New Rule Slashes FEMA Disaster Funds for States, Critics Say

In October 2007, an innocuous-sounding item was published in the Federal Register and implemented after a 30-day comment period. The notice was a ruling that the Federal Emergency Management Agency (FEMA) was changing how it reimburses states for management costs associated with disaster declarations - abandoning a sliding scale in favor of a 3.34 percent flat rate all funds allocated to handle a disaster.

Although the change to the management costs provisions of the Robert T. Stafford Disaster Relief and Emergency Assistance Act hasn't had widespread impact yet, state emergency management officials are alarmed by what they see as an effort to shift more costs to the states.

"This is the No. 1 regulatory issue in emergency management right now," said Kristin Robinson, government relations director of the National Emergency Management Association (NEMA). "This is the heart attack issue."
State emergency management officials argue the rule slashes funding FEMA disburses to states through its Public Assistance Grants Program , which is allocated for infrastructure such as roads, government buildings, debris removal, overtime for first responders and sandbagging. FEMA's James McIntyre, acting press secretary, said the rule change won't impact how state and local agencies manage disasters.

Last year, NEMA surveyed its members and found the average administrative and management costs for the Public Assistance and Hazard Mitigation grant programs was 6.21 percent, which is 2.87 percent more than FEMA will pay under the new rule.

Robinson said FEMA based its percentage rate on historical payment data between August 1998 and July 2004, but those figures didn't include several major hurricanes that occurred later in 2004 and would have pushed the figure much higher. "Why they did that is the million-dollar question," she said. "We have tried to engage FEMA in dialog and debate about this and have not been successful."

John R. Gibb, director of the New York State Emergency Management Office, called the issue a huge concern. "As the Stafford Act has evolved, we've seen the necessity of states taking an active leadership role to help local communities that are dealing with damage during a disaster," he said. That requires state or contract personnel to do initial damage assessments and develop project worksheets. "Always in the past, we could recoup eligible costs from FEMA," Gibb said, "but this rule rolls back paying for that."

Pitting States Against Locals
New York's last disaster declaration was in August 2007, so the rule hasn't impacted the Empire State yet. But Gibb's office has reviewed New York's last nine disaster declarations and compared the federal funding for management costs it received to what it would have received at the new 3.34 percent flat rate. "The difference was $33 million," Gibb said. "This is also going to pit states against local governments because those funds are normally split with subgrantees."

Doug Hoell, director of North Carolina's Division of Emergency Management, did similar cost studies. "We compared this to several large disasters we have had over the last several years, such as Hurricane Floyd, and it always comes out we'd get considerably less than using the sliding scale," he said. At a time when states and local governments face tighter budgets, it's an issue for all states, Hoell said.

Gibb believes flexibility was the key to previous Stafford Act declarations. His office would meet with a federal coordinating officer, look at the disaster's scope and discuss the necessary state administrative costs. "We might need a certain number of retired or contract employees to go out into communities and help. And we would reach an agreement with that federal coordinating officer," he said. "Now that flexibility is gone and we think there won't be enough to meet the needs." Although he admits the funding change is a complex, "wonkish" issue, Gibb believes it's an important topic to discuss with FEMA and Congress because of the potential to impact disaster victims' lives.

Tough Choices in Arkansas
David Maxwell can't yet determine what effect the rule change will have on Arkansas, which was hit by tornadoes, floods and windstorms in spring 2008. By April, President George W. Bush had declared half of Arkansas' counties federal disaster areas. Maxwell, director of the Arkansas Department of Emergency Management, said the rule change has impacted his decision-making process.

He said a disaster may be in the news for only a few days or a week, but solving the problems associated with it can take eight months to a year. "We have to make sure we manage the public assistance staff and resources so the funding will last until the project is closed," he said. "That requires us to make tough decisions if there is less money available. If we asked for EMAC [Emergency Management Assistance Compact], it would come out of that management cost funding."

NEMA's Robinson said damage to EMACs, which are mutual aid pacts between states, could be an unintentional consequence of the new funding rule. EMACs can be the timeliest deployment in an emergency, but they are expensive because states are often paying first responders overtime. Facing reduced funding, states may hesitate to call on those additional resources. With some states in poor fiscal condition now, Robinson said, "If they can't afford to manage their own disaster, the disaster victims are the ones who are going to get hurt."

In an e-mail response to an interview request, FEMA press officials acknowledged that some states believe the rule change impacts their ability to ask one another for mutual aid assistance. But the officials noted EMAC costs eligible for FEMA assistance are addressed in a different Disaster Assistance Policy that's unaffected by the rule change.

FEMA officials also stressed that management charges tied directly to individual projects can be itemized with those projects and aren't included in the 3.34 percent.

"The problem with that is most management functions are hard to tie to specific projects," said Drew Sachs, vice president of crisis and consequence management for consultancy James Lee Witt Associates, a part of GlobalOptions Group. "For instance, in New Orleans, you might make management decisions that touch on 100 separate projects each month. This would require a contractor to fill out 100 separate forms each month and the state to review 100 separate invoices, to pass along to FEMA to also review. Louisiana has already said its financial system is incapable of handling this type of system."

Get Out of the Way
In a May 2008 speech, Sachs' boss - former FEMA director James Lee Witt - suggested several changes to the Stafford Act to provide more help to states coping with catastrophic incidents, such as Hurricane Katrina. First, Witt proposed there should be a clear definition of a catastrophic event, after which cost sharing is adjusted, timelines are extended and funding caps disappear. Second, he proposed that the federal government provide states with block grants to manage disasters and to cut down on bureaucracy and red tape.

"FEMA needs to focus on that first six to nine months in big events and then get out of the way," Sachs said. "Their response to Katrina is going to take 15 years. They should save their resources for truly catastrophic events when states can't do it themselves. But for situations states can handle, let them do it and audit them."

Emergency management directors realize that for the time being, they will have to cope with the new rule. "FEMA asked for comments on this, and then it chose to ignore them," Sachs said. "Now the rule is in place, and the assumption is that states will just have to deal with it going forward, at least until there is a change in administration."

Arkansas' Maxwell said he doesn't think FEMA officials understood the impact of the change when they made it. "I told [FEMA Administrator David] Paulison how much I disagreed with this change and that I thought it would impact the whole system," he said. "Once you screw up one part of a system, it can affect the whole thing. This is extremely shortsighted."