[Senate Hearing 108-364]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 108-364

  REVIEW OF THE GENERAL ACCOUNTING OFFICE REPORT ON FEMA'S ACTIVITIES 
           AFTER THE TERRORIST ATTACKS ON SEPTEMBER 11, 2001

=======================================================================

                                HEARING

                               before the

     SUBCOMMITTEE ON CLEAN AIR, CLIMATE CHANGE, AND NUCLEAR SAFETY

                                and the

               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 24, 2003

                               __________

  Printed for the use of the Committee on Environment and Public Works


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               COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                      one hundred eighth congress
                             first session

                  JAMES M. INHOFE, Oklahoma, Chairman
JOHN W. WARNER, Virginia             JAMES M. JEFFORDS, Vermont
CHRISTOPHER S. BOND, Missouri        MAX BAUCUS, Montana
GEORGE V. VOINOVICH, Ohio            HARRY REID, Nevada
MICHAEL D. CRAPO, Idaho              BOB GRAHAM, Florida
LINCOLN CHAFEE, Rhode Island         JOSEPH I. LIEBERMAN, Connecticut
JOHN CORNYN, Texas                   BARBARA BOXER, California
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
CRAIG THOMAS, Wyoming                THOMAS R. CARPER, Delaware
WAYNE ALLARD, Colorado               HILLARY RODHAM CLINTON, New York
                Andrew Wheeler, Majority Staff Director
                 Ken Connolly, Minority Staff Director
                                 ------                                

     Subcommittee on Clean Air, Climate Change, and Nuclear Safety

                  GEORGE V. VOINOVICH, Ohio, Chairman
MICHAEL D. CRAPO, Idaho              THOMAS R. CARPER, Delaware
CHRISTOPHER S. BOND, Missouri        JOSEPH I. LIEBERMAN, Connecticut
JOHN CORNYN, Texas                   HARRY REID, Nevada
CRAIG THOMAS, Wyoming                HILLARY RODHAM CLINTON, New York

                                  (ii)

  
                            C O N T E N T S

                              ----------                              
                                                                   Page

                           SEPTEMBER 24, 2003
                           OPENING STATEMENTS

Carper, Hon. Thomas R., U.S. Senator from the State of Delaware..    23
Clinton, Hon. Hillary Rodham, U.S. Senator from the State of New 
  York...........................................................    15
Jeffords, Hon. James M., U.S. Senator from the State of Vermont..     8
Voinovich, Hon. George V., U.S. Senator from the State of Ohio...     1
    Letter to The President......................................    11

                               WITNESSES

Brown, Michael D., Under Secretary of Emergency Preparedness and 
  Response, Department of Homeland Security......................     5
    Prepared statement...........................................   155
    Response to additional question Senator Jeffords.............   160
Hecker, JayEtta, Director of Physical Infrastructure Issues, 
  General Accounting Office......................................    25
    Prepared statement..........................................161-193

    Responses to additional questions from:
        Senator Jeffords.........................................   201
        Senator Voinovich........................................   203
Larson, Bud, associate director, New York City Office of 
  Management and Budget..........................................   147
    Prepared statement...........................................   310
    Responses to additional questions from Senator Jeffords......   312
Shipley, Dale, executive director, Ohio Emergency Management 
  Agency, on behalf of the National Emergency Management 
  Association....................................................   145
    Application Packet for the State Disaster Relief Program, 
      September 2001............................................275-307

    NEMA, Issues and recommendations for possible amendments to 
      the Stafford Act to better address catastrophic disasters..   308
    Prepared statement...........................................   269
Skinner, Rick, Deputy Inspector General, Department of Homeland 
  Security.......................................................    28
    Prepared statement...........................................   252
    Responses to additional questions from Senator Jeffords......   268

                          ADDITIONAL MATERIAL

Charts:
    Compensation of Losses.......................................   197
    Differences in this Public Assistance Approach...............   200
    Economic Revitalization......................................   199
    Federal Assistance to the New York City Area (FEMA, HUD, DOT, 
      and Liberty Zone Tax Benfits)..............................   195
    Infrastructure Restoration...................................   198
    Initial Response.............................................   196
    Ohio Infrastructure Impact for Federal FY 2003...............   273
Reports:
    Federal Emergency Management Agency, FEMA's Delivery of 
      Individual Assistance Programs: New York--September 11, 
      2001.......................................................36-105

    General Accounting Office:
        Major Management Challenges and Program Risks, Federal 
          Emergency Management Agency (FEMA)....................106-144

        Disaster Assistance, Information on FEMA's Post 9/11 
          Public Assistance to the New York Area................204-251

 
  REVIEW OF THE GENERAL ACCOUNTING OFFICE REPORT ON FEMA'S ACTIVITIES 
           AFTER THE TERRORIST ATTACKS ON SEPTEMBER 11, 2001

                              ----------                              


                     WEDNESDAY, SEPTEMBER 24, 2003

                               U.S. Senate,
         Committee on Environment and Public Works,
    Subcommittee on Clean Air, Climate Change, and Nuclear 
                                                    Safety,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:02 a.m. in 
room 406, Senate Dirksen Building, the Hon. George V. Voinovich 
(chairman of the subcommittee) presiding.
    Present: Senators Voinovich, Jeffords, Clinton, and Carper.

  OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, U.S. SENATOR 
                     FROM THE STATE OF OHIO

    Senator Voinovich. The subcommittee will come to order.
    Good morning all. Today's hearing continues our ongoing 
oversight of the Federal Emergency Management Agency. This 
oversight has long been a priority for the Environment and 
Public Works Committee. It is my intention as chairman of this 
subcommittee to continue this strong oversight.
    Today's hearing is also the first FEMA oversight hearing we 
have held since the Agency was transferred into the Department 
of Homeland Security. The attacks of September 11 were 
unprecedented in scope and have served as a catalyst for major 
reform within the Federal Government in its ability to prevent 
and respond to such events in the future.
    Also unprecedented was our Nation's response to the 
attacks. Thousands of workers and volunteers from around the 
country responded to those in need at the World Trade Center 
and the Pentagon, including 74 Ohioans who arrived in New York 
City within 24 hours of the attacks as part of Ohio Task Force 
One, one of FEMA's urban search and rescue teams.
    The attacks of September 11 were the most costly disaster 
in U.S. history. President Bush pledged $20 billion in aid, and 
approximately $7.4 billion of it is being distributed through 
FEMA's Public Assistance Program. The Public Assistance Program 
is used throughout the country to provide grants to State and 
local governments to respond and to recover from disasters.
    In order to ensure that FEMA was properly carrying out its 
obligations in response to the attacks, Chairman Inhofe, 
Senator Jeffords, Senator Clinton, and I requested that GAO 
look into the three aspects of FEMA's response:
    No. 1, what activities the Agency supported in New York 
through its Public Assistance Program; No. 2, how this response 
differed from their approach to providing public assistance in 
past disasters; and, No. 3, what implications this approach may 
have on the delivery of public assistance should other major 
terrorist attacks occur.
    I understand that GAO has completed its review and analysis 
of FEMA's actions. I look forward to hearing from GAO about 
what they found. Also, in response to the attack, members of 
the committee on both sides of the aisle, including myself, 
worked with the Administration to create the Department of 
Homeland Security and move several administrative agencies, 
including FEMA, into that department.
    Members of this committee have also worked with the 
Administration to ensure that they have all the tools necessary 
to prevent events of this magnitude from happening again. To 
this date, this has not been an issue where we have kept 
partisanship in check. There is no questioning the fact that we 
must be able to prevent a repeat of that terrible day and hope 
that we will be able to keep politics away from this issue as 
we look back at those events and our response to them.
    As members of this subcommittee know, the Homeland Security 
Act of 2002 created the Department of Homeland Security, 
established a directorate of emergency preparedness and 
response, and transferred the functions, personnel, assets, and 
liabilities of FEMA, along with several other administration 
systems and offices, into that directorate. The Act also 
defined the homeland security role of FEMA, maintains FEMA as 
the lead agency for Federal response established by Executive 
Order, and requires that the FEMA Director revise the plans to 
reflect the establishment of the Department of Homeland 
Security.
    The creation of the Department of Homeland Security is the 
largest reorganization of Federal agencies and activities since 
the creation of the Department of Defense back in 1947. I have 
commented that it was much more difficult because of the 
connectivity of the departments than the 1947 reorganization. 
We are pretty clear. Some of these agencies that thread was 
rather thin.
    Any reorganization will need more time to be fully 
implemented and will take even longer before all of the 
structural stresses in the new department can be identified, 
let alone resolved. I can tell you that as a former mayor and 
Governor who undertook reorganizations, they are not done 
overnight. It takes a long time in order to get them done 
properly.
    We are interested, though, that in the process of going 
through this reorganization that FEMA continues to perform its 
duties adequately during the transition period. In other words, 
it is not good enough to just have a reorganization. Everybody 
is in limbo. The agencies within Homeland Security that were 
functioning before should continue to function so that they 
provide the services that they are supposed to perform.
    During the debate on the Homeland Security Act, I included 
the first government-wide workforce reform since the Civil 
Service Reform Act of 1978, 25 years ago. I am hopeful that 
these new flexibilities which all Federal agencies now will use 
will complement the specific human capital authorities granted 
to the department which is still in the process of establishing 
its personnel system.
    I have been very pleased to hear from union leadership that 
the work of the Department of Homeland Security personnel 
system design team has been inclusive and collaborative. They 
have taken their time. They have not rushed this thing through.
    I would be interested in hearing any observations the 
witnesses may have on how these workforce flexibilities are 
helping FEMA manage its critically important part of the 
Homeland Security team. I think when Joe Allbaugh was here 
testifying before us he talked about the human capital crisis 
that they were experiencing in FEMA where many of the people 
who participated in 9/11 afterwards reevaluated their 
relationship with their families and decided that those 
eligible retire.
    Finally, at a hearing conducted by the subcommittee on the 
attacks last year, I learned that members of the FEMA teams 
that responded to the call for assistance to Ground Zero have 
been denied health coverage. In response, I sent letters to 
former FEMA Director, Joe Allbaugh and Secretary of Labor 
Elaine Chao asking them to develop a process for providing 
these workers the health care coverage they need and deserve. I 
would like to know what process has been put in place to 
prevent such denials of coverage and eliminate any confusion 
surrounding the filing process if it happens again.
    It is extremely important that we take care of these 
individuals. Whether people want to be first responders in the 
future depends on how first responders from the World Trade 
Center are treated. In order to ensure that those brave souls 
that respond to, as well as those who live and work in the area 
of a disaster, are protected, monitored, and informed of risks.
    Senator Clinton and I have introduced the Disaster Area 
Health and Environmental Monitoring Act of 2003. This important 
legislation was reported out of committee on July 30. I would 
like to hear any comments that our witnesses may have in regard 
to that legislation.
    Our first witness today is the Under Secretary of Emergency 
Preparedness and Response, Department of Homeland Security, 
Michael D. Brown.
    On the second panel we have JayEtta Hecker, Director of 
Physical Infrastructure Issues, General Accounting Office; and 
Rick Skinner, Deputy Inspector General, Department of Homeland 
Security.
    The third panel consists of Dale Shipley, executive 
director, Ohio Emergency Management Agency, on behalf of the 
National Emergency Management Association. I worked with Dale 
while I was Governor of Ohio. He has done an outstanding job 
for our State. We also have Bud Larson, associate director, New 
York City Office of Management and Budget.
    I thank each of our witnesses for coming here to discuss 
these issues today. I look forward to their testimony.
    Mr. Brown, we are looking forward to your testimony this 
morning. You may begin.
    [The prepared statement of Senator Voinovich follows:]
       Statement of Hon. George V. Voinovich, U.S. Senator from 
                           the State of Ohio
    The Hearing will come to order. Good morning.
    Today's hearing continues our ongoing oversight of the Federal 
Emergency Management Agency (FEMA). This oversight has long been a 
priority for the Environment and Public Works Committee, and it is my 
intention as chairman of this subcommittee to continue this strong 
oversight. Today's hearing is also the first FEMA oversight hearing we 
have held since the Agency was transferred into the Department of 
Homeland Security.
    The attacks of September 11 were unprecedented in scope and have 
served as a catalyst for major reform within the Federal Government and 
its ability to prevent and respond to such events in the future.
    Also unprecedented was our nation's response to the attacks. 
Thousands of workers and volunteers from around the country responded 
to those in need at the World Trade Center and the Pentagon, including 
74 Ohioans, who arrived in New York City within 24 hours of the attacks 
as part of Ohio Task Force One one of FEMA's Urban Search and Rescue 
Teams.
    The attacks of September 11 were the most costly disaster in U.S. 
history. President Bush pledged $20 billion in aid and approximately 
$7.4 billion of it is being distributed through FEMA's public 
assistance program. The public assistance program is used throughout 
the country to provide grants to State and local governments to respond 
to and recover from disasters.
    In order to ensure that FEMA was properly carrying out its 
obligations in response to the attacks, Chairman Inhofe, Senator 
Jeffords, Senator Clinton, and I requested that the GAO look into three 
aspects of FEMA's response:
     What activities the Agency supported in New York through 
its public assistance program;
     How this response differed from the approach to providing 
public assistance in past disasters; and
     What implications this approach may have on the delivery 
of public assistance should other major terrorist attacks occur.
    I understand that GAO has completed its review and analysis of 
FEMA's actions and I look forward to hearing from GAO about what they 
have found.
    Also in response to the attacks, members of this committee on both 
sides of the aisle including myself worked with the Administration to 
create the Department of Homeland Security and move several 
Administration agencies including FEMA into the Department.
    Members of this committee have also worked with the Administration 
to ensure that they have all of the tools necessary to prevent events 
of this magnitude from ever happening again. To date, this has been an 
issue where partisanship has been kept in check because there is no 
questioning the fact that we must be able to prevent a repeat of that 
terrible day. I hope that we will be able to keep politics away from 
this issue as we look back at those events and our response to them.
    As members of this subcommittee know, the Homeland Security Act of 
2002 created the Department of Homeland Security, established a 
Directorate of Emergency Preparedness and Response, and transferred the 
functions, personnel, assets and liabilities of FEMA (along with 
several other Administration Systems and Offices) into that 
Directorate. The Act also defined the homeland security role of FEMA, 
maintains FEMA as the lead agency for the Federal Response Plan 
established by Executive Order, and requires the FEMA director to 
revise the Plan to reflect the establishment of DHS.
    The creation of the Department of Homeland Security is the largest 
reorganization of Federal agencies and activities since the creation of 
the Department of Defense in 1947. Any reorganization of this magnitude 
will need some time to be fully implemented and will take even longer 
before all of the structural stresses in the new Department can be 
identified, let alone resolved. I along with my colleagues on the 
committee am interested in making sure that FEMA continues to perform 
its duties adequately during this lengthy transition period.
    During debate on the Homeland Security Act, I included the first 
government-wide workforce reforms since the Civil Service Reform Act of 
1978 25 years ago. I am hopeful that these new flexibilities, which all 
Federal agencies now may use, will complement the specific human 
capital authorities granted to the Department, which is still in the 
process of establishing its personnel system. I have been pleased to 
hear from union leadership that the work of the DHS personnel system 
design team has been inclusive and collaborative. I would be interested 
in hearing any observations the witnesses might have on how these 
workforce flexibilities are helping FEMA manage its critically 
important part of the Department of Homeland Security team.
    Finally, at a hearing conducted by this committee on the attacks 
last year, I learned that members of the FEMA teams that responded to 
the call for assistance at Ground Zero had been denied health coverage. 
In response, I sent letters to former FEMA Director Joe Allbaugh and 
Secretary of Labor Elaine Chao asking them to develop a process for 
providing these workers the health coverage they need and deserve. I 
would like to know what process has been put in place to prevent such 
denials of coverage and eliminate any confusion surrounding the filing 
process from happening again.
    It is extremely important that we take care of these individuals 
because whether people want to be first responders in the future 
depends on how first responders from the World Trade Center are 
treated. In order to ensure that those brave souls that respond to as 
well as those that live and work in the area of a disaster are 
protected, monitored, and informed of risks, Senator Clinton and I have 
introduced the Disaster Area Health and Environmental Monitoring Act of 
2003 (S. 1279). This important legislation was reported out of the 
committee on July 30, and I would like to hear any comments that our 
witnesses have on it.
    Our first witness today is the Under Secretary for the Emergency 
and Response Directorate in the Department of Homeland Security, 
Michael Brown.
    On the second panel, we have JayEtta Hecker from the General 
Accounting Office and Rick Skinner who is the Deputy Inspector General 
of the Department of Homeland Security.
    On the final panel, we will hear from Bud Larson from New York City 
and the executive director of the Ohio Emergency Management Agency, 
Dale Shipley.
    I thank each of our witnesses for coming here to discuss these 
issues today, and I look forward to their testimony.

  STATEMENT OF MICHAEL D. BROWN, UNDER SECRETARY OF EMERGENCY 
   PREPAREDNESS AND RESPONSE, DEPARTMENT OF HOMELAND SECURITY

    Mr. Brown. Thank you, Mr. Chairman. Thank you for having me 
here today. I certainly appreciate your comments about having 
gone through the reorganization in Cleveland and all the things 
you had to do to do that. I know you appreciate some of the 
challenges that we have as we put this together.
    Since becoming a part of the Department of Homeland 
Security, the Federal Emergency Management Agency has continued 
its traditional role of leading the Nation to prepare for, 
respond to, recover from, and mitigate against disasters of all 
types and of all hazards.
    Over the last 2 weeks, we have worked closely with the 
State and our Federal partners to effectively prepare for and 
respond to Hurricane Isabel--all within the structure of the 
Department of Homeland Security. DHS brought its resources to 
bear in response to Hurricane Isabel in order to protect the 
public. We deployed two new assets, including the National 
Disaster Medical Systems teams, in response to Hurricane 
Isabel. The U.S. Coast Guard also deployed its assets to assist 
us in the response effort. All of our response efforts have 
been coordinated department-wide through Homeland Security and 
through its Emergency Operations Center.
    Prior to joining Homeland Security, the focus of our 
disaster programs at FEMA was that of an all-hazards approach. 
This focus remains today. It fact, it benefits more from a 
global perspective of the Department of Homeland Security and 
its related components. I am proud of our response to Hurricane 
Isabel because it clearly demonstrates our steady improvement 
in coordinating and leading Federal, State, and local response 
efforts to protect life and property in times of disasters.
    There was a seamless collaboration of different response 
elements in the Department, as well as those in other Federal 
departments and agencies, which allowed for an effective and 
rapid pre-positioning of disaster assets and capabilities 
throughout the Eastern United States to quickly provide any 
assistance needed by States and communities to protect the life 
and property of those citizens.
    At FEMA, we are proud to be a part of the Department of 
Homeland Security in doing our part to secure the homeland. I 
am proud to lead this organization. On behalf of the Secretary 
and President Bush, it is made up of so many really good 
individuals, such as, the urban search and rescue teams and 
others, who put their lives on the line daily to protect this 
country and to make it more secure.
    FEMA's greatest asset is, indeed, our people. As we have 
transitioned into Homeland Security, we have continued our 
efforts to ensure that our workforce remains one of the finest 
in the Federal Government through the development of a 
comprehensive strategic Human Capital Plan.
    We have also continued to work to integrate the new 
missions into FEMA's existing structure. The good work that 
FEMA continues to do after being incorporated into Homeland 
Security is a commentary on how well the transition has gone to 
date. Since the March 1 transition into Homeland Security, FEMA 
has provided disaster relief in over 50 presidentially declared 
disasters and emergencies in 32 different States and two 
Territories, ranging from Alaska to New York to American Samoa.
    When I have traveled to disaster areas, I have had the 
opportunity to meet some of the victims. Secretary Ridge, the 
President, and I just did that over the past 3 or 4 days. The 
victims' lives have been totally devastated. They have lost 
family members. They have lost things that they will never be 
able to replace. They have lost their homes. I truly cannot 
adequately describe in words the impact of looking into the 
eyes of people who have simply lost everything.
    But when things are at their absolute worst, I believe that 
our people in FEMA and the Homeland Security Department are at 
their best. I am extremely proud to be a part of this 
organization. I am constantly impressed with the Agency's 
ability to quickly and efficiently put individuals on the 
ground, to provide assistance to those in need, and to get the 
process of disaster recovery underway immediately.
    But we cannot rest on our past achievements. The key to our 
continued improvement is to take these lessons and incorporate 
them into our planning, our doctrine, and our procedures so 
that we do even better the next time. The transition into 
Homeland Security offers new opportunities to make such 
improvements. FEMA is actively participating in the effort to 
develop the National Response Plan and the framework for the 
National Incident Management System.
    As directed by the President, the goal is to establish a 
single comprehensive National Incident Management System that 
provides for the integration of separate Federal response plans 
into a single all-discipline, all-hazards, national response 
plan.
    We are also consolidating and integrating our existing and 
our new disaster response assets, our new teams, our current 
systems, new programs, and responsibilities to create a more 
unified and comprehensive all-hazards disaster response 
capacity. We are looking into new approaches that can result in 
greater efficiencies and effectiveness in our disaster response 
activities.
    I am really confident that over time we will be able to 
introduce a new response culture, one that will enable us to 
elevate our operational response capabilities to a higher level 
of proficiency and ensure better protection of and service to 
the American people.
    Homeland Security also remains committed to helping 
firefighters improve their effectiveness and to stay safe. The 
responsibilities of the fire service have increased since 9/11, 
and as you know very well, Senator, include planning for and 
responding to possible terrorist attacks. So far, just this 
year, Homeland Security has awarded over $250 million of $745 
million appropriated by Congress to fire departments through 
the Assistance to Firefighters Grant Program.
    I will digress for just a second. As I met with some of 
those firefighters, and as we have given those grants out, it 
is absolutely incredible how important the grants are to those 
firefighters and those fire departments. In some places they 
actually have to borrow boots and personal protective gear from 
other departments to do their job. To me, that is just not 
acceptable.
    When we have to respond to a terrorist attack or a natural 
disaster, and people start backfilling from department-to-
department, it is absolutely essential that all departments in 
this country be equipped to respond to anything. That program 
helps us do that. I just want to thank you, Senator, for 
helping us in that regard.
    With the formation of Homeland Security, we have the 
opportunity to better serve our State and local governments and 
our first responders by bringing together the various terrorism 
and emergency preparedness grant programs that were scattered 
throughout the Federal Government.
    The Secretary has announced plans to centralize these 
programs within a single office in Homeland Security to make 
them even more accessible to its customers. State and local 
authorities will now have a single point of contact for both 
terrorism and emergency preparedness efforts, one access point 
to obtain critical grant funding.
    With regard to today's hearing, the committee has expressed 
interest in the GAO report on the public assistance program as 
implemented in New York following the September 11 attacks. 
While the GAO report does not address FEMA's performance or 
provide specific recommendations, it does note some differences 
in the delivery of assistance that I would like to take this 
opportunity to emphasize.
    FEMA implemented the Public Assistance Program, which 
provides State and local governments reimbursement for debris 
removal, emergency protective measures, or the repair or 
replacement of damaged public facilities. However, the 
Consolidated Appropriations Resolution of 2003 provided some 
additional flexibility that allowed recovery operations to move 
more quickly.
    The Resolution directed FEMA to fund non-Stafford Act 
related projects with any remaining funds from the 
appropriation they received for the September 11 terrorist 
attacks after all eligible projects have been funded. But this 
flexibility did not forfeit the accountability or detract from 
the effectiveness of the programs.
    In summary, as part of the Department of Homeland Security, 
FEMA has continued to carry out its mission to prepare for, 
respond to, recover from, and mitigate against disasters and 
emergencies caused by all hazards. We will continue to do so.
    Again, Senator, I appreciate the opportunity to testify 
before your subcommittee today. I would be happy to answer any 
questions that you or Senator Jeffords might have. I would ask 
that my written statement be placed in the record in its 
entirety.
    Senator Voinovich. Thank you.
    We have been joined by Senator Jeffords, the ranking member 
of this committee. Senator Jeffords, do you have any remarks 
that you would like to make?

OPENING STATEMENT OF HON. JAMES M. JEFFORDS, U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Senator Jeffords. No, I do not want to interfere with the 
proceedings. I would just as soon have them made a part of the 
record.
    Senator Voinovich. Thank you.
    Without objection, so ordered.
    [The prepared statement of Senator Jeffords follows:]
        Statement of Hon. James M. Jeffords, U.S. Senator from 
                          the State of Vermont
    Mr. Chairman, thank you for holding this hearing today.
    It is a little disturbing for me to see the words ``General 
Accounting Office Report'', which often precede what some might 
consider to be a mundane financial disclosure statement, preceding the 
words ``September 11th'' which was such an emotional, traumatic moment 
in our nation's history for everyone in our country, and particularly 
for the people directly affected by it.
    I will never forget my visit to Ground Zero.
    I hope that September 11 is an event that will never be repeated, 
on any scale, in our country. However, I believe that it is critical 
for us to be prepared, should such an event occur. I want to do 
everything I can to ensure that our level of preparedness goes up, not 
down, as we move into the future.
    One of the best ways is to evaluate our performance on September 
11, and find ways that we can improve.
    That is why I asked for this GAO report with my colleagues, Senator 
Smith of New Hampshire, Senator Clinton of New York, and Senator 
Voinovich.
    Since Senator Inhofe became Chairman of this committee, we have 
continued working on this issue with the same bi-partisan rapport I 
enjoyed with Senator Smith, and I appreciate that.
    The GAO report finds that there were multiple activities performed 
by FEMA at the World Trade Center that were outside of the norm.
    Congress explicitly authorized many of these activities.
    The GAO report also finds that due to the departure from standard 
emergency response and recovery operations, there is some uncertainty 
about what the Federal response to another terrorist attack would be, 
should one occur.
    It is imperative that this committee, with jurisdiction over the 
nation's emergency preparedness and response activities, consider 
whether any changes to FEMA's legislative authorities are required to 
ensure that the nation's ability to respond to a terrorist attack 
improves after September 11th.
    I look forward to hearing more detail on the conclusions of the 
GAO.
    The EPA Inspector General raising questions about the government's 
response to the World Trade Center collapse.
    In addition to troubling revelations about the White House's 
Council on Environmental Quality influencing EPA's public 
communications, the report questions the extent and adequacy of the 
post-September 11 indoor air cleanup program.
    This program was funded, in part, by FEMA, and I believe that we 
need to examine whether there are additional steps that FEMA, in 
conjunction with other governmental agencies, should take today to 
protect the health of all New Yorkers.
    In reviewing the activities of FEMA in September 2001, we will be 
reviewing the activities of a robust agency, with extensive experience 
in all-hazards planning, preparing, response, and recovery, and with a 
tradition of providing quick response to people in immediate need.
    Vermont has a long history with emergency management my colleague 
and friend, Senator Bob Stafford of Vermont, served as chairman of this 
committee for many years and ushered the Stafford Act through this 
committee and the legislative process in 1974.
    The Stafford Act gave structure to an emergency response process 
where virtually none existed in the past.
    As Chairman of this committee during the 107th Congress, I 
expressed grave concerns since the proposal to incorporate FEMA into 
the Department of Homeland Security first came to my attention.
    I was concerned at that time that the robust agency we saw jumping 
every hurdle after September 11, 2001 to provide assistance to World 
Trade Center and the Pentagon, and to hundreds of natural disasters 
each year, would give way under the pressure of the enormous 
bureaucracy of the Department of Homeland Security and lose its ability 
to respond quickly and effectively to disasters.
    I remain concerned today.
    However, the Administration prevailed in this situation and 
incorporated FEMA in DHS with the enactment of the Homeland Security 
Act of 2002.
    Since the formation of DHS, FEMA has administered aid for 50 major 
disasters, 16 emergency declarations, and 33 fire management assistance 
declarations all natural disasters.
    That is 109 communities, in less than 1 year, that have received 
emergency assistance from the Federal Government.
    One would think that this type of mission would deserve significant 
focus from the Administration.
    However, while FEMA performed all of this activity, the 
Administration managed to allow the Disaster Relief Fund to dip 
dangerously low, with FEMA cutting off benefits for all but two of the 
seven categories of public assistance in declared disaster areas.
    On July 9, the Administration finally asked Congress for $1.5 
billion in emergency funding to refill the Disaster Relief Fund.
    This week, the Congress may consider the conference report for the 
legislative branch appropriations, which contains just $441.7 million 
for the Disaster Relief Fund.
    We are still in the early days of this disaster, and I have heard 
some concerns raised by local communities about FEMA's responsiveness.
    I hope that as we work our way through the effects of this 
disaster, we find that even with FEMA's insertion into DHS and the lack 
of focus the Agency has received, it has lived up to its reputation of 
a quick responder that provides critical assistance.
    I have two goals for today's hearing.
    First, I want to hear what lessons can be learned from FEMA's 
activities in New York following September 11th, and what changes, if 
any, you believe this committee should consider to ensure that our 
nation's emergency response capabilities improve, not degrade into the 
future.
    Second, I want to hear from each of our witnesses how things have 
changed since FEMA became part of DHS specifically, if being a part of 
the Department of Homeland Security is improving or degrading FEMA's 
ability to respond to disasters of all types, whether manmade or 
natural.
    It is imperative that in seeking to improve our capability to 
respond to terrorism, we do not lose our capability to respond to 
natural disasters, which, thankfully, happen much more frequently.
    Thank you, Mr. Chairman.

    Senator Voinovich. Mr. Brown, in your testimony you seem to 
indicate that being placed into the new Department of Homeland 
Security has actually helped response to disasters.
    I would like for you, as carefully as you can, outline how 
going into the Department of Homeland Security has been 
enhanced. I think in your testimony you mentioned something 
about the Coast Guard. Could you give us a little bit more on 
that?
    Mr. Brown. Hurricane Isabel unfortunately has given us a 
grand opportunity to really test some of the new equipment and 
some of the new resources that we have at our disposal. 
Commandant Collins was absolutely insistent that they provide 
whatever assistance they could to FEMA and DHS as we responded 
to the hurricane. They were just outstanding.
    There is nothing better than being able to sit at a table 
where you have your partners right there with you at the table 
and to be able to say, ``Well, what is it that you can offer?'' 
They can explain to us, and as we understand our response 
efforts we can say, ``Oh, yes, we can use that equipment.''
    Commandant Collins and I spoke yesterday after an Under 
Secretary's meeting. What we intend to do now, following the 
hurricane, and once our recovery is finished, is to go through 
and to actually formulate MOUs and understandings of how we are 
going to operate together. But being that close together in the 
Department with those kinds of assets just gives us the 
capability to respond that we never had before.
    I would actually take it one step further.
    Senator Voinovich. In other words, the Coast Guard had 
never been part of the consideration when you had other events?
    Mr. Brown. They would be part of the consideration, but it 
would be almost after the fact. It would be looking around the 
room saying, ``We need to do `x.' Who could help us do that? 
Oh, let us reach out to the Coast Guard.''
    Now the Coast Guard is actually reaching out to us and 
saying,

          ``By the way, because we are going to be doing x,y,z, moving 
        certain assets because of the approach of the hurricane, we can 
        make these things available to you. Will that help you respond 
        more quickly?''

    So, we were able to tie our missions together, then 
protecting our assets by getting them out of the way, with us 
having to move certain materials and supplies into the affected 
area. It worked out great.
    I think it is the willingness of the team, too, to sit down 
and say, ``We are all part of the Department now. What do you 
bring to the table? How can we make them work better 
together?''
    I think someone actually coined a phrase for it, but it is 
``FEMA on steroids''. It gives us the chance to reach out to 
partners within the Department and say, ``We want you now to be 
a part of our response mechanism.''
    Senator Voinovich. Mr. Brown, I have a question that is 
specifically rated to my home State of Ohio. As you know, the 
Northeast and Midwest, including Ohio, experienced massive 
electrical power outages beginning on August 14. Governor Taft 
requested Federal assistance to deal with the aftermath of this 
situation. I wrote a letter to the Administration in support of 
a major disaster declaration for the State of Ohio. I am going 
to insert this letter to the President in the record.
    Without objection, so ordered.
    [The referenced letter follows:]
    [GRAPHIC] [TIFF OMITTED] T2386.001
    
    Senator Voinovich. While I understand that New York also 
requested Federal assistance and has received it, if you pardon 
the reference, Ohio remains in the dark about its request.
    First, why has it taken so long? Can we expect a response 
soon? Second, what is the reason for the delay? Is it a result 
of being transferred into the Department or is it some other 
factor?
    Mr. Brown. I will tell you it is not because of the 
transfer into the Department. That request crossed my desk 
yesterday. We have made the recommendation to the President. So 
that has been moved.
    I will tell you what part of the delay was. As we work very 
closely with our State and local partners to make the 
assessments--and this is not to pick on Ohio or anyone else--
but sometimes we have to go and really dig to get information 
about the damage sustained, what the needs are, and how can we 
help.
    Although I think Dale Shipley does an incredibly good job, 
in some States--not Ohio--but in some States it takes longer to 
get that kind of information. I do not know why Ohio took 
longer. I am going to try to find out, Senator.
    Senator Voinovich. I would like to know it because your 
response to New York was swift.
    Mr. Brown, I would like to give you an opportunity to 
respond to the GAO report that we released today on FEMA's 
actions and financial allocations in New York after the 
September 11 attacks.
    The first question is: The report states that both FEMA and 
New York City officials agreed that FEMA's public assistance 
approach to the New York City area creates uncertainties 
regarding the delivery of public assistance in the event of 
another major terrorist event. What are some of those specific 
uncertainties?
    Second, the report states that FEMA officials claim that 
the Public Assistance Program worked well. New York City 
officials argue that major revisions are needed. FEMA said, 
``We did it.'' New York said, ``no.'' Can you elaborate on the 
Agency's position on this issue?
    Mr. Brown. I think, Senator, that generally the response to 
New York was incredibly good. The President authorized and 
asked us to spend $8.8 billion in assistance in New York. We 
have done that, and we have done it with incredible 
flexibility. There is no doubt that we have a learning curve on 
some of those issues--mortgage and rental assistance, for 
example. How far out do we take that in terms of economic 
damage as opposed to physical damage?
    FEMA has traditionally dealt with physical damage. There is 
something that you can point to that you can say is broken, and 
because that is broken, you can no longer do your job. You no 
longer have a job to go to because it does not exist. We were 
always accustomed to dealing with economic damage where the 
thing which your job was tied to, the location was still there, 
but the job was no longer there. The airlines were shut down, 
or they cut back, or something. We had to deal with that.
    For example, in terms of dealing with mortgage and rental 
assistance, how far out do we go? Do we draw a geographic line? 
Do we figure out if there is some economic line by which we 
draw those boundaries?
    It was a challenge for us. It truly was a challenge. But I 
think we worked very closely with the State and with the city 
to figure out how to draw those lines, and upon what basis we 
drew the lines. At the end, I would say that we had agreement 
on the drawing of the lines. So I think we did pretty good in 
that regard.
    We still have some outstanding issues, for example, on 
debris removal and the liability insurance. We have allocated 
the $1 billion for that. As we like to say in Washington, we 
are really down in the weeds trying to figure out exactly what 
liabilities that $1 billion will cover.
    Congress was good to us and gave us flexibilities on the 
money that was left over after the $8.8 billion had been 
allocated to meet the unmet budget needs in New York City. We 
actually turned to the city and the State and said,

          ``You tell us what your priorities are. Tell us how you want 
        to spend those moneys. Once we do all the eligible costs, 
        whatever money is left over, we will let you figure out where 
        that needs to go and give you the maximum flexibility to use 
        that where you need it.''

    So I think in that regard it worked very well also.
    There are flexibilities in terms of FEMA figuring out what 
its primary role is. For example, rebuilding some of the 
subways or some of the highways. I do not believe that FEMA has 
that expertise. FEMA, instead, turns to the Federal Transit 
Administration and says, ``If you will take over this project 
for us, we will fund that.'' It is clearly an eligible funding 
for us to do, but we do not have the expertise within FEMA to 
deal with the environmental issues, to deal with the 
engineering issues. That is for the FTA to do. I think that 
worked very well also.
    Senator Voinovich. One of the things that I would be 
interested in, and I am sure somebody is working on it, if it 
is not already done, is lessons learned.
    Mr. Brown. Absolutely.
    Senator Voinovich. You are right. This is a brand new deal. 
You had some things I do not think the Agency was ever 
confronted with in the past in terms of standards of how far do 
you go in reimbursing people, for example. When I was Governor, 
I went through several floods. Sometimes it is not as clear as 
it should be. But I think in your case it would be interesting 
to say, if we had one of these, what kind of standards would we 
be using so that you have something. You would have learned 
from your experience there. I would be interested in seeing 
that information.
    Mr. Brown. We will share that with you. We are in the 
process of doing that now.
    Senator Voinovich. Senator Jeffords.
    Senator Jeffords. This is an issue I have raised before, 
but one that I am concerned about. Since I witnessed some of 
the challenges faced by the first responders after September 
11, in inter-operable communications, I am aware of some of the 
actions taken by the Department of Homeland Security to improve 
inter-operability, but I am not satisfied with the progress. I 
do not seem to have any evidence of what has changed on the 
ability for communications.
    I was at the Pentagon. I talked with the first responders 
there. I asked them, ``What was your main problem?'' They 
answered, ``Well, we all arrived from Nebraska and every place 
else, but nobody could talk to anybody.''
    Is there any improvement?
    Mr. Brown. I think there is significant improvement. We are 
on the track to continue to make improvements, Senator. There 
are two things I would offer. First and foremost is that we 
have started defining what inter-operability means. It meant 
different things to different people. Some thought that it 
meant that everyone should be able to talk with everyone else. 
If you did that, we would get nowhere.
    We have defined inter-operability as a command and control 
in a national incident management system whereby we define who 
is going to talk with the one in charge, and who takes orders 
from whom. That is No. 1.
    The second thing that we have done is that Congress 
allocated approximately $25 million for us to do what we call 
demonstration projects. We are actually making the distribution 
of those grants on a competitive basis. We just started doing 
those grants this week. We have, on a competitive basis, said 
to the States,

          ``Come to us with some of your best practices. We will give 
        you planning and money to put those projects together in your 
        States. We will take the best practices and try to use those 
        nationwide.''

    Those grants are going out this week to actually start 
doing those projects.
    Senator Jeffords. Thank you.
    I understand that in response to the low balance in the 
Disaster Relief Fund that you have adopted a policy of funding 
only Categories A and B of public assistance for federally 
declared disasters. Can you explain this policy, why it was 
adopted, and what types of and how many requests for assistance 
are being delayed?
    Mr. Brown. Senator, when the DRF got down to a level of 
$700 million or less, we had projects in the pipeline that were 
basically public assistance projects--rebuilding of roads and 
bridges, or the rebuilding of a library, or something to that 
effect.
    I made the critical decision at that point that we would 
fund only individual needs, and make sure that individuals got 
the money and the assistance they needed until we had some 
resolution of where we were going to be. I was more concerned 
about making sure that people were taken care of and that 
buildings became secondary.
    So while we did not stop any projects that were already 
ongoing, those that were in the pipeline, we did put a halt on 
until we got the appropriation.
    Senator Jeffords. Using lessons that you have learned since 
September 11, what changes, if any, to FEMA's authorities do 
you believe are necessary to allow the Agency to improve your 
response to terrorist attacks?
    Mr. Brown. Quite honestly, Senator, I do not think there 
are any at this stage. I think the Stafford Act is so well 
designed and it has so well withstood the test of time, that we 
have the flexibilities that we need to be able to respond.
    I think the chairman is correct in that what we need to do 
post-9/11 is to take our lessons learned about where those 
flexibilities need to be better defined and incorporate those 
into our regulations and our policies. But the act itself gives 
us broad discretion and broad flexibility to do what we need to 
do.
    Senator Jeffords. The GAO reports that FEMA determined that 
the testing of air quality and cleaning were eligible for 
public assistance funding where the collapse of the World Trade 
Center buildings, resulting fires, and subsequent debris 
removal caused potential health issues related to air quality. 
FEMA entered into an interagency agreement with EPA and 
partnered with the New York Department of Environmental 
Protection to execute testing and cleaning.
    I have two questions in that regard. First, what role did 
FEMA play in providing information to the public on the results 
of the air quality testing that was connected at the site and 
in the surrounding areas?
    Mr. Brown. We did not really differ from what we do in a 
traditional disaster. If we need expertise elsewhere, we 
mission-assign another department or agency with that 
expertise. In this case, it was EPA and the New York Department 
of Health who came in and did that monitoring for us.
    Our people on the ground continue to work with those people 
day-in and day-out: ``What are you doing? How are you doing it? 
What are the results? What additional assistance do you need 
from us?'' We do not have that expertise in-house.
    Senator Jeffords. Selecting which buildings or areas of the 
city would be eligible for public assistance funding, did FEMA 
include all the areas impacted by the dust cloud resulting from 
the collapse of the buildings?
    Mr. Brown. We attempted to. Again, that goes back to my 
point earlier of where we draw the line. We always worked very 
closely with the State and local officials to define where that 
line should be drawn. If you take Manhattan, for example, do 
you draw it at 53rd? Do you draw it at 82nd? Do you include 
Staten Island? Do you not include Staten Island?
    You do all those kinds of deliberations solely in concert 
with State and locals to get their input. Again, they are the 
experts. They are the ones on the ground who are coming to us 
asking for the assistance. That is how we make those kinds of 
decisions.
    Senator Jeffords. Thank you.
    Thank you, Mr. Chairman.
    Senator Voinovich. Senator Clinton.

OPENING STATEMENT OF HON. HILLARY RODHAM CLINTON, U.S. SENATOR 
                   FROM THE STATE OF NEW YORK

    Senator Clinton. Thank you very much, Mr. Chairman.
    I welcome Secretary Brown. I had the great pleasure and 
privilege of working with him over the last 2 years. I thank 
you for holding this hearing. I particularly appreciate all of 
FEMA's staff, including Brad Gair, who has been the FEMA person 
on the ground in New York. He has done a remarkable job.
    I also want to acknowledge and welcome Bud Larson, the 
Associate Director of New York City's Office of Management and 
Budget who will be testifying on the third panel.
    Mr. Chairman, I just want to briefly comment on the GAO 
report that has come out just over 2 years since the horrible 
attacks we suffered. I suppose for the average person going 
through that report the numbers and dollars associated with 
Federal assistance can seem quite large when it comes to our 
needs in New York. There was over $20 billion in total, 
including some $5 billion in tax incentives and about $8.8 
billion in FEMA assistance alone.
    I know that the support that New York received from the 
Administration and the Congress has been extremely important. 
There are different estimates that have come forward about what 
the actual economic loss to New York was. It ranges from about 
$80 billion to $110 billion. Even today, 2 years after the 
event, there are those who still remain still displaced from 
their homes and their jobs. Economic repercussions continue.
    As I am sure Mr. Larson will testify later, we have had a 
continuing reassessment of what our needs have. As the GAO 
report points out, FEMA aid to New York has been capped at a 
fixed amount which has required very difficult efforts to 
prioritize needs and allocate dollars, even before we fully 
knew what the costs were.
    In the case of the horrible Oklahoma City bombing, or the 
North Ridge earthquake, so many other previous disasters, as 
long as the need was tied to the disaster, the dollars have 
continued to flow from FEMA's Disaster Relief Fund. In fact, 
sometimes it has taken 4, 5, 6 years, and even longer after the 
event to take care of all of the needs that were catalogued. In 
almost single case, the State where the disaster took place was 
eligible for hazard mitigation grants in an amount equal to 15 
percent of the dollars that FEMA sent on disaster recover.
    In New York's case, FEMA disaster aid was capped at a 
predetermined amount that I think we are realizing has little 
connection to the actual need. I am not saying that to in any 
way suggest that the amount is too low, but just that it is 
probably too early to tell. I am very grateful for the support 
that we have received.
    In this instance where we know there is so much that needs 
to be done to prepare for and prevent against a future similar 
event, we have had hazard mitigation funding capped at 5 
percent versus the traditional 15 percent.
    One specific example I wanted to bring to the committee's 
attention is with the mental health services provided under New 
York's Project Liberty. FEMA allocated $132 million. When I 
went to the Ground Zero Commemorative services on September 11, 
a few weeks ago, a number of firefighters and the top 
leadership of the fire department, including the Commissioner, 
expressed very serious concerns that there is a December 31 
scheduled termination of these mental health services.
    We have seen counseling services provided to more than 
7,000 firefighter victims. I think that we have provided 
counseling not only to active members, but also to family 
members, retired members, paramedics, and others.
    In the original fire department proposal to FEMA, the 
Counseling Unit requested 7 years of funding for Tier 1 
victims. This is, in large measure, based on the experience in 
Oklahoma City which showed clearly that it took a while for 
these men to come forward. It was not something that they did 
lightly or easily. It is only now that some of them are feeling 
ready to go into counseling and to seek help. What we learned 
from Oklahoma City is that it literally took years. Different 
things triggered the need or the motivation to go into 
counseling.
    I would hope, Mr. Secretary, that we can look at a way to 
try to extend these resources. They are going to run out at the 
end of this year if we do not extend it. The close out date is 
something that concerns me greatly. The GAO goes through 
specific reasons as to why that is the case.
    I think that we really have to look at these closeout dates 
for these various services. It is important that we know how 
well we used our dollars, but I think we have to recognize also 
that there are continuing needs. Perhaps some of the priorities 
that were set because of the capped amount and the deadlines 
that were set are just not reflective of the human and other 
needs that we continue to confront.
    Mr. Secretary, could you update me on the status of the 
mental health and crisis counseling services provided through 
Project Liberty?
    Mr. Brown. I could not agree with you more about the 
importance of that program. I went to New York. We made that 
$132 million announcement because it is the largest that we 
have ever expended on crisis counseling. I was just absolutely 
amazed at the people and the job they are doing. The dedication 
is just overwhelming. As you so eloquently put it, there are 
many first responders who are macho and they are not going to 
do it until they crash and have to do it.
    In coordination with the State, we made the decision to 
keep that program open into 2004. I will continue to work very 
closely with the State to do what we need to do to make it 
work.
    Senator Clinton. Thank you very much.
    Senator Voinovich. Mr. Brown, there are a couple of issues 
I would like to discuss. One is after 9/11 the members of our 
team in Ohio that responded to 9/11 had a dickens of a time 
getting their compensation.
    No. 1, I would like to know what you have done to improve 
that situation so that other first responders are not going to 
go through the line as our people did in the State of Ohio to 
have their claims processed through the Department of Labor for 
compensation and for health care as a result of their being at 
9/11.
    No. 2, gets into something that both Senator Clinton and I 
are interested in. I am going to quote a couple things that 
were said at hearings here.
    On March 12, 2002, Joe Allbaugh was here. He said,

          ``I, too, am deeply concerned about what everyone was exposed 
        to in New York City. On the first of February I put together a 
        task force representing all the agencies. We are working 
        through those issues. There was a followup yesterday that we 
        will be sharing information that we have gleaned from all the 
        agencies as quickly as possible as we can. I am trying to find 
        out what these people were exposed to.''

    Then at another hearing in September 2002, more than a year 
after the attacks, I asked more questions of EPA. Again, 
Director Allbaugh went on about what people were exposed to and 
if they were getting the information out. Allbaugh stated,

          ``We are looking for our guidance from HHS. They have been 
        very successful providing that leadership. Every bit of 
        information they share with us from a scientific standpoint we 
        give to every FEMA employee, every USAR employee, and those 
        volunteers that came to help us at Pier 94. We are sharing as 
        much information as we possibly can. It is all based on 
        science.
          ``EPA and ASTAR is keeping a health registry. They are 
        working with the city of New York on this. They are collecting 
        data now and will be keeping the people information through 
        websites. That is obviously something that they are very 
        dedicated to make sure that people understand what the exposure 
        was.''

    The fact of the matter is that the evaluation of what 
people were exposed to was a complete disaster among Federal 
agencies. I will never forget Allbaugh being before this 
committee. It was awful.
    Senator Clinton and I have introduced a bill, a first 
responders bill, that is going to give the President authority 
after one of these things happen again--God forbid--that will 
allow them to immediately go in there and get this information.
    I would like for you to comment on both of these things. 
They are very, very important to, first of all, for the people 
that are there that are the victims, but then the first 
responders. If we have other disasters like this, these people 
are going to want to know that it is a different deal than it 
was before.
    I can tell you that the people in Dayton, OH are not going 
to be exited about doing another one of these things because of 
the way they have been treated. As a matter of fact, it was a 
year afterwards that we finally got screening for them. In New 
York City, you were able to get your screening. We opened up a 
screening center in Cincinnati at the University of Cincinnati 
to finally get them in there to be screened for what they were 
exposed to.
    I would like you to comment on both those issues.
    Mr. Brown. Well, first let me go back to the Ohio team. We 
talked first with Life Care. We made certain that they were 
doing what they were supposed to be doing and reaching out. We 
had them reach out two or three times. As I understand it, 
there are no unpaid claims at this point.
    But what it has taught us, Senator, is that we need to go 
back and look more closely at our contracts and our 
relationship with the folks who do that contracting for us and 
the payment of those bills to make sure it gets done more 
efficiently. That is just unacceptable to me.
    Senator Voinovich. From another perspective, you might look 
at whether or not they could be better done by the Agency 
itself than to farm it out to somebody else. In terms of this 
whole competitiveness, the thing that bothers me is that we 
always talk about competing out commercial services, but we 
never look at either services that maybe ought to be brought 
back into those agencies. We have dedicated people that will 
get the job done for the folks that need the help.
    Mr. Brown. Absolutely. I could not agree more that the 
primary concern should be how to get the job done most 
effectively and most efficiently for the first responders. That 
is my priority. To me, it is just unacceptable that we ask 
these men and women to go out and put their lives on the line. 
Then we dally around with getting them reimbursed or paid for 
what they should be paid for. It is just unacceptable.
    That is why we have looked at all the contracts. We did go 
back to Life Care and talked with them to make sure it was 
getting done right. I have asked my response team to go back 
and look at what caused those glitches. I do not try to 
presuppose how we are going to fix the glitches. I want my team 
to come and tell me what the glitch is and then figure out how 
we are going to fix it. That falls wherever it may fall just to 
get it done.
    Senator Voinovich. I would like to know the procedure that 
if this happens again, how it gets done. I would also like to 
have you evaluate the people that were doing the work for you. 
You farmed out the work to screen the people that worked at 
TSA. The people that did it, in my opinion, did a lousy job. 
The rumor was that about 2,000 of them could not pass the FBI's 
list.
    In terms of the administration, I think that so often you 
get the idea, ``Well, we will just farm it out to some firm. 
They are going to get the job done.'' The question is: Do you 
have the people in-house that can find out whether the firm 
that it has been farmed out to are able to do the job? Really. 
I think Secretary Ridge ought to start looking at some of this 
stuff that you have going on all over to find out whether or 
not it is working or not and whether you are better off 
bringing it in-house.
    Mr. Brown. That is a very legitimate point. I do not want 
to repeat myself. But I think we should always look at how do 
we best get the job done and let those chips fall where they 
may--if that is in-house or if that is contracting. It needs to 
be done efficiently to take care of the customer.
    From my point of view, the customer is always either the 
first responder, the people who are asking to go out and deal 
with the disaster, and/or it is the disaster victim, and how we 
best take care of those victims and/or the people who are doing 
that job for us. That is just my philosophy.
    Senator Voinovich. How about the issue of letting people 
know immediately what they are exposed to? Let the 
Administration explain it. It happened. There was stuff there. 
Senator Clinton has made an issue of the fact. The word on the 
street was to go back. I am sure they were trying to get the 
stock exchange going. They were trying to get the country 
moving. We were in an awful situation.
    But the fact is that we did not know what we were talking 
about at the time that we made those comments. What are you 
going to do to make sure that does not happen again?
    Mr. Brown. Well, I think one of the good things is this. 
Again, going back to the transition of FEMA into the Department 
of Homeland Security, I intend to fully utilize the Science and 
Technology Group that we have at the Department. I have gone to 
Under Secretary McQueary and said, ``Chuck, listen. I do not 
even understand some of the questions I should be asking you.'' 
FEMA has never really had what I would call a Research and 
Development Department. We now have that within Homeland 
Security.
    I want to work closely with them. We have actually assigned 
some of his folks into FEMA to watch all of our response 
activities and tell us where they can provide us the kind of 
expertise, whether it is technological expertise or human 
capital expertise, to answer these kinds of questions.
    Again, I think it is one of the grand benefits of the 
creation of the Department that a small organization like FEMA 
now has that kind of talent that we can turn to and say,

          ``Our first responders are facing these kinds of things. What 
        can you develop for us? Where can you lead us to give us the 
        technology or the human capital to provide them with the 
        protection they need.''

    Senator Voinovich. Again, I would like to have you come in 
and specify exactly how you are getting it done. Allbaugh was 
saying, ``I am looking for EPA. EPA was looking at HHS.'' Who 
knows who is on first base. It was just awful.
    Hopefully we are going to get this legislation passed by 
Congress. I would like to know if it is passed what entity you 
are going to put in place so that we know that if it does 
happen we are ready to go. We would expect also that the Agency 
would anticipate possibly something that could happen. What are 
all of the options out there in terms of what people could be 
exposed to? Then start anticipating possibly what kind of 
equipment individuals would need if they were going to go in 
there to deal with the issue.
    Mr. Brown. I will do.
    Senator Voinovich. Senator Clinton.
    Senator Clinton. I want to thank the chairman for his 
incredible attention to this issue. He has long been a champion 
of making sure that we have the right work for us and they know 
what their mission is. I think we all learned some very 
difficult lessons coming out of 9/11 about what our first 
responders needed and they information they could or should 
have had. It is equivalent to a military after action review. 
We have to know the right questions. We have to be unafraid to 
ask them. We have to be unafraid of getting the answers.
    I just had a few more issues. In following up on what the 
chairman said, the GAO report refers to FEMA providing funding 
to cities from the Department of Environmental Protection for 
the exterior cleaning of buildings, and the interior cleaning 
of residences. The EPA, through interagency agreements, would 
sample and test the air quality in the New York City area.
    One of the things we learned is that the city just did not 
have the expertise to do this assignment. There was a lot of 
confusion initially about who is responsible for indoor air. 
Some of us believed that EPA should have been responsible for 
indoor air. They went to the city. The city accepted the 
responsibility, but by February when I held a hearing in lower 
Manhattan, I asked the representative from the city Department 
of Environmental Protection, ``How did you get this 
responsibility? What are you doing with it?'' He was very 
honest. He said, ``You know, we know about water. We do not 
know about air.''
    This was something that the ball fell in the cracks. I 
think the legislation that Senator Voinovich and I are putting 
forward is to try to get everybody on the same page. Who has 
responsibility? What is the chain of command? Who is held 
accountable? We hope that the Administration will really 
strongly support this legislation. We think it is needed.
    But as you know, there has been a lot of scrutiny in recent 
days over the information that EPA provided to citizens and 
workers in lower Manhattan. Can you give me some more 
information on what specifically EPA was provided resources 
for, and the level of accountability required under the 
interagency agreement?
    Mr. Brown. No, Senator, I cannot right today. But I will 
get that to you. I just know when our Emergency Support Team 
mission tasks an agency to do something, they will spell out in 
that mission assignment exactly what it is that they want the 
Agency to do and the requirements. I will get that mission 
assignment and provide it to you.
    Senator Clinton. That would be very helpful.
    Let me also ask you two other questions. On the issue of 
hazard mitigation funding, and again you probably cannot do it 
sitting here, but as soon as possible can you provide me with a 
history of what disasters in the past have received 15 percent 
versus 5 percent caps.
    Also, has Governor Pataki submitted his request for hazard 
mitigation grants? If so, where is FEMA in the process of 
funding them?
    Mr. Brown. We will get you the background on who has 
received what in terms of the 15 and 5 percent. We will provide 
you that completely.
    The Governor has requested some mitigation projects which 
we have funded, some of which went to the Indian Point Nuclear 
Power Plant. But he has not expended all of those funds. He has 
used part of it for that program.
    Senator Clinton. Thank you.
    Finally, Mr. Secretary, there is a new issue that has come 
to light which has very serious implications. As you know, 
earlier this year Congress specifically directed that $1 
billion of the 9/11 related FEMA funds be used to create a 
captive insurance company to cover claims arising from the 
debris removal and cleanup of Ground Zero.
    The accompanying conference report said that this captive 
insurance company should not cover, and I quote, ``claims 
arising from the terrorist-related aircraft crashes of 
September 11, 2001.'' The conference report said that because 
Congress had taken care of liability for those attacks in 
Section 408 of the Air Transportation Safety and System 
Stabilization Act.
    Section 408 is in the title concerning the Victim 
Compensation Fund. It provides that if someone is injured by 
terrorist attacks and does not seek compensation under the 
Victims Compensation Fund, they can sue the airlines or the 
city of New York. But the liability of the airlines and the 
city would be limited. There was a specific provision for that 
limitation. In the case of New York City, the limitation was 
$350 million.
    I think the clear language of Section 408 makes it 
absolutely crystal clear that it was not meant to cover 
litigation arising out of the cleanup. That was a post-
terrorist event. The terrorists attacked. If the people do not 
want to go to the Victims Compensation Fund, they have a right 
to sue. But then we had the aftermath--the cleanup of the 
debris.
    The cleanup was completed in August 2002. I think that we 
have a problem here because of a recent court decision in a 
case called ``In Re: World Trade Center Disaster Site 
Litigation: Hickey v. City of New York.''
    I would ask unanimous consent, Mr. Chairman, to put in the 
record the specifics about this question. I think this raises 
an issue that the committee will have to address.
    This judge recently determined that Section 408, which the 
Congress specifically said was related to terrorist attacks, 
capped liability for airlines and for the city, will apply to 
debris removal cases that stem from the period when the 
contractors and the workers were on the pile.
    I know that FEMA is recently considering concluding that 
all debris removal cases would be handled under Section 408 
rather than under this Captive Insurance Company. I hope that 
is not the case. I think the explicit legislative purpose of 
the Captive Insurance Company was to deal with these debris 
removal cases.
    I know this is complicated. I know you are currently 
negotiating with contractors and the city of New York about the 
specifics about the Captive Insurance Company, but this is a 
very important issue. It would be just unbelievable if we had 
set money aside, allocated this Captive Insurance Company's 
responsibility, and all of a sudden we throw them into Section 
408 which I think would be a nightmare for everybody.
    The city of New York has told me there are over 1,000 
debris removal cases that were filed, with the vast majority of 
them going after the contractors. Everybody remembers what it 
was like there in those first weeks and months. Everybody knows 
people were just working as hard as they could, literally, 
around the clock. The debris cleanup was done before the 
scheduled deadline and under budget. It was a great tribute to 
the contractors and the workers, the city, and others who were 
involved.
    This is a very significant issue. I just do not think that 
we want to go outside the clear intention of Congress because 
one judge somewhere misreads the statute and end up using that 
as an excuse for dumping all these cases into that Section. I 
hope we can resolve this in line with what the congressional 
intent was, and the clear language of the statute intended.
    Mr. Brown. I am happy to say, Senator, that issue has not 
crossed my desk yet. I am sad to say it is about to cross my 
desk. Now I know. I will certainly take that into 
consideration. I do understand the issue.
    Senator Clinton. My office was intimately involved in 
drafting these sections along with the city. We stand ready to 
work with you and to try to resolve this in a way that we think 
reflects the language and the intent of the two different 
provisions.
    Mr. Brown. It is frustrating because it has taken so long. 
We have finally gotten to this final point now. Captive is 
ready. We have all that ready to go. We just need to resolve 
this.
    Senator Clinton. It would make no sense. I look forward to 
resolving this with you.
    Thank you, Mr. Chairman.
    Senator Voinovich. We have had a couple of rounds of 
questions. We have been joined by Senator Carper.
    Senator Carper, before we excuse Mr. Brown from his work 
here this morning, do you have any questions or a statement?

 OPENING STATEMENT OF HON. THOMAS R. CARPER, U.S. SENATOR FROM 
                     THE STATE OF DELAWARE

    Senator Carper. Yes, I do. Thank you very much.
    Mr. Brown, it is good to see you. I appreciate very much 
the chance to talk with you last week.
    Mr. Chairman, and my colleagues, this obviously is a very 
important hearing. FEMA's responses in New York after 9/11 were 
unprecedented. We hope that your Agency is never going to have 
to do anything like that again.
    I think we would not be doing our jobs, however, if we did 
not take some time to look back over the last 2 years and see 
what went well and what did not, what we can learn, and what we 
might want to change.
    I really want to applaud FEMA for starting this process on 
your own through the Public Assistance Program. We designed the 
project. We look forward to working with you and others on this 
committee to see what kind of reforms ought to be carried out.
    Mr. Chairman, I spoke with Mr. Brown last week on the heels 
of Hurricane Isabel, a freak storm that visited us several days 
earlier as the remnants of tropical storm Henri, called by some 
as Henry. The storm caused heavy rains not so much in northern 
Delaware, but more in Southeastern Pennsylvania of anywhere 
from 8 to 10 inches within about a 3-hour period.
    It led to flooding, not so much in Pennsylvania, but in 
Northern Delaware because of the confluence of the Red Clay and 
White Clay Creeks. It washed out a community of about 200 homes 
called Glenville, which you were good enough to talk with me 
about. It is almost 4 years to the day that they were washed 
out by Hurricane Floyd. It is the third time in about a dozen 
years that this community has been devastated. Each time they 
have come back, they have rebuilt and people have gone back 
into their homes. They have put a lot of blood, sweat, tears, 
and money into doing that. I think their spirits are broken 
this time.
    Through our own local agencies, we have helped them. FEMA 
has been right there. We appreciate them being there and 
working with our team to help people get into shelters and go 
in and do preliminary damage assessments and that sort of 
thing.
    The question I would have is this. If you can answer it 
today, then terrific. But if you would like have a little more 
time to give you answer then you can send it to me later this 
week, if possible.
    One of the people who live in Glenville do not want to go 
back. They have been through this two or three times. Their 
spirits are broken. They are interested in our congressional 
delegation finding out how they go forward with a buy-out 
program. Could you just take a moment and explain to us how it 
works. Our Governor has submitted to President Bush a request 
for Federal emergency designation, a disaster designation, 
because of the most recent hurricane. She has also submitted a 
separate request for this community and the surrounding area 
because of the damage from tropical storm Henri.
    How does the buy-out program work?
    Mr. Brown. Well, let me first address the request for 
declarations. The Henri request came in. We were looking at it. 
What we do often times is that we go back to the State and 
local officials and really work with them to try to define the 
numbers, to see if we are close. Are we clearly over the 
threshold? Are we under the threshold? How close are we? What 
additional information do we need that might help us get to 
that point? We do all those things.
    We were actually in the process of doing that for 
Glenville. Then Isabel hits. We have already expedited, at the 
Governor's request, the Isabel declaration. That is done. It 
will include Glenville. The entire State will be included based 
on this latest declaration. The prior declaration is still 
pending and still out there.
    What I need to figure out, Senator, is there anything 
additional we can do in terms of buy-outs? I do not know how 
many people had flood insurance and how many did not have 
insurance. It is something that I am going to have to come back 
to you and tell you that this is exactly what we will or will 
not be able to do or here are the flexibilities we have.
    I do want to assure you that under the expedited 
declaration we did for Isabel, that the entire State will be 
covered. I have told my folks to extend an incident period to 
make sure we get that covered.
    Senator Carper. All right. Thank you. In the next day or 
two, that would help us.
    The kind of things we are interested in resolving from FEMA 
is how does this program work in some other places? I am sure 
we are not the only community and we are not the only State 
this has happened in.
    Mr. Brown. That is why I want to be sure that I give you 
good accurate information. We will get something together and 
sit down with you.
    Senator Carper. Thank you. The questions will include: What 
can the community consider before they decide to try to pursue 
buy-outs? What is expected in terms of State and local 
participation in funding these. Are buy-outs even feasible or 
desirable for a community like Glenville?
    Those are the kind of questions we would like to resolve. 
If you can put us in touch with the right person, we would be 
grateful.
    Mr. Brown. We will do that.
    Senator Carper. I want to express a special thanks for the 
quick turnaround with response to the disaster declaration. 
That was much appreciated. Thank you.
    Thank you, Mr. Chairman.
    Senator Voinovich. Senator Jeffords, do you have any other 
questions?
    Senator Jeffords. No further questions.
    Senator Voinovich. Mr. Brown, I want to say to you that I 
really appreciate your service to this country. Your Agency has 
had an enormous burden with the aftermath of 9/11 and all the 
other things that just come your way. I would like to thank you 
personally and to carry back to the people that work with you 
our appreciation for the extraordinary work that they are doing 
to try to be responsive to all the things that they are being 
asked to do.
    Mr. Brown. Senator, I would just like to say in closing 
also that we certainly appreciate your concern about our 
people. It is our people within this Agency that makes us what 
we are. I really appreciate that.
    Senator Voinovich. Thank you.
    Our next panel is JayEtta Hecker, Director of Physical 
Infrastructure Issues, General Accounting Office; and Rick 
Skinner, Deputy Inspector General, Department of Homeland 
Security.
    Welcome. We are very happy to have you here this morning. 
We will begin with Ms. Hecker.

       STATEMENT OF JAYETTA HECKER, DIRECTOR OF PHYSICAL 
        INFRASTRUCTURE ISSUES, GENERAL ACCOUNTING OFFICE

    Ms. Hecker. Thank you, Mr. Chairman.
    We are very pleased to be here to present our work to both 
you and Senator Jeffords. In fact, most of the work that I will 
be basing my remarks on is work that either we have recently 
completed for you or has been ongoing for you as well as 
Senator Inhofe and Senator Clinton.
    The remarks that I will focus on today will cover two 
points--how much and what types of assistance the Federal 
Government provided to the New York City area following 9/11, 
and how the Federal Government's response differed from prior 
disasters. The presentation that I have uses a number of 
charts. Let me just briefly review; there is a lot of work that 
we have done and I do not want to confuse you.
    The report that you are releasing today is, as you stated, 
on the $7.4 billion Public Assistance Program by FEMA 
exclusively. That is what this report reviews in detail. In 
addition, we have a report on major management risks facing 
FEMA, which was another objective you had for today's hearing. 
I have some remarks in my statement based on that as well.
    My statement, though, and as you can see in this overview, 
is about the full $20 billion, not about the $7.4 billion FEMA 
program exclusively. However, I can talk about that in detail 
if we want to focus on that. Basically, I will be looking at 
the entirety of funding, with the focus on the distribution and 
the role that FEMA played in these four broad areas.
    To assist in your following this, we have made copies of 
the posterboards for you if you want to take a closer look at 
them. The overview is the estimated $20 billion that was 
pledged and that Congress has subsequently authorized.
    The major contribution that we have made to reviewing the 
provision of assistance is in two areas. First is giving more 
detail to it. You have seen it by agency and it has been 
authorized by agency, but what we have done is to sort it into 
four broad categories--initial response, compensation for 
losses, infrastructure restoration, and economic 
revitalization. These numbers actually exclude committed 
assistance where its use has not yet been decided. There is 
$1.16 billion that HUD has committed, but it has not been 
determined where it is going to go. The total also excludes the 
Victim's Compensation Fund.
    The next four charts are going to take each of these slices 
and talk about how much was provided and what was provided by 
each agency. In the initial response, you have $2.5 billion 
that has been provided for the initial response. We have 
pictures of the debris removal, the urban search and rescue 
teams. I do not know what State that team is from, but they are 
similar to your teams from Ohio who came in to aid New York. 
There were 20 of the 28 urban search-and-rescue teams that 
actually came to New York, the biggest deployment ever.
    Then on the bottom you have emergency transportation 
repairs. You can see the devastation to the tunnels that 
completely block them and the emergency cleanup that worked to 
clean that up. Of the $2.5 billion, in initial response 
funding, about $1 billion is for insurance to cover the 
liability of the city for the claims from workers and city 
officials who were involved in the cleanup and who may have 
been affected with health claims.
    That billion is not yet allocated and that agreement is not 
yet finalized. That is the $2.5 billion. It certainly was a 
record rate of activity. It was a pile of devastation that was 
seven stories deep. It was 11 stories high. It happened in 
record time and well below budget.
    The second phase which covers $4.8 billion is for 
compensation of specific disaster related costs. This goes to 
three categories of recipients--to city and State officials and 
other government organizations like the Port Authority; it goes 
to individuals; and it goes to businesses. The distribution 
included about $3.3 billion which went to New York City and 
State, about $800 million to individuals, and $683 million to 
businesses.
    The pictures we have here really are just symbolic. There 
are dozens of programs that are involved in serving those three 
constituencies. One picture is of the replacement of emergency 
vehicles. There were, of course, hundreds of emergency vehicles 
destroyed. That is what I think Assistant Secretary Brown was 
referring to is the traditional approach looking at vehicles, 
or physical damage. That was very quickly reimbursed.
    We also have a picture of the substantial number of folks 
coming in looking to find out what kind of individual 
assistance and compensation were available. There were dozens 
of programs, not just by FEMA, but by HUD as well. The total is 
$4.8 billion for compensation to the three categories of 
recipients.
    The next phase is for infrastructure restoration. This is 
actually a very unique area. Of course, there was the 
traditional damage that is always compensated under public 
assistance. But in this case there was an early agreement by 
FEMA and subsequently authorized by the Congress, not just for 
replacement of the damaged infrastructure, but actual 
enhancement and substantial improvement of the infrastructure.
    What we show in this picture is actually one of the 
renditions of a transportation infrastructure restoration of 
the South Ferry Street subway station. What you have is the 
current line, which is that yellow loop, which is very 
inefficient. It only allows 5 of the 10 cars to open in the 
station. The plan is to change that so that the full ten cars 
can come into the station. There was no damage whatsoever to 
this station. This is part of an agreement to substantially 
enhance the infrastructure of lower Manhattan.
    Similarly, the Fulton Street station was not damaged. There 
are improvements planned there at the $750 million level. There 
has been a real commitment by the Federal Government and with 
the endorsement by Congress to do far more than the simple 
historic replacement of the infrastructure, but a substantial 
improvement.
    There is also a similar commitment with HUD funding. The 
amount is about $500 million for improvement of 
telecommunications and communications infrastructure. That also 
was an improvement. That is not simply a replacement. It is 
meant to try to induce and improve the economy and make it more 
attractive to businesses like the Stock Exchange to have a more 
robust support and networked infrastructure so that they feel 
safe being in an environment where they could be so easily 
interrupted.
    The fourth phase is economic revitalization. This is 
estimated at a little over $5 billion. This includes a range of 
initiatives on the part of HUD to promote business attraction 
and retention. There is a diverse range of programs for large 
businesses, small businesses, as well as the $5 billion 
estimated value of the Liberty Zone Tax benefit plan that was 
passed by the Congress to assist in the revitalization of New 
York City.
    Let me turn quickly to the last chart which tries to 
summarize the major differences of this approach. Of course, it 
was the biggest disaster ever. It was certainly profound in 
terms of being a terrorist incident. But what I focus on is the 
changes in the process and the types of assistance that were 
provided.
    Basically we have categorized the changes into three areas. 
The first is that there was a complete waiving of State and 
local match. The law requires about a 75 percent match. At 
times some of the assistance has gone up to 100 percent, but 
never the entire amount of assistance. The State and local 
match was completely waived for all the FEMA public assistance 
for the first time in history and for all of the Department of 
Transportation funding. That is over $10 billion. The match 
there was waived.
    The second biggest area--I think this was not quite brought 
out this morning, and I would like to make this point clear. 
What was really unique is that it was first time in which the 
amount of the disaster assistance was set very early. It 
basically functioned as a funding target. Congress supported 
the President's commitment to provide approximately $20 billion 
to New York City.
    Basically, as Senator Clinton said, that has then 
functioned as a cap. So you had the various agencies who had 
dedicated funds, whether it was FEMA, HUD, or DOT, looking at 
how they could spend the funds allocated to them. The key thing 
was that they could not spend the $20 billion under Stafford-
eligible projects. Substantial flexibility was provided to be 
able to expend those funds. That actually was related to the 
recent consolidated appropriations that authorized FEMA to 
basically do what amounts to a cash transfer to the city of 
approximately $1 billion.
    This is for the type of assistance that was very 
nontraditional. FEMA basically closed out, for the first time 
in history, all of their assistance as of April 30. Then the 
amount that was left over is what was transferred. That was 
$1.1 billion that has recently been transferred to the city.
    That really summarizes the work. The key things are that it 
was an extraordinary Federal response. I am sorry to tell you 
that the data was a mess. It took us a long time to try to get 
it to tell you where the money went and how it was used. Our 
report on this area will have very comprehensive reviews for 
you in more detail on this, including the disbursement rate as 
well. We know that has been an issue of interest.
    Thank you, Mr. Chairman. I would ask that my written 
statement be placed in the record in its entirety.
    Senator Voinovich. Thank you very much.
    Mr. Skinner.

STATEMENT OF RICK SKINNER, DEPUTY INSPECTOR GENERAL, DEPARTMENT 
                      OF HOMELAND SECURITY

    Mr. Skinner. Good morning. I would like to thank you for 
having me here. I am Rick Skinner, Deputy Inspector General at 
the Department of Homeland Security. I would like to briefly 
summarize my remarks. I would like to discuss two issues.
    One is the work of the OIG in New York City following the 
9/11 terrorist attacks. Two is the OIG's perspective on FEMA's 
merger into the new Department of Homeland Security.
    First, let me address our work in New York. In response to 
the President's declaration, FEMA applied the full range of its 
authorized disaster assistance programs. The FEMA OIG, in turn, 
deployed four teams of auditors, inspectors, and investigators 
early in October 2001 to New York City to oversee the 
management of those programs.
    One team worked directly with the Federal Coordinating 
Officer and monitored the general management of the disaster 
field office and the disaster field operations. Another team 
worked with the FEMA public assistance staff, debriefed 
applicants on how to maintain records, reviewed accounting 
systems, and reviewed grant applications and claims to ensure 
the eligibility of costs.
    The third team worked with the U.S. Attorney and the New 
York City District Attorney to detect and prosecute fraudulent 
claims. The fourth team, in the fall of 2002, conducted a full-
blown review of FEMA's Individual Assistance Program. I brought 
extra copies of the report for those who may not have seen it. 
It was issued in December 2002. I will summarize a few of our 
more significant findings.
    Mortgage and Rental Assistance Program. FEMA historically 
has not had to implement the Mortgage and Rental Assistance 
Program on a large scale because previous disasters did not 
result in widespread unemployment and economic loss. 
Consequently, Congress eliminated the program when it enacted 
the Disaster Mitigation Act of 2000, making the program 
unavailable after October 2002.
    The effects of the 9/11 terrorist attack, however, 
demonstrated genuine need for programs such as this. Therefore, 
we have recommended in this report that Congress consider 
reinstating the program under the Stafford Act.
    Interagency Coordination Challenges. Responsibility shared 
among FEMA, EPA, and the U.S. Department of Justice's Office 
for Victims of Crime, and voluntary agencies were not defined 
clearly enough to distinguish roles and establish the sequence 
of delivery of assistance. Recovery from the 9/11 terrorist 
attacks highlighted the need for advance agreements and 
memorandums of understanding regarding shared roles, 
responsibilities, and authorities among those agencies most 
likely to respond to future such events.
    I know that Under Secretary Brown has addressed a few of 
those issues, particularly with regards to the coordination 
between FEMA and EPA in the cleanup and testing that took place 
there. It took place very late in the disaster because people 
simply did not have experience in dealing with issues like 
this.
    Assistance to Aliens. The Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 requires that FEMA 
public benefits be provided only to U.S. citizens, noncitizen 
nations, and qualified aliens. Yet, there were 9/11 disaster 
victims who do not meet this criteria, but who were lawful 
residents of the United States, in this country legally.
    One immigration advocacy group estimated that as many as 
80,000 lawfully present individuals in New York City are not 
qualified for Federal disaster assistance. This would include 
aliens here on work visas or student visas.
    We believe that FEMA should consider pursuing legislative 
change that would exempt its programs from the Federal Public 
Benefit Classification, when victims needing aid are lawfully 
present in the United States.
    Grants to small businesses were made on an ad hoc basis. 
The 9/11 terrorist attack had a negative impact on the New York 
City economy, strongly affecting businesses, both large and 
small. In fact, GAO issued a report on this very subject last 
year. There is, however, presently no ongoing Federal program 
that provides grant support to businesses adversely affected by 
terrorist attacks.
    SBA is authorized to make loans, not grants, to businesses 
adversely affected by disaster. The SBA is prohibited, however, 
from making loans to businesses that do not meet established 
eligibility criteria. SBA was unable, for example, to make 
loans to businesses that did not meet the Agency size 
requirements or standards.
    After the 9/11 attacks, Congress enacted special 
legislation allowing the State of New York to use Community 
Development Block Grant funds to make business recovery grants 
for those affected by the 9/11 disaster. However, this was a 
one-time exception. Congress may wish to consider whether the 
Federal Government should be the insurer of last resort for 
terrorist-related business losses. Such a policy decision would 
eliminate the need to respond on an ad hoc basis if a future 
event like this should occur.
    I would like to shift gears and address FEMA's transition 
into the Department of Homeland Security. This will be brief. 
As Under Secretary Brown has already noted in his testimony, 
FEMA has not missed a step in responding to disasters since 
becoming part of DHS.
    In May of this year, we sent a team of auditors to monitor 
FEMA's response and recovery efforts in the State of Missouri. 
The caliber and effectiveness of FEMA's response was the same 
high standard we have seen in the past. Notwithstanding the 
continued success of FEMA's response and recovery efforts, FEMA 
has many problems that need to be address. Its ability to 
effectively address them is compounded by its merger with DHS.
    Areas of particular concern include FEMA's financial 
management, the development and security of its IT systems, and 
grants management. Deficiencies in these areas could most 
certainly hamper the effective and efficient integration of 
FEMA programs and operations into the Department of Homeland 
Security.
    However, the FEMA OIG has also transitioned into DHS and 
the ability of that staff to provide oversight, as we have in 
the past, of those activities has been diluted due to the many 
high profile, non-FEMA programs and activities that the DHS' 
OIG has responsibility for.
    In addition, although numerous grant programs are now 
consolidated within DHS, their management is divided among 
various components of the Department. For example, preparedness 
for terrorism is in the Border and Transportation Security 
Directorate, while other preparedness efforts are in the 
Emergency Preparedness and Response Directorate. This 
bifurcation could create additional challenges related to 
intergovernmental coordination, performance accountability, and 
financial accountability.
    It is our understanding that these problems are now being 
addressed legislatively. Further, we just learned that 
Secretary Ridge has announced plans to centralize these 
programs within a single office in the Department. These 
initiatives, either legislatively or through reorganization, if 
implemented, could very well resolve many of our concerns.
    This concludes my opening remarks. Again, I appreciate the 
opportunity to testify before you today. I will be happy to 
answer any questions you may have. I would ask that my written 
statement be placed in the record in its entirety.
    Senator Voinovich. Thank you very much for being here.
    Ms. Hecker, this last chart that you showed us, the 
nontraditional work funded, such as improvements to 
transportation infrastructure in lower Manhattan. This is brand 
new to me. This was a massive infusion of public dollars to 
enhance the existing set up. In other words, this was more than 
just a replacement that we are dealing with?
    Ms. Hecker. Precisely.
    Senator Voinovich. What is the dollar amount on how much of 
this nontraditional money that was put in there? FEMA comes in 
and they do their work. They help with the library and fix it 
up. There may be other public buildings that may have been 
damaged. This seems to have gone way beyond anything like that.
    Ms. Hecker. We have not been able to identify an explicit 
number that was above and beyond Stafford in part because there 
was substantial flexibility that FEMA officials decided that 
they had within the Stafford Act to actually improve 
transportation infrastructure.
    There was actually a legal opinion. There was a conclusion 
that simple replacement of the infrastructure would not restore 
its functionality. Therefore, they felt improvements were 
necessary. There were certain types of improvements that they 
said would have been Stafford covered. But then you had 
congressional authorization saying that these completely 
unrelated areas could also be funded as well.
    It is not clean-cut of what is over and above Stafford. The 
Fulton Street station, as I said, was $750 million. There was 
no damage there. What they are doing is that they are 
connecting lines that previously were not connected. They are 
making it a complete lower Manhattan transit center where all 
the lines connect. There used to be at least three areas with 
more than 10 lines. There would be different stations. The 
South Ferry Station that was on the chart is $400 million.
    Ms. Hecker. Do you have that in your report on one page 
that you can see that? The reason I am asking the question is 
that this is an extraordinary commitment of infrastructure 
dollars. This was part of the cap, right?
    Ms. Hecker. Absolutely.
    Senator Voinovich. It is all within the cap?
    Ms. Hecker. Precisely.
    Senator Voinovich. The point I am making is that we may get 
some requests now to come in and say there are ongoing things 
that we needed to do and were capped out. What I am trying to 
say is it is an allocation of resources. If you put all the 
money, $1.5 billion, into public improvements and then you come 
back and say, ``Well, hey folks, we do not have enough money to 
take care of the people.'' I think Senator Clinton mentioned 
mental health.
    Who decided the allocation of the funds? The same people 
are coming to us to say, ``Hey, we do not have enough money for 
these people. But by the way, we did have enough money to do 
these public improvements to lower Manhattan.''
    Ms. Hecker. It is certainly a choice that officials in New 
York City and State made working with FEMA on the allocation of 
the funds. There were many meetings about it. There were lots 
of areas that came before the Congress where there were 
concerns about coverage. One was costs--$11 million for the 
rescheduling of elections, not a cost traditionally covered. 
There were increased Medicaid costs by the State--not a cost 
traditionally covered.
    There were costs of COLA adjustments to pensions. The city 
was looking for reimbursement of that. These are nontraditional 
types of costs nowhere covered by the Stafford Act, but with 
that expedited closeout and that transfer of additional funds, 
the city and State now will be making the choices of that 
remaining $1 billion and have made many choices already in 
terms of dedicating funds to transportation improvements.
    Senator Voinovich. I am really interested in that--all 
these things that are nontraditional.
    Ms. Hecker. We will try to isolate that. As I said, there 
is a fuzzy line in some of them.
    Senator Voinovich. Thank you.
    Senator Jeffords.
    Senator Jeffords. Thank you, Mr. Chairman.
    Ms. Hecker, did you find any information as to why the 
President capped the disaster funding for New York $20 billion? 
Was there any rationale given for that?
    Ms. Hecker. We have not seen much documentation on that. 
Basically the press reports were that there were overtures to 
him that he should come out with a very strong statement of a 
commitment to provide support for New York. There is no 
documentation of where the $20 billion came from. The Secretary 
said, ``There was very little known in the beginning about the 
buildings.''
    For example, the buildings were owned by the Port 
Authority. There was some concern at the beginning that perhaps 
the cost of the replacement of the building might be part of 
public assistance. There is not much documentation.
    But as the process went on and traditional applications 
came in, it was clear that the $8.8 billion that Congress set 
aside for FEMA was not going to be met with eligible Stafford 
Act projects.
    Senator Jeffords. Is the $20 billion sufficient?
    Ms. Hecker. Once you are out of the Stafford Act, 
everything is a question of judgment. The Stafford Act has its 
history about what is covered. What is covered by the Stafford 
Act has been provided or is covered in this $1 billion 
transfer. The above and beyond is a discretion of Congress to 
decide what is adequate.
    Senator Jeffords. This is a question for Mr. Skinner.
    In your written testimony you state that FEMA should be 
more proactive in requesting EPA to conduct necessary testing 
and there are studies to determine that the public health or 
safety threat exists in the future in future disasters.
    So that cleaning efforts can begin much earlier in the 
recovery phase, am I correct in understanding that had EPA 
expressed their concerns about indoor air quality in lower 
Manhattan earlier, FEMA could have provided emergency response 
funding more quickly?
    Mr. Skinner. Yes, I believe they could have. FEMA knew 
early on that there was asbestos in the air as a result of 
these attacks. But because FEMA's lack of experience in this 
area--as well as EPA's lack of experience in this area--and the 
question of whether they even had the authority to authorize 
cleanup of individual residences, particularly on the inside, 
was something that I think was discussed for many months before 
an ultimate decision was made to test and clean residences.
    What we are suggesting here is that in the future we need 
to be a little bit more proactive. If there is any evidence 
whatsoever, particularly after an event such as the terrorist 
attacks, or any possibility that there could be some 
contamination in the air, then FEMA should probably be going to 
EPA early on and directing them to test the air quality to find 
out exactly what hazards may exist. This needs to be done early 
on.
    I do not think either FEMA or EPA was prepared after 9/11 
to address this issue in the early stages of the disaster.
    Senator Jeffords. What complicating factors are present in 
the new Department that may make it more difficult for FEMA to 
conduct its work and address some of the management challenges 
you describe in your testimony?
    Mr. Skinner. FEMA's Financial Management System is a good 
example. It is fraught with problems and if you pull one 
string, the whole thing could fall apart. Now it is being 
integrated into the Department of Homeland Security's Financial 
Management System.
    FEMA's financial management systems have several material 
weaknesses that will affect the Department of Homeland 
Security's ability to build a reliable department-wide 
accounting system. The same holds true, for example, with the 
IT systems. There were IT development efforts ongoing within 
FEMA prior to the creation of DHS. Many of those development 
efforts now have to take a back seat or have to compete with 
other priorities within the Department of Homeland Security as 
to which IT projects should be continued.
    The security of FEMA's IT systems, like the security of all 
the legacy agencies, are very weak. Only a handful of them may 
have passed an IT security ``litmus'' test. The problem will 
certainly affect DHS' ability to integrate legacy systems into 
a department-wide system.
    Grants management has always been a problem with FEMA. It 
also has been a problem with the DOJ programs, from what I 
understand. According to DOJ-OIG reports, grants to the States 
are oftentimes made late. In FEMA's case, grants are timely, 
but once the funds are passed out, there is no accountability. 
FEMA does not obtain accurate and timely financial reports, nor 
are they making onsite monitoring visits. FEMA is validating 
that the funds are being spent the way they are supposed to be.
    I was the Deputy Inspector General at FEMA before the 
merger with DHS. We questioned over $900 million in grant 
expenditures in just FEMA programs alone over the last 9 years. 
These are the types of issues that the DHS must now grapple 
with, now that they are merged in with DHS. These are problems 
that will need to be addressed now that they have been 
transferred into DHS.
    Another issue, and I think it is a very serious one, DHS 
needs to take a very close look at, is this: Are these grants, 
in fact, enhancing the State and local's ability to respond to 
and recover from disasters, whether they are caused by natural 
events or terrorist events? DHS has no performance measures to 
suggest that the grants that are being passed out on a yearly 
basis, costing billions of dollars, are, in fact, having an 
impact on the nation's ability to prepare for and respond to 
disasters. I think that this issue needs to be addressed 
sometime soon as these accounts get larger and larger as time 
goes on.
    Senator Jeffords. Thank you. I know I went well over my 
time, but I think it is information well deserved to be 
received.
    May I continue?
    Senator Voinovich. I have some other questions.
    Senator Jeffords. Then you go ahead and let me rest.
    Senator Voinovich. Probably what we need to do is to look 
at all the various agencies that are being merged into the 
Department of Homeland Security. How many of them are on GAO's 
high risk area?
    Ms. Hecker. The whole merger is on the high risk list.
    Senator Voinovich. The issue that Mr. Skinner is getting at 
is that some of these components were already weak to begin 
with and now they are going into the new Agency. The issue is: 
Are they going to better cured by having DHS just focusing on 
that issue in other agencies and put it all in one basket? Will 
they be better off just focusing on FEMA to make sure that 
their financial management systems are in place? That is a 
policy decision that needs to be made.
    One of the points that you made--and again I would like to 
capture it, is that the grants that were given to New York did 
not require the match. Have you captured the cost savings in 
terms of not having to come forward with a match? Traditionally 
the locals have to come up with a match. In this particular 
case, that was waived. Did you put a dollar amount on that?
    Ms. Hecker. As I said, the law requires a maximum 75/25 
percent State/local match. In prior disasters, the State/local 
match has been waived for part of the disaster. In the North 
Ridge earthquake, part of public assistance, the emergency or 
the short-term work, the State/local match was reduced to 10 
percent. In some disasters, the Federal Government has covered 
100 percent for some specific expenses or time period. As such, 
you cannot just estimate what is 25 percent of $8.8 billion. 
Historically there is a lot of a discretion there to vary the 
amount. The point is that it has never been entirely without a 
State or local match for the entire value of the public 
assistance, in this case $8.8 billion.
    Senator Voinovich. What I would like to do would be to take 
a minimum figure. In other words, if you look at other 
projects, is this is worth 25 percent, 15 percent, or 10 
percent? I would like to get a handle on how much money the 
local communities were saved as a result of not having to come 
up with the match which is a match that traditionally 
communities have to come up with. We had to come up with it in 
Ohio when we had our disasters.
    Ms. Hecker. Particularly for the transportation 
improvements. This is the first time that the transportation 
match has been waived as well.
    Senator Voinovich. I am really interested in that. I would 
like to really capture the total cost of all of this and what 
was done. All right?
    Ms. Hecker. Yes.
    Senator Voinovich. Mr. Skinner, I would like to talk about 
the issue of information on what people are exposed to. Does 
FEMA traditionally get into the issue of air quality?
    Mr. Skinner. To my knowledge, no. It is somewhat unique.
    Senator Voinovich. That is like an EPA's responsibility. 
The issue then becomes when EPA gets involved, are they 
responsible for the air quality outside and inside? You may not 
have the answer to this.
    Mr. Skinner. I do not know the answer to that. It was my 
understanding that at the time of the World Trade Center 
incident, they did not believe they had the authority or 
responsibility for the air quality inside a residence.
    Senator Voinovich. In other words, they felt that was up to 
the local health department to determine what was the condition 
inside?
    Mr. Skinner. Yes; that is my understanding, but that 
question could be better answered by EPA.
    Senator Voinovich. One of the things that I am interested 
in, as I mentioned earlier, is the legislation that Senator 
Clinton and I have that was voted out of this committee that 
empowers the President to move in and get all that information. 
We still have the situation where you have the EPA out there. 
Allbaugh was taking about Health and Human Services being 
involved.
    I would like to get an answer in terms of what is the 
vehicle that would be looked to if the President were to 
exercise his authority under this legislation. It is easy to 
have legislation. But the issue is if it happens, who is 
responsible for what? Is it going to be EPA that is going to be 
the one that is doing it? Is it Homeland Security that is going 
to be done? Is it HHS?
    Something has to be put together so that it is 
comprehensive. Are they responsible for just the exterior air? 
All of that, I think, really needs to be worked out. I think we 
ought to get a question to the Agency and really followup on 
that particular issue.
    Mr. Skinner. Yes, I agree. That was our point in our 
report. I think the lessons learned from 9/11 should be a 
guideline for FEMA and EPA to start developing some protocols 
before the next disaster, so when the next incident does occur, 
they will be better equipped.
    Senator Voinovich. In terms of your oversight there, did 
you ever get into the issue of their processing of these claims 
for the first responders in terms of their health claims? Did 
you look at that at all?
    Mr. Skinner. No, we did not, sir.
    Senator Voinovich. It is just another area where they just 
did not get the job done.
    Mr. Skinner. It was just so much to do there. Again, we 
focused primarily on the individual assistance programs, 
knowing that GAO was going to be focusing on the public 
assistance programs.
    Senator Voinovich. OK. I have exhausted my time.
    Senator Jeffords.
    Senator Jeffords. I have no further questions.
    Senator Voinovich. I would like to thank you both for being 
here today. It has been really illuminating.
    Mr. Skinner. Thank you. It was our pleasure.
    Senator Voinovich. I am going to ask that FEMA report and 
the GAO report on FEMA, ``Major Challenges and Program Risks,'' 
released today be entered into the record.
    Without objection, so ordered.
    [The referenced reports follow:]
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    Senator Voinovich. We have people here at the front lines 
today. Brother Shipley and I have been through a lot together. 
I think you were on a leave of absence to go over to Chicago 
and work for FEMA for awhile. Now he has returned back to Ohio.
    Senator Jeffords, I would like you to know that we probably 
have the best emergency management facility in the United 
States of America. In fact, James Lee Witt was there when we 
cut the ribbon on it. Mr. Shipley is really an outstanding 
individual that has served our State and country for many 
years.
    Senator Jeffords. Is that because you have so many 
disasters out there?
    Senator Voinovich. Thank God we did not have that many of 
them.
    [Laughter.]
    Senator Voinovich. Mr. Larson, you certainly have been 
through it and probably could write a book. Maybe you are 
starting to do that. We are very happy to have you here with us 
today.
    If you could limit your comments to 5 minutes, I would 
appreciate it.
    I think we will begin the testimony with Mr. Shipley.

 STATEMENT OF DALE SHIPLEY, EXECUTIVE DIRECTOR, OHIO EMERGENCY 
    MANAGEMENT AGENCY, ON BEHALF OF THE NATIONAL EMERGENCY 
                     MANAGEMENT ASSOCIATION

    Mr. Shipley. Thank you, Chairman Voinovich. I appreciate 
the opportunity to be here today. Senator Jeffords, it is a 
pleasure to be here with you. I am Dale Shipley, Director of 
the Emergency Management Agency for Ohio, and Past President of 
the National Emergency Management Association. I am here today 
representing NEMA.
    Certainly it is a historic time as we create the Department 
of Homeland Security. Part of my focus will be to emphasize an 
all-hazards approach to disasters which have been the basis for 
our response to disasters for some 25 years.
    NEMA supported the inclusion of the Federal Emergency 
Management Agency into the Department of Homeland Security 
because it was obvious that the primary focus for that 
Department was to address a major new threat to the United 
States, that of terrorism, which we view as one of many 
threats. Hurricane Isabel recently reinforced the all-hazards 
approach that the Department is built upon.
    In Ohio, we have had two Federal disaster declarations 
since FEMA was incorporated into the Department in March. We 
have seen no change in the speed, availability, or the 
flexibility of assistance from FEMA since it came into the new 
Department.
    Other agencies within the Department of Homeland Security, 
as was mentioned by Secretary Brown, will provide even greater 
assistance to us as we look to them for research and 
development, new requirements we have in light of the focus on 
weapons of mass destruction, and increased security against 
that threat through prevention. The Department of Homeland 
Security repeatedly stresses as its number one mission as 
information-sharing programs and funding for increasing the 
capabilities for a more effective response.
    You specifically asked me to address the Public Assistance 
Program. As you know, it addresses public needs, specifically 
the costs of debris removal, damages to roads and bridges, 
water control facilities, public buildings, public utilities, 
and parks and recreation facilities.
    Public assistance is particularly important for disaster 
relief because communities need these vital functions restored 
in order to get back on their feet. A terrorist event, such as 
the World Trade Center or the anthrax attacks, cause 
redefinition of programs which are based on threats experienced 
during the previous 25 years.
    As Secretary Brown testified, the Stafford Act allows 
flexibility and continues to serve us well, although certainly 
policies and procedures had to be rewritten after this 
unprecedented disaster occurred.
    In Ohio, we have staff that work with FEMA to assist 
various applicants for public assistance in identification, 
applications and accomplishing eligible projects. During this 
current Federal fiscal year, we have had four Presidential 
disaster declarations in Ohio with some 997 public entities--
villages, townships, counties--apply and received $49 million 
in public assistance.
    Ohio employees act to manage these problems and interface 
all these applicants with the Federal Government, and are 
charged with keeping records, handling all reporting 
requirements, closing out the projects, closing out the 
disasters, and managing the 25 percent non-Federal cost share.
    We also manage one of the few State programs for public 
assistance. Under the State law, the Ohio Governor can declare 
a disaster, and if it does not warrant or is not large enough 
to warrant a Presidential declaration, then we will implement a 
State public assistance program. We have had four such 
declarations in this same 1-year period, which have assisted 83 
applicants at a total cost of $4.8 million. You can see the 
relevant size that I am talking about in State disaster versus 
Federal disaster declarations.
    One challenge this year was a congressional appropriations 
for 2003 were about half the normal anticipated costs in the 
disaster relief fund. That resulted in the Federal Government 
writing some IOUs which the committee asked about earlier in 
this hearing. We have had some examples where snow and ice in 
Monroe County, for instance, one our smallest counties. I think 
15,000 people live there. They had a public assistance approval 
for almost a half million dollars in losses from that snow and 
ice disaster. Only earlier this month, we were able to draw 
dollars to help them accomplish those projects.
    Other issues that I would like to bring before this 
committee involve both pre- and post-disaster mitigation 
programs. I have really been pleased to see some questions 
involving mitigation and the cost shares of these programs. 
Senator Clinton, in particular, brought up the fact that 
recently we have reduced the formula for mitigation money from 
15 percent of total disaster cost to 7.5 percent. In fact, she 
addressed the issue of a 5 percent cap put on mitigation for 
the New York disaster.
    Let me just give you the most recent success story that 
emphasizes what I believe is critically important to our 
mitigation efforts. Hurricane Isabel--there were 220 homes in 
Bell Haven, NC that were elevated with Hazard Mitigation Grant 
Program funds after Hurricane Fran in 1996.
    None of these homes flooded last week, even though there 
was significant flooding on the Pungo River.
    We try constantly to find examples where we can go back and 
show that getting people out of harm's way is good government, 
good business, and reduces costs of life and property 
ultimately if we can just mitigate what we know will be future 
disasters.
    My written testimony includes comments about a correction 
to the Disaster Mitigation Act of 2000 asking for more 
flexibility in our assistance to individuals and households 
where we ended up with a cap of $5,000 in that program which 
should be flexible. We should be able to increase it. It is in 
the best interest of ourselves and our victims.
    Senator, you asked specifically if we would address your 
proposed legislation on health monitoring of volunteers. My 
personal angle on that not only is to be supportive of that, 
but that we all need to be critical, as you know, in all of our 
disaster response. We are absolutely dependent upon the 
thousands and thousands of volunteers who come forth to help 
us. Government cannot do everything for everybody, nor should 
we even try.
    The Salvation Army and the Red Cross are voluntary 
organizations active in disasters. All the religious 
organizations and all the people that come forth to help are 
critical to our success. People like we have volunteering to 
serve in our urban search and rescue task forces must be cared 
for. I appreciate your interest and your concern in doing that.
    As we work to establish a new Federal Department of 
Homeland Security, we must not forget the all hazards approach 
to emergency management. We must prepare for and respond to all 
threats, the common as well as the extraordinary, whether it is 
flooding in Ohio, a hurricane in North Carolina, tornadoes in 
Kansas, or an explosion of known or unknown origin.
    States need a Federal commitment and system, recognizing 
that each State and local government has unique disaster 
mitigation, preparedness, response, and recovery needs that 
require flexible, predictable, and adequate funding assistance 
that is coordinated with the State emergency management plan.
    Again, I thank you very much for the opportunity to be 
here. I would ask that my written statement be placed in the 
record in its entirety.
    Senator Voinovich. Thank you for being here.
    Mr. Larson.

         STATEMENT OF BUD LARSON, ASSOCIATE DIRECTOR, 
         NEW YORK CITY OFFICE OF MANAGEMENT AND BUDGET

    Mr. Larson. Good morning, Chairman Voinovich and Senator 
Jeffords. My name is Bud Larson. I am the associate director of 
the New York City Office of Management and Budget.
    My responsibilities include, among others, coordinating and 
processing all the FEMA claims by the city of New York. I am 
thankful for the opportunity to share the city's experiences in 
this process over the last 2 years. In particular, I would like 
to provide you with some insight on how the city and FEMA 
responded to certain limitations in the Stafford Act.
    Immediately following the attacks of September 11, 2001, 
the President and Congress committed over $20 billion of much 
needed aid to the city of New York. The aid included a $5 
billion Liberty Zone tax incentive package, over $3 billion in 
Community Development Block Grants for Economic Development, 
and almost $2 billion to the U.S. Department of Transportation 
for downtown transit upgrades, and over $8 billion to FEMA for 
transit improvements, individual and family assistance grants, 
and public assistance programs.
    Of these, the city of New York is eligible to make direct 
claims for reimbursement of disaster-related costs only through 
the FEMA's Public Assistance Programs. The city's claims have 
totaled approximately $3.5 billion.
    Overall, FEMA has been remarkably efficient and flexible in 
reimbursing the city, given the constraints of the Stafford 
Act. Since the 9/11 terrorist attack was the largest disaster 
ever in the United States, the associated costs borne by the 
local government was the largest FEMA has ever had to deal 
with. FEMA recognized very early on in the process that they 
had entered into new uncharted territory.
    As this disaster was unlike any they had responded to 
before, FEMA officials were willing to work as hard as possible 
in order to provide the necessary reimbursements to the city of 
New York. The city has already received almost 100 percent of 
the claims filed and currently eligible to be reimbursed, 
excluding the $1 billion insurance fund. A large portion of the 
balance of Public Assistance funds have been earmarked for 
transportation improvements for the new transit hub in lower 
Manhattan and will be provided to the appropriate entity when 
the expenses occur.
    The city has already received almost 100 percent of all 
claims filed and currently eligible to be reimbursed, excluding 
the $1 billion insurance fund. A large portion of the balance 
of Public Assistance funds have been earmarked for 
transportation improvements for a new transit hub in Lower 
Manhattan, and will be provided to the appropriated entity when 
the expense occur.
    This success is attributable to the staff of FEMA, the 
State of New York, all our city agencies, and the assistance of 
our congressional delegation including Senator Clinton. While 
we greatly appreciate the work done by FEMA in providing the 
city with appropriate reimbursement, there are a number of 
limitations in the Stafford Act that did not make this an easy 
process.
    If not for congressional action, the city would still not 
have received reimbursement necessary to cover the unique 
expenses a local government incurs when responding to a 
terrorist attack. In fact, there are some instances where the 
city will never receive appropriate reimbursement due to these 
limitations.
    First and foremost, due to the extent of the damages and 
the destruction of the financial center of the Nation, the city 
and the State lost a substantial amount of tax revenue as a 
direct result of this terrorist attack. The city estimated 
substantial losses in tax revenue of almost $3 billion in 2002 
and the 2003 city fiscal years directly attributable to the 
attack, and independent of the economic slow down.
    These losses were due to decreases in city personal income 
taxes, business taxes, and reduced sales taxes. In addition, 
the actual destruction of property, the closure of lower 
Manhattan, and the significant effect on travel and tourism to 
New York in particular, also had a devastating effect on our 
tax revenues.
    While some have argued that it is impossible to link the 
loss of these revenues to the terrorist attack, the General 
Accounting Office issued a report on July 26, 2002, reviewing 
these estimates, and noted that the tax revenue loss estimates 
for 2002 ``appear to reasonably approximate the impact of the 
terrorist attacks on tax revenue.'' I also want to make it 
clear that the city did not receive any funds based on the 
city's experiencing a budget shortfall as a result of these 
lost tax revenues.
    Currently, the Stafford Act does not allow FEMA to provide 
any reimbursement for lost tax revenue to local governments. 
While the Community Disaster Loan Program currently exists, the 
loan amount is capped at only $5 million, not even a fraction 
of the costs associated to such a large terrorist attack in a 
major metropolitan city.
    Since the Stafford Act does not accommodate this very real 
need for disaster stricken local governments, the people of the 
city and the State of New York have been forced to shoulder 
these additional financial burdens caused by an act of war.
    Another limitation of the Stafford Act is the lack of 
provision for local governments to receive reimbursement for 
unique expenses associated with a terrorist attack. New York 
City was the direct target, as were the Pentagon and the 
District of Columbia. And as a direct target, the city needed 
to take an action immediately by heightening security in all 
parts of the city.
    Prudence demanded that the entire city needed to be shut 
down. Bridges and tunnels into Manhattan needed to be closed. 
Subway lines and rail lines needed to be suspended. The 
security at the United Nations and other key locations were 
immediately heightened. These costs were incurred directly as a 
result of the city being a terrorist target.
    However, the Stafford Act does not recognize these expenses 
as eligible reimbursements since these additional expenses did 
not occur at the actual site of the disaster. While FEMA worked 
to interpret the Act as broadly as possible under the narrow 
confines of the Stafford Act, FEMA could not grant 
reimbursement. It took a special act of Congress to allow FEMA 
to provide the reimbursement to the city of New York for these 
costs which would clearly not have been incurred but for the 
terrorist attacks.
    After receiving congressional authorization, FEMA responded 
diligently and effectively in processing these new claims. But 
the fact remains that in any future terrorist attack there will 
be a significant related cost incurred by local government that 
will be ineligible for reimbursement under the Stafford Act.
    Finally, one of the most complex obstacles to full 
reimbursement under the Stafford Act encountered by the city 
involved in the environmental liability as it relates to debris 
removal. Immediately after the attack on September 11, the city 
responded by deploying police officers, firefighters, EMS 
workers, and other employees to the site for search and rescue.
    At the same time, the city contacted four construction 
management companies to begin the process of debris removal. 
These companies, along with dozens of subcontractors, acted 
with a sense of patriotism and worked without contracts, 
insurance, or indemnity. This response by the municipality and 
its contractors were immediate and necessary. All parties took 
substantial risks.
    In order to protect against liability for the city and its 
contractors, the city sought to obtain insurance in the private 
market, but was able to obtain only $79 million of general 
liability coverage. Even that coverage came with significant 
exclusions. The city and its contractors accordingly sought 
legislation providing for Federal indemnification of these 
claims, but without success.
    Finally, as a result of congressional action, FEMA set 
aside approximately $1 billion for an insurance fund to protect 
the city and its contractors from claims relating to the debris 
removal process. While the city and the contractors will 
benefit from the substantial coverage, the amount of coverage 
is only a fraction of the $12 billion of damage claimed already 
against the city.
    The creation of this insurance fund was difficult and 
complex and was aggravated because the Stafford Act provided no 
facility for its funding. In fact, even after 2 years since 
this attack, and 7 months after the additional congressional 
action, this insurance fund has yet to be created and 
negotiations between FEMA, the city, and its contractors are 
still ongoing.
    This clearly is an unfortunate circumstance and one no 
local government or contractor should have to deal with. In 
fact, this experience may cause governments and others to think 
twice before responding to a terrorist attack. The Federal 
Government must address this issue by either enacting Federal 
indemnification or an insurance plan to protect municipalities 
and their contractors.
    While the city's experience with FEMA has not been without 
difficulties as I just explained, I want to be very clear that 
this was in no way due to the staff or the mission of the 
Agency. I have the utmost respect for the professionalism and 
the diligence of the people at FEMA. It was the constraints in 
Federal statute that proved to be difficult.
    I urge you to examine these issues and determine the best 
course of action so local governments and taxpayers are 
protected from the additional financial burdens of a terrorist 
attacks.
    I thank you for your patience and would be glad to take any 
questions. I would ask that my written statement be placed in 
the record in its entirety.
    Senator Voinovich. Thank you, Mr. Larson.
    I am impressed with your testimony. It follows up on some 
of the questions that I asked the previous witness. The point 
you are making is that even though the local share was waived 
when you calculate some of the losses that you incurred that 
were nontraditional in a typical disaster, that that cost far 
exceeded any waiver of local match that you might have 
benefited from?
    Mr. Larson. That is true.
    Senator Voinovich. I think the real issue here is this. Are 
you aware whether FEMA is now reevaluating the Stafford Act to 
have a separate category dealing with terrorist attacks like 
you experienced?
    Mr. Larson. I believe that they are doing a review, but I 
am not really sure what the details of that review entail.
    Senator Voinovich. I think what we will do is find out.
    The question I would like to ask both of you is this. 9/11 
was not typical. God forbid we have another one. But the fact 
is that we could. Would you suggest having a separate set of 
criteria laid out for that kind of disaster separate and apart 
from the Stafford Act in terms of its traditional response to 
disasters in this country?
    Mr. Larson. I believe that there are modifications required 
to the Stafford Act to look at those issues that relate 
specifically to acts of terrorism which are not necessarily 
something that FEMA has normally dealt with in a natural 
disaster. The Act should be adjusted in such a way that those 
could be recognized as true costs are reimbursed. Also very 
importantly, because of the types of things that happen at 
terrorist attacks, to make sure that those responders are 
covered for any liability claims that might be put against them 
in the future.
    In the case of 9/11, obviously this was such a huge event 
that the insurance industry was not able to handle this which 
is how it would be handled under a normal event. In a normal 
situation, when we would have entered into a contract with the 
contractors, included within that contract would be standard 
insurance. FEMA would pay for it. But since there was no market 
for insurance, FEMA had no mechanism to provide the type of 
liability coverage that they would normally do.
    Senator Voinovich. On behalf of your national organization, 
do you have an opinion on that?
    Mr. Shipley. Sir, it would be my personal opinion. Yes, I 
think we could establish thresholds at which certain additional 
assistance might be available. Just as you have had occasion as 
Governor to make a decision on when a local government was 
impacted so severely that they could not even meet their 12.5 
cost share, which we normally ask them, States would go ahead 
and say, ``We will cover 100 percent of your costs.''
    When you get into the sort of disaster that occurred here, 
lost tax revenue, if we are without power for 24 or 48 hours, 
probably should not be a consideration. But lost tax revenue 
with an incident the size that occurred in New York City, I 
think brings new dynamics into play. Yes, maybe we should look 
at what point should additional assistance be made available 
when it is just beyond the capability of local governments to 
make it up.
    Senator Voinovich. Do you the staff capacity at your 
organization to put something together and make a 
recommendation?
    Mr. Shipley. I would take it back to NEMA and work with 
them, if that is OK.
    Senator Voinovich. I would really like them to sit down and 
think about this and come back with some recommendations on how 
we can handle this thing so we can prepare and eliminate some 
of the problems that Mr. Larson has encountered.
    Mr. Shipley. I think the issues were faced not only in New 
York but in Virginia with the Pentagon, and the office building 
in Oklahoma. I think all of those States have experienced these 
extraordinary sized disasters. There was Hurricane Andrew in 
Florida also. We will probably have valuable input for us to 
look at what we might revise to deal with those.
    Senator Voinovich. Thank you.
    The other issue that you talked about and I am really 
interested in is mitigation. Let us take the Ohio River. We had 
those folks that continued to have their places flooded. We 
made a condition, did we not, that they could not get any help 
unless they moved? But then the issue was how much money did we 
have available to help them move? Is that what you are talking 
about, that they have limited the amount of money that is 
available?
    Mr. Shipley. Yes, sir.
    Senator Voinovich. I do not understand. Fifteen percent of 
what? The cost of moving?
    Mr. Shipley. The money that has been made available for 
mitigation projects has historically been set as a formula of 
total disaster costs for a disaster. So if we in Ohio have a 
disaster that we expend $20 million in recovery, then we would 
take 15 percent of that amount which would be made available 
for mitigation projects.
    The percentage of the total disaster costs to calculate 
mitigation was reduced from 15 percent to 7.5 percent in the 
2003 Omnibus Appropriations bill.
    Senator Voinovich. So you have less money to move people 
out. Do you still have the rule that says that if you have been 
a disaster victim and you do not move, you are not going to get 
relief a second time without insurance?
    Mr. Shipley. What we require is flood insurance. We cannot 
force people to move. It is a voluntary program. But we can 
require them to buy flood insurance or they would receive no 
individual assistance in future flooding. We are trying to 
encourage people to cover themselves, either through insurance 
or elevation, or other forms of flood proofing, or let us buy 
you out and get you completely out of the area.
    There are a lot of options. As the Senator commented 
earlier, sometimes people do not want to leave, but sometimes 
even they get beaten down to the point where they say, ``Hey, 
we have to get out of this town. We have to get to higher 
ground.''
    We have had some success, as you know, in doing that.
    Senator Voinovich. Senator Jeffords.
    Senator Jeffords. Thank you, Mr. Chairman.
    I was pleased to have your testimony. It has been very 
helpful.
    Mr. Shipley, in light of the fact that the FEMA Director 
was once a Cabinet-level position, and the past close 
relationships FEMA Directors had with the Presidents, in your 
opinion, how do you think FEMA is doing in the new Department 
of Homeland Security? Are disaster declarations and assistance 
taking longer to get approval? Does anything need to be done to 
address FEMA's role in the Department?
    Mr. Shipley. My answer may surprise you. FEMA and the 
Department of Homeland Security leadership and the White House 
have worked out the procedures for disaster declaration so that 
they still move directly from FEMA to the White House with 
information to the Secretary of Homeland Security's office.
    There is no slow down in the processing and requesting that 
the President make a decision and response. The major 
difference that I am seeing is that there is a new boss over 
FEMA dealing with all disasters, all threats. That organization 
is still struggling to figure out exactly how they are going to 
deal with defining the threat, accomplishing the intelligence 
gathering and sharing, focus on prevention at the same time 
that FEMA still has the mission of preparedness, response, and 
recovery.
    I think it is interesting to see that Senator Voinovich has 
asked some of the questions of who is responsible for what and 
when which is the essence of emergency planning. Who is 
responsible and under what conditions? When you look at indoor 
air, outdoor air, that is the responsibility of the Federal 
response plan written by FEMA to spell out just those exact 
things.
    We are in the process, under the Department of Homeland 
Security, of rewriting what we are calling a national response 
plan. It is not being led by FEMA. Those are just some things I 
see going on that is complicated, whereas Secretary Brown is 
the Director of FEMA, was responsible for coordinating Federal 
organizations in response to disaster. The Secretary is now 
directly responsible to the President for that same thing. So 
there is some growing pains and some coordination issues that 
they are working hard on.
    Senator Jeffords. I appreciate that response. We would like 
to followup with you as time goes by to make sure that those 
problems are resolved.
    Thank you.
    Mr. Shipley. I would welcome the opportunity.
    Senator Jeffords. Mr. Larson, the GAO report indicates that 
New York City officials interviewed believe that changes need 
to be made to existing authorities under the Stafford Act in 
order to effectively respond to events of terrorism.
    Can you explain first what New York City wanted to do but 
could not do in the structure of the existing program? Then 
describe what legislative changes you might propose?
    Mr. Larson. First, I do not believe that we were prohibited 
in any fashion from doing what we wanted to do because of the 
Stafford Act. All of the decisions as to how to respond to this 
emergency were based on public safety issues being priority. We 
did everything we believe we needed to do.
    After we did those things, the ability to be reimbursed for 
costs which we believe were directly related to this being a 
terrorist attack, were not eligible reimbursement costs under 
the Stafford Act. We believe that the definition of 
reimbursable costs for terrorist attacks should have some 
flexibility relating to those types of costs that do not occur 
on the site, which is the limited focus of Stafford Act.
    Also, unfortunate as it might be, we experienced such a 
tremendous loss of members of our emergency response forces 
that we had significant additional training costs to return 
those offices to full staffing, after the event. Those costs 
were not reimbursable. As unfortunate as it may be, we have 
huge additional disability costs related to this event which 
were not covered under the normal Stafford Act--potentially 
$170 million of additional disability pension costs.
    There are a whole series of those types of costs that I can 
track directly back to this being a terrorist event, somewhat 
different than the natural disaster. But the guidelines under 
the Stafford Act did not permit those to be reimbursed. I think 
we need to expand that definition to recognize some of these 
issues.
    Again, the other thing that is very important is the type 
of liability that local governments might be facing because of 
the actions they took to protect their citizens. They should 
have some comfort that they will not be bearing a burden of 
liability for what was an attack against this country.
    Senator Jeffords. Will you or someone be preparing 
suggestions on how to make improvements in the Stafford Act to 
alleviate those problems?
    Mr. Larson. We would be happy to work with somebody on 
that.
    Senator Jeffords. I would appreciate that very much. Thank 
you.
    Thank you, Mr. Chairman.
    Senator Voinovich. I would like to thank both of you very 
much for coming. We would really appreciate your followup to 
some of the questions that we have raised here today and your 
organization looking at this whole thing. We also appreciate 
your continuing input as this reorganization goes.
    I would welcome, as the chairman of this subcommittee, 
periodically receiving information from you as to how you think 
things are going, that they are doing this or they are doing 
that, and ``Gee, if they did it differently, it would be 
better.'' We do not want to not hear from you for a year and 
they go ahead and do their thing. I would rather correct it as 
we go along rather than wait until it is too late to do 
anything.
    Again, Mr. Larson, you have the experience. You have done a 
nice job of outlining some of the things that you have been 
confronted with that were not covered. You have the real 
perspective. Then you have an issue--is it in the Stafford Act?
    I would like from my perspective to lay out all the things 
that you would be doing if you were sitting in the Department 
of Homeland Security. You are the people that are on the ground 
and know it.
    Mr. Shipley knows I am a big believer in empowerment and 
quality management and going to the people that are dealing 
with the problems to get their information. I have to tell you 
that in too many instances the folks here do not know what it 
is. They do not understand what it is on the street. You would 
really help me to give me the street impression of what is 
going on so that can be fit into the Department of Homeland 
Security and FEMA. Thank you.
    Mr. Shipley. Thank you.
    Mr. Larson. Thank you.
    Senator Voinovich. With that, we are adjourned.
    [Whereupon, at 11:20 a.m., the subcommittee was adjourned, 
to reconvene at the call of the chair.]
    [Additional statements submitted for the record follow:]
Statement of Michael Brown, Under Secretary, Emergency Preparedness and 
         Response Directorate, Department of Homeland Security
    Good morning Chairman Voinovich and Members of the Subcommittee. I 
am Michael Brown, Under Secretary for the Emergency Preparedness and 
Response Directorate of the Department of Homeland Security, which 
includes the Federal Emergency Management Agency (FEMA).
    Since becoming part of the Emergency Preparedness and Response 
Directorate (EP&R) of the Department of Homeland Security (DHS), FEMA 
has continued its traditional role of preparing for, mitigating 
against, responding to, and recovering from disasters caused by all 
hazards.
    Over the last 2 weeks, we have worked closely with the States and 
our Federal partners to effectively respond to Hurricane Isabel and all 
within the new structure of DHS. DHS brought its resources to bear in 
response to Hurricane Isabel in order to protect the public. We 
deployed key new assets, including the National Disaster Medical System 
(NDMS) teams. The U.S. Coast Guard also deployed its assets to assist 
in the response effort. All of our response efforts have been 
coordinated department-wide through the DHS emergency operations 
center.
    Our Hurricane Liaison Team was invaluable in arranging up to the 
minute meteorological information and predictions from the National 
Hurricane Center and other National Oceanic and Atmospheric 
Administration (NOAA) components for State and local officials and 
emergency managers in the path of the storm. We established 
mobilization centers at Ft. Bragg, North Carolina, and Edison, New 
Jersey, and staging areas at Ft. A. P. Hill, Virginia, and Columbus, 
Ohio. Advanced elements of our Emergency Response Teams and our State 
Liaisons were dispatched before the storm to the affected States and 
the District of Columbia to coordinate disaster response activities. 
Many other assets which we positioned from Alabama to New York were 
also critical to staging an effective response including the Rapid 
Needs Assessment Teams, National Disaster Medical System (NDMS) 
Disaster Medical Assistance Teams, Urban Search and Rescue Task Forces, 
Mobile Emergency Response Support Detachments, Environmental Protection 
Agency HazMat Teams, Army Corps of Engineers, Forest Service, General 
Services Administration, Department of Energy, and Department of Health 
and Human Services Teams.
    But, we must not rest on our past achievements. As in all major 
incidents, we will learn valuable lessons from the Hurricane Isabel 
response. The key to our continued improvement will be taking these 
lessons and incorporating them into our planning, doctrine, and 
procedures to ensure our continued improvement. DHS will continue 
working with the Congress and our Federal partners, State and local 
leaders, and other affected stakeholders and partners to continue to 
enhance our ability to respond effectively to all types of disasters.
    Prior to joining DHS, the focus of the disaster programs within 
FEMA was an all-hazards approach. This focus remains today, and in fact 
it benefits from the more global perspective of DHS and its related 
components. I am proud of our response to the Hurricane Isabel disaster 
on the east coast because it clearly demonstrates our steady 
improvement in coordinating and leading Federal, State, tribal and 
local response efforts to protect life and property in times of 
disaster. The seamless collaboration of the different response elements 
in the Department of Homeland Security, as well as those in other 
Federal departments and agencies, allowed for a rapid and effective 
positioning of disaster assets and capabilities throughout the eastern 
United States to quickly provide any assistance needed by States and 
communities to protect the life and property of their citizens.
    We at FEMA, are proud to be doing our part to secure the homeland, 
and I am proud to be a part of an organization made up of so many fine 
and dedicated individuals. FEMA's greatest asset is its people. As we 
have transitioned into DHS, we have continued our efforts to ensure 
that FEMA's workforce remains one of the finest in the Federal 
Government through the development of a comprehensive strategic Human 
Capital Plan. We have also continued to work to integrate the new 
missions into FEMA's structure. We are working with the Department of 
Health and Human Services on a wide array of issues including 
finalizing the consolidation of staff in the FEMA headquarters building 
within the next few months, fully integrating NDMS assets into the FEMA 
response structure and enhancing the operational readiness of NDMS 
teams.
    Since becoming part of the Department of Homeland Security, FEMA 
has continued to carry out its mission to prepare for, mitigate 
against, respond to, and recover from disasters of all kinds. It is a 
great honor for me to serve Secretary Tom Ridge as I lead FEMA into a 
new era as part of DHS.
    In order to achieve our mission more efficiently, FEMA has been 
divided into four disciplines: Preparedness, Mitigation, Response, and 
Recovery. This organizational alignment reflects the traditional areas 
of emergency management. It also resembles the organizational flow used 
by many States, who continue to be our principal partners in emergency 
management.
                              PREPAREDNESS
    Since joining DHS on March 1, FEMA's Preparedness Division has 
continued to implement its grants and training programs and has already 
gained assets in the transition. The Preparedness Division had the 
opportunity to test its capabilities during exercises including the 
nationwide Top Officials 2 exercise (TOPOFF2) in May 2003; to provide 
funding to State, tribal, and local governments; and to forge strong 
working relationships with the Office for Domestic Preparedness (ODP), 
which is also now part of DHS.
    The recent TOPOFF2 exercise served as a good test of significant 
new organizational structures and provided some good lessons as to how 
our efforts can be improved. It tested new procedures, such as our 
operational relationship with the DHS Crisis Assessment Team and 
systems transferred to DHS, such as the Strategic National Stockpile. 
Exercises such as TOPOFF2 allow us to pinpoint challenges to help 
ensure a better response and a more timely delivery of assistance.
    Although national level exercises like TOPOFF2 are important and 
valuable, community-based exercises are equally important for a 
comprehensive and truly effective national exercise program. Several 
months ago, a train carrying hazardous materials derailed near Laguna, 
New Mexico. Fortunately, local emergency responders and the New Mexico 
Office of Emergency Services were ready. A response exercise held just 
weeks earlier had prepared responders for such an event. The bottom 
line is that community-based exercises work, and they work at the first 
responder level. In cooperation with ODP, FEMA is continuing to support 
a robust, multi-tiered system of exercises.
    As a sign of the growing national interest in individual and 
community preparedness, Citizen Corps has increased its number of local 
councils by 377 since March 1, for a total of more than 628 Councils in 
51 States and territories. Councils are serving nearly 35 percent of 
the U.S. population or approximately 90 million people. Five new 
affiliates have partnered with Citizen Corps since March, including the 
U.S. Junior Chamber of Commerce, the National Volunteer Fire Council, 
the National Voluntary Organizations Active in Disaster, the Points of 
Light Foundation, and the National Safety Council.
    Additionally, Federal affiliates have partnered with Citizen Corps. 
On July 29, 2003, Tom Dunne, EPA's Associate Assistant Administrator 
for the Office of Solid Waste and Emergency Response, signed an 
agreement adding EPA as an affiliate with Citizen Corp. NOAA and the 
Department of Education's Office of Safe and Drug-Free Schools have 
also signed agreements.
    A key component of Citizen Corps is the Community Emergency 
Response Team (CERT) program, which helps train citizens to be better 
prepared to respond to emergency situations in their communities. In 
May 2003, DHS provided nearly $19 million in grant funds to States and 
territories to expand the CERT program through additional State-offered 
Train-the-Trainer courses and to help communities start CERT programs 
and expand existing teams. When I announced these grants in Olathe, 
Kansas, I had the good fortune to meet Community Emergency Response 
Team members who worked together to help their neighbors recover from 
the destructive tornadoes in the Midwest this past spring. This is a 
fine example of what CERT can accomplish.
    Our National Emergency Training Center, which includes the National 
Fire Academy and the Emergency Management Institute, continues to 
provide training to the leaders of the fire service and emergency 
management communities. We train more than 16,000 students a year on 
campus and more than 100,000 students a year through off-campus 
programs with our partners in the State fire and emergency management 
training systems. We also have trained over 185,000 students this year 
through our Independent Study Program. Our training prepares the fire, 
EMS and emergency management community, as well as local officials all 
across the country. With the addition of Noble Training Center in 
Anniston, Alabama, our capabilities are being expanded, and we will be 
able to reach more personnel than ever before.
    DHS is committed to helping firefighters improve their 
effectiveness and stay safe. The responsibilities of the fire service 
have increased since 9/11 to include planning for and responding to 
possible terrorist attacks. So far this fiscal year, DHS has awarded 
over $250 million to fire departments through the Assistance to 
Firefighters grant program.
    Given the recommendations to better consolidate and coordinate 
grants for first responders and terrorism preparedness, the President's 
Budget for fiscal year 2004 requested that Assistance to Firefighters 
Grant Program be placed within ODP. In order for State and local 
governments to be effective partners with the Federal Government in 
securing the homeland, they need quick and easy access to terrorism and 
emergency preparedness grant programs designed to support their work. 
Prior to the formation of the Department of Homeland Security, 
information about terrorism and emergency preparedness grant programs 
were scattered throughout the Federal Government. Many are now centered 
within DHS, though still divided among our various components. To make 
them even more accessible, Secretary Ridge announced plans to 
centralize these programs within a single office. State and local 
authorities will soon have a single point of contact for terrorism and 
emergency preparedness efforts--one access point to obtain critical 
grant funding. It will help ensure that nationwide, State and local 
officials have one place in the Department where they can tap into the 
resources and information they need, from applying for funds to protect 
critical infrastructure to receiving funding for first responders.
    As a Department we have not waited to begin new initiatives that 
leverage the resources of the Federal Government in support of our 
first responders and first preventers. For example, DHS and the 
Department of Justice COPS program coordinated the application and 
review of their separate appropriations for interoperable communication 
pilot programs. This innovative DHS/DOJ partnership demonstrated 
Federal leadership and illustrates the importance of integrating 
multiple disciplines in addressing the nation's preparedness needs. In 
the coming weeks, the Departments will be announcing approximately $150 
million in pilot project grants that will establish best practices and 
help develop unique solutions to the interoperable communication issues 
that have hampered our first responders.
                                RESPONSE
    The Response Division continues working hard to consolidate and 
integrate our existing and new disaster response assets, teams, 
systems, programs and responsibilities into the Emergency Preparedness 
and Response Directorate to create a more unified and comprehensive 
all-hazards disaster response capability. We are looking into new 
approaches that can result in greater efficiency and effectiveness in 
our disaster response activities. I am confident that over time we will 
be able to introduce a new response culture, one that will enable us to 
elevate our operational response capabilities to a higher level of 
proficiency and ensure better protection of and service to the American 
people.
    The Response Division's structure is based on the Incident 
Management System so that it is optimally aligned to meet the needs of 
State and local responders and designed to meet the President's 
direction to establish a National Incident Management System (NIMS) and 
National Response Plan (NRP). On February 28, 2003, the President 
established a single, comprehensive national incident management system 
and provided for the integration of separate Federal response plans 
into a single all-discipline, all-hazards national response plan. The 
Secretary of Homeland Security is responsible for developing and 
implementing both initiatives. FEMA has been actively participating in 
the effort to develop the National Response Plan (NRP) and a framework 
for National Incident Management System (NIMS). We are also a co-
facilitator and have regional participation on the State, tribal and 
local NIMS/NRP workgroup, which is an intergovernmental advisory group 
assembled to provide State and local input, guidance and expertise to 
the NRP/NIMS revision efforts. As directed in the Department of 
Homeland Security Act of 2002, FEMA will play a key role in the 
management and maintenance of NIMS once it is developed.
    The Response Division is pulling together critical national 
response assets formerly maintained within other Federal agencies, such 
as the National Disaster Medical System (NDMS), the Strategic National 
Stockpile (SNS), the Domestic Emergency Support Team (DEST), and the 
Nuclear Incident Response Team (NIRT). Different options are under 
consideration on the best way to staff and deploy these teams and 
integrate these assets into a mission capable operation that builds 
upon our existing and proven disaster response foundation. The Response 
Division is also initiating steps to create dedicated, rapid-deployment 
DHS Incident Management Teams that would form the initial core on-scene 
management component of the Federal disaster response capability 
interfacing with the State/local Incident Commander. The teams have not 
been fielded yet but are an important aspect of FEMA's implementation 
of Homeland Security Presidential Directive-5. We plan to staff, train, 
and equip the teams over the next year.
    We are coordinating with different elements of DHS to enhance the 
operational readiness and capability of our National Emergency 
Operations Center (NEOC), Regional Operations Centers, NDMS, DEST, 
Urban Search and Rescue (US&R) Task Forces, Mobile Emergency Response 
Support elements, and other specialized disaster response teams to 
respond to protect the Nation in times of disaster.
    In addition, the Response Division is taking steps to reduce 
disaster response times so that eventually disaster teams will be able 
to respond anywhere in the country within 12 hours and disaster 
logistics packages, commodities, and equipment can be delivered 
anywhere in the country within 24 hours of a disaster declaration. A 
pilot test of a prototype disaster logistics pre-deployment program is 
being planned as part of our efforts to ensure that we provide maximum 
assistance to help State and local governments meet immediate disaster 
needs in the first 24 hours of a disaster while additional disaster 
response commodities and equipment are enroute.
    We are placing additional emphasis on increasing patient evacuation 
capabilities and conducting more hospital training and exercises under 
NDMS, improving coordination of Strategic National Stockpile 
activities, and working to ensure that US&R Task Forces can safely 
respond to weapons of mass destruction incidents with the necessary 
medical screening and equipment.
    Work continues with the Department of Health and Human Services on 
a wide array of issues including finalizing the consolidation of staff 
in the FEMA headquarters building within the next few months, fully 
integrating NDMS assets into the FEMA response structure, and enhancing 
the operational readiness of NDMS teams. We are also finalizing 
guidance that will clarify and specify in greater detail DHS and HHS 
roles and responsibilities agreed to under the Memorandum of Agreement 
the two departments signed related to the SNS.
    Over the next few years we intend to focus much more attention on 
completing catastrophic all-hazards planning for our most vulnerable 
cities. Some work has already been accomplished in this area, but we 
want to make sure as we move forward that we are addressing those 
issues that are most critical to State and local officials in 
responding to a truly catastrophic disaster. We are also drawing up a 
plan to develop the capability to provide intermediate emergency 
housing for up to 100,000 displaced disaster victims within 60 days of 
a disaster, a situation that we could be easily faced following a truly 
catastrophic disaster. Different options are being reviewed including 
the possibility of using portable housing solutions involving trailers, 
manufactured homes, modular housing, and other innovative approaches. 
Our goal is to develop a methodology and template that will provide 
useful planning and operational tools for all levels of government.
    The consolidation of national response assets allows the Federal 
Government not only to continue to provide the services which existed 
prior to the establishment of DHS to which the American people have 
become accustomed during emergencies and disasters, but also to enhance 
our ability to maximize Federal resources, streamline delivery 
processes, and directly focus programs and assets on meeting State and 
local needs.
                                RECOVERY
    The good work that FEMA continues to do after being incorporated 
into the Department of Homeland Security is a commentary on how well 
the transition has gone. Since the March 1 transition into DHS, FEMA 
has provided disaster relief in 50 Presidentially declared disasters 
and emergencies in 34 States and one territory from Alaska to New York 
to American Samoa. These disasters include such events as the 
President's Day snowstorm and the devastating tornadoes that struck the 
Midwest and South in May. Most recently, of course, we have been 
dealing with Hurricane Isabel.
    When I traveled to these disaster areas, I had the opportunity to 
meet with some of the victims. Their lives had been totally devastated. 
They had lost family members. They had lost their homes. I cannot 
adequately describe in words the impact of looking into the eyes of 
people who have lost everything. But when things are at their worst, 
our people are at their best I have never been more proud to be a part 
of the Federal organization that already had individuals on the ground 
providing assistance to those in need and getting the process of 
disaster recovery underway.
    The committee has expressed an interest in the GAO report on the 
Public Assistance Program as implemented in New York following the 
September 11, 2001 terrorist attacks. While the GAO report does not 
address FEMA's performance or provide specific recommendations, it does 
note some differences in the delivery of assistance that I would like 
to take this opportunity to emphasize. FEMA implemented the Public 
Assistance Program, which provides State and local governments 
reimbursement for debris removal, emergency protective measures, and/or 
the repair or replacement of public damaged facilities. However, the 
Consolidated Appropriations Resolution of 2003 provided some 
flexibility that allowed recovery operations for New York to move more 
quickly. The resolution directed FEMA to fund non-Stafford Act 9/11 
related projects with any remaining funds from the appropriation it 
received for the September 11 terrorist attacks in P.L. 107-117, after 
eligible projects had been funded. This flexibility did not forfeit 
accountability or detract from the effectiveness of the program.
    In our ongoing efforts to assist the recovery from the terrorist 
attacks of September 11, FEMA has also finalized a Memorandum of 
Understanding with the Centers for Disease Control and Prevention to 
fulfill requirements in the Consolidated Appropriations Resolution of 
2003. This agreement is providing $90 million for administering 
baseline and followup screening, clinical exams, and health monitoring 
for emergency services, rescue, and recovery personnel. I know this 
issue is of particular interest to you Mr. Chairman, Senator Clinton 
and the rest of the Subcommittee with regard to the legislation you 
have recently introduced and considered.
                               MITIGATION
    Since the integration into DHS, the Mitigation Division has focused 
primarily on two Presidential initiatives: the flood map modernization 
program and pre-disaster mitigation. This groundwork sets the stage for 
results for the rest of this fiscal year and beyond.
    We have nearly $200 million available for our flood map 
modernization program this fiscal year, $149 million appropriated by 
Congress and $50 million in National Flood Insurance Program (NFIP) 
policyholder fees.
    The funding enables us to embark on a multi-year effort to update 
and digitize our flood map inventory. Updating flood insurance rate 
maps will make community assessment of flood risks more accurate and 
improve floodplain management decisions. An updated map inventory will 
also provide the basis for prudent flood insurance decisions and an 
actuarially sound insurance rating.
    Flood risk identification is central to informing decisionmakers at 
all levels of government and in helping to shape their assessment of 
risks. Effective flood hazard mitigation hinges, in the final analysis, 
on accurate identification of the risk. A sustained commitment to the 
President's initiative for updating the NFIP's flood map inventory will 
result in even more effective risk reduction.
    Our flood map modernization initiative reflects, too, the 
President's overall management agenda; the effort will be citizen-
centered, results-oriented, and market-based. We have been laying the 
groundwork for this significant undertaking and plan to award a 
contract for the flood map modernization program soon.
    We have also continued our commitment to hazard mitigation 
programs. This fiscal year, Congress appropriated $149 million for the 
Pre-disaster Mitigation (PDM) Program and directed that grants be 
awarded on a competitive basis and without reference to state 
allocations, quotas, or other formula-based allocation.
    The PDM program provides a significant opportunity to raise risk 
awareness and to reduce the Nation's disaster losses through mitigation 
planning that includes risk assessment, and the implementation of pre-
identified, cost-effective mitigation measures before disasters occur. 
Examples of these measures include retrofitting existing structures to 
protect against natural hazard events and acquisition and relocation of 
flood-prone structures. Funding these hazard mitigation plans and 
projects will reduce overall risks to the population and infrastructure 
and--in the long-term--will reduce reliance on funding from disaster 
assistance programs following an event.
    We are requesting that the PDM program be reauthorized through 
fiscal year 2009 to allow us to continue to implement this critical 
initiative. We have worked closely with States, tribal governments, and 
territories over the past months to share the PDM concepts through a 
number of outreach opportunities, including meetings with the National 
Emergency Managers Association and the Association of State Floodplain 
Managers, and have conducted state mitigation workshops in all 10 FEMA 
regions. We have also developed an electronic grants system for 
stakeholders to electronically create, review, and submit grant 
applications for the PDM program through the Internet, which will 
enable us to review and evaluate grant applications more efficiently.
                               CONCLUSION
    As part of the Department of Homeland Security, FEMA has continued 
to carry out its mission to prepare for, mitigate against, respond to, 
and recover from disasters and emergencies caused by all-hazards. And 
we will continue to do so.
    I appreciate the opportunity to testify before you today. I would 
be glad to answer any questions that you have.
                                 ______
                                 
 Response by Michael Brown to Additional Question from Senator Jeffords
    Question. One of the issues raised in the GAO report is whether or 
not FEMA should have reimbursed New York City for heightened security 
costs in the wake of the terrorist attack. The GAO report states that 
FEMA believed that this work was not eligible for reimbursement because 
it was similar to work being done nationwide. How much did New York 
spend on increased security costs in the wake of September 11th? How 
does that compare with similar expenditures nationwide?
    Response. New York City was a direct target of a terrorist act, as 
were the District of Colombia and the Pentagon. The immediate response 
required immediate action in the areas of bridges, tunnels, subways, 
railroads, water supplies, foreign missions, the United Nations and 
other potential targets located in the city. All entries to Manhattan 
needed to be secured and there were certainly other security costs 
surrounding the World Trade Center site. These steps taken in the 
immediate aftermath of the attacks were, we believe, different than 
steps taken elsewhere in the country that had not been attacked.
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        Responses by JayEtta Z. Hecker to Additional Questions 
                         from Senator Jeffords
    Question 1. Another issue raised in your report is that NYC was not 
required to pay the 25 percent cost share that is normally required of 
communities that receive Federal disaster assistance. In addition, you 
report that the President reduced the amount of Hazard Mitigation Grant 
Program Funds to 5 percent rather than the standard 15 percent of the 
amount spent on the disaster. Coupled with the $20 billion cap I 
mentioned earlier, do you believe that New York ultimately received 
less or more Federal assistance than they would have if the normal 
Stafford Act procedures were followed?
    Response. Clearly, the Federal Government provided more assistance 
to the New York City area in this disaster than if all funding has been 
provided through the typical Stafford Act framework; however, it is 
impossible to provide a definitive answer as to how much more. After a 
large disaster, Congress has often appropriated funds outside the 
constructs of the Stafford Act. In this disaster, well over $10 billion 
was provided to the New York City area outside of Stafford Act 
provisions. For example, Congress appropriated $2.37 billion for 
transportation restoration and improvements. Congress also appropriated 
$3.48 billion in HUD grants to compensate individuals, businesses and 
State and local governments and other organizations for economic losses 
and costs. Additionally, Congress passed the first ever tax benefit 
package targeted to a disaster area to provide for economic 
development, estimated to be $5.03 billion in benefits. This assistance 
was all funded outside of the established Stafford Act framework.
    In addition to this funding, FEMA was appropriated $8.8 billion to 
assist in recovery efforts in the New York City area. Approximately 
$7.4 billion was provided in public assistance funding, In order for 
public assistance funding to be distributed, projects must meet 
criteria set forth within the provisions of the Stafford Act. However, 
in this disaster, Congress granted FEMA authority to provide funds that 
were not eligible under the Stafford Act criteria. For example, FEMA 
provided $2.75 billion in transportation funding that was authorized 
for transportation infrastructure improvement, beyond pre-disaster 
conditions. Under the Stafford Act, infrastructure restoration projects 
would be eligible, but infrastructure improvement projects would not be 
eligible. Furthermore, for some of these projects, the replacement 
value was clear, but for others it would be impossible to determine how 
much more funding has been provided for costs associated with enhancing 
the infrastructure. As a result, a portion of the $2.75 billion in 
transportation funding was for projects that would not traditionally be 
eligible under the Stafford Act, but the exact amount is unclear. 
Moreover, because Congress authorized FEMA to provide funding for costs 
incurred regardless of project eligibility within the provisions of the 
Stafford Act, FEMA conducted an early close-out process that made 
available $1.2 billion, which was transferred to the city and State at 
the end of fiscal year 2003. Although the close out process linked the 
payout of the $1.2 billion with a variety of costs that were associated 
with the disaster but not previously eligible for FEMA funds (such as 
heightened security across the state, increased pension costs, and 
tourism campaigns), New York City and State now have discretion for 
allocating these funds. Most of these uses would not have been eligible 
for reimbursement under the Stafford Act. However, as of the date of 
the early close-out, some projects that were clearly eligible for 
Stafford Act funding had not yet been not fully funded. As a result, 
some portion of the $1.2 billion will likely be used to reimburse 
agencies for Stafford eligible projects. Thus, it is impossible to 
provide a definitive answer as to how much of the $1.2 billion in 
public assistance funds provided to FEMA was for projects beyond 
traditional Stafford Act eligibility.
    New York also benefited from the elimination of the State and local 
matching requirement for FEMA public assistance funding and DOT 
funding. Typically, FEMA's public assistance program shares disaster 
costs burdens, with FEMA providing 75 percent of the costs--the minimum 
provided for under the Stafford Act--and affected State and local 
governments paying the remaining share. After a major disaster, 
sometimes the cost share balance has shifted and the State share 
reduced for a limited time. In this disaster, at the direction of the 
President, FEMA provided 100 percent of the entire range of public 
assistance costs and over the full period of assistance for the New 
York City area. This was the first time an entire FEMA public 
assistance operation was 100 percent federally funded. Had New York 
City and State been required to provide a 25 percent match of the $7.46 
billion in public assistance and public assistance-related funding 
authorized for this disaster, these governments would have incurred 
costs of $1.85 billion. However, prior disasters have had varying State 
match requirements for specified uses or over limited time periods, 
when up to 100 percent of funding was provided. As a result, it is 
difficult to pinpoint an exact savings to the New York City area. In 
the case of DOT assistance, Congress eliminated the State and local 
matching requirement for the entire disaster relief effort. 
Historically, DOT funding has required a State and local share; for 
FHWA projects this share has ranged from 80 to 90 percent and for FTA 
projects it has ranged from 50 percent to 80 percent. By Congress 
authorizing DOT funding to be provided with no State and local matching 
requirement, the New York City area achieved significant savings, but 
again, it is difficult to quantify the exact savings.
    Although New York received the benefits of 100 percent funding of 
FEMA public assistance programs and DOT funding, the President reduced 
the amount of related Hazard Mitigation. Grant Program funds provided 
to New York. At the time of the terrorist attacks, grant funds up to 15 
percent of the total amount of FEMA assistance provided were available 
to states following a disaster to support mitigation activities. 
However, in this case, the President limited the mitigation grant funds 
to 5 percent of the amount spent, Had the hazard mitigation funding 
percentage not been reduced, more than $1.2 billion in mitigation funds 
would have been available using the customary 15 percent of total cost 
criteria.

    Question 2. I discussed some of the air quality issues surrounding 
the World Trade Center with Mr. Brown on the earlier panel, and I would 
like your perspective on some of the same questions. Your report states 
that FEMA determined that the testing of air quality and cleaning were 
eligible for public assistance funding where the collapse of the World 
Trade Center buildings, resulting fires, and subsequent debris removal 
caused potential health issues related to air quality. FEMA entered 
into an interagency agreement with EPA and partnered with the New York 
Department of Environmental Projection to execute this testing and 
leaning. I have several questions: What role did FEMA play in providing 
information to the public on the results of the air quality testing 
that was conducted at the site and in the surrounding areas? In 
selecting the buildings or areas of the city that would be eligible for 
public assistance funding, did FEMA include all areas impacted by the 
dust cloud resulting from the collapse of the buildings?
    The GAO report cites $8.6 million that went to the New York 
Department of Environmental Protection for exterior building cleaning 
and interior residence cleaning. I have several questions regarding 
this expenditure. Who decided that New York would take, the lead for 
this function? In selecting the 244 buildings that received exterior 
cleaning and the residences that received interior cleaning did FEMA 
include all areas impacted by the dust cloud resulting from the 
collapse of the buildings? Can you explain why the interior cleaning 
program was limited to lower Manhattan and why the interior cleaning 
program was limited to residences and did not include workspaces? What 
precautions were taken to protect the workers conducting this cleaning, 
pedestrians, and other people in the area of these clean-ups? What 
monitoring has occurred to ensure that those interior cleanings were 
effective?
    Response. The objectives of our audits of FEMA's post-9/11 public 
assistance and overall Federal assistance to the New York City area did 
not include a detailed review of the World Trade Center Dust. Cleaning 
Program or the dissemination of information to the public regarding air 
quality testing, but we can share some data we gathered on this work 
related to your question.
    In terms of providing a description of FEMA's role in, providing 
the public with information regarding the air quality testing, it 
appeared to us that FEMA did not have a direct role. That 
responsibility was assigned to the U.S. Environmental Protection Agency 
(EPA), the NYC Department of Environmental Protection, and its 
contractors.
    In terms of the World Trade Center Dust Cleaning Program, FEMA 
entered into an interagency agreement with EPA in August 2002, under 
which FEMA provided EPA with $19.5 million to provide overnight, data 
management and data assessment. The interagency agreement specifically 
tasked EPA with disseminating information to the public on the cleaning 
program. EPA was to conduct outreach efforts and develop information 
including printing, advertising, graphics, direct mail, and translation 
services. In addition, EPA was to establish an Internet hotline that 
residents could use to obtain information on the program and develop a 
data base to support the hotline and house analytical data. Validated 
laboratory analyses of dust samples were to be mailed to residents, 
building owners and/or building associations who made requests for 
cleaning and monitoring and to be uploaded to the EPA request data 
base, where they could be accessed electronically by the requester.
    The New York City Department of Environmental Protection was a 
partner in the management of the Dust Cleaning Program and had lead 
responsibility for key aspects of the program. For example, the city 
agency developed contracts for the operation of the information hotline 
for residents to request cleaning and sampling, and for performance of 
the actual cleaning and sampling. However, EPA was to manage and direct 
the contractors.
    The scope of the Dust Cleaning Program included residences in the 
specific area of lower Manhattan south and/or west of Canal, Allen and 
Pike Streets--an estimated 20,000 to 25,000 residences. A FEMA official 
said that this scope was within the zone that NYC closed to public 
access immediately after the World Trade Center attacks. Workspaces 
were not included because FEMA officials concluded that business owners 
were more likely than residents to receive assistance for interior and 
exterior building cleaning through the Small Business Administration 
and/or private insurance companies. We did not do audit work to 
determine whether residences outside of the area eligible for 
assistance were impacted by the dust cloud nor to determine whether 
businesses received dust cleaning assistance from SBA and/or private 
insurance companies.
    Under the FEMA/EPA interagency agreement, oversight of the cleaning 
and monitoring effort of NYC's monitoring and scheduling contractors 
was to be done by EPA. The U.S. Occupational Safety and Health 
Administration (OSHA) was to provide oversight to ensure worker 
protection. The scope of our audit did not extend to evaluating the 
amount and quality of oversight done by these Federal agencies.

    Question 3. One of the issues raised in the GAO report is whether 
or not FEMA should have reimbursed New York City for heightened 
security costs in the wake of the terrorist attack. How much did New 
York spend on increased security costs in the wake of September 11? How 
does that compare with similar expenditures nationwide?
    Response. In our reviews, we did not estimate how much security 
expenses have increased in the United States. in the aftermath of 
September 11. To do so would be a difficult challenge. New York City 
Office of Management and Budget officials have not yet determined the 
amount of heightened security expenses they will reimburse city 
agencies from the $1.2 billion in discretionary funds available as a 
result of the early close-out of FEMA's traditional public assistance 
program and Congressional authorization to FEMA to provide 
reimbursement for heightened security costs.
    It is important to reiterate that heightened security is a cost 
incurred by NYC that FEMA officials told us they would not have 
reimbursed had they not been directed by legislation to do so. FEMA 
officials determined that costs related to heightened security in the 
New York City area after the terrorist attacks were not eligible for 
reimbursement under the provisions of the Stafford Act because these 
costs were not a direct response to the disaster that occurred. On 
February 20, 2003, Public Law 108-7 was enacted. The law stated,

        ``notwithstanding, any other provision of law, funds 
        appropriated to FEMA for disaster relief for the terrorist 
        attacks of September 11, 2001 may be used to provide funds to 
        the city of New York and the State of New York for costs 
        associated with such attacks that are unreimbursable under the 
        Stafford Act . . .''

Under this provision, FEMA has the authority to provide the city and 
State funds for costs incurred as a result of the disaster that 
officials can use to reimburse some city agencies for extra security 
measures they took in the immediate aftermath of the terrorist attacks.
                                 ______
                                 
         Response by JayEtta Z. Hecker to Additional Question 
                         from Senator Voinovich
    Question. Please provide a complete accounting of the 
nontraditional projects that were funded in New York City. For example, 
what were the extra costs of enhancing and modernizing Lower 
Manhattan's transportation system rather than repairing the existing 
infrastructure? In addition to this accounting of all the 
nontraditional work, what were the nontraditional costs that New York 
City faced due to the nature off this disaster? Also, how much 
additional assistance was provided since the cost share was waived?
    Response. We have not directly evaluated what the nontraditional 
costs that New York City faced due to the nature of this disaster. 
However, issues related to extra costs of enhancing the lower Manhattan 
transportation system and an accounting of the nontraditional 
assistance and savings related to the elimination of a State and local 
cost share are addressed in our response above to the first question 
from Senator Jeffords.
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      Statement of Richard L. Skinner, Deputy Inspector General, 
      Office of Inspector General, Department of Homeland Security
    Good morning Mr. Chairman and Members of the Subcommittee. I am 
Richard L. Skinner, Deputy Inspector General of the Office of Inspector 
General (OIG) for the Department of Homeland Security, which includes 
the Federal Emergency Management Agency (FEMA).
    Thank you for the opportunity to be here today to discuss the work 
of the OIG in response to the unparalleled terrorist events of 
September 11, 2001, as well as our perspective on FEMA's merger into 
the new Department of Homeland Security.
    First let me address our work in New York following the September 
11, 2001, terrorist attacks.
                      OIG RESPONSE TO SEPTEMBER 11
    September 11, 2001, resulted in catastrophic physical damage and 
loss to the business and residential infrastructure in the lower part 
of the Borough of Manhattan. FEMA applied the full range of authorized 
disaster assistance programs to the post-disaster needs of the city of 
New York and its individuals, including Public Assistance grants, 
Temporary Housing (specifically Mortgage and Rental Assistance), 
Individual and Family Grants, Disaster Unemployment Assistance, Crisis 
Counseling Assistance and Training, and Legal Services. FEMA, however, 
due to the unique circumstances of this disaster, (i.e., managing the 
consequence of a terrorist attack rather than the consequences of 
hurricanes, tornadoes, or floods), had to use its authorities and 
programs more broadly than it ever had before. FEMA's authorities were 
not adequate to meet everyone's expectations in recovering from the 
unprecedented needs created by this event.
    The FEMA OIG deployed teams of auditors, inspectors, and 
investigators from Headquarters and various field offices in early 
October 2001 to the New York City Disaster Field Office (DFO). Our 
mission was to assist the Federal Coordinating Officer (FCO) in 
reviewing and assessing procedures, practices, and controls in place 
throughout the operation, to identify and prevent fraud, and to assure 
FEMA's Director that all possible actions were being taken to protect 
public welfare and to ensure the efficient, effective, and economic 
expenditure of Federal funds. One team of auditors and inspectors 
worked directly with the FCO and monitored set-up and operation of the 
DFO. Another team of auditors worked with the FEMA public assistance 
staff and a team of inspectors worked with the FEMA individual 
assistance staff. Several teams of investigators worked round the clock 
at the DFO and at ground zero.
                      GENERAL MANAGEMENT OVERSIGHT
    We worked in direct support of the FCO to respond to specific 
requests and addressed matters that independently came to our 
attention. Some of the tasks we performed related to accounting and 
auditing, but some were as varied as tracking down missing copy 
machines. We worked closely with a team of FEMA comptrollers and OGC 
representatives, helping them with a wide assortment of financial 
matters. We also worked with other Federal agencies, as well as State 
and city organizations and voluntary agencies. Our support included 
establishing a partnership with program staff to identify and suggest 
courses of action with regard to potential and emerging issues 
regarding duplication of benefits, donations management, accountable 
property, program limitations and administration, DFO training, safety 
and security. We identified a number of significant issues and made 
recommendations for improvement.
                        INVESTIGATIVE INTIATIVES
    Our Office of Investigations processed 787 fraud complaints and 
resolved or closed 771 of them. Sixteen complaints remain open. We 
continually receive new complaints through the DHS OIG fraud hotline, 
FEMA personnel, and numerous Federal, state, and local agencies. We 
have opened 112 criminal investigations and have received 89 
indictments and arrested 86 individuals. We have recovered $922,028, 
received restitution of $6,729,728, issued fines of $1,686,538, and 
reported cost savings of $7,429,502.
                      PUBLIC ASSISTANCE OVERSIGHT
    The FEMA OIG responded to the World Trade Center attack as a 
partner to FEMA's response and recovery components. We deployed a team 
of auditors to monitor public assistance operations and assist in 
reviewing requests for assistance. This team maintained a presence for 
more than a 1\1/2\ years working with FEMA public assistance staff to 
ensure that recovery efforts were on track and complied with Federal 
laws and regulations.
    Our efforts were far from the traditional role of the OIG, but this 
was an extremely unique situation, and we were able to contribute 
significantly to the effectiveness of FEMA's response by providing 
proactive oversight rather than hindsight. Early in the process we 
briefed applicants on how to qualify for FEMA assistance and maintain 
records, and we reviewed accounting systems of some of the local 
governments to ensure they were adequate for collecting necessary cost 
data.
    We reviewed requests for funding and the detailed worksheets for 
proposed projects and met with public assistance program staff on a 
regular basis to provide them technical assistance on cost 
allowability. At FEMA's request, we reviewed questionable bills 
submitted by applicants for payment and FEMA's implementation of its 
policy on heightened security eligibility.
    We did not conduct any traditional grant compliance audits of 
public assistance grants, nor did we audit any costs incurred under the 
Consolidated Appropriations Resolution Act of 2003, which provided that 
costs not eligible for public assistance funding, referred to as 
associated expenses, will be funded with the remainder of the $8.8 
billion of authorized FEMA funding. FEMA estimates that $7.6 billion 
will be required for Stafford Act purposes and $1.2 billion will be 
used for associated expenses. Associated expenses include such costs as 
local government employees' salaries, heightened security costs, and 
the I Love NY campaign to encourage visitors to the state.
                      INDIVIDUAL ASSISTANCE REVIEW
    In response to congressional inquiries, the FEMA OIG reviewed 
FEMA's delivery of individual assistance in New York after September 
11, 2001. The review focused on issues that need to be addressed by 
both FEMA and Congress as they consider regulatory and legislative 
changes to improve FEMA's delivery of assistance to victims of future 
terrorist attacks that result in Presidential disaster declarations. 
Following is a summary of issues raised during our review.
Eligibility Issues in the Mortgage and Rental Assistance Program
    FEMA historically has not had to implement the Mortgage and Rental 
Assistance (MRA) program on a large scale because previous disasters 
did not coincide with nor result in widespread unemployment and 
national economic losses. From the inception of MRA until September 11, 
2001, only $18.1 million had been awarded under the program for 68 
declared disasters, compared to approximately $76 million as a result 
of the New York disaster alone.\1\ Because it was seldom used, Congress 
eliminated the program when it enacted the Disaster Mitigation Act of 
2000 (DMA 2000) making the program unavailable after May 1, 2002.
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    \1\ FEMA's Recovery Division, December 2002.
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    FEMA had to face the challenge of implementing this program in a 
disaster that caused significant economic consequences, including not 
only the obvious economic impact of the incident itself but also the 
indirect economic effects felt throughout the country. The language of 
the Stafford Act's MRA authority establishes as a criterion for 
assistance a written notice of dispossession or eviction. The law is 
silent, however, on what constitutes a financial hardship. This 
omission required FEMA to interpret to what extent a personal financial 
loss constitutes a financial hardship, and to determine if that 
hardship resulted directly from the primary effects of the attacks or 
from secondary effects on the Nation.
    The MRA program's limited use, the broad economic impact of this 
unprecedented event, and FEMA's challenge to differentiate between 
primary and secondary economic effects contributed to difficulties in 
delivering timely and effective assistance. The MRA program is unique 
because it addresses limited, individual economic losses versus 
physical damage resulting from a disaster. Traditional inspection of 
damages as a basis for program eligibility, therefore, does not apply 
to MRA. Individual financial hardships caused by the disaster must be 
evaluated case-by-case. FEMA attempted to clarify eligibility criteria 
that required a clear link between physical damage to the business or 
industry caused by the disaster and an applicant's loss of household 
income, work, and/or employment regardless of geographic location.
    In summary, the MRA program, if reinstated, could continue to meet 
a fairly narrow economic need but would still require legislative 
revision to make it less complicated to administer. A broader, more 
flexible program, however, would more appropriately meet the range of 
economic losses experienced after events such as the September 11, 
2001, terrorist attacks. The OIG believes FEMA should explore such a 
program with Congress. In doing so, Congress may wish to consider 
studying other existing mechanisms within the Federal Government as 
possible vehicles through which broader assistance could be provided.
State Capability to Implement the Individual and Family Grants Program
    The Stafford Act authorizes the Individual and Family Grants (IFG) 
program to meet disaster related necessary expenses or serious needs of 
disaster victims that could not be met through other provisions of the 
Stafford Act or through other means such as: insurance, other Federal 
assistance, or voluntary agency programs. Eligible expenses may include 
those for real and personal property, medical and dental expenses, 
funeral expenses, transportation needs, and other expenses specifically 
requested by the State.\2\
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    \2\ Because the September 11 event was both a disaster and a 
criminal act, programs of the U.S. Department of Justice's (DOJ) Office 
for Victims of Crime were also applicable. As a result, expenses 
related to medical, dental, and funeral were covered by DOJ.
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    Applications for IFG assistance rose sharply in June 2002, as 
applicants requested assistance for the air quality items. FEMA 
believes the increase in new applications coincided with public 
announcements being made by the U.S. Environmental Protection Agency 
(EPA) regarding the poor air quality in the city and the need for air-
conditioning and related items because of the unusually warm spring and 
early summer. The State believes the surge in new applications 
coincided with the closing of the nonprofit programs. FEMA received an 
average of 7,660 applications per month from June to August 2002 for 
air-quality items. Applications for IFG assistance typically do not 
spike at this point in the recovery phase of a disaster.
    The unanticipated increase in applications received after June 2002 
also may be related to two other decisions regarding assistance for 
air-quality items. First, assistance was made available to all 
households in the five boroughs of New York City. The broad geographic 
eligibility was not related to the areas of actual impact. A better 
model might have been to limit eligibility to the same areas identified 
by EPA and the New York City Department of Health for purposes of the 
apartment cleaning and testing program. If the IFG program and the EPA 
testing and cleaning program had worked more closely together in terms 
of geographic eligibility, the program would have had reasonable and 
justifiable boundaries. Second, as a result of concerns expressed by 
certain advocacy groups, applicants were allowed to certify that they 
were unable to pay for the air-quality items (costing as much as 
$1600). Funding was advanced to those applicants and they were 
requested to provide receipts after purchase. There were few 
limitations placed upon who could qualify for this ``unable to pay'' 
option. This may also have increased the likelihood of fraud and abuse.
                  INTERAGENCY COORDINATION CHALLENGES
    Responsibilities shared among FEMA, EPA, and the U.S. Department of 
Justice (DOJ) Office for Victims of Crime were not defined clearly 
enough to distinguish roles and establish the sequence of delivery of 
assistance. Recovery from the September 11, 2001, event highlighted the 
need for advance agreements regarding shared roles and responsibilities 
among key agencies likely to respond to future events.
Response to Residential Air Quality, Testing, and Cleaning Requires 
        More Coordination
    EPA was aware, based on its work in the aftermath of the 1993 WTC 
terrorist bombing, that the WTC towers contained asbestos material. 
Neither FEMA nor New York City officials, however, initially requested 
that EPA test or clean inside buildings because neither EPA nor the New 
York City Department of Environmental Protection (NYCDEP) could 
identify any specific health or safety threat. EPA nevertheless advised 
rescue workers early after the terrorist attack on the WTC that 
materials from the collapsed buildings contained irritants, and advised 
residents and building owners to use professional asbestos abatement 
contractors to clean significantly affected spaces. Directions on how 
to clean the exterior of buildings affected by dust and debris were 
provided to building owners by NYCDEP, and directions on how to clean 
interior spaces were provided by the New York City Department of 
Health.
    Neither FEMA nor EPA traditionally has been involved in testing and 
cleaning private residences. Neither agency is specifically authorized 
to provide such services. However, when a potential health and safety 
threat was identified and New York officials documented that interior 
testing and cleaning would beneficially impact the city's economic 
recovery, FEMA used its debris removal authorities under the Stafford 
Act to provide the necessary funding. Though the entire New York public 
cannot be serviced, the low level of applications for cleaning and 
testing, along with the low number of residences found with dangerous 
asbestos levels, may indicate that FEMA and EPA have addressed the 
need, or that individuals already have taken the initiative to clean 
their residences.
    The program to test and clean residences in lower Manhattan did not 
commence until months after the disaster. Although FEMA has the 
responsibility to coordinate recovery from Presidentially declared 
disasters, FEMA must depend on the particular expertise of EPA in 
circumstances involving possible air contaminants or environmental 
hazards. EPA must confirm that such hazards constitute a public health 
and safety threat before FEMA can provide funding for emergency 
response. FEMA should be more proactive in requesting EPA to conduct 
necessary testing and/or studies to determine if a public health or 
safety threat exists in future, similar disasters so that cleaning 
efforts can begin much earlier in the recovery phase. FEMA also should 
address the roles of state and local agencies in such circumstances, as 
consultation with these agencies would provide useful information in 
review or evaluation.
Department of Justice Authorities Compliment FEMA Authorities
    Because the September 11, 2001, terrorist attack sites were 
Presidentially declared disasters resulting from criminal actions, both 
FEMA and the DOJ's Office for Victims of Crime (OVC) had authority to 
provide victim assistance. FEMA's Crisis Counseling Assistance and 
Training Program (CCP) providers found it necessary to offer support 
services that went beyond the normal levels of CCP mental health 
programs. Too many entities were involved at the outset to ensure 
coordination and avoid potential confusion of services provided to 
victims.
    The September 11, 2001, attacks uncovered potential DOJ-FEMA 
overlaps in some programs covering disaster areas that are also crime 
scenes. FEMA's CCP program funds crisis counseling and IFG program 
reimburse victims of disasters for medical, dental, and funeral 
expenses. The Victims of Crime Act of 1984, as amended (42 United 
States Code Sec. 10603), authorizes DOJ's OVC to provide financial 
assistance to victims of Federal crimes and of terrorism and mass 
violence in the form of (1) grants to state crime victim compensation 
programs to supplement state funding for reimbursement of the same out-
of-pocket expenses, including mental health counseling; and (2) grants 
to state victim assistance agencies in support of direct victim 
services, i.e., crisis counseling, criminal justice advocacy, shelter, 
and other emergency assistance services.
    FEMA, OVC, and DOJ's Executive Office for United States Attorneys 
subscribed to a Letter of Intent to ensure that victims receive needed 
services and information and to articulate services needed in 
responding to catastrophic Federal crime. The Letter of Intent should 
serve as the foundation for future cooperative activities but more 
detailed and comprehensive guidance is necessary to ensure that 
services delivered to disaster victims who are also victims of crime 
are appropriate, consistent, and not duplicative. These objectives 
could be accomplished through a Memorandum of Understanding between 
FEMA and DOJ's OVC that formalizes the relationship, the 
responsibilities and authorities to be applied, programs, timeframes, 
and sequencing when a disaster is also a crime scene.
Coordination with Voluntary Agencies
    Voluntary Agencies (VOLAGS) typically provide immediate emergency 
assistance to victims, FEMA addresses short and long-term recovery 
needs, and, near the end of the recovery cycle, VOLAGS address victims' 
unmet needs. After the September 11, 2001, terrorist attacks, 
individuals donated time, resources, and money in record volumes to a 
large number of VOLAGS. The overwhelming generosity and rapid influx of 
cash donations likely contributed to the ability of VOLAGS and other 
groups to provide higher levels of assistance. Since so many VOLAGS, ad 
hoc organizations, and other entities not traditionally in the sequence 
of delivery were distributing assistance, it was difficult to collect 
accurate information necessary to understand the scope of assistance 
being provided.
    FEMA, attempting to bring order to the chaos created by the 
multitude of voluntary organizations, and developed a matrix of various 
government and non-government entities. At one point, this matrix 
included over 100 organizations and was used to identify their 
contributions to disaster recovery efforts and the types of assistance 
provided. FEMA validated the information and became familiar with the 
kinds of assistance being offered so that staff could make informed 
referrals. In spite of these efforts, FEMA was not able to ensure that 
all voluntary agencies were coordinated appropriately to ensure that 
benefits are not duplicated among disaster programs, insurance 
benefits, and/or any other types of disaster assistance.
    Historically, FEMA has not considered the assistance of voluntary 
agencies to be duplicative under normal disaster conditions. In 
response to this event, however, VOLAGS far exceeded their traditional 
role in the provision of assistance. FEMA, to ensure timely assistance 
to victims, decided to activate its own IA program and to treat VOLAG 
and other non-governmental assistance as non-duplicative as it related 
to the events of September 11, 2001. Had FEMA expended the resources 
necessary to fully identify and quantify such assistance after 
September 11, 2001, the timely provision of urgently needed assistance 
would have been delayed. FEMA acknowledges, however, that some people 
may have received assistance for similar losses from more than one 
source.
    Regardless of FEMA's decision to not identify and quantify 
voluntary agency assistance on a case-by-case basis, the potential that 
duplication occurred does exist although the nature and amount of 
duplication remain unknown. FEMA needs to be better able to anticipate 
the proactive role non-governmental organizations will play in disaster 
recovery operations and attempt to coordinate relationships with those 
organizations through protocols such as Memorandums of Understanding to 
alleviate the potential for duplicating benefits. The General 
Accounting Office (GAO) has also emphasized the need to improve 
coordination among charities and between charities and FEMA.\3\
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    \3\ GAO draft report, ``More Effective Collaboration Could Enhance 
Charitable Organizations' Contributions in Disaster,'' December 2002.
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                              UNMET NEEDS
    Several gaps in authorizations appear to exist for FEMA and other 
Federal agencies to address recovery needs of certain individuals and 
businesses. The OIG believes these gaps may be of concern in future 
disasters.
Federal Public Benefit Classification Limits IA Eligibility
    Title IV of the Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 requires that Federal public benefits be 
provided only to United States citizens, non-citizen nationals, and 
qualified aliens. Under Title IV, the following FEMA IA programs 
authorized by the Stafford Act are considered Federal public benefits: 
Temporary Housing Assistance; Unemployment Assistance; Individual and 
Family Grants Programs; and Food Coupons and Distribution.
    Temporary Housing Assistance and the IFG program have been repealed 
and combined into one grant program, the Individuals and Households 
Program, under DMA 2000. This new program falls under the Federal 
public benefit standard.
    The recipient limitations imposed by the Federal public benefit 
standard do not apply to some types of post-disaster assistance. Any 
victim may receive short-term, non-cash, in-kind emergency disaster 
relief, including emergency medical care, emergency mass care, 
emergency shelter, and other assistance provided by VOLAGS. Other 
recovery tasks also must occur without regard to limitations. These 
include clearing roads; constructing temporary bridges needed to 
perform emergency repairs and deliver essential community services; 
warning of further risk or hazards; disseminating public information; 
assisting victims with health and safety measures; providing food, 
water, medicine, and other essential goods; transporting supplies or 
persons; and otherwise reducing immediate threats to life, property, 
and public health and safety.
    The September 11, 2001, disaster affected victims who are not 
United States citizens, non-citizen nationals, or qualified aliens but 
who were lawful residents of the United States under a valid 
immigration category or classification. Because these residents are not 
granted an alien status that would allow them to receive a Federal 
public benefit, they were ineligible for assistance under the IA 
program. For example, individuals who possess an un-expired Employment 
Authorization Card, which permits lawful employment in the United 
States, are precluded from Federal public benefit assistance. One 
immigration advocacy group estimates that as many as 80,000 lawfully 
present individuals in New York are not qualified for Federal disaster 
assistance beyond the short-term emergency relief.\4\
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    \4\ The New York Immigration Coalition, ``Recommendation to improve 
FEMA's Mortgage and Rental Assistance Program,'' June 23, 2002.
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    FEMA should consider pursuing legislative changes that would exempt 
FEMA's IA programs from the Federal public benefit classification when 
victims needing IA are lawfully present in the United States at the 
time of the applicable disaster but may not have the qualified alien 
status required by Title IV of the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996.
FEMA Assistance for Non-Critical Private Non-Profit Service 
        Organizations is Limited
    To be eligible for FEMA grant assistance, a Private Non-Profit 
(PNP) organization must fall within the Stafford Act's definition of a 
PNP that provides an essential service of a governmental nature. This 
was true prior to DMA 2000 and DMA 2000 did not change the definition 
of an eligible PNP applicant. However, with DMA 2000, Congress created 
a two-tiered system of reimbursement for FEMA-eligible PNP's. For 
eligible PNP facilities that provide ``critical services,'' FEMA may 
provide assistance for eligible work just as it did prior to DMA 2000. 
For eligible non-critical PNP facilities, DMA 2000 now requires the PNP 
to first apply to SBA. FEMA can then provide the PNP assistance if the 
PNP does not qualify for an SBA loan or if it obtains one in the 
maximum amount for which it is eligible.
    The intent of Congress to limit grant assistance to ``critical'' 
PNP organizations without applying first for a loan, is unambiguous. 
Even the discretion given to the President to add to the list of 
``critical'' PNP services is limited to a few emergency-related 
activities. The attacks of September 11, 2001, enabled the first 
significant test of this new approach to funding PNPs, and the 
reactions were predictable. PNPs that lost immediate access to grants 
as a result of DMA 2000 Colleges, Universities, and various providers 
of social services understandably questioned the equity of the new law. 
While these changes were under consideration by Congress, concern 
surfaced that dividing PNP services into ``critical'' and ``non-
critical'' categories would be perceived as inequitable and would, in 
fact, affect the relatively smaller and less well financially endowed 
organizations more substantially than larger organizations that enjoyed 
better, ongoing access to other forms of revenue.
    On December 12, 2002, FEMA implemented a new policy, based on the 
President's announcement to strengthen the Administration's compassion 
agenda by making it easier for America's faith-based and community 
groups to work with the Federal Government. FEMA's new policy extends 
assistance to eligible and necessary faith-based organizations by 
broadening the eligibility of certain non-profit organizations to 
receive Federal disaster assistance. This policy recognizes the 
statutory eligibility of PNP organizations that provide necessary and 
vital functions to local communities and is retroactive to January 20, 
2001.
    Congress may wish to reconsider this ``critical'' and ``non-
critical'' PNP approach and either require all PNPs to apply first for 
an SBA loan, which would achieve greater cost-savings, or require no 
PNPs to apply for loans before qualifying for FEMA grants, which would 
level the playing field but increase the amount of Federal grant 
assistance.
                           LEGISLATIVE ISSUES
    Congress may wish to consider legislation to either reinstate the 
MRA program or develop a comparable program. Congress also might wish 
to consider whether FEMA or another Federal agency should administer 
grants to small businesses that have been adversely affected by a 
disaster.
MRA is Eliminated by the Disaster Mitigation Act of 2000
    DMA 2000 amendments to the Stafford Act repealed the MRA program as 
a component of FEMA's Temporary Housing Assistance for disasters 
declared on or after May 1, 2002. FEMA received an extension from 
Congress and has made this effective for all disasters declared on or 
after October 15, 2002. DMA 2000 also establishes a $25,000 cap on the 
Individuals and Households Program. These new limitations raise serious 
issues for addressing economic losses and financial hardships suffered 
by victims of events similar to this one. Congressional consideration 
may be warranted to better position FEMA to address economic issues in 
future acts of terrorism.
Grants to Small Businesses Were Made on an Ad Hoc Basis
    In its November 2002 report, September 11, Small Business 
Assistance Provided in Lower Manhattan in Response to the Terrorist 
Attacks, GAO documented assistance made available under various grant 
and loan programs to both public and private entities. GAO reported, 
``The September 11, 2001 terrorist attacks on the World Trade Center 
had a substantially negative impact on the New York City economy, 
strongly affecting businesses, both large and small, and as disparate 
as financial services firms, travel agencies, and retail stores. Some 
businesses were destroyed, some displaced, and still others could not 
operate because of street closures and the lack of utilities. Many 
businesses still face a diminished client base and uncertainty about 
the future redevelopment of the World Trade Center site.'' There is, 
however, presently no on-going Federal program that provides grant 
support to businesses adversely affected by disasters, except in the 
instance of special legislation targeted to an event.
    FEMA is prohibited by the Stafford Act from providing disaster 
assistance to businesses of any size. The Stafford Act provides 
funding, principally in the form of grants, to individuals, state and 
local governments, and certain private, non-profit organizations 
adversely affected by a disaster. SBA is authorized to provide loans, 
not grants, to businesses adversely affected by a disaster. SBA is 
administratively prohibited, however, from making loans to businesses 
that do not meet specific and generally established eligibility 
criteria. SBA was unable, for example, to make loans to businesses that 
did not meet the agency's size standards or financial qualifications.
    SBA's limited ability to assist businesses financially after the 
September 11, 2001, event was recognized early in the response phase. 
FEMA, under special legislation, was already involved in compensating 
businesses adversely affected by the May 2000 Cerro Grande fire in 
northern New Mexico. Some Members of Congress introduced legislation 
specific to the September 11, 2001, events that would allow FEMA to 
initiate a similar program in Lower Manhattan.\5\ The bill would have 
authorized FEMA to compensate businesses in an amount generally not to 
exceed $500,000 for specified business losses. A companion bill was 
introduced in the House of Representatives. Neither bill, however, was 
enacted.
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    \5\ Cerro Grande Fire Assistance Act, Division C. It should be 
noted that FEMA received substantial assistance from SBA in 
implementing the compensation program for businesses.
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    Alternatively, Congress enacted the Department of Defense and 
Emergency Supplemental Appropriations for Recovery From and Response to 
Terrorist Attacks on the United States Act of 2002, a provision of 
which allowed the State of New York to use Community Development Block 
Grant (CDBG) funds administered by the U.S. Department of Housing and 
Urban Development (HUD) to make Business Recovery Grants. GAO noted 
that the Business Recovery Grants covered, in total, about 17 percent 
of business losses that were not covered by insurance and New York City 
and State grants. GAO further reported that the Empire State 
Development Corporation, which is administering the Business Recovery 
Grant program, planned to increase payments to some businesses and 
thereby reduce the amount of their uncompensated economic losses.
    Congress may wish to consider whether the Federal Government should 
be the insurer of last resort for all or part of disaster-related 
business losses. Such a policy decision would eliminate the need to 
respond on an ad hoc basis after each terrorist attack that results in 
a Presidential disaster declaration. Factors that should be considered 
are whether the lack of such assistance in recovering from difficulties 
related to terrorist incidents could increase other Federal response 
costs, such as DUA and MRA; and the respective roles of FEMA, SBA, and 
HUD in administering financial assistance to small businesses.
                         TRANSITIONING INTO DHS
    As Undersecretary Brown noted in his testimony, FEMA has not missed 
a step in responding to disasters since becoming a part of DHS. In May 
of this year, we sent a team of auditors to monitor FEMA's response and 
recovery efforts to a series of major tornadoes in Missouri. The 
caliber and effectiveness of FEMA's response was the same high standard 
we have seen in the past.
    In addition, the consolidation of first responder organizations 
within DHS offers opportunities for a better coordinated, more 
responsive, disaster response and recovery capability. In particular, 
the addition of Department of Health and Human Services programs to DHS 
and the creation of a National Incident Management System and a 
National Response Plan should add to that capability. The OIG plans to 
review those areas in the near future. However, the OIG has also 
transitioned into DHS, and our ability to provide oversight has been 
diluted due to the many non-FEMA priorities and demands being placed on 
our limited staff.
    Notwithstanding the continued success of FEMA's response and 
recovery efforts, there are still shortcomings in FEMA operations (see 
Attachment 2). Although we have not witnessed any changes in services, 
FEMA has many problems that need to be addressed and its ability to 
effectively address them is compounded by its merger into DHS. Areas of 
particular concern as FEMA transitions into DHS include FEMA's 
financial management, the security of FEMA's information technology 
(IT) systems, and grant management. Deficiencies in these areas could 
most certainly hamper the effective and efficient integration of FEMA 
programs and operations into DHS.
    Regarding financial management, the OIG identified six material 
weaknesses in fiscal year 2002 related to FEMA's financial statement 
audit. For example, FEMA's financial system functionality and financial 
reporting process both need significant improvement. This problem is 
exacerbated by other DHS components having similar problems.
    Regarding IT security, The Office of Management and Budget scored 
FEMA's e-gov status as unsatisfactory, and FEMA did not receive a 
passing grade for computer security from the House Subcommittee on 
Government Efficiency, Financial Management and Intergovernmental 
Relations. FEMA is aware of its problems in IT management and is 
working to address the weaknesses.
    Regarding grants management, FEMA has had longstanding problems, 
although it has made improvements and worked to develop a viable grants 
management program. Previous FEMA OIG reports have identified 
significant shortcomings in the pre-award process, cash management, 
monitoring, and grant closeout processes. This in turn has allowed 
grant recipients to misuse millions of dollars in Federal funds each 
year.
    In addition, although numerous grant programs are now consolidated 
within DHS, their management is divided among various components within 
the Department. Preparedness for terrorism is in the Border and 
Transportation Security directorate, while other preparedness efforts 
are in the Emergency Preparedness and Response directorate. This 
bifurcation will create additional challenges related to inter-
departmental coordination, performance accountability, and fiscal 
accountability. Furthermore, program managers have yet to develop 
meaningful performance measures necessary to determine whether the 
grant programs being absorbed by DHS have actually enhanced state and 
local capabilities to respond to terrorist attacks and natural 
disasters. The OIG addressed these concerns in the early days of the 
Department's creation (see Attachment 3). It is our understanding that 
this problem is now being addressed legislatively. Further, Secretary 
Ridge recently announced plans to centralize these programs within a 
single office of the Department.
    In summary, although FEMA has made progress in many areas, 
additional improvement is needed, and the remaining problems will make 
an effective transition into DHS more difficult.
                               CONCLUSION
    This concludes my written statement. Again, I appreciate the 
opportunity to testify before you today. I would be happy to answer any 
questions that you may have.
                                 ______
                                 
Attachment 1.--Financial Status of Individual Assistance Program as of 
                            November 1, 2002
    Temporary Housing Assistance: Mortgage and Rental Assistance--
$76,275,000; Minimal Home Repair--$1,450,000; Transient 
Accommodations--$1,225,000; Rental Assistance--$26,150,000.
    Individual and Family Grants: $25,400,000.
    Crisis Counseling Assistance and Training Program: $162,400,000*.
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    * Approved funding includes New Jersey, Connecticut, Massachusetts, 
and Pennsylvania.
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    Unemployment Assistance: $13,200,000.
    Legal Services: $2,000.
    Total FEMA Individual Assistance for New York: $306,102,000.
                                 ______
                                 
Attachment 2.--Federal Emergency Management Agency, Office of Inspector 
                        General, Washington, DC.
December 31, 2002

Memorandum for: Joe M. Allbaugh (Director Signed)

From: Richard L. Skinner, Acting Inspector General

Subject: Management Challenges

    The Office of Inspector General has identified the most serious 
management and performance challenges we believe FEMA is facing and the 
progress FEMA is making in addressing those challenges. We are required 
to provide this statement to you under the Reports Consolidation Act of 
2000. This statement is to be included in the consolidated report 
described by the Act.
    We believe, based on our work and our general knowledge of FEMA 
operations and programs, that FEMA must continue to focus attention on 
the following management and program initiatives to ensure public 
accountability and improve program effectiveness. Although FEMA 
managers acknowledge most of these issues and are addressing them to 
varying degrees, much work is left to be done to ensure that business 
is conducted economically and efficiently, and that appropriate program 
results are achieved.
                           PROGRAM CHALLENGES
    Homeland Security Transition.--The President established the 
Department of Homeland Security on November 25, 2002. The mission of 
the Department is to develop, coordinate, and implement a comprehensive 
national strategy to secure the United States from terrorist threats or 
attacks. The Department is responsible for coordinating efforts to 
detect, prepare for, prevent, protect against, respond to, and recover 
from terrorist attacks within the United States. FEMA will transfer 
into the Department on March 1, 2003, as part of the Emergency 
Preparedness and Response Directorate. FEMA will continue to lead and 
support the Nation in responding to and recovering from any destructive 
event, whether natural or man-made. FEMA will also continue its 
preparedness and mitigation programs for non-terrorist-related 
disasters. These programs will be coordinated with similar programs 
from the components of the Departments of Health and Human Services and 
Energy that are also transferring into the Emergency Preparedness and 
Response Directorate. FEMA will cooperate closely with the new Office 
for Domestic Preparedness in preparing for and mitigating terrorist 
activities. The challenges facing FEMA are many. There are concerns of 
FEMA losing its identity as an agency that is quick to respond to all 
hazards and disasters. Members of Congress and the general public have 
expressed concern that FEMA's disaster response and recovery and 
mitigation missions will be diluted as it is absorbed into a much 
larger organization and that funding issues will limit FEMA's ability 
to respond to disasters as it has in the past. Further, the integration 
of FEMA's many management and financial information systems with those 
of other entities that will be brought into the Department will be a 
daunting task. This is of particular concern because of problems 
plaguing FEMA's systems lack of integration, security issues, and non-
compliance with the Federal Financial Management Integrity Act. There 
are also concerns relating to the workforce--FEMA's most important 
asset. As with all entities being transferred to the Department, 
employees are concerned about their role and how the transfer will 
affect their job. FEMA is well aware of these issues and is addressing 
them as they arise through active communication with staff. FEMA's 
experience in coordinating the Federal Response Plan will contribute to 
the success of the Department's transition and integration efforts.
    Disaster Response and Recovery.--FEMA's largest spending category 
is disaster relief. According to the President's fiscal year 2003 
budget proposal, $3.5 billion was obligated in that category in fiscal 
year 2001 and due largely to the World Trade Center attack, $8.7 
billion was estimated to be obligated in fiscal year 2002. Managing 
disaster response and recovery continues to be one of FEMA's largest 
challenges. FEMA faces difficulties establishing disaster declaration 
criteria, reducing disaster response and recovery costs, managing its 
disaster workforce, ensuring the integrity of its many financial 
assistance programs, and improving program services. FEMA has begun to 
address all of these problems. FEMA recently centralized deployment of 
the Disaster Assistance Employee cadre, for example, to improve the 
efficiency of disaster staffing; but much remains to be done.
    Recent amendments to the Stafford Act increased FEMA's challenges 
in managing disaster recovery. The amendments change estimating and 
payment procedures under the Public Assistance Grant Program, FEMA's 
largest grant program. Disaster grant applicants will be paid based on 
damage estimates rather than actual damage repair costs. FEMA tested a 
similar approach, called the Grant Acceleration Program, after the 
Northridge Earthquake in Southern California. The test results 
reflected inflated estimates, extreme overpayments, and ineligible work 
performed at taxpayer expense. Finding solutions to these problems and 
instituting other changes required by the amendments, such as 
establishing fixed management cost rates for grantees and subgrantees, 
will confront managers of FEMA's disaster assistance grants in fiscal 
year 2003.
    Managing disaster response is a major challenge, particularly when 
the Federal Response Plan is activated and FEMA must coordinate the 
activities of dozens of Federal, State, and local organizations. FEMA 
also manages its own response assets to increase its ability to respond 
quickly, and its disaster response capabilities have improved 
substantially in recent years. Less than 3 hours after the World Trade 
Center attack the first Urban Search and Rescue Teams were at the site. 
FEMA also has warehouses around and outside the country in which 
commodities and equipment are stocked to support disaster field 
offices. Commodities such as water, meals, generators, tents and 
blankets--that victims need immediately after a disaster--also are 
stocked at the warehouses. These facilities contain thousands of items 
valued at more than $40 million. Maintaining the warehouses, accounting 
for property, and the logistics of deploying, recovering, and 
refurbishing reusable items are continuing challenges for FEMA.
    State and Local Preparedness.--The Director announced in November 
2002 that FEMA will provide $225 million in grants to help State and 
local responders and emergency managers to become better prepared to 
respond to acts of terrorism and other emergencies and disasters. The 
funds are available through the fiscal year 2002 supplemental 
appropriation, a part of President Bush's First Responder Initiative. 
The funds will serve as down payments on resources for States and local 
communities to modernize plans and strengthen their preparedness for 
disasters of all kinds. The funds will flow through the States, with at 
least 75 percent going to local governments.
    Roughly $100 million of the $225 million in supplemental funds will 
be used for updating plans and procedures to respond to all hazards, 
with a focus on weapons of mass destruction. Updated plans will address 
a common incident command system, mutual aid agreements, resource 
typing and standards, interoperability protocols, critical 
infrastructure protection, and continuity of operations for State and 
local governments. FEMA intends that the comprehensive plans will be 
linked through mutual aid agreements and that they will outline the 
specific roles of all first responders (fire service, law enforcement, 
emergency medical services, public works, etc.) to terrorist incidents 
and other disasters.
    FEMA also will provide $56 million in 2002 supplemental funds to 
upgrade State emergency operations centers. States and territories will 
receive a base allocation but must submit grant proposals for 
additional funding. A total of $25 million is available for Citizen 
Corps activities, including Citizen Corps Councils, and expanded 
training for FEMA's Community Emergency Response Teams (CERTs) across 
the country. Other fiscal year 2002 supplemental fund allocations will 
include $7 million for secure communications, $5 million to begin 
laying the groundwork for a national mutual aid system, and $32.4 
million for weapons-of-mass-destruction training for FEMA's urban 
search and rescue task forces.
    Although funds have been set aside to address State and local 
preparedness issues, FEMA still faces the following challenges:
     Building and sustaining a national preparedness and 
response capability; and
     Coordinating national terrorism preparedness programs.
    FEMA must continue to place a high priority on developing State and 
local capabilities to respond to acts of terrorism as well as natural 
disasters. FEMA must develop State and local capacity to respond to and 
manage small- to medium-sized disasters, particularly fairly 
predictable ones such as repeated flooding in flood-prone areas.
    FEMA also must continue expanding the development of the National 
Hazard Loss Estimation Methodology for all hazards. Models for 
estimating potential losses from hurricane wind and riverine flooding 
are to be introduced in February 2003, but additional development is 
required with regard to thunderstorms, tornadoes, tropical cyclones, 
hail, and coastal flooding. The mounting dollar losses cannot be 
adequately addressed by a fragmented approach to natural hazards. 
Instead, estimated losses for other hazards are needed to support 
FEMA's risk-based approach to mitigation and emergency preparedness, 
and for comprehensive mitigation programs by local communities.
    The increased threat of acts of terrorism spurred by the attacks of 
September 11, 2001, also indicates a need for FEMA to consider 
developing a terrorism-response methodology. Those attacks highlighted 
the need to fully equip and train fire departments so they will be 
better prepared to respond to terrorist events. FEMA is addressing this 
matter through the U.S. Fire Administration's (USFA) Assistance to 
Firefighters Grant Program (AFGP). FEMA and USFA also had awarded more 
than $170 million to 2,756 fire departments throughout the United 
States at the end of fiscal year 2002 under the AFGP. An additional 
$190 million is predicted to be awarded in the first quarter of fiscal 
year 2003. To date, nearly 5,500 fire stations have received funds for 
training or equipment upgrades and purchases since the inception of 
this program. It is likely that this program will continue indefinitely 
and probable that the amount of grant funds will be increased. It is 
imperative, therefore, that FEMA administer the program effectively and 
efficiently to ensure that funds are directed to those most in need and 
those most likely to be required to respond to a terrorist attack or 
natural disaster.
    Mitigation Programs.--The President's fiscal year 2003 budget 
proposal includes $300 million under the National Pre-Disaster 
Mitigation Fund to initiate a competitive grant program for pre-
disaster mitigation. FEMA is preparing to implement the program, which 
would replace the current formula-based Hazard Mitigation Grant 
Program, if enacted by Congress. FEMA is challenged with designing a 
program that ensures fair evaluation of all applicants and their 
proposed mitigation projects. Eligible activities include: risk 
assessments; State and local planning; the reinforcement of structures 
against seismic, wind, and other hazards; elevation, acquisition, or 
relocation of flood-prone structures; and minor flood-control or 
drainage-management projects. Program success will depend on the 
quality and effectiveness of FEMA's evaluation process and criteria. 
FEMA is taking into account stakeholder input to create the new 
program. Considerable work remains to be done, specifically the 
development of eligibility and evaluation criteria.
    The OIG issued a report, ``Status of Funds Awarded under the Hazard 
Mitigation Grant Program and Other Project Management Issues,'' in July 
2001. In response, FEMA is strengthening its management of the HMGP by 
monitoring unliquidated obligations and deobligating unspent funds. The 
agency also is planning to publish new regulations that will address 
problems cited in our report, such as co-mingling of funds, the quality 
of applicant progress reports, and inadequate project timeframes. 
Challenges remain for FEMA to ensure that States and local governments 
are making the best use of Federal funds and carrying out their 
mitigation projects timely and in accordance with grant agreements.
    Multi-Hazard Flood-Map Modernization.--Flooding stands out as the 
single most pervasive hazard facing the Nation, causing an estimated $6 
billion in property damage annually. Much of the recovery spending 
could be avoided by efficient, up-front planning using accurate, up-to-
date flood maps. Before flood maps can be used effectively, however, 
they must reflect current hydrological conditions. An aggressive 
program to update, modernize, and maintain the inventory of flood maps 
is essential.
    Multi-hazard flood-map modernization, a Presidential initiative, is 
based on the need for FEMA to update its aging inventory of flood maps 
in such a way that they can accommodate other hazards. A recent 
assessment revealed that 67 percent of FEMA's flood maps are more than 
10 years old and that the average age of a FEMA flood map is 14.1 
years. Many of these maps do not reflect past development and, as a 
result, do not show changes in flood hazards. Reliance on these 
outdated flood maps in making decisions about new development harms 
commercial and residential property owners and the taxpayers who 
ultimately pay for flood damages. Accurate and useable flood maps are 
the foundation of good local planning and natural-disaster mitigation. 
New and updated flood maps will enable lenders, insurance agents, and 
many others to make critical decisions on where to build, where and 
when insurance is required, and what is an appropriate insurance 
premium.
    FEMA is seeking $300 million in new discretionary appropriations in 
the President's budget for fiscal year 2003 for the multi-hazard flood-
map modernization program. FEMA is also seeking roughly $300 million 
per year in its fiscal year 2004 and 2005 budgets. Approximately $1 
billion may be spent over the next three fiscal years. With more than 
19,000 communities in the National Flood Insurance Program (NFIP), FEMA 
faces a daunting challenge in setting priorities for areas to be 
mapped, keeping maps current, and creating new maps for participating, 
unmapped communities.
    Another significant challenge for FEMA is effective collaboration 
with States and local entities through the Cooperating Technical 
Partners (CTP) Program. The CTP program gives States and local entities 
the opportunity to interject a tailored, local focus into the national 
map-modernization program. The partnership mechanism also provides for 
pooling resources, extending the productivity of public funds, and 
sharing successes among partners. FEMA must also continue to seek input 
from the Map Modernization Coalition, members of which are substantial 
users of flood maps.
    National Flood Insurance Program.--The NFIP continues to be the 
largest single-line property insurer in the Nation with coverage in 
excess of $580 billion. Aside from the fiscal enormity of this program, 
FEMA faces an array of formidable management challenges that include:
     Increasing numbers of repetitively flooded structures that 
are subsidized by the NFIP,
     Continued development and uninsured property in special 
flood-hazard areas,
     Insufficient funds to mitigate repetitive-loss properties, 
and
     Lack of exposure to mitigation opportunities.
    Subsidized and low-cost flood insurance, available to residents of 
NFIP-participating communities, helps to manage the risk of financial 
loss due to flooding. Much more of the risk could be alleviated if 
homeowners would take responsibility for mitigation on their own 
property. Many property owners, however, fail to do so because (1) of 
the availability of subsidized insurance, premiums for which are 
typically a fraction of those for full risk-based policies; and (2) 
they know that, if flooded, their property will be repaired or rebuilt 
without penalty. Continuing to subsidize NFIP premiums fails to 
encourage owners of flood-prone real estate to move out of high-risk 
areas. This is no small problem, as the NFIP pays claims from floods in 
the same high-risk areas again and again, yet the policyholders are not 
required to pay risk-based premiums or to mitigate repetitive risks. 
This situation undermines the financial stability of the insurance 
program. On the other hand, if FEMA charged actuarially sound rates, 
owners could cancel their policies, pay nothing to the government, and 
rely on Federal disaster assistance after a flood, placing the recovery 
burden back on the American taxpayer.
    Mitigation is rarely a priority of property owners before a 
disaster occurs but owners typically rush to have their property 
restored to its pre-disaster condition after an event. One of FEMA's 
main objectives in the response and recovery period is to get 
assistance to flood victims quickly so they can rebuild and get their 
lives back to normal. The opportunity to encourage mitigation at this 
time is usually lost. FEMA must improve its outreach programs.
    About 7 million structures are estimated to be located in special 
flood-hazard areas. Less than 35 percent are covered by flood 
insurance. FEMA needs to maintain a sustained campaign to provide 
insurance coverage for the millions of uninsured properties still at-
risk.
    FEMA believes that most communities participating in the NFIP have 
effective floodplain-management programs and that new construction is 
in accordance with the minimum requirements of the NFIP. FEMA officials 
told us that communities participating in the Community Rating System 
are closely monitored and subject to periodic inspections.
    The OIG issued reports in 2002 that discussed most of the issues 
noted thus far, and FEMA is addressing them or planning to do so. 
Solutions to these matters, however, will not prevent FEMA's need to 
address the following difficult future challenges:
     Effective enforcement of compliance with floodplain 
management criteria as a condition for maintaining NFIP eligibility,
     Effective monitoring of enforcement of mandatory flood 
insurance purchase requirements for property owners,
     Effective and reliable performance measurement criteria 
and information systems used to assess accomplishment of insurance 
goals and objectives, and
     Appropriate Community Rating System insurance premium 
discounts based on conditions in and mitigation actions taken by a 
community.
    Public Building Insurance.--The Stafford Act requires State and 
local governments, as a condition of receiving Federal assistance, to 
obtain and maintain insurance coverage on insurable facilities for the 
life of the facilities. FEMA reviews insurance coverage during the 
project approval process to ensure that applicants satisfy the 
requirements.
    We noted in a January 2001 OIG report that neither FEMA nor the 
States consistently maintain sufficient information to support their 
conclusions about applicants' insurance status. At the time the report 
was issued, only 39 percent of the project files in our sample 
contained acceptable evidence of insurance. In fact, insurance was not 
maintained in 34 percent of projects reviewed. We also determined that 
insurance reviews are not always timely or complete, and neither FEMA 
nor the States regularly monitors public entities that have received 
previous assistance to ensure that they are maintaining the required 
insurance. Keeping abreast of insurance status presents a significant 
challenge for FEMA.
    Determining what constitutes the required ``insurance'' is another 
key issue confronting FEMA. The amount of assistance a public entity 
may receive depends on FEMA's definition of insurance. Several public 
entities seeking disaster assistance recently challenged successfully 
FEMA's interpretations that various reserve or contingency funds did 
not constitute ``insurance.'' As a result, a higher percentage of the 
repair, restoration, or replacement costs of their damaged facilities 
became eligible for reimbursement by FEMA. FEMA faces significant 
hurdles in addressing the issues of (1) the absence in current 
regulations of an adequate definition of ``insurance,'' and (2) 
incentives for entities to purchase insurance.
    Underinsured applicants and regular monitoring of the insurance 
status of public entities also present challenges. Some FEMA applicants 
purchase less insurance than required or may reduce coverage after an 
insurance review. The fact of under-insurance may not be known for long 
periods to FEMA and/or States because they do not regularly monitor 
public entities to ensure the maintenance of insurance on public 
buildings.
                         MANAGEMENT CHALLENGES
    Information Technology Management.--FEMA is heavily dependent on 
information technology (IT) to accomplish its mission. The agency 
relies on technology for performing tasks ranging from emergency 
communications to remote data entry to automated processing of disaster 
assistance. Because of IT's importance, the agency must maintain secure 
systems that help to ensure the integrity, confidentiality, and 
availability of information FEMA needs to do its job. IT can be 
expensive and complex, however, so FEMA needs to have in place good 
capital planning and investment control procedures for managing IT 
projects. The e-gov initiative under the President's Management Agenda 
encompasses these challenges. Although the Office of Management and 
Budget (OMB) scored FEMA's e-gov status as unsatisfactory, it also 
indicated that improvements are underway.
    FEMA made progress during fiscal year 2002 toward improving 
information security, primarily through establishing the Office of 
Cyber Security, designing an information security program plan, and 
developing a security certification and accreditation methodology. Much 
more work lies ahead. Like many other Federal agencies, FEMA did not 
receive a passing grade for computer security from the House 
Subcommittee on Government Efficiency, Financial Management and 
Intergovernmental Relations. FEMA has struggled to ensure that the 
agency's information security plan is practiced throughout the agency 
and applied to individual systems. As of the end of fiscal year 2002, 
however, no systems had received formal authorization, required by OMB, 
to process information, although FEMA's planned security certification 
and accreditation methodology will facilitate the approval process. 
FEMA is struggling to build security into its system business plans, 
also required by OMB. FEMA must begin to assess the system security 
controls in place at critical service-provider points.
    FEMA management has acknowledged weaknesses in IT capital planning 
and investment controls. Improving procedures in these areas were key 
initiatives of the reorganization of FEMA's IT Services Directorate in 
fiscal year 2002. Improvement efforts have just begun. In a recent 
audit report, we recommended that FEMA consistently prepare current 
benefit-cost and alternative analyses, identify and maintain a current 
inventory of systems, provide more effective oversight of IT projects, 
conduct post-implementation system reviews to identify ``lessons 
learned,'' and complete an Information Resources Management Strategic 
Plan and IT Capital Plan as required by OMB.
    FEMA is working to address the weaknesses in IT management, 
security, and other areas. OMB's most recent scorecard rates other 
challenges that FEMA faces, including integrating itself smoothly into 
the new Department of Homeland Security, implementing its e-government 
agenda, managing its systems effectively in a rapidly changing IT 
environment, and meeting its human capital needs.
    Financial Management.--FEMA continues to face significant financial 
management challenges but, over the past year, has been working very 
hard to overcome them. FEMA developed a detailed remediation plan, for 
example, that it uses regularly to monitor progress in addressing 
weaknesses we identified in the financial audit of fiscal year 2001. 
Although FEMA has not been able to achieve all of its goals, it has 
been making progress. FEMA still needs more time and resources and a 
continued commitment by management to achieve an appropriate level of 
financial management.
    Major factors motivating to FEMA's progress were the qualification 
of the auditors' opinion on FEMA's fiscal year 2001 financial 
statements, and the auditors' identification of six material internal 
control weaknesses. Although the qualified opinion was disappointing, 
it helped to focus management's attention on long-standing problems. We 
had noted in previous audit reports that FEMA's financial reporting 
process was unstable and, in fiscal year 2001, after 3 years of 
unqualified opinions, the auditors could no longer attest to the 
accuracy of all balances presented in the statements. Specifically, the 
auditors could not verify (1) the reported obligations incurred and 
unobligated balances (because of an unsupported $77 million reduction 
to unliquidated obligations), or (2) the reported equipment balance.
    The six material internal weaknesses described in our audit report, 
on which FEMA's remediation plan is based, related to information 
system security, real and personal property, financial system 
functionality, financial statement reporting, account reconciliation, 
and accounts receivable.
     Information System Security.--FEMA has been able to 
address some of its more critical system security problems but other 
weaknesses remain. We again found vulnerabilities in FEMA's internal 
network environment during our audit of fiscal year 2002 financial 
statements. FEMA's core financial system, the Integrated Financial 
Management Information System (IFMIS), still needs a back-up 
administrator, a contingency plan, policies and procedures for audit 
trail reviews, and a review of user access rights (currently underway). 
Although these issues have not been entirely addressed, FEMA has 
reported progress.
     Real and Personal Property Accounting.--FEMA simply does 
not have a property management system that supports property accounting 
requirements. A system acquisition moratorium due to FEMA's move to the 
new Department of Homeland Security has prevented FEMA from acquiring 
an acceptable system. As a result, FEMA has had to rely on inefficient, 
difficult, manually based processes to account for its property in 
fiscal year 2002.
     Financial System Functionality.--FEMA recently upgraded 
IFMIS and expects significant improvements in financial statement 
preparation and intragovernmental reconciliations, although the upgrade 
remains to be tested as part of the fiscal year 2002 financial 
statement audit. FEMA reports that it is working on vendor files and 
specific system-interface issues, although the interface issues are 
sometimes dependent on external business partners. FEMA also does not 
have a cost-accounting system that would allow FEMA managers to more 
effectively link performance measures and budget execution.
     Financial Statement Reporting.--FEMA has made progress in 
financial reporting by developing standard operating procedures for the 
preparation of financial statements. FEMA historically has not had 
routine procedures to guide production of the financial statements that 
link to other policies, procedures, and internal controls. Statements 
typically were prepared late in the audit process and required several 
revisions. We will test during the fiscal year 2002 financial statement 
audit whether the process has improved.
     Account Reconciliation and Accounts Receivable.--FEMA 
continued to have problems during the year with timely reconciliation 
of many accounts and has obtained assistance from a contractor. FEMA 
has also made improvements in accounts receivable.
    Grants Management.--FEMA awards billions of dollars in grants each 
year to State and local governments and may become responsible for 
additional grants under the Department of Homeland Security. FEMA 
grants are used for a myriad of State and local preparedness, 
mitigation, and response and recovery projects. Although grant funds 
are spent at the State or local level, it is ultimately FEMA's 
responsibility to ensure that these funds are spent in accordance with 
Federal laws and regulations. To do this, FEMA must have an effective 
grants management system that fulfills both its program and fiduciary 
responsibilities and, particularly important, satisfies Government 
Performance and Results Act (GPRA) requirements. Not only must FEMA 
adhere to the procedural and compliance aspects of grants management, 
it must also focus on what grantees actually accomplish using FEMA 
grant funds. To demonstrate its own program efficiency and 
effectiveness, FEMA must require grantees to do the same.
    FEMA's grants management system, prior to fiscal year 1998, did not 
ensure that grantees met programmatic and fiduciary responsibilities. 
We documented waste and mismanagement at grantee and subgrantee 
agencies throughout the country that resulted in the misuse of millions 
of dollars in Federal funds. FEMA acknowledged that major improvements 
were needed in its grants management system and began several 
initiatives to correct long-standing problems. FEMA created a Grants 
Management Office, issued improved policy guidance and standardized 
procedures, implemented training and credentialing for grant managers, 
and formed grant closeout teams to facilitate the timely closeout of 
grants and to provide technical assistance to regional office personnel 
in their closeout efforts.
    Significant problems still need to be addressed. Our audits of 
States' management of FEMA disaster grants found an alarming number of 
recurring problems. For example, States often do not (1) monitor and 
accurately report on subgrantee performance and financial activities, 
(2) make payments or close out projects in a timely manner, (3) file 
accurate or timely financial status reports with FEMA, and (4) maintain 
adequate documentation to support their share of disaster costs and 
other financial transactions. These problems indicate that FEMA needs 
to continue to take the initiative to provide technical assistance and 
guidance to States to ensure that they have reliable disaster grants 
management systems to safeguard FEMA funds.
    Improvements in FEMA's grants management system also will require 
resolution of issues of staffing and automation. FEMA must persist in 
efforts to ensure that implementation of its recent initiatives does 
not lose momentum when the next catastrophic disaster strikes and staff 
resources are stretched. FEMA recently began to develop an agency-wide 
Strategic and Tactical Plan for coordinating the automation of its 
grant programs to comply with OMB's E-Grants initiative. FEMA plans to 
automate many processes by creating a comprehensive grants management 
system. Successful implementation, however, will require resources and 
will ultimately depend on top management's continued support of the 
system's development.
    Property Management.--FEMA does not have a property management 
system that supports property accounting requirements. FEMA's primary 
property management system is the Logistics Information Management 
System (LIMS), that is used to track the location of personal property. 
LIMS cannot perform accounting functions and it cannot provide reliable 
accounting information, such as property values and acquisition dates. 
These deficiencies have required FEMA to conduct labor-intensive 
inventories and use manual procedures to support personal property 
accounting balances. FEMA also lacks an automated system to support 
accounting for real property and deferred maintenance. FEMA recognizes 
these problems but the systems moratorium during the transition to the 
new Department of Homeland Security has prevented FEMA from acquiring 
an acceptable system. Instead, FEMA is articulating requirements and 
options for an Enterprise Resource Planning (ERP) system that would 
support FEMA's property accounting and management needs.
    Human Capital Management.--FEMA's most valuable asset is its human 
capital. Maximizing the value of that asset and increasing 
organizational performance are significant challenges for FEMA. How 
FEMA acquires, develops, and deploys its human capital will determine 
how effectively its mission will be accomplished.
    Through its strategic planning process, FEMA is developing a 5-
year, comprehensive, enterprise-wide human capital strategy that can be 
integrated with FEMA's mission, goals, operational requirements, and 
financial resources. The strategy will include workforce planning and 
initiatives to address imbalances between staff talents and skills and 
agency needs. It will address the anticipated surge of voluntary 
retirements over the next 3 to 5 years (FEMA estimates that 70 percent 
of its workforce is from 40- to 59-years old) and the attrition factors 
that normally affect the stability of the workforce. FEMA also analyzed 
its workforce for OMB. The results will support decisions about future 
management reform, budget planning, and performance goals. According to 
the GAO, FEMA's fiscal year 2003 performance plan does not contain 
performance measures that quantify progress toward achieving human 
capital-related goals.
    The President has determined that nearly half of all Federal 
employees perform tasks that are readily available in the commercial 
marketplace, and that those tasks should be subject to competition. 
Public-private competition will generate savings and improve 
performance governmentwide. In fiscal year 2003, agencies will conduct 
public-private or direct conversion competitions involving 10 percent 
of the FTE listed on their Federal Activities Inventory Reform Act 
inventories above the number needed to meet fiscal year 2002 
competition goals. The sweeping personnel changes accompanying FEMA's 
entry into the Department of Homeland Security will increase the 
challenges associated with this increase and with the overall 
management of FEMA's human capital.
                                 ______
                                 
  Attachment 3.--Department of Homeland Security, Office of Inspector 
                        General, Washington, DC
February 14, 2003

Memorandum for: The Secretary, The Deputy Secretary (Signed)

From: Clark Kent Ervin, Acting Inspector General

Subject: Controls Over Procurements and Grants

    Two areas that DHS needs to get control of early to minimize waste 
and abuse are the procurement and grant (Federal assistance) management 
functions. Getting the right leadership and systems in place for both 
functions should be made a high priority. To assist the department in 
this regard, and per your request, I asked my audit staff to identify 
some specific controls and other issues that need to be addressed right 
away, as follows.
                         PROCUREMENT MANAGEMENT
    DHS will be integrating the procurement functions of many 
constituent programs and missions, some lacking important management 
controls. For example, as reported by GAO, Customs has not begun to 
establish process controls for determining whether acquired software 
products and services satisfy contract requirements before acceptance, 
nor to establish related controls for effective and efficient transfer 
of acquired software products to the support organization responsible 
for software maintenance. At TSA, the Transportation OIG found that 
procurements were made in an environment where there was no pre-
existing infrastructure for overseeing contracts. TSA had to rely 
extensively on contractors to support its mission, leading to 
tremendous growth in contract costs. A recent Transportation OIG review 
of one TSA contractor found that, out of $18 million in expenses, 
between $6 million and $9 million appeared to be attributed to wasteful 
and abusive spending practices.
    Also, some agencies have major procurement programs under way that 
need to be closely managed. For example, Customs' Automated Commercial 
Environment (ACE) project will cost $5 billion, and Coast Guard's 
Deepwater Capability Replacement Project will cost $17 billion and take 
two to three decades to complete. Both projects will continue to 
receive OIG and, most likely, GAO attention. GAO identified a 
performance and accountability challenge of enhancing Coast Guard 
acquisition management to maximize returns from investments of public 
funds in large, complex, high-cost procurements. Further, some 
contracts, regardless of their earlier merits, may no longer be 
necessary in accomplishing DHS' mission.
    Early attention to strong systems and controls for acquisition and 
related business processes will be critical both to ensuring success 
and maintaining integrity and accountability. OIG would suggest the 
following:
     Review all contracts transferring to DHS to ensure they 
are relevant to DHS' mission and, particularly for systems development 
contracts, will not be affected by or conflict with DHS systems 
integration efforts. For example, TSA issued a 7-year, $1 billion task 
order to Unisys Corporation for enterprise operations center deployment 
and field/headquarters infrastructure deployment. Needless to say, 
close attention must be paid to a contract of this size and scope.
     Ensure that contracting officers and contracting officers' 
representatives are properly warranted, trained, and supervised, and 
that they maintain proper documentation in the contract files.
     Establish a robust and effective contract oversight 
function. Construction contracts and contracts for local guard services 
have been shown to be subject to waste and abuse if not closely 
monitored.
     Establish effective systems and controls for managing 
purchase and travel cards, including issuance of appropriate written 
guidance for card use, effective monitoring of card use and appropriate 
handling of card abuse, and elimination of excessive numbers of card 
holders.
                 GRANTS (FEDERAL ASSISTANCE) MANAGEMENT
    DHS will be inheriting major grant programs from FEMA and Justice. 
Both agencies' programs will be problematic.
    FEMA plans to award about $7.9 billion in grants this fiscal year. 
FEMA OIG reports on audits of grantees demonstrate that FEMA has not 
adequately accounted for or monitored its grant activities. These 
reports have identified shortcomings in the pre-award process, cash 
management, monitoring, and the grant closeout process. For example, 
FEMA does not have a comprehensive grants management tracking system, 
many grantees do not make required cost-share payments and draw down 
million of dollars in Federal funds in excess of immediate needs, and 
some grantees were not spending mitigation funds according to 
established time periods. Grant closeouts are also problematic; for 
example, FEMA still has a Disaster Field Office for the 1994 Northridge 
earthquake.
    The DOJ Office of Justice Programs will be transferring the Office 
of Domestic Preparedness (ODP) to DHS. ODP is responsible for awarding 
grants to state and local governments to prepare for and respond to 
incidents of domestic terrorism involving chemical and biological 
agents, radiological and explosive devices, and other weapons of mass 
destruction. Between fiscal year 1998 through fiscal year 2001, ODP was 
appropriated $243 million to provide these grants. As of March 2002, 
approximately $141 million still had not been awarded.
    In fiscal year 2002, ODP's appropriation was $651.5 million, but 
its fiscal year 2003 budget is $3.5 billion, the increase attributable 
to a new First Responder program. DOJ OIG has reported weak monitoring 
of grants by the Office of Justice Programs, and the size of the new 
program will severely test ODP's grant management systems.
    OIG would suggest early attention to the following key controls:
     A comprehensive grants management system that complies 
with Grant Financial System Requirements issued by the Joint Financial 
Management Improvement Program (JFMIP). The JFMIP document (JFMIP-SR-
00-3) provides functional requirements for 11 functions, namely: (1) 
commitments, (2) de-commitments, (3) obligations, (4) payments, (5) 
cost accruals, (6) financial reports, (7) interest collections, (8) 
grant closeout, (9) records retention, (10) general system 
requirements, and (11) information technology in the grants process. In 
addition, DHS must ensure compliance with the Federal Financial 
Assistance Management Improvement Act of 1999, which requires, among 
other things, use of electronic application and reporting by grantees 
via the internet (E-Grants).
     Adequate monitoring of and assistance to states and other 
grantees in all phases of the grants management life cycle (i.e., from 
award to closeout)
     Assurance that grant closeouts (and required audits) are 
within established time periods, and extensions are adequately 
justified, approved, and documented.
     Adequate training and supervision of the grants management 
workforce.
    In addition to conducting audits and evaluations of the procurement 
and grant functions, OIG would be happy to advise those officials 
establishing or enhancing controls in these areas. If you have any 
questions, or would like to discuss this matter further, please call me 
at 6-8310, or ask your staff to call J. Richard (Dick) Berman, Acting 
Assistant Inspector General for Audits, at 6-2125.
                                 ______
                                 
        Responses by Richard L. Skinner to Additional Questions 
                         from Senator Jeffords
    Question 1. EPA's Inspector General initiated an evaluation of the 
Agency's response to September 11, reviewing how EPA responded and how 
it could better respond in the future. The report described lessons 
that may prove valuable should such a tragedy happen again. Has the DHS 
Inspector General conducted a similar review and if not, will you 
consider doing so?
    Response. The Department of Homeland Security (DHS) Office of 
Inspector General (OIG) has not conducted a similar review, but we will 
be looking at the coordination efforts of the Federal Emergency 
Management Agency (FEMA) and the Environmental Protection Agency (EPA) 
as part of our assessment of DHS' ``National Response Plan,'' which was 
signed in draft by Secretary Ridge on October 10, 2003.
    The FEMA OIG,\1\ however, also conducted a review of FEMA and EPA's 
coordination and delivery of assistance in response to September 
11th.\2\ The FEMA OIG found that neither FEMA nor EPA traditionally has 
been involved in testing and cleaning private residences. Neither 
agency is specifically authorized to provide such services. Although 
FEMA has the responsibility to coordinate recovery from Presidentially 
declared disasters, FEMA must depend on the particular expertise of EPA 
in circumstances involving possible air contaminants or environmental 
hazards. EPA must confirm that such hazards constitute a public health 
and safety threat before FEMA can provide funding for emergency 
response. The OIG concluded that FEMA should be more proactive in 
requesting EPA to conduct necessary testing or studies to determine 
whether a public health or safety threat exists in future, similar 
disasters so that cleaning efforts can begin much earlier in the 
recovery phase. FEMA also should address the roles of State and local 
agencies in such circumstances, as consultation with these agencies 
would provide useful information in review or evaluation.
---------------------------------------------------------------------------
    \1\ The Federal Emergency Management Agency Office of Inspector 
General transitioned into the Department of Homeland Security Office of 
Inspector General on March 1, 2003.
    \2\ FEMA's Delivery of Individual Assistance Programs: New York--
September 11, 2001, December 2002.

    Question 2. In your testimony, you describe the challenges that 
arise because the grant making functions within DHS are distributed 
throughout several directorates. Can you articulate some of the 
challenges that have arisen due to this organizational structure?
    Response. Although numerous grant programs are now consolidated 
within DHS, their management is divided among various components within 
the DHS. Preparedness grants for terrorism are in the Border and 
Transportation Security directorate, while other preparedness efforts 
are in the Emergency Preparedness and Response directorate. This 
bifurcation will create additional challenges related to inter-
departmental coordination, performance accountability, and fiscal 
accountability. For example, there are several Federal grants programs 
that fund first responder training, activities, and equipment to 
prepare states and local communities better for responding to terrorism 
incidents, natural disasters, and other emergencies that are 
administered by DHS' State Homeland Security Grant program or the 
Assistance to Firefighters Grant program. While these programs reflect 
different objectives, both programs allow funding for certain items. 
There is a potential overlap of 113 distinct items in the areas of 
personal protective equipment, interoperable communications equipment, 
detection equipment, and decontamination equipment, which can result in 
uncoordinated and overlapping grant decisions.
    Close coordination between all programs is essential to ensure 
that: (1) duplication does not occur; (2) maximum effectiveness of 
available funding is realized; and (3) minimum confusion exists at 
State and local levels of government. Furthermore, program managers 
have yet to develop meaningful performance measures necessary to 
determine whether the grant programs being absorbed by DHS have 
actually enhanced State and local capabilities to respond to terrorist 
attacks and natural disasters.
    The DHS OIG addressed these concerns in the early days of the 
Department's creation and it is our understanding that this problem is 
now being addressed legislatively. Further, Secretary Ridge recently 
announced plans to centralize these programs within a single office of 
the Department.
                               __________
     Statement of Dale Shipley, Executive Director, Ohio Emergency 
   Management Agency, on behalf of the National Emergency Management 
                              Association
                              INTRODUCTION
    Thank you Chairman Voinovich, Ranking Member Carper, and 
distinguished members of the Subcommittee for allowing me the 
opportunity to provide you with testimony on the public assistance 
program and emergency preparedness issues. My name is Dale Shipley and 
I am representing the National Emergency Management Association (NEMA) 
as the Vice-Chairman of the Legislative Committee and as a Past-
President of the Association. My daily job is the Executive Director of 
the Ohio Emergency Management Agency. In my statement, I am 
representing the state emergency management directors in the 50 states, 
the District of Columbia, and the U.S. territories who are its core 
members. NEMA's members are responsible to their Governors for 
emergency preparedness, homeland security, mitigation, response, and 
recovery activities.
    This is a historic time as the Congress and the Administration have 
reorganized to address the Department of Homeland Security, yet it is 
critical that we remember that all-hazards disaster preparedness is the 
basis that we have used to build homeland security preparedness. At no 
time was this made more apparent than in preparation for Hurricane 
Isabel last week and as the Mid-Atlantic States begin their recovery 
from damages caused by this ravaging storm. While focus remains high on 
homeland security, we as a Nation cannot forget the key programs 
related to natural disasters and the carefully crafted authority of the 
Stafford Act that governs our mitigation, preparedness, response, and 
recovery activities. Today, I'd like to tell you about how the current 
program is working and offer some suggestions that you might consider 
to make our disaster response and recovery program stronger.
              FEMA IN THE DEPARTMENT OF HOMELAND SECURITY
    NEMA supported efforts by Congress and the Administration to 
include the Federal Emergency Management Agency (FEMA) in its entirety 
in the new Department of Homeland Security. FEMA continues to maintain 
an all-hazards approach to disasters, which both NEMA and Secretary 
Ridge vigorously support. State emergency management agencies continue 
to interface with FEMA on a regular basis, as was the case before the 
Department was created. In Ohio, we have had two Presidential disaster 
declarations since March 2003. We have seen no changes in the speed, 
availability, or flexibility of assistance since FEMA has become a part 
of the Department of Homeland Security then we experienced with two 
Presidential disaster declarations before March 2003.
    Certainly the aftermath of Hurricane Isabel has shown that 
regardless of the new focus on terrorism, we must continue all-hazards 
preparedness activities and all-hazards programs like the Emergency 
Management Performance Grant Program (EMPG). EMPG is the program that 
enables the emergency management infrastructure to work in state and 
local governments through its flexibility to address unique needs in 
each state. These funds and the requirements associated with them 
maintain the national system of preparedness and coordination of 
emergency response and recovery in the United States.
    NEMA understands that in any new Department there is a learning 
curve and a meshing of cultures of the various agencies. We hope to 
continue an open dialog and good working relationships with key offices 
such as FEMA in the Department, as we develop new relationships with 
other agencies in the Department as they address new ventures.
                           PUBLIC ASSISTANCE
    After a disaster, the Stafford Act provides for assistance to state 
and local governments and qualifies certain private non-profit 
facilities for disaster relief. In particular, public assistance helps 
to address debris removal, emergency protective measures, road systems 
and bridges, water control facilities, public buildings and their 
contents, public utilities, and parks and recreational facilities. 
Public assistance is particularly important for disaster relief because 
communities need to have vital functions restored in order to get back 
on their feet.
    Ohio's current public assistance program addresses disaster impacts 
on government-related functions. After a disaster, the Ohio public 
assistance staff coordinates with FEMA to assist applicants with 
identifying eligible projects. During the last Federal fiscal year we 
had 4 Presidentially declared disasters in Ohio with $49 million of 
public assistance and 997 applicants.
    Ohio has two full-time employees who manage the public assistance 
program and act as an interface for governmental entities, all 
applicants, and the Federal Government. The staff is charged with 
keeping all records, handling all reporting requirements, closing-out 
all the projects and disasters, and addressing the 25 percent cost-
shares. The Ohio staff also trains local officials on debris removal, 
documentation, and damage assessment.
    In addition, our staff manages one of the few state public 
assistance programs financed by state funds. Our public assistance 
officers handle damage under gubernatorial disaster declarations that 
are not large enough for Federal declarations. In the last Federal 
fiscal year, we have had four of these gubernatorial declarations 
amounting to $4.8 million of assistance and 83 applications. Routinely, 
public assistance reconstruction projects take up to 2 years to 
complete, so our staff in Ohio is very busy handling multiple projects 
and multiple disasters.
    This spring, many state and local government had problems getting 
public assistance beyond categories A and B, which includes debris 
removal and emergency protection measures, due to the lack of funds in 
the disaster relief fund. In fact, a number of states are still in the 
process of receiving funds toward public assistance projects going back 
to the President's Day winter storms in some states. Absent Federal 
supplemental assistance, which is provided by law, state and local 
governments have to come up with other sources of funding to begin and 
complete these projects. In the tight fiscal environment, the lack of 
funding is particularly troubling, as poorer communities cannot afford 
to front the costs. State and local governments have had to front funds 
for projects while waiting until August for additional Federal 
appropriations for the disaster relief fund.
    Appropriations for fiscal year 2003 only included $800 million for 
the disaster relief fund, while a typical appropriation in previous 
years has been around $1.8 billion to $2.2 billion, plus supplementals 
to address disasters. While we appreciate recent efforts of Congress to 
get disaster relief funds to state and local governments in August, 
2003, we do not support this piecemeal approach to the disaster 
appropriations process. Assistance for reconstruction projects and for 
disasters victims must not be put on hold, since any deferment limits 
the ability for a community and of an individual or family to recover 
from a disaster. Delays in assistance mean delays in recovery, and 
overall those delays hamper our national economy.
    I want to share with you some couple of examples that illustrate 
how important getting public assistance funding to communities.
     Southern Ohio Monroe County received a Presidential 
disaster declaration (FEMA disaster declaration 1453) for snow and ice 
storms in February 2003. The County had multiple needs for road 
repairs. The applicant was approved for $498,729, but Federal funds 
were not available to draw down for use until September 8, 2003. This 
same applicant was impacted by storms and flooding included in FEMA 
disaster declaration 1484 in August 2003. We have yet to determine if 
Federal funds are available for this recent declaration. Monroe County 
has a population of about 15,000, which is not a very large tax base to 
be able to front half a million dollars; and
     The city of Portsmouth in Scioto County.-- As a result of 
an ice storm in which the city lost thousands of trees, the city was 
approved for $319,250 for debris removal. FEMA funds were not available 
for draw down until the last week of August 2003. The state had to help 
the city get an extension, since the debris removal category funds 
expire after 6 months.
    The advent of terrorism-related attacks that involve the potential 
use of chemical, biological, radiological and explosives bring a unique 
challenge to programs that were designed to address natural and man-
made disasters. Speaking as the Ohio Director, it may be appropriate to 
enlarge the scope of eligibility under terrorism and catastrophic 
disasters. Obviously, there is currently room for flexibility and 
adjustment in the Stafford Act and that flexibility was exercised by 
Federal officials following September 11, 2001.
    FEMA is looking closely at the public assistance program and is 
exploring ways to allow states to manage some aspects of the program. 
NEMA is participating on a concept development working group to 
identify the needs of the public assistance program in the current 
environment and when several disasters occur simultaneously within a 
short-time period such as garden-variety disasters and catastrophic 
disasters. One scenario could be allowing states the option of state 
management of the public assistance program. My colleagues in Arizona 
have managed the Federal public assistance in the last three disasters. 
One of the things they find difficult is the lack of funding to 
maintain continuity and institutional memory for disasters, since many 
of these positions are temporary. Conversely, if a state is unable to 
manage the program it would need to have the option of utilizing FEMA's 
resources to manage the program. Ideally, Federal assistance would 
contribute toward a Public Assistance Officer (PAO) in each state who 
could provide training and awareness to applicants. Having a dedicated 
PAO could lead to greater consistency and faster recovery which could 
cause a reduction in overall disaster costs.
                              OTHER ISSUES
    In addition to public assistance, there are other key pre- and 
post-disaster programs for which this committee has oversight that I 
wish to bring to your attention. We ask for your assistance to address 
these issues.
1. Individuals and Households Repair Cap Fix
    When the Disaster Mitigation Act of 2000 (DMA2K) was signed into 
law, a provision was inadvertently changed in the bill that lowered the 
cap on assistance for individuals and households to repair damaged 
residences. This assistance includes from the cap includes repair of 
owner-occupied private residences, to a safe and sanitary condition. 
Repair assistance is used to allow disaster victims to continue living 
in damaged residences after a disaster and thus minimizing the overall 
disaster costs. Originally, the cap was set at more than $5,000, but 
could be increased to as much as $15,000. With DMA2K's enactment, the 
cap was lowered to $5,000. We call on this committee to address this 
error in correction legislation, so that disaster victims are not 
limited to $5,000 when no other assistance is available. We suggest 
calling this assistance ``initial'' and support FEMA's suggested 
language to fix the problem. This spring, many state emergency 
management directors found this provision hampering when responding to 
tornadoes and floods. Typically the persons who have no other means of 
assistance are those most highly impacted by this provision. We expect 
the cap to become an issue in the aftermath of Hurricane Isabel as 
well.
2. Predisaster Mitigation
    NEMA was instrumental in working with this committee during the 
development of the legislation that initially authorized a pre-disaster 
mitigation program through the Disaster Mitigation Act of 2000 (DMA2K) 
(P.L. 106-390). Pre-disaster mitigation is essential, but we need to 
ensure that pre-disaster mitigation corresponds with DMA2K that was 
passed overwhelmingly by the House and Senate and signed into law.
    Title I of the DMA2K expires on December 31, 2003. While the House 
and Senate have appropriated funds for the program in their own 
versions of the Department of Homeland Security appropriations bills at 
$180 million and $150 million respectively, we need program 
reauthorization to prevent the program from being forgotten and not 
funded in future years. NEMA strongly believes that this program, 
coupled with the Hazard Mitigation Grant Program (HMGP) is effective at 
reducing the costs of disasters overall by saving lives and protecting 
property. Each program has a specific function that is relative to the 
environment that exists before a disaster and after a disaster. For 
example, it is easier to convince the homeowner of a waterfront 
property of the need to relocate from the floodplain after a disaster 
occurs and the home is filled with mud and water than it would be on a 
serene sunny day.
    Fiscal year 2003, was the first year that FEMA received funding for 
the national competitive pre-disaster mitigation program. The funding 
level was $150 million and currently state and local governments are 
working cooperatively to complete project applications and to submit 
them to FEMA. As NEMA understand the process, initial reviews will 
begin in early October and the peer reviews will commence in late 
October. The pre-disaster mitigation program is in its infancy, as the 
first round of significant funding has only just been made available 
and not yet awarded. It would be a shame to let the program die at this 
time without having been able to make any demonstrable achievements in 
mitigation. NEMA believes that the value of the program will be 
evidenced after the projects are approved and implemented. We therefore 
are asking this committee to reauthorize the program for 3 years, at 
which time FEMA should be asked to provide evidence to Congress of the 
achievements made as a result of the pre-disaster mitigation program.
    Early on, NEMA believed that the pre-disaster mitigation program 
should not be a competitive program, however, the Administration's 
budget proposals to make the program competitive were affirmed by 
Congress in fiscal year 2003. FEMA began implementing the requirements 
of DMA2K 2 years ago with the requirement of state and local multi-
hazard mitigation plans (Section 322 plans). With impending deadlines 
for these plans on November 1, 2003 and November 1, 2004 many state and 
local governments have submitted plans for consideration or are 
actively involved in developing these mitigation plans, despite the 
fact that no significant source of Federal funding was provided to 
state and local governments to accomplish this mandate. The 322 plans 
are essential to identifying key areas where mitigation resources are 
needed in each state and will work hand-in-hand with the pre-disaster 
mitigation program and the HMGP program. We were a bit surprised by 
some of the FEMA guidance on the pre-disaster mitigation program. In 
particular, NEMA is worried that the heavy focus of the program on 
repetitive loss priorities for floods will deflect from the program's 
intended all-hazards approach.
    We are also concerned that management costs will not be available 
to state and local governments unless a project is approved. This will 
again place smaller and less affluent communities at a disadvantage, 
since they are not able to provide the costs associated with hiring a 
consultant to prepare the applications and an engineer necessary for 
the environmental and historical reviews, as well as the benefit-costs 
analysis. We suggest that future year programs allow for administrative 
costs out of the total program funds at the beginning of the notice of 
availability of funds. We also suggest that cost-share requirements may 
place some communities and states at a disadvantage and discourage them 
from applying for the pre-disaster mitigation program. Waivers in cost-
share requirements would be a way to address this problem in a tough 
financial environment for state and local governments.
    Because NEMA firmly believes in pre-disaster and post-disaster 
mitigation, we have re-energized the Stafford Act Coalition. A group of 
13 associations representing a variety of interests, including the 
American Red Cross, the National Rural Electric Cooperative, the 
National League of Cities and the National Association of Counties have 
supported both pre-disaster mitigation reauthorization and restoring 
the HMGP formula to 15 percent. We believe that such wide and varied 
support, with no opposition known, shows the need to reauthorize the 
pre-disaster mitigation program and to keep the HMGP program in place 
at the 15 percent level.
3. Hazard Mitigation Grant Program
    The Administration's budget proposal to eliminate the post-disaster 
Hazard Mitigation Grant Program (HMGP) in favor of funding a 
competitive pre-disaster mitigation program is wrong. While Federal 
costs toward disasters remain a concern, significant commitments must 
be made toward both pre-disaster and a fully funded post-disaster 
mitigation in order to lower overall disaster costs in the long run.
    Last year, Congress changed the formula for post-disaster 
mitigation grants from 15 percent to 7.5 percent. This change limits 
the availability of funds for post-disaster mitigation and prevents the 
lessons learned from disasters from being immediately incorporated into 
mitigation projects to prevent losses of life and destruction of 
property. State governments no longer can offer buy-outs or mitigation 
projects to many disaster victims as a result. The months immediately 
following disasters provide unique opportunities to efficiently 
incorporate risk reduction measures in a very cost-effective manner, in 
many cases lowering the overall cost of the project by leveraging other 
funding sources including insurance settlements. We appreciate efforts 
by the Senate and the House to keep the 7.5 percent formula in place in 
the House and Senate versions of the Department of Homeland Security 
appropriations. NEMA supports keeping the program in place. As 
authorizers, we ask that you maintain the program and restore the 
formula to 15 percent.
    The HMGP has proven to be a highly effective tool in steering 
communities toward risk reduction measures, in many cases breaking 
repetitive loss cycles that have cost other Federal disaster relief 
programs multiple times. Cost-benefit analysis is currently a 
requirement for pre-disaster mitigation programs. In a purely 
competitive grant program, lower income communities, often those most 
at risk to natural disaster, will not effectively compete with more 
prosperous cities. Also, disasters graphically and vividly expose the 
need for and value of mitigation projects. We must not lose these 
opportunities to initiate projects to enhance our communities and 
reduce future disaster costs. Damage caused by disasters would go 
largely unrepaired thereby further impacting the economic and social 
recovery of particular areas. There are not enough mitigation dollars 
available to address all of the vulnerabilities that exist in this 
country. During Hurricane Isabel, 220 homes in the Bell Haven, North 
Carolina (Beaufort County) that were elevated with HMGP funds after 
Hurricane Fran in 1996 did not flood, despite significant flooding on 
the Pungo River. This example shows that HMGP works.
    Making mitigation funds available only in a pre-disaster 
competitive environment will set this country's mitigation efforts back 
by removing the prime motivation factor, the disaster itself. The HMGP 
change is perhaps one of the most burning issues for emergency managers 
across the country. At this point we have not been able to quantify 
which projects were laid aside as a result of the change since HMGP 
funds for this year were on hold until additional funds were made 
available through a supplemental to the disaster relief fund. However, 
the program has literally been cut in half and that significantly 
reduces mitigation activities after a disaster, when the opportunity is 
most ripe for participation. Just imagine the opportunities that will 
be lost in the Mid-Atlantic states in the aftermath of the hurricane 
because of the formula change.
    NEMA calls on Congress to maximize the benefits of both HMGP and 
pre-disaster mitigation. NEMA pre-disaster mitigation, but maintains 
that HMGP should be retained as a separate and fully funded post-
disaster program. We need both.
                               CONCLUSION
    As we work to implement a new Federal Department of Homeland 
Security, we must not forget about the all-hazards approach to 
emergency management and the role it plays in preventing our Nation 
from losing focus on the daily perils that we face in addition to new 
threats.
    Whether it is a flood in Ohio, a hurricane in North Carolina, or 
tornadoes in Kansas, states need a Federal commitment to recognize that 
each state and local government has unique disaster mitigation, 
preparedness, response, and recovery needs that require flexible, 
predictable, and adequate funding assistance that is coordinated with 
the state emergency management plan. I thank you for the opportunity to 
testify on behalf of NEMA and welcome any questions that you might 
have. Only through a partnership of Federal, state, and local 
governments, can we prevent the loss of lives and property as a result 
of all disasters regardless of cause. Thank you for your consideration 
and partnership.
                                 ______
                                 

                                 Ohio Infrastructure Impacts for Federal FY 2003
----------------------------------------------------------------------------------------------------------------
                                                                    No. of                         Non-Federal
                              Event                               applicants     Total cost        Share (25%)
----------------------------------------------------------------------------------------------------------------
                                            Public Assistant Program
 
DR-1453, Severe winter storm, flooding..........................        744     $36,552,402.09     $9,138,100.52
DR-1484, Flooding and tornado...................................        253     $12,625,000.00     $3,156,250.00
                                                                 -----------------------------------------------
  Totals........................................................        997     $49,177,402.09    $12,294,350.52
----------------------------------------------------------------------------------------------------------------


 
----------------------------------------------------------------------------------------------------------------
                                                                    No. of                         Non-Federal
                              Event                               applicants   Total IHP cost      Share (25%)
----------------------------------------------------------------------------------------------------------------
                                       Individuals and Households Program
 
DR-1444, Severe Storms and tornadoes............................        726        $564,627.00        $69,217.00
DR-1453, Severe winter storm, flooding..........................      3,026       2,596,111.00        246,908.00
DR-1478, Severe storms and flooding.............................      2,049       1,918,966.00        123,706.00
DR-1484, Severe storms and flooding.............................     39,684      38,177,945.00      3,588,351.00
                                                                 -----------------------------------------------
  Totals........................................................     45,485     $43,257,649.00     $4,028,182.00
----------------------------------------------------------------------------------------------------------------


                           Ohio Infrastructure Impacts for Federal FY 2003--Continued
----------------------------------------------------------------------------------------------------------------
                                                                    No. of                         Non-Federal
                              Event                               applicants     Total cost        Share (75%)
----------------------------------------------------------------------------------------------------------------
                                          State Disaster Relief Program
 
November 2002, Tornadoes........................................         22          1,258,533       $943,899.75
May 2003 flooding...............................................          6          1,119,161       $839,370.56
June 2003 flooding..............................................          8          1,131,117        848,337.75
July 4, 2003 flooding...........................................         47          2,975,369      2,231,526.79
                                                                 -----------------------------------------------
  Totals........................................................         83         $6,484,180     $4,863,134.85
----------------------------------------------------------------------------------------------------------------

      
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     National Emergency Management Association (NEMA), Issues and 
Recommendations for Congress to Consider for Amending the Stafford Act 
                to Better Address Catastrophic Disasters
    At the request of United States Senator, George Voinovich (OH), the 
National Emergency Management Association (NEMA) has identified a 
series of issues and recommendations for Congress to consider for 
amending the Stafford Act to better address catastrophic disasters, 
including acts of terrorism. NEMA established a small working group of 
those entities having experienced terrorist attacks: New York Oklahoma, 
Virginia, and the city of New York The State of Ohio was also included 
in the work group as the home State of Senator Voinovich, and as a 
State that has experienced large disasters in recent years.
                           GENERAL STATEMENT
    The focus of any amendments to the Stafford Act should be on 
catastrophic disasters regardless of cause. The impacts of a major 
hurricane, earthquake or epidemic could result in as catastrophic a 
disaster as a terrorist act.
    NEMA believes there should be financial commitments for State and 
local governments in disaster response and recovery. We are not 
advocates for increased assistance across the board for those disasters 
typically addressed through the Stafford Act. We do feel strongly 
however, that for catastrophic disasters requiring actions above and 
beyond typical disasters there should be triggers or thresholds 
established for increased assistance to State and local governments. 
There must also be statutory authority for the Federal Government to 
provide increased assistance without delay.
  issues identified after september 11, 2001 and likely to occur again
    Disaster response and recovery needs resulting from the terrorist 
attacks on September 11, 2001 in New York City and at the Pentagon 
revealed limitations in the type and amount of assistance that could be 
provided to State and local governments through the Stafford Act. The 
law and the disaster assistance programs it authorizes had never before 
been applied in a terrorist incident of this magnitude. Repeatedly, 
policy decisions on reimbursement had to be determined by FEMA or by 
Congress, outside the parameters of the Stafford Act. FEMA broadly 
interpreted its provisions within the Stafford Act, and Congress 
authorized FEMA to compensate the cities and states for costs that it 
could not otherwise have funded within the current Stafford Act.
    The following issues were identified from the September 11 
terrorist attacks and will likely occur again in another terrorist 
attack, or other catastrophic disaster:
     Increased Costs for Security. The Stafford Act lacks 
provisions for State and local governments to receive reimbursement for 
certain costs--including extensive additional security across a 
geographic area which may be significantly broader than the physically 
impacted disaster site, and security required for a period of time 
longer due to ongoing terrorist threat. We know that following a 
terrorist act, there will be a need for increased security at critical 
infrastructure sites, historical sites, government facilities, along 
transportation routes, bridges and tunnels, etc. all of which will 
result in extraordinary costs to State and local governments.
    Recommendation: The Stafford, Act should include increased security 
as an eligible cost reimbursement for catastrophic disasters.
     Insurance. The availability of liability insurance 
coverage for cities and contractors as it relates to debris removal is 
absolutely vital. The appropriate level of coverage for a terrorist 
incident is not available on the private market and what is available 
covers only a fraction of the cost to local government. This issue 
still hasn't been resolved more than 2 years after September 11, 2001.
    Recommendation: Congress should provide Federal indemnification for 
State and local governments (and their agents) for prudent actions 
(such as debris removal) taken in response to a catastrophic or 
terrorist disaster. This is especially important in disasters, such as 
WTC, where there are significant environmental concerns.
     Debris Removal. Currently, debris removal is limited to 
the impacted area. In New York City, debris including human remains and 
dust from the collapse of the towers was discovered outside the 
immediate vicinity of Ground Zero.
    Recommendation: The removal of any debris such as this, as well as 
debris that is potentially hazardous to the public should be reimbursed 
as long as it is a result of the catastrophic event.
     Mass Evacuation. The Stafford Act does not provide for 
post reimbursement for states and localities outside the declared 
disaster area. The need for mass evacuations into other cities, 
counties and states will continue to be necessary in catastrophic 
events.
    Recommendation: Entities outside the declared disaster area that 
mobilize to receive and care for evacuees should be eligible for 
reimbursement.
     Lost Government Revenue. New York City estimated losses in 
tax revenue of almost $3B in 2002 and 2003 directly attributable to the 
attack and independent of the economic slowdown. These losses were due 
to decreases in city personal income taxes, business taxes and reduced 
sales tax. In addition, the destruction of property, the virtual 
closing of Lower Manhattan and the significant effect on travel and 
tourism had a significant impact on tax revenues. The Stafford Act does 
not allow FEMA to provide reimbursement for lost tax revenue to local 
governments. The Community Disaster Loan Program is capped at only 
$5M--a fraction of the costs from a catastrophic disaster. At a 
minimum, this arbitrary cap should be eliminated in catastrophic 
events.
    Recommendation: Congress should take into consideration the impact 
on local budgets and establish triggers or thresholds at which Federal 
disaster assistance is provided for catastrophic events. One approach 
may be to trigger assistance when catastrophic disaster costs exceed 
the local budget by more than 1 percent. Non-Federal cost share 
requirements should be considered as well and perhaps a sliding scale 
created based on the size of the event and the overall impact on State 
and local budgets.
     Special designations for certain for-profit organizations 
within the Stafford Act definition of ``critical facilities''. For-
profit entities are not eligible for Stafford Act assistance and 
certain non-profit facilities are eligible for grants for the 
reconstruction and repair of damaged facilities. The September 11 
attacks disrupted services provided by utilities, transportation, 
communication, educational and medical care facilities. Congress later 
appropriated funds to help meet these costs.
    Recommendation: The Stafford Act should allow, in catastrophic 
events, the flexibility for special designations to be given to certain 
for-profit entities that provide government type services for 
assistance deemed essential.
     Individuals and Households Repair Assistance Program. When 
The Disaster Mitigation Act of 2000 was signed into law, a provision 
was inadvertently changed in the bill that lowered the cap on 
assistance for individuals and households to repair damaged residences. 
The assistance under the cap severely limits assistance for repair of 
owner-occupied private residences, utilities, and residential 
infrastructure damaged by a major disaster to a safe or sanitary living 
or functioning condition. Repair assistance is used to allow disaster 
victims to continue living in damaged residences after a disaster and 
thus minimizing the overall disaster costs, especially rental and 
transportation assistance, and availability of rental property. 
Previously, the cap was set at more than, $15,000, but with DMA2K the 
cap was lowered to $5,000 without any avenues for any additional 
assistance should other assistance programs fail. Typically the persons 
who have no other means of assistance are those most highly impacted by 
this provision.
    Recommendation: Congress should expeditiously address this error in 
corrective legislation, so that disaster victims are not limited to 
$5,000 when no other assistance is available. We suggest calling this 
assistance ``initial'' and support FEMA's suggested language to 
increase the cap as appropriate while remaining within the overall 
$25,000 limit for assistance to individuals.
     The Mortgage and Rental Assistance Program was eliminated 
in the Disaster Mitigation Act of 2000.
    Recommendation: Re-instate the Mortgage and Rental Assistance 
Program under the Stafford Act.
     Long-term Economic and Societal Recovery. The magnitude of 
destruction caused by catastrophic disasters, the losses to the economy 
and the psychological impact on individuals and communities requires 
long-term recovery efforts. In the area of crisis counseling 
assistance, only individuals from a declared disaster area are eligible 
to receive counseling services and for a short period of time. In 
catastrophic disasters there may be a need for assistance to be 
provided to individuals not only outside the immediate disaster area, 
but also in other states.
    The Stafford Act does not currently provide Federal authorities 
adequate flexibility to coordinate and monitor Federal rebuilding 
efforts that may be required after catastrophic events. In addition, 
there is no formalized Federal coordination point to--assist state, and 
local governments with identifying and accessing all the assistanoe 
available to them from the Federal Government. A one-stop-shop approach 
is needed to assist states with long-term recovery.
    Recommendation: FEMA should be held accountable for coordinating 
assistance on behalf of all Federal agencies so that State and local 
governments have a single point of contact for collecting information 
and resolving issues.
    Statutory and administrative requirements placed on disaster 
assistance programs may, at times, delay the delivery of assistance. 
Congress should provide flexibility for the President or the director 
of FEMA to waive regulations or extend deadlines for providing 
assistance in catastrophic situations when economic and societal 
impacts require broader provisions of assistance and for longer time 
periods.
                     ADDITIONAL ISSUES TO CONSIDER
    1. Re-examine Public Assistance Program eligibility requirements of 
private nonprofit organizations.
    2. Ensure a methodology for FEMA to use to address incremental 
costs to State and local governments.
    3. Clarify agencies' authorities and ensure immediate environmental 
hazard assessment, monitoring and reporting to emergency responders.
                               __________
   Statement of Bud Larson, Associate Director, New York City Office 
                        of Management and Budget
    Good Morning Chairman Voinovich, Senator Carper, our own New York 
Senator, Senator Clinton, and distinguished Members of the 
Subcommittee. My name is Bud Larson, and I am the Associate Director of 
the New York City Office of Management and Budget. My responsibilities 
include, among others, coordinating and processing all of the FEMA 
claims by the city of New York, and I am thankful for the opportunity 
to share the city's experiences in this process over the last 2 years. 
In particular, I would like to provide you with some insight on how the 
city and FEMA responded to certain limitations in the Stafford Act.
    Immediately following the attacks of September 11th, 2001, the 
President and Congress committed over $20 billion of much needed aid to 
the city of New York. This aid included a $5 billion Liberty Zone Tax 
Incentive Package, over $3 billion in Community Development Block 
Grants for economic development, almost $2 billion to the U.S. 
Department of Transportation for downtown transit upgrades, and over $8 
billion to FEMA for transit improvements, individual and family 
assistance grants and the public assistance program. Of these, the city 
of New York is eligible to make direct claims for reimbursements of 
disaster-related costs only through FEMA's Public Assistance program. 
The City's claims have totaled approximately $3.5 billion.
    Overall, FEMA has been remarkably efficient and flexible in 
reimbursing the city, given the constraints of the Stafford Act. Since 
the 9/11 terrorist attack was the largest disaster ever in the United 
Sates, the associated costs borne by the local government was the 
largest FEMA has ever had to deal with. FEMA recognized very early on 
in the process that they had entered into new, un-chartered territory, 
as this disaster was unlike any they had ever responded to, and FEMA 
officials were willing to work as hard as possible in order to provide 
the necessary reimbursements to the city of New York.
    The City has already received almost 100 percent of all claims 
filed and currently eligible to be reimbursed, excluding the $1 billion 
insurance fund. A large portion of the balance of Public Assistance 
funds have been earmarked for transportation improvements for a new 
transit hub in Lower Manhattan, and will be provided to the appropriate 
entity when the expenses occur. This success is attributable to the 
staff at FEMA, the State of New York, all of our City agencies and the 
assistance of our congressional delegation, including Senator Clinton.
    While we greatly appreciate the work done by the staff at FEMA in 
providing the city with appropriate reimbursement, there are a number 
of limitations in the Stafford Act that did not make this an easy 
process. If not for congressional action, the city would still not have 
received the reimbursement necessary to cover the unique expenses a 
local government incurs when responding to a terrorist attack. In fact, 
there are some instances where the city will never receive the 
appropriate reimbursement due to these limitations.
    First and foremost, due to the extent of the damages and the 
destruction of the financial center of the Nation, the city and State 
lost a substantial amount of tax revenue as a direct result of this 
terrorist attack. The City estimated substantial losses in tax revenue 
of almost $3 billion in the 2002 and 2003 City fiscal years directly 
attributable to the attack and independent of the economic slowdown. 
These losses were due to decreases in City personal income taxes, 
business taxes and reduced sales taxes. In addition, the actual 
destruction of property, the closure of Lower Manhattan and the 
significant effect on travel and tourism to New York in particular, 
also had devastating affects on our tax revenues. While some have 
argued that it is impossible to link the loss of these revenues to the 
terrorist attack, the General Accounting Office issued a report on July 
26, 2002 reviewing these estimates and noted that the tax revenue loss 
estimates for 2002 ``appear to reasonably approximate the impact of the 
terrorist attacks on tax revenues''.
    I also want to make it clear that the city did not receive any 
Federal funds based on the city's experiencing a budget shortfall as a 
result of these lost tax revenues.
    Currently the Stafford Act does not allow FEMA to provide any 
reimbursement for lost tax revenue to local governments. While a 
Community Disaster Loan Program currently exists, the loan amount is 
capped at only $5 million not even a fraction of the costs associated 
to such a large terrorist attack in a major metropolitan city. Since 
the Stafford Act does not accommodate this very real need for disaster-
stricken local governments, the people of the city and State of New 
York have been forced to shoulder these additional financial burdens 
caused by an act of war.
    Another limitation of the Stafford Act is its lack of provisions 
for local governments to receive reimbursement for unique expenses 
associated with a terrorist attack. New York City was a direct target 
as was the Pentagon and the District of Columbia; and as a direct 
target, the city needed to take action immediately by heightening 
security in all parts of the city. Prudence demanded that the entire 
City needed to be shut down, bridges and tunnels into Manhattan needed 
to be closed, subway lines and railroads needed to be suspended and 
security at the United Nations and other key locations was immediately 
heightened. These costs were incurred directly as a result of the city 
being a terrorist target. However, the Stafford Act does not recognize 
these expenses as eligible reimbursements since these additional 
expenses did not occur at the actual site of the ``disaster''. While 
FEMA worked to interpret the act as broadly as possible, under the 
narrow confines of the Stafford act, FEMA could not grant 
reimbursement. It took a special act of Congress to allow FEMA to 
provide reimbursement to the city of New York for these costs, which 
would clearly not have been incurred but for the terrorist attacks. 
After receiving congressional authorization, FEMA responded diligently 
and effectively in processing these new claims. But the fact remains 
that in any future terrorist attack there will be significant related 
costs incurred by local government that will be ineligible for 
reimbursement under the Stafford Act.
    Finally, one of the most complex obstacles to full reimbursement 
under the Stafford Act encountered by the city involved environmental 
liability as it relates to debris removal. Immediately after the 
attacks on September 11th, the city responded by deploying police 
officers, firefighters, EMS workers and other employees to the site for 
search and rescue. At the same time, the city contacted four 
construction companies to begin the process of debris removal. These 
companies acted with a sense of patriotism, and worked without 
contracts, insurance or indemnity. This response by the municipality 
and its contractors were immediate and necessary, and both parties took 
substantial risks. In order to protect against liability for the city 
and its contractors, the city sought to obtain insurance on the private 
market, but was able to obtain only $79 million of general liability 
coverage; and even that coverage came with significant exclusions. The 
City and its contractors accordingly sought legislation providing for 
Federal indemnification of these claims, but without success. Finally, 
as a result of congressional action, FEMA set aside approximately $1 
billion for an insurance fund to protect the city and its contractors 
from claims relating to the debris removal process. While the city and 
contractors will benefit from this substantial coverage, the amount of 
coverage is only a fraction of the $12 billion of damages already 
claimed against the city.
    The creation of this insurance fund was difficult and complex, and 
this was aggravated because the Stafford Act provided no facility for 
its funding. In fact, even after 2 years since the attack and 7 months 
after additional congressional action, this insurance fund has yet to 
be created and negotiations between FEMA, the city and its contractors 
are still ongoing. This is clearly an unfortunate circumstance, and no 
one local government or contractor should have to deal with. In fact, 
this experience may cause governments and others to think twice before 
responding to a terrorist attack. The Federal Government must address 
this issue, by either enacting Federal indemnification or an insurance 
plan to protect municipalities and their contractors.
    While the city's experiences with FEMA have not been without some 
difficulties--as I just explained--I want to be very clear that this 
was in no way due to the staff or mission of the agency. I have the 
utmost respect for the professionalism and diligence of the people at 
FEMA. It was the constraints in Federal statute that proved to be 
difficult. I urge you to examine these issues and determine the best 
course of action, so local governments and taxpayers are protected from 
the additional financial burdens of a terrorist attack.
    I thank you for your patience and would be glad to take any 
questions.
                                 ______
                                 
 Responses by Bud Larson to Additional Questions from Senator Jeffords
    Question 1a. The GAO report cites $8.6 million that went to the New 
York Department of Environmental Protection for exterior building 
cleaning. Who decided that New York would take the lead for this 
function, how were buildings to be cleaned selected, what precautions 
were taken to protect the workers conducting this cleaning, 
pedestrians, and other people in the area of these clean-ups?
    Response. I, Bud Larson, am not the expert and would defer to New 
York City Department of Environmental Protection on the following 
question. The following answer is provided by NYC Deputy Commissioner 
Chris Ward:

    Question 1b. Who decided that New York would take the lead for this 
function?
    Response. The USEPA and FEMA decided that DEP should retain the 
contractors for the exterior building cleaning program after DEP 
proposed the program in a multi-agency meeting that had been convened 
by the EPA in February 2002. NYC DEP, in coordination with U.S. EPA 
developed cleaning protocols and it contracted with qualified firms to 
undertake the necessary cleaning. This program became part of a 
broader, U.S. EPA-lead, effort to take the necessary steps to rid the 
downtown area of air quality concerns, which required the cleaning of 
building interiors.

    Question 1c. What precautions were taken to protect the workers 
conducting this cleaning, pedestrians, and other people in the area of 
these clean ups?
    Response. All contractors were required to perform cleaning in 
compliance with USEPA, OSHA, NYSDOL, NYS DEC, NYCDOS, NYCDOH, and 
NYCDEP regulations, as well as contractual protocols assuring that all 
necessary precautions were put in place to protect those performing the 
cleaning, and those in the area. For example, multiple roofs were 
cleaned simultaneously in order to ensure that one roof waiting for a 
clean up would not have wind disperse debris from it onto other already 
cleaned rooftops. The Clean-up Program included low-pressure washing 
and HEPA vacuuming to remove visible debris.
    The DEP applied for permits from the NYC DOT to close streets, or 
lanes of traffic, and sidewalks as necessary to protect pedestrians and 
others in the area. Work was planned to limit impact on the public and 
to businesses whenever possible. Some work was only performed on nights 
and weekends.
    All workers were required to wear full coveralls, gloves, and a 
minimum of half-face air purifying respirators equipped with HEPA 
filters.

    Question 1d. How were the buildings to be cleaned selected?
    Response. New York City Department of Environmental Protection 
field staff with representatives from the NYS Department of Labor and 
the United States Environmental Protection Agency inspected 1,073 
buildings beginning at ground zero and proceeding outward. Buildings 
where WTC debris was observed were identified for clean up and notices 
were provided to each building owner. Once the Exterior Cleaning 
Program was established, buildings where debris had been observed were 
re-inspected. If debris was still present, the owner was offered 
participation in the program.

    Question 2. The GAO report states that NYC was not required to pay 
the 25% cost share that is normally required of communities that 
receive Federal disaster assistance. GAO reports that the President 
capped the spending on this disaster at $20 billion, rather than using 
the normal process for disaster spending. GAO also reports that the 
President reduced the amount of Hazard Mitigation Grant Program Funds 
to 5 percent rather than the standard 15 percent of the amount spent on 
the disaster. Do you believe that the city ultimately received less or 
more Federal assistance than they would have if the normal Stafford Act 
procedures were followed?
    Response. As discussed in my prepared remarks, much of the costs 
incurred by the city as a direct result of the disaster were not 
eligible under normal Stafford rules. Because Congress and the 
President authorized FEMA to use a portion of the capped funds to pay 
for these Stafford-ineligible costs, the city ultimately received more 
FEMA assistance than under normal Stafford Act procedures and rules. 
The authority to use funds for Stafford-ineligible costs was necessary 
because the Stafford act was not and is not designed to respond to a 
terrorist attack, particularly on the scale of September 11.
    However, because of the $20 billion cap and the prohibition against 
reimbursing the city for lost revenues, the reimbursement received was 
still substantially less than the true cost to the city of the 
disaster.

    Question 3. The GAO report describes $1.7 to $2 billion of the $4.6 
billion in FEMA and DOT funds for which uses had not been determined as 
of June 2003. Potential projects under consideration were improving 
access to JFK airport and Long Island, improvements to West Street 
Route 9A, and a tour bus facility. Have you determined how these funds 
will be used and if so, what criteria were used to select those 
projects that will receive funds?
    Response. To date, $2.85 billion has been allocated of the $4.55 
billion in FEMA/DOT funding.
    The three projects included in this allocation are the replacement 
of a commuter train from New Jersey to Lower Manhattan (the PATH 
train), a subway hub on Broadway, and a renovation of the subway 
station at South Ferry, which was the first subway station ever built 
in New York City.
    The criteria are improving access to the area, modernizing its 
transportation facilities, and improving the experience of using Lower 
Manhattan's transportation system.
  

                                  
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