. In practice the calculation is relatively simple. A jurisdiction’s GSP is supplemented with income received by jurisdiction residents that originated in other jurisdictions. This would include the labor earnings of residents who commute to jobs in other jurisdictions, and the capital income (mainly interest, dividends, rent, and capital gains) of all jurisdiction residents due to asset holdings in other jurisdictions. It excludes indirect business taxes paid to the federal government (such as the payroll tax and federal excises). TTR is used in two grant programs— the Department of Health and Human Services’ Substance Abuse and Mental Health Services Administration’s block grant program and Community Mental Health Service—and is calculated by Treasury.

TTR is a complex measure of a jurisdiction’s fiscal capacity and is not as timely as other measures. A crude measure of TTR is obtained by simply averaging a jurisdiction’s PCI and GSP. This was done for official TTR estimates between 1992 and 1997. Subsequently the calculations were based more closely on the original conceptual framework for TTR. At present there is a 2-year lag in the publication of TTR estimates by Treasury. As of May of 2012, the most recent year available is 2009. The primary reason for the delay in publishing TTR estimates is the need to wait for federal excise tax revenues and nontax liabilities, and federal civilian enterprise surpluses, to become available. These data are provided to Treasury in August or September for the year ending 20 months prior. According to the Chief of the Regional Product Branch, Regional Product Division, at the Bureau of Economic Analysis, it could be possible to speed up the availability of TTR by 2 or 3 months. In addition, TTR is less transparent than PCI or GSP. It relies on approximations of capital income (dividends, interest, and rent), since such quantities are not reported by place of origination. It does not discriminate among income flows according to the degree of susceptibility to taxation.

Examples of Fiscal Measures Applied to the Per Capita Indicator

Each of these three measures of a jurisdiction’s fiscal capacity to respond to and recover from a disaster without federal assistance has its limitations and can affect each jurisdiction somewhat differently, compared with using the current $1.35 per capita damage estimate indicator. FEMA’s current per capita indicator is simple and easy to understand, but it is not a measure of a jurisdiction’s fiscal capacity. Nor does FEMA have a useful measure of a jurisdiction’s response capabilities. All current measures of those capabilities are jurisdictions’ self-reported data without reference to common metrics for assessing capability. Because FEMA’s per capita indicator does not comprehensively assess a jurisdiction’s response and recovery capabilities, including a jurisdiction’s fiscal capacity, some combination of these measures could provide a more robust and useful assessment of a jurisdiction’s capability to respond to and recover from a disaster without federal assistance, or with minimal federal assistance. This could include exploring the usefulness of supplementing the current damage indicator (which does not fully reflect changes in inflation since its adoption in 1986) with other measures of a jurisdiction’s fiscal capacity and response capability.

For example, one potential alternative methodology could involve adjusting the per capita indicator for each jurisdiction based on a measure of jurisdiction fiscal capacity. If FEMA were to adjust the PA indicator for inflation, the adjusted PA indicator for fiscal year 2011 would be $2.07. Beginning with the adjusted PA indicator of $2.07, each jurisdiction’s PA indicator could then be adjusted based on that jurisdiction’s fiscal capacity. For example, if the $2.07 base were adjusted for “jurisdiction A,” which has a 2009 TTR index of 71.8, jurisdiction A’s PA indicator would be $1.49. If the $2.07 base were adjusted for “jurisdiction B’s” 2009 TTR index of 149, jurisdiction B’s PA indicator would be $3.08 (see table16). The variation in jurisdiction A’s $1.49 indicator and jurisdiction B’s $3.08 indicator represents the difference in the two jurisdiction’s fiscal capacities in accordance with each jurisdiction’s TTR. In making any changes or enhancements to the methods used to assess a jurisdiction’s fiscal capacity, policymakers would need to consider the relative priority of key attributes, as previously discussed, and the benefits and costs of developing and implementing such changes.

Appendix V: Comments from the Department of Homeland Security

Appendix VI: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Leyla Kazaz (Assistant Director), David Alexander, Lydia Araya, Peter DelToro, Joseph E. Dewechter, Jeffrey Fiore, Carol Henn, R. Denton Herring, Tracey King, Linda Miller, Max Sawicky, and Jim Ungvarsky made key contributions to this report.