[Congressional Record Volume 145, Number 46 (Tuesday, March 23, 1999)]
[Extensions of Remarks]
[Pages E511-E513]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

[[Page E511]]



    CBO COST ESTIMATE OF H.R. 707, THE DISASTER MITIGATION AND COST 
                         REDUCTION ACT OF 1999

                                 ______
                                 

                            HON. BUD SHUSTER

                            of pennsylvania

                    in the house of representatives

                        Tuesday, March 23, 1999

  Mr. SHUSTER. Mr. Speaker, on March 4 the House passed H.R. 707, the 
``Disaster Mitigation and Cost Reduction Act of 1999.'' The 
Congressional Budget Office (CBO) was unable to submit a cost estimate 
of H.R. 707 to the Committee on Transportation and Infrastructure 
before a Committee report was filed. In lieu of the CBO estimate, the 
Committee provided its own estimate of the cost of the legislation. The 
Committee estimated that H.R. 707 would result in savings to the 
Federal Government of approximately $100 million over the first five 
years, and significantly more savings in the longer run. This estimate 
was based on the CBO cost estimate on virtually the same bill that was 
reported out of the Committee in the 105th Congress. (For details see 
House Report 106-40, pages 20-21.) At the time the report was filed the 
Committee committed to submitting CBO's cost estimate, once completed, 
of H.R. 707 for the Record.
  CBO's analysis, presented in its entirety below, estimates 
implementing H.R. 707 would increase discretionary outlays by a total 
of $2 billion over 1999-2004. On its face, this estimate is at odds 
with the Committee's estimate that the bill will save $100 million over 
the same period. There are two important factors which account for the 
difference in these estimates. First, $1.3 billion of CBO's estimated 
$2 billion in costs are due to an acceleration in outlays CBO now 
estimates will happen over the first five years. This contradicts CBO's 
report on what was essentially the same bill in the 105th Congress. The 
acceleration is caused by a provision in H.R. 707 that streamlines the 
assistance program allowing FEMA to end the assistance process in 
disaster areas much faster than in the past. This provision will reduce 
paperwork for disaster victims and reduce the Federal presence in these 
areas. It is important to note that CBO estimates this provision will 
not change total spending in the long term.
  The second important factor that accounts for the difference between 
the Committee and CBO's cost estimate is that CBO does not estimate any 
savings from pre-disaster mitigation spending. CBO states it cannot 
predict the timing or magnitude of future disasters and, therefore, 
cannot predict the savings from mitigating against future damage. 
However, CBO states ``If the authorized funding for pre-disaster 
mitigation efforts is provided and used judiciously, enactment of this 
legislation could lead to savings to the Federal Government by reducing 
the need for future disaster relief funds.'' The Committee cost 
estimate assumed that every dollar of mitigation spending will result, 
on average, in at least one dollar of Federal assistance avoided. (The 
Committee believes this is a conservative assumption based on testimony 
it received from the Federal Emergency Management Agency indicating 
mitigation typically pays back two to three times the amount spent.) 
Using this assumption, the Committee estimated the Federal Government 
will save approximately $100 million over the first five years if H.R. 
707 is enacted into law.
  CBO's estimates on H.R. 707 follow:

                                                    U.S. Congress,


                                  Congressional Budget Office,

                                   Washington, DC, March 15, 1999.
     Hon. Bud Shuster,
     Chairman, Committee on Transportation and Infrastructure, 
         House of Representatives, Washington, DC.
       Dear Mr. Chairman: The Congressional Budget Office has 
     prepared the enclosed cost estimate for H.R. 707, the 
     Disaster Mitigation and Cost Reduction Act of 1999.
       If you wish further details on this estimate, we will be 
     pleased to provide them. The CBO staff contacts are John R. 
     Righter (for federal costs), who can be reached at 226-2860, 
     and Lisa Cash Driskill (for the state and local impact), who 
     can be reached at 225-3220.
           Sincerely,
                                                 Barry B. Anderson
                                             (For Dan L. Crippen).


       CONGRESSIONAL BUDGET OFFICE COST ESTIMATE--MARCH 15, 1999

H.R. 707: Disaster Mitigation and Cost Reduction Act of 1999, as Passed 
            by the House of Representatives on March 4, 1999


                                SUMMARY

       H.R. 707 would amend the Robert T. Stafford Disaster Relief 
     and Emergency Assistance Act to authorize a predisaster 
     mitigation program and make changes to the existing disaster 
     relief program.
       The legislation would authorize the appropriation of $105 
     million over fiscal years 1999 and 2000 for a predisaster 
     mitigation program. (Public Law 105-276 appropriated $25 
     million to the Federal Emergency Management Agency (FEMA) for 
     this purpose in fiscal year 1999.) Other provisions in H.R. 
     707 would also result in changes in discretionary spending, 
     assuming appropriation of the necessary amounts. In total, 
     CBO estimates that implementing H.R. 707 would increase 
     discretionary outlays by a total of $2 billion over the 1999-
     2004 period. Most of the estimated increase in outlays--$1.3 
     billion of the five-year total--would result from provisions 
     that would accelerate spending from FEMA's disaster relief 
     fund, but would not change total spending over the long term.
       If the authorized funding for predisaster mitigation 
     efforts is provided and used judiciously, enactment of this 
     legislation could lead to savings to the federal government 
     by reducing the need for future disaster relief funds. CBO 
     cannot estimate the timing or magnitude of such savings 
     because we cannot predict either the frequency or location of 
     major natural disasters. Over the next 10 years, savings 
     could exceed the $80 million that the legislation would 
     authorize for predisaster mitigation efforts, although we 
     expect that any such savings would be small over the next 
     five years.
       H.R. 707 also would affect direct spending; therefore, pay-
     as-you-go procedures would apply. CBO estimates that the net 
     annual increase in direct spending would, on average, be less 
     than $500,000.
       The legislation contains no intergovernmental or private-
     sector mandates as defined in the Unfunded Mandates Reform 
     Act (UMRA) and would significantly benefit the budgets of 
     state, local, and tribal governments.


           DESCRIPTION OF THE LEGISLATION'S MAJOR PROVISIONS

       Title I would establish a program to provide financial 
     assistance to state and local governments for predisaster 
     mitigation activities. It also would require the President to 
     transmit a report to the Congress that would evaluate efforts 
     to implement the predisaster hazard mitigation programs and 
     recommend a process for transferring greater authority over 
     the program to states. In addition, this title would remove a 
     yearly cap of $50,000 per state on the grants that FEMA makes 
     for improving and maintaining disaster assistance plans and 
     would increase the maximum federal contribution for 
     mitigation costs from 15 percent to 20 percent.
       Title II would combine any disaster relief expenses 
     incurred by states but not chargeable to a specific project 
     into a single category called management costs. It would 
     direct the President to establish standard rates for 
     reimbursing states for such costs.
       Title II also would establish new requirements that certain 
     private nonprofit facilities (PNPs) would have to meet in 
     order to receive funds for repair and replacement of damaged 
     facilities. In order to receive moneys from the disaster 
     relief fund, PNPs would have to be ineligible for a loan from 
     the Small Business Administration (SBA), or have obtained the 
     maximum possible loan amount from the SBA. The title would 
     require that the President exempt from this requirement PNPs 
     that provide ``critical services,'' such as utilities, 
     communications, and emergency medical care. (The definition 
     of critical services would be left to the President.)
       In addition, the legislation would reduce the federal 
     government's share of costs for repairing damaged facilities 
     from 90 percent to 75 percent, but would allow the President 
     the flexibility to vary the contribution between 50 percent 
     and 90 percent if doing so would be more cost-effective. 
     Title II would also allow the President to use the estimated 
     cost of repairing or replacing a facility, rather than the 
     actual cost, to determine the level of assistance to provide. 
     H.R. 707 would establish an expert panel to develop 
     procedures for estimating the cost of repairing a facility.
       The legislation would combine the Temporary Housing 
     Assistance (THA) and Individual and Family Grant (IFG) 
     programs into one program, and would eliminate the community 
     disaster loan program, a program that assists any local 
     government that has suffered a substantial loss of tax 
     revenues as a result of a major disaster. Finally, H.R. 
     707 would add several reporting requirements for FEMA and 
     the General Accounting Office (GAO).


                ESTIMATED COST TO THE FEDERAL GOVERNMENT

       CBO estimates that implementing H.R. 707 would result in 
     additional discretionary outlays of $2 billion over the 1999-
     2004 period. The estimated increase in outlays includes

[[Page E512]]

     $0.7 billion in additional costs and $1.3 billion from the 
     faster spending of future appropriations. Because the faster 
     spending of disaster relief funds would not affect long-term 
     costs, a corresponding net decrease in outlays would occur 
     over the 2005-2009 period. The legislation also would affect 
     direct spending, but CBO estimates that the annual net 
     increase in such spending would, on average, be less than 
     $500,000.
       The estimated budgetary impact of most of the provisions in 
     H.R. 707 is shown in the following table. The table does not 
     reflect some potential savings and costs from provisions that 
     may affect discretionary spending but for which CBO cannot 
     estimate the likely effects. In particular, we cannot 
     estimate the potential savings in the costs of future 
     disaster relief from the increased spending on predisaster 
     mitigation activities that would be authorized by H.R. 707. 
     While such savings could be significant in the long run, we 
     expect that any savings would be small over the next five 
     years. In addition, CBO cannot estimate the effects of 
     provisions that would establish standardized rates for 
     reimbursing management costs and that would reduce the amount 
     of general assistance that FEMA can provide state and local 
     governments in lieu of providing the federal share of costs 
     to repair or replace a facility. The costs of this 
     legislation fall within budget function 450 (community and 
     regional development).


                           BASIS OF ESTIMATE

       For the purposes of this estimate, CBO assumes that H.R. 
     707 will be enacted by the end of this fiscal year and that 
     the amounts authorized and estimated to be necessary will be 
     appropriated near the start of each fiscal year.

----------------------------------------------------------------------------------------------------------------
                                                       By fiscal year, in millions of dollars
                                   -----------------------------------------------------------------------------
                                        1999         2000         2001         2002         2003         2004
----------------------------------------------------------------------------------------------------------------
                                      SPENDING SUBJECT TO APPROPRIATION \a\
 
Spending for Disaster Relief Under
 Current Law:
    Budget Authority/Estimated            1,214        1,240        1,266        1,295        1,323        1,351
     Authorization Level \b\......
    Estimated Outlays.............        3,250        2,587        2,349        2,216        1,870        1,692
Proposed Changes:
    Specified Authorizations for
     Predisaster Mitigation:......
        Authorization Level.......            0           80            0            0            0            0
        Estimated Outlays.........            0           32           32           16            0            0
    Estimated Authorizations:
        Authorization Level.......            0          372           94           77           76           75
        Estimated Outlays.........            0           -8          171          201          136           75
    Estimated Change in Outlays
     from Baseline--Budget
     Authority:
        Authorization Level.......            0            0            0            0            0            0
    Estimated Outlays                         0            0            0          518          465          345
Spending for Disaster Relief Under
 H.R. 707:
    Budget Authority/Estimated            1,214        1,692        1,360        1,372        1,399        1,426
     Authorization Level..........
        Estimated Outlays.........        3,250        2,611        2,552        2,951        2,471       2,112
----------------------------------------------------------------------------------------------------------------
\a\ H.R. 707 also would increase direct spending, but CBO estimates that such changes would be less than
  $500,000 a year.
\b\ The 1999 level is the amount appropriated for that year, including $906 million for an emergency
  supplemental appropriation provided in Public Law 105-277. The remainder of the 1999 level is the regular
  appropriation of $308 million. The levels shown for 2000 through 2004 are CBO baseline projections assuming
  increases for anticipated inflation. Alternatively, if the comparison were made to a baseline without
  discretionary inflation, the authorization level for current law would be $1,214 million each year, and the
  incremental change in estimated outlays would be $1.87 billion over the five years.

                   Spending Subject to Appropriation

       H.R. 707 contains provisions that would result in both 
     costs and savings to the federal government. CBO estimates 
     costs associated with provisions that would: Authorize 
     appropriations for predisaster mitigation, increase the 
     federal contribution for mitigation costs, combine the 
     Individual Family Grant program and the Temporary Housing 
     Assistance program, add several new reporting requirements 
     and establish an interagency task force, remove a cap on 
     grants for disaster assistance plans, provide grants for 
     improved floodplain mapping technologies, and establish a 
     pilot program to determine the desirability of state 
     administration of parts of the disaster relief program.
       CBO estimates savings associated with provisions that 
     would: Require certain PNPs to apply to the SBA for disaster 
     loans, allow FEMA to use the estimated cost of facility 
     repairs rather than the actual cost, and eliminate the 
     community disaster loan program.
       CBO cannot estimate the effects of provisions that would: 
     Achieve long-run savings associated with the predisaster 
     mitigation efforts, reduce the amount of general assistance 
     that FEMA can offer state and local governments in lieu of 
     providing its share of the costs to replace or repair a 
     damaged facility, and establish standardized rates for 
     reimbursement of management costs.
       In addition, CBO estimates that outlays would be 
     accelerated by allowing the President to disburse future 
     appropriations for disaster relief to states before projects 
     are completed, based on the estimated cost rather than on the 
     actual cost.
       Provisions with Estimated Costs. H.R. 707 would establish a 
     program for predisaster hazard mitigation and would authorize 
     the appropriation of $25 million for fiscal year 1999 and $80 
     million for fiscal year 2000 for that program. Because the 
     first $25 million has already been appropriated, the 
     legislation would increase projected spending by the $80 
     million authorized for 2000.
       Other provisions also would increase costs. For example, 
     under current law, FEMA provides grants to states for post 
     disaster mitigation activities based on the total amount of 
     grants made for each major disaster. H.R. 707 would increase 
     the federal contribution for post disaster mitigation grants 
     by one-third for all major disasters declared after January 
     1, 1997. Based on data provided by FEMA, CBO estimates that 
     raising the federal contribution by one-third would result in 
     an additional $247 million in grants to states for disasters 
     that occurred between January 1997 and January 1999, by $61 
     million for the remainder of fiscal year 1999, and by $92 
     million a year for each of the next several years. The 
     estimate of additional costs for the remainder of 1999 and 
     for fiscal years 2000 through 2004 assumes that payments 
     under current law would total about $275 million per year. In 
     total, CBO estimates that implementing this provision would 
     require the appropriation of $768 million over the 2000-2004 
     period. This estimate assumes that the funds to pay for the 
     provision would come from future appropriations and that the 
     outlays from the additional budget authority would occur over 
     several years.
       In addition, CBO estimates that combining the Individual 
     Family Grant program and the Temporary Housing Assistance 
     program would result in higher costs of $30 million in fiscal 
     year 2001 and $60 million each year thereafter. Under current 
     law, the federal share for the IFG program is 75 percent of 
     the actual cost incurred. In addition, the federal government 
     contributes an amount equal to 5 percent of total IFG 
     assistance to the states to help cover their share of the 
     administrative costs. Combining the IFG and THA programs 
     would change the federal match to 100 percent and eliminate 
     the federal contribution for administrative costs. Assuming 
     an annual IFO program under current law of slightly more than 
     $200 million, CBO estimates that the net effect of those 
     changes would be to increase annual federal costs by about 
     $60 million. The estimates costs are lower in the first two 
     years because the consolidation would not take place until 18 
     months after enactment. As part of the consolidation, H.R. 
     707 would make several changes to the IFG and THA programs, 
     including broadening the type of assistance available to 
     disaster victims and emphasizing the provision of financial 
     assistance over the provision of temporary housing, CBO has 
     no basis for estimating any costs or savings that could 
     result from these other changes.
       The legislation would require the President, FEMA, and GAO 
     to prepare several reports, and would require the President 
     to establish an interagency task force to coordinate the 
     implementation of the predisaster mitigation program. Over 
     the 1999-2004, CBO estimates that completing the five reports 
     and operating the task force would cost around $2 million.
       We also estimate that removing the yearly cap of $50,000 
     per state on the grants that are made to states for 
     improvement of disaster assistance plans would increase such 
     costs by less than $500,000 a year. Based on information from 
     FEMA, we expect that it would rarely provide more than 
     $50,000 in grants and that the amounts allocated above 
     $50,000 would be small.
       Finally, CBO estimates that the provisions that would 
     authorize grants for improved flood plain mapping 
     technologies and establish a pilot program for the devolution 
     of certain responsibilities for the states would not 
     significantly affect annual costs. FEMA currently provides 
     less than $500,000 a year in grants for floodmapping 
     technologies, and CBO expects that agency assistance in this 
     area would not increase significantly.
       Provisions with Estimated Savings. CBO estimates that 
     requiring certain PNPs to apply to the SBA for a disaster 
     loan before receiving funds from the disaster relief fund 
     would yield savings of approximately $4 million per year from 
     2000 through 2004. The savings would result because the 
     government would, in some cases, be providing loans instead 
     of grants to these institutions. CBO estimates that about 115 
     PNPs would receive SBA loans instead of disaster relief 
     grants, resulting in additional loans totaling about $5 
     million. The estimated savings is the difference between the 
     reduction in FEMA assistance and SBA's subsidy cost for the 
     new loans.
       Based on data and information provided by FEMA, CBO 
     estimates that allowing FEMA to use the estimated cost of 
     repairing or replacing a facility, rather than the actual

[[Page E513]]

     cost, to provide assistance to state and local governments 
     would result in administrative savings at FEMA of 
     approximately $46 million in fiscal year 2002 and slightly 
     larger amounts each year thereafter. Based on information 
     from FEMA, CBO estimates that, on average, FEMA spends 
     between $250 million and $300 million a year administering 
     the public assistance program. The estimated savings assumes 
     that FEMA would reduce those costs by between 15 percent and 
     20 percent, primarily by eliminating staff and contractors. 
     FEMA would incur some additional costs for operating the 
     expert panel, estimating the cost of repairs with more 
     precision, and evaluating the accuracy of estimates. 
     Administrative savings would not occur before fiscal year 
     2002 because H.R. 707 would first require the President to 
     establish an expert panel to develop procedures for 
     estimating the cost of repairing or replacing a facility.
       Allowing FEMA to substitute the estimated cost for the 
     actual cost in providing disaster relief to state and local 
     governments could also affect both the amount and the timing 
     of assistance provided. Under the legislation, if the actual 
     costs of repair are greater than 120 percent or less than 80 
     percent of the estimated costs, FEMA could receive 
     compensation for overpayments or provide compensation for 
     underpayments. The provision would not provide for adjusting 
     assistance if the project's actual costs fall between 80 
     percent and 120 percent of the estimate. Thus, using an 
     estimated cost could substantially increase or decrease the 
     federal government's cost to repair or replace public 
     facilities if these estimates consistently fall below or 
     above the actual costs of such projects. Because the federal 
     government spends well over a $1 billion each year on such 
     projects, a bias of 10 percent in either direction would 
     change the annual cost of disaster relief by more than $100 
     million. Because we have no basis for predicting a bias in 
     either direction, CBO cannot estimate the net change in the 
     cost of disaster relief projects from substituting estimates 
     for actual costs. The effects of this provision on the timing 
     of outlays are discussed below.
       Finally, based on data provided by FEMA, CBO estimates that 
     eliminating the community disaster loan program would result 
     in savings of approximately $25 million each year from 2000 
     through 2004.
       Provisions with Effects CBO Cannot Estimate. CBO does not 
     have sufficient basis to project potential budgetary effects 
     of some provisions of H.R. 707 because they depend upon the 
     extent and nature of future disasters, the manner in which 
     the Administration would implement certain provisions, and 
     the extent to which states would participate in certain 
     programs.
       CBO cannot estimate the potential savings associated with 
     the predisaster mitigation efforts proposed in this 
     legislation. Mitigation efforts could achieve significant 
     savings if damages from future disasters are lessened as a 
     result of the predisaster mitigation measures provided for in 
     the legislation, although we expect that any savings in the 
     first five years would be small.
       The legislation also would lower the amount of general 
     assistance that FEMA can provide to state and local 
     governments in lieu of the federal government's share of the 
     cost to repair or replace a facility. Under current law, 
     state and local governments can elect to receive a payment 
     equal to 90 percent of the federal government's expected 
     costs to repair or replace a damaged facility. H.R. 707 would 
     lower that rate to 75 percent. While lowering the 
     contribution rate would decrease disaster relief costs in 
     cases where state and local governments continue to accept 
     general assistance, it also would increase costs in those 
     cases where states and localities choose to forgo the general 
     assistance and seek the federal share of repair costs 
     instead. The two effects could offset one another. Thus, 
     while the provision has the potential for substantial 
     savings, CBO has no basis for estimating the amount of such 
     savings.
       Finally, H.R. 707 also would require that the President 
     establish by rule standardized reimbursement rates that 
     should reduce FEMA's administrative burden of compensating 
     states for indirect costs not chargeable to a specific 
     project. Because it is uncertain how these rates would be 
     established, CBO has no basis for estimating the amount of 
     potential savings.
       Provision Affecting the Timing of Outlays. H.R. 707 also 
     would substantially increase the rate at which new budget 
     authority is spent from the disaster relief fund. Under 
     current law, funds appropriated for such assistance are often 
     spent years later. But we expect that disbursements would 
     occur more rapidly because of the provision allowing FEMA to 
     provide funds for disaster relief to states and localities 
     based on an estimate of a project's costs rather than on its 
     actual costs. (This provision would not apply to FEMA's 
     current balances of previously appropriated funds.) CBO 
     estimates that this change would result in a net increase in 
     outlays of $1.3 billion over the 1999-2004 period, but 
     that it would have no net effect over the 1999-2009 
     period. Because H.R. 707 would require the President to 
     convene an expert panel within 18 months of enactment, 
     this estimate assumes that this provision would not affect 
     relief for disasters that occur before fiscal year 2002.

                            Direct Spending

       If enacted, H.R. 707 would increase direct spending by 
     allowing FEMA to retain and spend future proceeds from the 
     sale of temporary housing, such as mobile homes and 
     manufactured housing. Under current law, receipts from the 
     sale of such properties are deposited into the general fund 
     of the Treasury (and thus are not available for spending). 
     According to FEMA and the General Services Administration, 
     which conducts most sales of personal property for the 
     federal government, since liquidating FEMA's entire inventory 
     of temporary housing units in 1996, the federal government 
     has sold only a handful of units. Instead of maintaining an 
     inventory, FEMA now purchases new units to accommodate 
     disaster victims and then either donates the unneeded units 
     to take governments or transfers them to other federal 
     agencies. Under current law, CBO expects that the federal 
     government will continue to sell only a small number of units 
     each year. Consequently, we estimate that allowing FEMA to 
     retain and spend receipts from sales of temporary housing 
     would, on average, increase net direct spending by less than 
     $500,000 a year. Any increase in offsetting receipts relative 
     to current law would be offset by an equivalent increase in 
     new spending.


                      PAY-AS-YOU-GO CONSIDERATIONS

       The Balanced Budget and Emergency Deficit Control Act sets 
     up pay-as-you-go procedures for legislation affecting direct 
     spending or receipts. Pay-as-you-go procedures would apply to 
     H.R. 707 because it would allow FEMA to retain and spend any 
     proceeds from the sale of units of temporary housing. CBO 
     estimates that allowing the agency to retain and spend such 
     receipts would, on average, increase direct spending by less 
     than $500,000 a year.


        ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

       H.R. 707 contains no intergovernmental mandates as defined 
     in UMRA and would significantly benefit the budgets of state, 
     local, and tribal governments. The legislation would 
     authorize the appropriation of $80 million in 2000 to assist 
     states in predisaster mitigation projects. If the necessary 
     appropriations are provided, it also would increase the funds 
     available to states for postdisaster mitigation activities by 
     an estimated $308 million for major disasters declared 
     between January 1, 1997, and the end of fiscal year 1999, and 
     by about $92 million per year after that. In addition, 
     beginning 18 months after enactment, the 25 percent state 
     match for individual and family grants and certain housing 
     assistance would no longer be required, reducing the burden 
     on states by an estimated $60 million per year. These 
     benefits would be partially offset by the repeal of the 
     community disaster loan program, which would result in a loss 
     of about $25 million in grants to communities each year.
       Estimated impact on the private sector: The legislation 
     would impose no new private-sector mandates as defined in 
     UMRA.
       Estimate prepared by: Federal Costs: John R. Righter (226-
     2860). Impact on State, Local, and Tribal Governments: Lisa 
     Cash Driskill (225-3220).
       Estimate approved by: Robert A. Sunshine, Deputy Assistant 
     Director for Budget Analysis.

     

                          ____________________