As disasters and COVID-19 combine to hit budgets, policymakers can seize the moment

In a year in which the COVID-19 pandemic is disrupting public budgets, another important story needs to be told: one about the record-breaking natural disasters that are devastating communities, costing American families and businesses billions of dollars, adding to the pandemic’s strain on state and local governments. 

Across the U.S., and particularly in western states, more than 48,000 wildfires have burned over 8.6 million acres, surpassing the 10-year average acreage burned by over 33 percent. Meanwhile, a succession of 28 tropical storms, 12 of which became hurricanes, have battered the East Coast and the Gulf of Mexico, leaving major destruction in their wake. And these are just the headline-grabbing examples of natural disasters in 2020: There have been many other instances of flooding, storm damage, and fires for which most or all of the news coverage is local, federal aid is nonexistent, and — crucially — state and local governments are picking up the tab. 

Of course, as with almost every aspect of public and private life in 2020, the pandemic complicates the disaster picture. In addition to wreaking havoc on public budgets through a slowing economy and reduced tax revenue, COVID-19 makes post-disaster evacuations and sheltering plans more difficult, adding to the fiscal distress.

The twin fiscal challenges of the pandemic and natural disasters add to the stress that’s been building between the federal government and state and local leaders for years, especially around recovery costs and how to mitigate the impact of future disasters.

The tension includes concern from Congress, the Federal Emergency Management Agency, and the Government Accountability Office that federal disaster spending is rising too quickly (with expenditures of $460 billion from 2005 to 2019) and that other levels of government must either pay more or do more to lower their exposure to the risks of costly disasters. State and local leaders have argued that they don’t have the resources to do so. Unfortunately, there is not enough information about the complex spending and budgeting that different levels of government currently undertake to ground this debate in solid evidence and data. 

That’s why policymakers ask themselves this: How do we deal with the rising cost of disasters in the face of our current fiscal realities — and what needs to change? Although there’s no easy answer, research from The Pew Charitable Trusts shows that there are three steps they can take on disaster spending to put the country on a more sustainable path. 

First, policymakers at all levels of government should improve how disaster expenditures are tracked. With spending happening across more than a dozen departments and agencies—and at all levels of government — it’s difficult to get a complete picture of where taxpayer dollars are going. This is particularly true at the state level, where Pew research has found great variability in how much states spend and what they spend it on when it comes to disasters. Some states, such as Ohio, have put systems to capture these expenditures better, providing improved transparency. Other states should follow suit; federal policymakers should consider how they can encourage this tracking.

Second, policymakers should evaluate the tools states use to ensure funding is available when a disaster strikes. Unlike the federal government, which can run up deficits to provide supplemental disaster assistance, most states must balance their revenue and expenditures each budget cycle. Pew analyzed five common tools that states use and found that some of the five are pre-emptive, allowing states to put money aside ahead of time, including in a statewide disaster account.

Others are responsive, with states moving existing funds around to meet emerging needs. Although all 50 states and Washington, D.C., use at least three of the five tools, how the tools work in practice varies widely — allowing states to learn from one another as they decide whether their current approach meets the challenge of rising costs — including costs that the federal government, as it attempts to control the impact on the nation’s budget of disaster spending, has indicated it no longer wants to bear. The differences in how the tools work also provide valuable information to federal policymakers looking to incentivize — or discourage — how states manage their disaster spending.

And third, as policymakers at all levels determine the full universe of their resources, they should make a concerted effort to invest in pre-disaster mitigation—such as earthquake retrofits or buying flood-prone properties—which can reduce the cost of disasters. Research shows that every federal dollar spent on mitigation can save $6 in post-disaster recovery costs. Pew’s state-by-state analysis indicated that although these savings vary by state, even the lowest return is more than threefold.

In recognition of these mitigation investments’ high value, the federal government is seeking applications for its revamped Building Resilient Infrastructure and Communities program, which will provide up to $500 million to state and local governments, tribes and territories for mitigation projects in the fiscal year 2020. And there are actions that state and local leaders can take to encourage cost savings independently through direct funding, such as establishing revolving loan funds or changing building codes.

The many challenges facing state, federal, and local policymakers today should not be underestimated. But as disasters continue to strike and as new budget realities emerge because of COVID-19, these decision-makers can seize the opportunity to take full stock of disaster spending, determine if their current approaches to budgeting work, and look for opportunities to reduce future costs. In an era of extreme and frequent disasters, doing so is not just good fiscal practice: It’s an investment in the country’s future.

Anne Stauffer is a director and Colin Foard is a manager with The Pew Charitable Trusts’ fiscal federalism initiative.