Can a disaster deductible for FEMA’s public assistance program reduce federal expenditures and incentivize greater investments in risk reduction by states and local governments?
- The number of declarations authorizing Public Assistance (PA) grants to states has been increasing over the last several decades, but annual PA spending has not.
- PA spending after major disaster declarations totaled $82 billion from August 1998 to October 2015. Three events account for over half: Hurricane Katrina (over 25 percent of the total), Hurricane Sandy (18.5 percent), and the 9/11 attacks (9.4 percent).
- Over that period, the average spending on PA per declaration was $87.5 million. Excluding Katrina and Sandy, the average drops to $50 million. The median over the period was just under $9.75 million; it is similar excluding Katrina and Sandy.
- A disaster deductible would reduce PA spending by a small percentage while eliminating a much larger share of declarations. A deductible would thus save on administrative costs, by reudcing the number of declarations.
- At present, there is insufficient information about the deductible to evaluate whether it would incentivize mitigation by state and local governments. The incentive effect of the deductible will depend critically on how it is designed.