State Budgets Strained by Natural Disaster Costs

By CHRISTINA A. CASSIDY and BOB SALSBERG | September 19, 2017

A summer of natural catastrophes, from epic hurricanes to scorching wildfires, has exposed another peril in disaster-prone states: How to pay for the rescues, repairs and rebuilding.

The combined tab from Hurricanes Harvey and Irma is expected to hit $200 billion or more. While the federal government is expected to pay most of that, the affected state and local governments have to start paying for recovery now and eventually could be on the hook for tens of millions of dollars or more.

States vary on how prepared they are to weather such costs. Florida and South Carolina, both hit by Hurricane Irma, are among the dozen or so states that do not have dedicated disaster funds and opt to cover the expenses after the fact, potentially by dipping into reserves or shifting money from other state agencies.

Experts say such pay-as-you-go disaster funding can be risky. Add an economic downturn when reserves are low and budgets are tight, and state and local officials could easily find themselves struggling to pay for recovery and rebuilding.

“Thankfully, our economy is in pretty good shape right now,” said state Rep. Terry England, chairman of the House budget committee in Georgia, where all 159 counties reported damage from Hurricane Irma. “If this had hit in 2010 or 2011, it might have been a little bit different.”

Georgia is one of the states better prepared financially to handle the unexpected costs of a disaster. It has a dedicated emergency fund with roughly $20 million available annually and a rainy day fund with approximately $2.4 billion, England said.

Texas, hit hard by Hurricane Harvey last month, has the largest rainy day fund of any state – $10 billion – but state officials are keeping that as a last resort. Gov. Greg Abbott has said he wants to consider what other funding might be available first. That could include tapping into money already allocated to state agencies.

Others in Texas, including Lt. Gov. Dan Patrick, have advocated for tapping into reserves now.

“If this isn’t a rainy day, I don’t know what is,” Patrick said last week.

All but a handful of states maintain so-called rainy day accounts, but in most cases “rainy day” is a misnomer: The money is typically used to get through economic downturns rather than responding to natural disasters. States tapped, and in many cases depleted, their rainy day funds to avoid massive cuts and maintain critical services after tax revenue plummeted during the recession.

Several states have struggled to rebuild their savings since then because tax revenue hasn’t rebounded enough to provide a cushion. In all, 33 states reported tax revenue coming in below forecast last year.

New Jersey’s rainy day fund has been empty since 2009. Pennsylvania’s is so small it would barely fund government operations for two hours, according to a recent study by the Pew Charitable Trusts.

In addition to budget reserves, 28 states have established special funds to help residents and businesses after a disaster. The downside: Several are not currently funded, according to the National Emergency Management Association.

Even putting money into a dedicated disaster fund may not be enough.

In Montana, the state faces the prospect of budget cuts amid a devastating wildfire season.

The state set aside about $30 million in a special fund for fighting wildfires, but the cost has far eclipsed that amount. It has spent more than $50 million on fire suppression since the beginning of July.

At a time when tax revenue is down, the state has depleted its reserves and emergency funds, and plans to cut programs and services to fill a projected $227 million budget shortfall.

The Montana Department of Public Health and Human Services, which includes programs such as senior and long-term care and child protection services, needs to trim $105 million over the next two years. The state university system must identify $44 million in spending cuts after previous budget shortfalls led to tuition increases.

California has already burned through more than half the $427 million it set aside in its Emergency Wildfire Suppression Fund, with Southern California’s fearsome Santa Ana wind season looming. Even if that fund runs dry, the state will tap other sources, said H.D. Palmer, spokesman for the state Department of Finance.

“There has never been a situation when the state’s finances would be an impediment to deploying crews and materials to knock down a fire as soon as possible to save lives and property,” he said.

While the federal government spends tens of billions to help communities recover, the assistance is not guaranteed and the amounts generally cover only a share of the recovery costs – up to 75 percent.

The federal share also might be changing.

President Donald Trump’s budget proposal calls for cutting billions of dollars from agencies involved in disaster management. At the Federal Emergency Management Agency, Trump has proposed cutting the disaster relief budget by $667 million, targeting grants that help state and local governments prepare for natural disasters.

In addition, FEMA is considering a change to how it reimburses states for disaster costs. It would require them to pay a predetermined amount before the federal government would provide money to repair or replace damaged infrastructure.

The main challenge, experts say, is for state and local officials to set aside money ahead of time.

“It’s very difficult for elected officials to pay attention to disaster funding when the sun is shining and the sky is blue,” said Trina Sheets, executive director of the National Emergency Management Association.

(Salsberg reported from Boston. Associated Press writers Gary Fineout in Tallahassee, Florida; Matt Volz in Helena, Montana; and Paul J. Weber in Austin, Texas, contributed to this report.)

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