[Congressional Record Volume 151, Number 10 (Thursday, February 3, 2005)]
[Senate]
[Pages S989-S991]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BOND (for himself, Mr. Talent, Mr. Inhofe, Mr. Vitter, Ms. 
        Landrieu, Mr. Nelson of Florida, and Mr. Conrad):
  S. 290. A bill to amend the Internal Revenue Code of 1986 to exclude 
from gross income certain hazard mitigation assistance; to the 
Committee on Finance.
  Mr. BOND. Mr. President, I rise today to introduce legislation 
concerning a critical issue that affects many States--disaster 
assistance. Last year was one of the worst hurricane seasons that 
Florida had seen in recent years. The Sunshine State was battered by 
four hurricanes in a six week period. Many residents of Florida had to 
evacuate more than three times during last year's hurricane season only 
to return home and find their homes leveled, their crops uprooted, 
their neighborhoods flooded, and their dreams shattered.
  In my home State of Missouri, we are no strangers to natural 
disasters. Located smack in the middle of Tornado Alley, Missouri has 
been hit by some of the largest storms in U.S. history. In May of 2003, 
a string of tornadoes ripped through the western part of the state 
causing major damage and devastation.
  With two big rivers--the Mississippi and the Missouri--we have also 
seen our fair share of flooding through the years, including flash 
flooding. I will never forget when the Mississippi River breached its 
banks in 1993--one of the most devastating floods in U.S. history. Of 
the nine Midwestern States affected, the State of Missouri was the 
hardest hit and State officials estimate that damages totaled $3 
billion.
  One specific example of the benefits of disaster mitigation in flash-
flood situations comes to mind when I think of the City of Union, 
located about 45 minutes from St. Louis, where many of the residents 
suffered tremendous damage from a severe flash flood in May of 2000. 
After the flood, the City of Union applied to the State of Missouri 
Emergency Management Agency to seek help in a demolition and 
acquisition project. With the mitigation grant money, 17 properties 
were acquired in residential areas with substantial damage. These 
properties are now deed restricted for ``open space,'' which will 
prevent future development and the potential for flash flood related 
deaths in that area because many of the homes and people will no longer 
be in harm's way. This is an excellent example of the value of disaster 
and mitigation money invested by the Federal, State and local 
governments.
  The disaster mitigation program has also been used to provide grant 
money to an individual, as opposed to a municipality. In some 
instances, these homeowners may be located in areas highly susceptible 
to tornadoes. Often

[[Page S990]]

times, disaster mitigation grants have been issued to individual 
homeowners enabling them to build storm shelters underneath their 
homes, ultimately saving lives.
  Over the years, the State of Missouri has worked with the Federal 
Emergency Management Agency (FEMA) to build structures that prevent 
flooding and other damage from occurring when natural disasters strike. 
Time and time again, FEMA has come to the rescue by establishing 
funding for disaster relief and mitigation activities within the State 
of Missouri and in other states across the country.
  Having served as the Chairman of the Senate Appropriations 
Subcommittee on VA, HUD, and Independent Agencies, which until recently 
oversaw FEMA, I know first hand the value of the agency's disaster 
mitigation grant programs--the Hazards Mitigation Grant Program (HGMP), 
the Pre-Disaster Mitigation program (PDM), and the Flood Mitigation 
Assistance (FMA) program. Designed to manage future emergencies, these 
programs have been essential to countless communities, and without 
them, thousands of lives would be in jeopardy.
  Last Congress, some very disturbing news was brought to my attention. 
According to a June 2004 legal memorandum issued by the Internal 
Revenue Service (IRS), FEMA mitigation grants may be subject to income 
taxation. While some may argue that this is merely the IRS's 
interpretation of the statute, it is clearly the position the IRS 
intends to take against American taxpayers whose only recourse will be 
to fight the agency in court.
  Let me tell you what this means for the American taxpayer. In my 
example of Union, Missouri, it is the individuals whose homes have been 
purchased by the city who ultimately will be forced to pay taxes on the 
proceeds of the buyout. For the homeowner building a storm shelter with 
grant money, he or she might be taxed upon receipt of the grant.
  I must say that I am absolutely stunned by this determination by the 
IRS!! How in the world could the IRS possibly think that Congress 
intended to tax these types of grants to prevent natural disasters, 
especially when we went out of our way to ensure that disaster-relief 
payments to individuals recovering from a hurricane, flood, tornado or 
other natural disaster are not subject to income taxes?
  Today, I am offering a bill that will stop the IRS in its tracks and 
prevent the taxation of disaster mitigation grants. This language will 
ensure that any federal grants to construct or modify property to 
mitigate future disaster damage will not be deemed to be income by the 
IRS's tortured reasoning. This bill will ensure that any grants 
currently out there, especially in light of the current hurricanes that 
have happened, are not subject to tax. In addition, there should be no 
inference by this legislation that Congress intended such grants to be 
taxable prior to the effective date of this legislation.
  Why is this important? Why am I out here today? Because the Missouri 
and Mississippi Rivers rise, because tornadoes will ravage through the 
state once again, and because flash flooding can decimate an entire 
community. The last thing Americans who are working to prevent such 
potential destruction need is for government-grant funding to be 
subject to tax. My bill ensures that such taxes do not see the light of 
day.
  I thank the original cosponsors of this bill, Senators Talent, 
Inhofe, Vitter, Conrad, Landrieu, and Nelson, for their support, and I 
urge my other colleagues to join us. Finally, Mr. President, I ask 
unanimous consent that the bill and a letter from the Stafford Act 
Coalition be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 290

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. EXCLUSION FROM GROSS INCOME FOR CERTAIN DISASTER 
                   MITIGATION PAYMENTS.

       (a) In General.--Section 139 of the Internal Revenue Code 
     of 1986 (relating to disaster relief payments) is amended by 
     adding at the end the following new subsection:
       ``(g) Certain Disaster Mitigation Payments.--Gross income 
     shall not include the value of any amount received directly 
     or indirectly as payment or benefit by the owner of any 
     property for hazard mitigation with respect to the property 
     pursuant to the Robert T. Stafford Disaster Relief and 
     Emergency Assistance Act or the National Flood Insurance 
     Act.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years ending on or after December 31, 
     2004.
                                  ____

     Hon. Christopher ``Kit'' Bond,
     U.S. Senate,
     Washington, DC.
       Dear Senator Bond: The undersigned organizations are 
     writing to you as members of the Stafford Act Coalition to 
     support your legislation to prevent taxation of federal 
     assistance given to disaster victims for mitigation of future 
     disasters. The Stafford Act Coalition represents a wide 
     variety of groups interested in mitigation activities and has 
     been the leading coalition working with Congress on issues 
     related to disaster mitigation for over five years. This bill 
     would make clear that federal disaster mitigation funds 
     should not be taxable. Additionally, this legislation has 
     implications for upcoming hazard mitigation deadlines 
     associated with the disaster aid packages for recent 
     hurricanes and also for tax returns for 2004 that taxpayers 
     will begin filing in January 2005. We believe urgent action 
     must be taken on this bill as soon as possible, especially 
     given the dramatic disasters that the nation has faced in the 
     last year.
       The Internal Revenue Service issued a ruling on June 29, 
     2004 finding that disaster mitigation funds are taxable as 
     income when used to reduce private property damage. Up until 
     this ruling, disaster victims who took advantage of 
     mitigation opportunities to prevent future losses were not 
     taxed by the federal government. This recent ruling will 
     create a disincentive that will discourage disaster victims 
     from taking advantage of steps to reduce the costs of future 
     disasters, protect property and prevent the loss of lives. 
     With so many open presidentially declared disasters, the 
     matter requires immediate reversal and clarification by 
     Congress.
       Your legislation would resolve the problems created by 
     taxing mitigation assistance. According to the Department of 
     the Treasury, some state and local governments are already 
     reporting that disaster victims are declining assistance 
     because the assistance will be taxable. As a result, the 
     National Flood Insurance Fund and the Disaster Relief Fund 
     will continue to be burdened by losses that may have been 
     preventable with appropriate mitigation.
       The active, on-going mitigation programs involved are all 
     administered by the Federal Emergency Management Agency 
     (FEMA), now part of the Department of Homeland Security 
     (DHS). These programs include the Flood Mitigation Assistance 
     Program (FMA), the Pre-Disaster Mitigation Program (PDM) and 
     the Hazard Mitigation Grant Program (HMGP). The long term 
     benefits of mitigation include avoidance or minimization of 
     public expenditures for recovery. The federal government's 
     disaster mitigation programs were established as well-
     conceived public policy to promote public safety, reduce loss 
     of life and reduce the costs to the taxpayers of disaster 
     response, especially repetitive disaster response. While 
     individual property owners may end up less vulnerable to 
     future damage, which the IRS determined to be equivalent to 
     income, projects are by regulation or statute required to be 
     cost-effective to the federal interest. Reducing damage to 
     private property will reduce use of the casualty loss 
     deduction which is a direct loss to the federal treasury. 
     Mitigation lessens the economic impact of disasters by 
     keeping businesses functioning and diminishing the effects on 
     local economies and jobs.
       Disaster mitigation programs assist citizens, businesses, 
     and communities to take such steps as elevating buildings in 
     floodplains, flood proofing, seismic reinforcement, 
     acquisitions or relocations, wind protections for roofs and 
     strengthening of window protections. It is contradictory to 
     put in place such programs which not only protect individual 
     properties, but surrounding properties and infrastructure and 
     then tax the individual property owner on this ``benefit'' 
     which extends well beyond that individual property owner. 
     Generally, what is taxable income for federal purposes is 
     also considered taxable income for state tax purposes, 
     increasing the adverse impact of the IRS ruling.
       If the federal government wishes its disaster mitigation 
     programs to truly reduce future losses, it must act to ensure 
     that mitigation funds are not taxed as income. The 
     undersigned groups understand that any mention of claiming 
     mitigation grant funds as income is certain to discourage 
     property owners and local governments from considering the 
     mitigation opportunities provided through the FMA, PDM and 
     HMGP programs. We urge you to find the earliest possible 
     opportunity to clarify the law. We hope to work with you to 
     ensure the immediate passage of this legislation.
           Sincerely,
       The Stafford Act Coalition, American Planning Association, 
     American Public Works Association, Association of State Flood 
     Plain Managers, Council of State Governments, International 
     Association of Emergency Managers, National Association of 
     Development Organizations, National Association of Flood and 
     Stormwater Agencies, National Emergency Management 
     Association, National League of Cities, National

[[Page S991]]

     Rural Electric Cooperative Association, National Wildlife 
     Federation.

  Ms. LANDRIEU. Mr. President, in Louisiana, hurricanes and floods are 
as much a part of life as crawfish boils and Mardi Gras. Twenty percent 
of the coastal zone of my State lies below sea level, including 80 
percent of our largest city New Orleans. Because of this our State has 
one of the finest and extensive levee systems in the world. Our 
communities have well developed flood plain management plans. We have 
built flood walls to protect neighborhoods from rising waters and 
homeowners in flood zones have built their houses on stilts.
  Even with all of this preparation, flood damage does occur. It is 
estimated that Louisiana suffered more than $47 million in losses from 
flooding in 2003. To address this, 377,000 property owners participate 
in the National Flood Insurance Program--a program that is a real 
godsend to the people of my State. This program is fully financed by 
insurance premiums paid by property owners to cover damage to their 
homes and businesses as a result of flooding. The program also provides 
funding for property owners to flood-proof their homes under the 
mitigation grant program. They can use these grants to put their homes 
on stilts, improve drainage, and obtain waterproofing materials.
  All the people in my state ask for is a warning and an opportunity to 
protect themselves, their homes, and their loved ones from these 
disasters. Through the state-of-the-art systems developed by the 
National Weather Service, we can get a warning about a hurricane. We 
have sophisticated radar to track these storms as they move through the 
Gulf of Mexico, or up the East Coast. When a Category 4 is coming we 
can prepare and pray.
  But they did not have any warning that the Federal government--more 
specifically the IRS--would begin to tax the money they received to 
prevent damages to their property from hurricanes and floods. Yet that 
has not stopped the IRS from making and implementing one of the most 
misguided and unfair decisions.
  Let me be clear about what this has meant for people in my State. I 
heard from one man who told me that he was going to be liable for tax 
on an additional $218,000 in income for grant money used to do 
mitigation work on his home. He said he would have to work until he was 
90 years old in order to pay off the tax bill.
  What is worse, is that this misguided decision by the IRS will hit 
all natural disaster mitigation assistance covered by the Pre-Disaster 
Mitigation Program, the Hazard Mitigation Grant Program, and the 
National Flood Insurance Programs. Instead of protecting their 
properties, the IRS decision will force people to take risks that they 
will not be hit by a disaster.
  I applaud my colleague from Missouri for introducing this legislation 
to fix this problem and I am proud to be an original cosponsor. This is 
not a regional, special-interest bill. Natural disasters can strike 
almost anywhere at any time. If your citizens have used a federal 
program to help make their property safer, the tax man will come for 
them too. I urge my colleagues to support this bill.
                                 ______