What Is the Disaster Relief Fund?

Climate and weather-related natural disasters are becoming increasingly frequent. In addition to endangering lives, they are economically costly. Since 2010, damages from climate and weather disasters have averaged $80.7 billion per year — a 56 percent increase from the prior decade and a near-tripling of the cost in the 1990s. The number of disasters that cause significant damages (those that cost at least $1 billion, adjusted for inflation) have also risen from about five events per year in the 1990s to nearly 12 events per year in the 2010s.

In the event of a disaster, state and local governments are the initial sources of response and recovery. The federal government provides additional support to their disaster relief efforts through various agencies and departments; the Federal Emergency Management Agency (FEMA) plays a predominant role and gives financial assistance to local relief activities through its Disaster Relief Fund (DRF). As severe storms become more common due to climate change, there will be an increase in the need for federal resources — which are also used to address other forms of emergencies, including earthquakes, chemical spills, mass violence, and pandemics.

In March, the Coronavirus Aid, Relief and Economic Security (CARES) Act provided $45 billion to the DRF to address costs resulting from the coronavirus (COVID-19) pandemic. As of July 31, 2020, FEMA had spent about $8 billion for COVID-19-related activities. On August 8, the president issued an executive order to provide up to $44 billion of the remaining $74 billion of DRF funds to supplement unemployment benefits provided by states to those who have lost jobs or wages as a result of the pandemic — a type of activity not normally funded by the DRF. Such spending, in addition to responding to the damages caused by natural disasters, contributes to the growing role of the federal government in providing disaster relief.

Below, we provide an overview of how federal disaster assistance works and what role the Disaster Relief Fund plays in federal disaster spending.

How is Disaster Response Structured?

When a disaster or emergency occurs, the local government has the primary responsibility of overseeing the response and recovery operations. They use their own funds and assets to provide initial emergency response services, such as activating fire and police units and rescue workers as well as providing shelters and medical care. If the situation is beyond the capabilities of the local government, the state government may step in to provide additional assistance. Multiple local governments may request assistance from the state government simultaneously, and the governor may declare a state of emergency as the situation warrants.

If a disaster is of such severity and magnitude that it exceeds the combined local and state capacity to address the emergency, the state government can request a presidential disaster declaration, which releases federal resources to support disaster relief and recovery efforts. Only uninsured losses or expenses are eligible for federal aid, and state and local governments are expected to contribute funds to the relief efforts. Cost-sharing requirements vary by the type of assistance provided.

Upon approval of a major disaster declaration, the federal government can activate dozens of its agencies and departments to provide monetary assistance and/or deploy federal personnel and resources. FEMA is the main agency responsible for activating, implementing and coordinating federal disaster efforts. Other federal agencies such as the Department of Housing and Urban Development, the Department of Agriculture, the Department of Transportation, and the Small Business Administration may also provide assistance under certain circumstances.

The federal government provides assistance for a wide variety of disasters and emergencies. While the vast majority of federal resources goes to preparing for and responding to natural disasters, such as hurricanes and earthquakes, funds have occasionally been used for other types of emergencies like man-made disasters and biological hazards. For example, the federal government authorized nearly $20 billion through four different agencies in response to the September 11 terrorist attacks.

Disaster management extends well beyond the response to the immediate aftermath of a disaster. All levels of government are involved in all phases of the disaster, including mitigation, preparedness, response, and recovery. During times of non-emergency, governments invest in a variety of activities including disaster planning and training, evaluation of hazards, and long-term recovery programs.

How Does Federal Government Fund Disaster Relief?

The federal government provides disaster relief through nearly 20 different agencies and departments. Each agency funds its own disaster-related programs from its appropriated budget amount, which may be supplemented with additional appropriations throughout the year.

FEMA, housed under the Department of Homeland Security, is the primary agency responsible for general disaster assistance and receives the largest amount of money for financing federal disaster relief activities through its Disaster Relief Fund. Other agencies and departments coordinate responses to disasters that target specific populations.

The DRF accounted for 42 percent of all federal disaster relief funding in 2017, the costliest year on record due to wildfires in California and an active hurricane season. In the same year, the Department of Housing and Urban Development received the second largest amount, which was used to provide grants to states and cities for rebuilding infrastructures and houses.

• Public Assistance: The Public Assistance program provides financial aid to state and local governments and certain types of nonprofit organizations to help cover costs for debris removal, emergency protective measures, and restoration of public infrastructure.
• Hazard Mitigation: Through the Hazard Mitigation Grants program, FEMA assists state and local governments in implementing long-term measures that will reduce damage to facilities from potential disasters.
• Fire Management Assistance: The Fire Management Assistance program provides financial assistance to state and local governments to control forest fires that could lead to a major disaster.
• Individual Assistance: The Individual Assistance program provides funds directly to individuals impacted by disasters to help pay for temporary housing, medical costs, and other essential expenses.
• Mission Assignment: DRF funds may be used to reimburse federal agencies summoned by FEMA to assist in the relief efforts.
• Administration: A portion of the DRF Funds is reserved for covering administrative costs, including salaries and equipment.

Between fiscal years 2005 and 2014, nearly three-quarters of the DRF was used to fund grants and other direct financial assistance to state and local governments and individuals.

Where Does the Disaster Relief Fund Get its Funding?

The Disaster Relief Fund is funded through the appropriation process as a part of FEMA’s budget. Any unused balance is carried over to the next fiscal year. In the event of a major disaster, Congress is likely to provide supplemental funding if the DRF’s balance and current funding are not sufficient to cover costs in a given year.

While annual appropriations help the government to budget for costs in advance, supplemental appropriations enable Congress to address unanticipated needs on an ad hoc basis. Since fiscal year 1964, about 72 percent of all appropriations for the DRF has been provided through supplemental appropriations.

How Has COVID-19 Impacted the Disaster Relief Fund?

The coronavirus has significantly strained the budgets of state and local governments as response efforts consume a considerable amount of resources and as the economic downturn greatly reduces tax revenues. With state and local capacities overwhelmed, the federal government and the DRF are providing funding.

State, territorial, tribal and local governments — as the first responders — employ various mechanisms to fund their disaster relief, such as disaster accounts and rainy day funds (which help prepare for unanticipated spending in advance), and supplemental appropriations and transfer authority (which enable them to respond to disasters on a case-by-case basis). However, the ongoing COVID-19 public health emergency has already exhausted many state and local reserves. Without substantial federal assistance, resources available for future disasters and emergencies may be insufficient.

Since the onset of the pandemic, the federal government has taken various measures to assist state and local governments. The $45 billion provided to the DRF in the CARES Act more than doubled the fund’s annual appropriation. To date, approximately $8 billion has been disbursed for pandemic relief efforts. Prior to the president’s executive action to use the DRF balance to extend additional unemployment assistance, FEMA projected that the fund would end the 2020 fiscal year with $68 billion in unspent funds.

FEMA Disaster Spending and the Federal Budget

Overall, the DRF constitutes a small portion of the federal budget. However, it is the single largest source of disaster spending by the federal government. Year-to-year appropriations have greatly fluctuated over time, given the difficulty of accurately predicting the timing and extent of disasters. However, the cost of disaster assistance has slowly increased and is projected to continue that trend due to changing climate conditions. Furthermore, the coronavirus has significantly compromised state and local finances and emergency response capabilities, which is likely to shift more responsibility to the federal government to pay for disaster response and recovery efforts.

As the nation faces increasing numbers of natural disasters and other unpredictable emergencies, lawmakers should consider ways to responsibly prioritize disaster needs in the budget, so that limited federal resources can be deployed in an effective way to help ease human suffering and economic damage when adversity strikes.