Budgeting for Emergencies: State Practices and Federal Implications
(Letter Report, 09/30/1999, GAO/AIMD-99-250).

Pursuant to a congressional request, GAO provided information on state
experiences with reserve funds for emergencies or other unpredictable
funding needs and state practices that could be instructive in the
emergency spending debate, particularly regarding how the federal
government might budget for emergencies with surplus funds.

GAO noted that: (1) most states prepare for future budget uncertainty by
establishing reserves; (2) these reserves include budget stabilization
funds, emergency funds, and contingency accounts, many of which have
specific criteria for their use; (3) GAO's analysis of federal emergency
funding from 1991 to the present showed that many different types of
programs were funded through emergency supplemental appropriations--a
more "after-the-fact" approach; (4) when the federal government provides
funding in advance for programs that play a role in emergency
activities, such as for the Federal Emergency Management Agency's
Disaster Relief Fund, it is usually only a portion of the total
eventually appropriated in a given year; (5) as the federal government
considers proposals to change the emergency funding process, state
practices may offer some insights for establishing criteria for
emergencies and setting aside budgetary resources for potential
emergencies; (6) state experience indicates that criteria for using
emergency reserve funds may be useful in helping to control emergency
spending; (7) these criteria include both conditions and events for
spending to qualify as emergencies; (8) enforceable criteria established
for federal emergency spending, either for the process for funding
emergencies or when creating new emergency reserves, might constrain use
of the emergency designation; (9) state reserves are designed to provide
a cushion for budget uncertainty; (10) in addition to carrying over any
end-of-year general fund balances to the next fiscal year, GAO found
that the five states in GAO's study also established three different
types of more formal reserves to deal with budget uncertainty; (11)
although state practices concerning reserve funds reflect the difference
between state and federal budgeting, they may provide a conceptual model
when considering whether to create emergency reserves at the federal
level; (12) should Congress decide to move to a reserve-funding model
for emergencies, state practices provide some insight on issues to
consider in designing such a process; (13) federal funds could be
governmentwide or agency specific; (14) federal emergency reserves might
also be established specifically for those agencies that regularly
respond to federal emergencies; and (15) criteria for use of these
reserves might be more narrowly defined and linked to specific
circumstances related to an agency's mission.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-99-250
     TITLE:  Budgeting for Emergencies: State Practices and Federal
	     Implications
      DATE:  09/30/1999
   SUBJECT:  Supplemental appropriations
	     Disaster relief aid
	     Emergency preparedness
	     Balanced budgets
	     State budgets
	     Budgetary reserves
IDENTIFIER:  FEMA Disaster Relief Fund
	     California
	     Delaware
	     Florida
	     Missouri
	     Oklahoma

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Report to the Honorable Frank R. Lautenberg, Ranking Minority Member,
Committee on the Budget, U.S. Senate

September 1999

BUDGETING FOR EMERGENCIES

State Practices and Federal Implications
*****************

*****************

GAO/AIMD-99-250

Letter                                                                     2

Appendixes

Appendix I:State Budget Reserves in Five Site Visit States

                                                                         32

Appendix II:Emergency Budget Authority, Fiscal Years 1991 Through 1999

                                                                         36

Appendix III:Nonmilitary Programs That Received Emergency Supplemental
Appropriations in at Least Five of the Last Eight Years

                                                                         58

Table 1:  Fiscal Year 1998 General Fund Reserves for Five Study States
(Dollars in Millions)11

Table 2:  Emergency Budget Authority as Percentage of Discretionary Budget
Authority Fiscal Years 1991 Through 1999 (Dollars in Billions)18

Table 3:  Emergency Budget Authority by Category, Fiscal Years 1991
Through 1999 (Dollars in Billions)19

Table 4:  Governmentwide Reserves for General Purposes32

Table 5:  Governmentwide Reserves for Specific Purposes34

Table 6:  Agency-Specific Reserves for Specific Purposes35

BEA     Budget Enforcement Act of 1990

CBO     Congressional Budget Office

FEMA    Federal Emergency Management Agency

LIHEAP  Low-Income Home Energy Assistance Program

NASBO   National Association of State Budget Officers

OMB     Office of Management and Budget

PAYGO   pay-as-you-go

SBA     Small Business Administration

USDA    Department of Agriculture

                                                 Accounting and Information
                                                        Management Division

B-279978

September 30, 1999

The Honorable Frank R. Lautenberg
Ranking Minority Member
Committee on the Budget
United States Senate

Dear Senator Lautenberg:

In recent years, the Congress has shown an interest in changing the way
that emergencies are funded. Last year, a bipartisan House of
Representatives task force reviewed emergency funding issues as part of a
larger review of federal budget processes, and bipartisan task forces in
both the Senate and the House reviewed similar issues in 1994./Footnote1/
In these congressional reviews, concerns were raised about several issues,
including the relationship between funding emergencies and complying with
the requirements of various budget control acts, including the Budget
Enforcement Act of 1990 (BEA). 

Federal emergency appropriations totaled more than $114 billion from
fiscal year 1991 through fiscal year 1998 and ranged in amounts from a
high of about $45 billion in 1991 to a low of nearly $6 billion in 1996.
Fiscal year 1999 emergency appropriations represent the highest level to
date since the Gulf War in 1991. The 1999 Omnibus Consolidated and
Emergency Supplemental Appropriations Act included over $21 billion in
emergency appropriations, and an additional $14.7 billion of midyear
emergency supplemental appropriations was recently enacted in the 1999
Emergency Supplemental Appropriations Act. Both the 1999 Omnibus Act and
the recent debates on emergency supplemental bills have increased
visibility of emergency spending issues among members of Congress,
including the view that the emergency designation can be applied too
broadly.

In your request you observe that a common action taken by many states
currently experiencing budgetary surpluses has been to set aside money in
reserve or contingency funds to help prepare for periods of economic
downturn or other unforeseen events. States are not usually exposed to
demands for large funding increases as a result of natural or man-made
disasters since the federal government usually covers most of the costs
for these situations. However, states face other kinds of budget
uncertainty and the prospect of unexpected demands on state funds. Most
states have experienced robust economic conditions for several years, and
many have used this opportunity to build up their reserves in preparation
for unexpected budget pressures. 

Specifically, you asked us to look at state practices and experience with
reserve funds to see if they might inform the federal debate on the
emergency funding process. This report responds to your request for
information on state experiences with reserve funds for emergencies or
other unpredictable funding needs and state practices that could be
instructive in the emergency spending debate, particularly regarding how
the federal government might budget for emergencies with surplus funds. 

Results in Brief
----------------

Most states prepare for future budget uncertainty by establishing
reserves. These reserves include budget stabilization funds, emergency
funds, and/or contingency accounts, many of which have specific criteria
for their use. Our analysis of federal emergency funding from 1991 to the
present showed that many different types of programs were funded through
emergency supplemental appropriations--a more "after-the-fact" approach.
When the federal government provides funding in advance for programs that
play a role in emergency activities, such as for the Federal Emergency
Management Agency's (FEMA) Disaster Relief Fund, it is usually only a
portion of the total eventually appropriated in a given year. As the
federal government considers proposals to change the emergency funding
process, state practices may offer some insights for establishing criteria
for emergencies and setting aside budgetary resources for potential
emergencies. 

State experience indicates that criteria for using emergency reserve funds
may be useful in helping to control emergency spending. These criteria
include both conditions and events for spending to qualify as emergencies.
For example, in one state, emergency spending must meet the conditions of
being "necessary" and "unforeseen" and is further restricted to the costs
associated with responding to and recovering from natural disasters.
Enforceable criteria established for federal emergency spending, either
for the current process for funding emergencies or when creating new
emergency reserves, might constrain use of the emergency designation. 

State reserves are designed to provide a cushion for budget uncertainty.
In addition to carrying over any end-of-year general fund balances to the
next fiscal year, we found that the five states in our study (California,
Delaware, Florida, Missouri, and Oklahoma) also established three
different types of more formal reserves to deal with budget uncertainty.
The first are general purpose statewide reserves, such as budget
stabilization ("rainy day") funds and/or non-appropriated revenue designed
to provide a cushion for the general fund in times of fiscal stress. The
second group consists of statewide reserves for specific purposes such as
natural disasters. Finally, states may use agency-specific reserves to
provide a cushion in case increased caseloads or other uncontrollable
costs drive spending for a particular program over regular appropriation
levels. If a state does not have reserves available or chooses not to use
its reserves to respond to a change in funding requirements, it may use
other strategies, including lowering spending, raising revenues,
transferring money between funds, passing supplemental appropriations, and
borrowing.

Although state practices concerning reserve funds reflect the difference
between state and federal budgeting, they may provide a conceptual model
when considering whether to create emergency reserves at the federal
level. Experience shows that the federal government will need to respond
to some level of emergency need. The question is not whether there will be
emergency spending, but rather at what point in the budget process these
costs will be recognized. By creating an emergency reserve, the Congress
could consider these costs as part of the annual resource allocation
process, ensuring that emergency needs are recognized earlier in the
process.

Should the Congress decide to move to a reserve-funding model for
emergencies, state practices provide some insight on issues to consider in
designing such a process. Federal funds could be governmentwide or agency
specific. Federal governmentwide emergency reserves could set aside budget
authority in advance for expected yet unpredictable events as part of the
annual resource allocation process. This is essentially the approach taken
by states that establish "rainy day" funds or appropriate less than their
estimated revenues each year. Instead or in addition, federal emergency
reserves might also be established specifically for those agencies that
regularly respond to federal emergencies. Criteria for use of these
reserves might be more narrowly defined and linked to specific
circumstances related to an agency's mission. We were told in one state
that the creation of dedicated reserves for those agencies most likely to
need emergency or supplemental funding each year has reduced the need for
midyear supplemental appropriations.

The creation of these two types of reserves would require answering a
number of other key design questions including: What criteria should be
used to access the reserve? Who may approve the use of these funds? How
large should the reserve be? Do unused funds lapse at the end of each
fiscal year? Should the reserve be included under the spending caps? This
report presents an analysis of alternative approaches to address these
issues.

Background
----------

Over the years, various attempts have been made to control federal
spending. Amendments to the Balanced Budget and Emergency Deficit Control
Act of 1985 sought to limit supplemental appropriations proposed by either
the President or the Congress to cases of "dire emergency."/Footnote2/ The
Congress and the President further changed the budget process with the
passage of BEA. That law established limits on discretionary spending,
imposed deficit-neutral pay-as-you-go (PAYGO) rules for mandatory
spending, and created an exemption for spending designated as an
emergency./Footnote3/ The idea was to allow for an emergency safety valve
under the spending caps imposed by the new law. Under this law, any
appropriations designated as emergency spending by the President and the
Congress are exempt from the discretionary limits or the PAYGO
requirements, and so add to the deficit or reduce the surplus./Footnote4/
The President and the Congress may also agree to offset some or all
emergency spending in a given year through rescissions elsewhere in the
budget./Footnote5/

There are three ways that emergency appropriations can be provided to
federal agencies. First, agencies may receive emergency appropriations as
part of their regular annual appropriation. These funds can be used by
agencies for emergencies without any additional action by the President or
the Congress. Second, agencies may receive contingent emergency
appropriations, that is, funds which are designated by the Congress as
emergency funds but whose use is contingent on a Presidential designation
of an emergency. The third way to provide emergency funding is through
enactment of emergency supplemental appropriations. Prior to the 1999
Omnibus Appropriations Act, most emergency funding was provided through
these supplemental appropriations. These funds generally appeared in stand-
alone bills but occasionally appeared in larger supplemental bills that
included funding for agency activities other than emergency response. In
such larger bills, only the portion designated as an emergency is exempt
from the spending caps.

Reserves for emergencies are used to a much greater extent by the states
than by the federal government. Emergencies, however, are only part of
what states prepare for when they establish reserves to address budget
uncertainty. According to the National Association of State Budget
Officers (NASBO), 44 states have established budget stabilization funds-
commonly referred to as (r)rainy day(c) funds-to address budget
uncertainty, most often related to unanticipated revenue shortfalls. In
addition, NASBO reported that 47 states have established separate funds
specifically designed to provide funding for state emergencies or other
contingencies. The purpose of these accounts is to set aside money for
emergencies or other difficult to estimate expenditures that may occur
during the fiscal year./Footnote6/

There are significant differences in the fiscal and budgetary environments
of the states and the federal government that must be considered when
attempting to apply lessons from state practices to the federal
government. First, state budgets are generally more constrained than the
federal budget as a result of balanced budget requirements and borrowing
restrictions. Most states have constitutional or statutory provisions
requiring that they balance their operating budgets, commonly referred to
as their "general fund."/Footnote7/ Coupled with budget disciplines
imposed by the bond rating agencies, balanced budget requirements
encourage states to budget conservatively. Failing to acknowledge likely
contingencies in the budget can result in budget shortfalls that may
require painful and/or unpopular spending cuts or tax increases to restore
balance. Second, governors tend to have greater control over budget
execution, especially in states with part-time legislatures where decision-
making authority is delegated to the executive branch to ensure that the
government is responsive during emergencies. 

In contrast, the open-ended nature of federal mandatory spending, the
exemption from the discretionary spending caps for emergencies under the
BEA, and the general ease with which the federal government can borrow
combine to give the federal government more budgetary flexibility. Recent
proposals to set aside the Social Security surplus, however, would impose
additional constraints on federal budget flexibility. If the Congress
chose to adopt such a requirement, emergency funds would have to be funded
through the "on-budget" surplus or by cutting spending elsewhere to avoid
using the "off-budget" Social Security surplus./Footnote8/ Some would
argue that less federal budget flexibility could create the incentive to
establish federal emergency reserves similar to those used by the states
both to set aside budgetary resources in advance and to ensure that the
off-budget surplus is not used in the event of an emergency.

Scope and Methodology
---------------------

To address our objectives, we collected and analyzed information on state
reserve funds including budget stabilization funds, contingency funds, and
emergency funds. Based on this information, we selected five states for
detailed review: California, Delaware, Florida, Missouri, and Oklahoma. We
selected these states for the diversity they provided in terms of size and
types of reserves, geographic location, exposure to different types of
budget uncertainty, such as fiscal crises and/or natural disasters, and
the balance between executive and legislative branch control.

We interviewed state officials in the executive branch budget office,
legislative fiscal office, and emergency management agencies. We reviewed
state budget and financial documents, relevant state constitutional and
statutory citations, and state association publications. 

To understand the federal issues, we reviewed recent federal legislation,
relevant reports and studies, and congressional testimony and we
interviewed federal officials from the Congressional Budget Office (CBO),
Office of Management and Budget (OMB), and FEMA. We also reviewed federal
appropriation laws from 1991 through May 1999 to identify federal programs
that were funded through emergency appropriations, to categorize the
appropriations by type of spending, and to determine the amount and
frequency of emergency appropriations for individual federal programs. We
asked officials at CBO and OMB to conduct a technical review of our draft
report, and their comments have been incorporated as appropriate. We
conducted our work from August 1998 through June 1999 in accordance with
generally accepted government auditing standards.

States Set Aside Reserves to Address Budget Uncertainty
-------------------------------------------------------

States in our study have taken what they see as a fiscally prudent
approach to addressing budget uncertainty by setting aside funds in
various reserve funds and accounts. From a budgeting standpoint, states
are most concerned about situations that would have a severe fiscal
impact, such as a large decrease in revenues or dramatic increases in
program expenditures. While natural disasters and similar emergency
situations have an impact on state finances, states are less concerned
about these situations because they rely on the federal government to
provide most of the funding for recovery efforts. For example, although
California has experienced many catastrophic natural disasters in the last
10 years, it does not provide any advance funding for disaster costs.
Instead, the state includes in its budget for an upcoming fiscal year only
the estimated state share of funds needed for prior years'
disasters./Footnote9/

Most states have significant fiscal constraints--either legal, such as
balanced budget requirements and borrowing restrictions, or imposed by
bond markets, which encourage them to provide funding in advance for
particular budgetary uncertainties. Balanced budget rules vary among the
states, but typically they require the governor to propose, the
legislature to enact, and the governor to sign a balanced operating budget-
-commonly referred to as the general fund budget./Footnote10/ According to
the National Association of State Budget Officers (NASBO), only
California, of our five study states, does not require the legislature to
enact and the governor to sign into law a balanced budget. If states with
balanced budget requirements fail to acknowledge contingencies in their
budgets and provide a reasonable amount of funding in advance, budget
shortfalls may require midyear budget adjustments, such as spending cuts
or tax increases, to prevent or eliminate a budget deficit.

In addition to balanced budget requirements, borrowing restrictions also
encourage states to budget for uncertainty. Short-term borrowing to
finance state operating costs may be prohibited by state constitution or
statute. Two of our study states, Florida and Missouri, cannot borrow on a
short-term basis for their operating budgets. Without adequate reserves
available to mitigate a fiscal crisis, states without short-term borrowing
capabilities would have little choice but to reduce spending, increase
revenue, or make other short-term budget adjustments. Even if a state is
permitted to borrow short term to fund unanticipated needs, the practice
may be viewed unfavorably by bond rating agencies that establish credit
ratings for states and so play a role in determining a state's borrowing
costs./Footnote11/

Other fiscal constraints, such as a limit on the amount of general fund
revenue that can be collected and retained or a limit on general fund
expenditures, may result in greater state reserves./Footnote12/ For
example, Florida has a revenue limit that may require it to deposit excess
revenue in its budget stabilization fund for future needs. Florida's
revenue growth rate is limited to the growth rate of personal income in
the state. Any revenue collected beyond this amount must be deposited into
the state's rainy day fund; once that fund reaches its statutory maximum
level, excess revenues must be returned to taxpayers. Another state in our
study--Oklahoma--has a spending limit that may require rainy day fund
deposits. In Oklahoma, only 95 percent of the forecasted revenue for the
current fiscal year is available for appropriations; the other 5 percent
is carried over to the next year. If the state's actual revenue
collections came in at 102 percent of the forecast, 5 percent would be
made available for appropriations in the subsequent fiscal year and the
unexpected 2 percent would be deposited into the state's rainy day fund.

States Establish Various Types of Reserves to Address Budget Uncertainty
------------------------------------------------------------------------

States completed fiscal year 1998 in strong fiscal condition with sizeable
general fund balances. NASBO reported that the states ended the year with
combined general fund surpluses of approximately $38 billion./Footnote13/
These surpluses comprise both general fund end-of-year balances and budget
stabilization funds. The amount states accumulate as general fund
surpluses are the direct result of past budgetary decisions, the health of
the economy, and other factors. When states are projecting an end-of-year
surplus, they typically include this estimated amount as the "beginning
balance" in the subsequent year's general fund budget./Footnote14/ As
discussed below, states may also choose to deposit some or all of any
surplus into more formal reserves rather than carrying the surplus over as
an end of year balance. In contrast, federal unified budget surpluses
represent annual revenues in excess of expenditures and are not cumulative
from one year to the next./Footnote15/ Table 1 shows the combined general
fund carryover balance and rainy day fund balances as a percent of general
fund expenditures for the five states in our study for fiscal year 1998.

Table****Helvetica:x11****1:    Fiscal Year 1998 General Fund Reserves for
                                Five Study States (Dollars in Millions)

--------------------------------------------------------------------------
| State     :     Total general :     Total general :     Reserves as a  |
|           : fund expenditures :    fund reserves  :        percent of  |
|           :                   :                   :      general fund  |
|           :                   :                   :     expenditures   |
|------------------------------------------------------------------------|
| California:           $53,344 :            $3,075 :              5.8%  |
|------------------------------------------------------------------------|
| Delaware  :            $1,900 :              $539 :             28.4%  |
|------------------------------------------------------------------------|
| Florida   :           $17,078 :            $1,443 :              8.4%  |
|------------------------------------------------------------------------|
| Missouri  :            $6,617 :              $398 :              6.0%  |
|------------------------------------------------------------------------|
| Oklahoma  :            $4,200 :              $471 :             11.2%  |
--------------------------------------------------------------------------

Source: National Association of State Budget Officers, Fiscal Survey of
the States, June 1999.

Formal reserves established by states can be grouped into three main
categories, as shown in appendix I./Footnote16/ We have labeled the first
category "statewide reserves for general purposes." These funds are
generally available for any program or activity normally funded out of the
state general fund. The most common type of general purpose, statewide
reserve is the budget stabilization fund. These "rainy day" funds are
designed primarily to reduce the fiscal impact of revenue shortfalls or
dramatic cost increases, but in some cases they may also be used to
respond to emergencies, such as a natural disaster. Rainy day fund
balances usually represent actual cash held by the state./Footnote17/ For
example, Florida established a budget stabilization fund in 1994 to reduce
the fiscal impact of any future revenue shortfalls. This fund had a cash
balance of about $786 million at the end of fiscal year 1998, representing
about 4.5 percent of fiscal year 1998 general fund appropriations.
Typically, rainy day funds are not appropriated until they are actually
needed and therefore are released by the legislature through special
appropriations upon a request by the governor. States may also establish
other cash reserves designed to provide funding for short-term cash flow
imbalances. For example, Oklahoma uses its Cash Flow Reserve Fund to make
payments in the first part of the fiscal year because it has not yet
allocated current year revenues to agencies. This fund is also used at
other times during the year to cover the cash flow needs of the state.

Three of the states we studied have established statewide, general-purpose
reserves by appropriating less than 100 percent of anticipated general
fund resources for the upcoming fiscal year./Footnote18/ Delaware
withholds 2 percent of its revenue estimate from the total general fund
revenue available for appropriations in the current fiscal year. As noted
above, Oklahoma withholds 5 percent of its expected general fund revenue.
Delaware's revenue set-aside is available for emergency needs in the
current year, but Oklahoma's is not available until the subsequent year.
Missouri has a supplemental reserve consisting of non-appropriated revenue
received in the prior fiscal year; it is made available during the current
fiscal year, as needed, via the supplemental appropriations process.

There is a second category of reserves we have labeled "statewide funds or
accounts designated for specific purposes." In most cases, these reserves
are established by appropriating a portion of the general fund into a
separate account available to state agencies for specifically defined
purposes. This category includes funds or accounts designed to (1) help
agencies respond to emergencies such as natural disasters, (2) provide
additional funds to state agencies when costs are higher than expected, or
(3) cover costs related to legal judgments against the state. For example,
Oklahoma uses its State Emergency Fund to cover state costs related to
natural disaster response and recovery; Delaware uses its Legal Fees Fund
as the primary source of funding to pay the costs of legal settlements or
judgments.

Finally, we identified a third category of reserves which we labeled
"agency-specific reserves for defined purposes." Agency-specific reserves
are also created by appropriating funds from the general fund but are
intended to provide a cushion in the event that regular agency
appropriations for a particular program or activity are insufficient.
Allowable uses of these reserves are narrowly defined to ensure that funds
are only used for unanticipated costs of the targeted program or activity.
For example, Missouri's Corrections Growth Pool account is designed to
provide additional funding to the state correctional agency for costs
associated with unexpected growth in the prisoner population. Funds
appropriated to this account cannot be used for new initiatives, unrelated
activities, or transferred to other state agencies.

States May Establish Criteria to Define When Reserves Can Be Used
-----------------------------------------------------------------

When establishing reserves, states usually define criteria under which
they can be used. An analysis of the reserves established by our five
study states indicates that in some cases reserves may be tapped only
under specific conditions, such as for an emergency situation that was
unforeseen, and/or for specific events, such as flooding. For other
reserves, such as budget stabilization funds or non-appropriated revenue,
there are only general criteria or no criteria for when reserves can be
used. The specificity of these criteria varies from state to state, as
well as from one type of reserve to another. 

State reserves for specific purposes, such as natural disasters, tend to
have more definitive criteria governing their use. Budget officials we
spoke to said these criteria were useful to them in evaluating emergency
spending requests. Some of the states in our study have specific criteria
that identify conditions under which funds can be used and/or identify
specific events that qualify as emergencies. For example, legislation
establishing Missouri's Governmental Emergency Fund includes statutory
language covering conditions that must be met including "emergency and
unanticipated requirements necessary to insure the proper functioning of
state government and to render essential states services . . . which were
not foreseeable or predictable at the time of the preparation and adoption
of the budget." Likewise, expenditures from Oklahoma's State Emergency
Fund must meet the conditions of being "necessary" and "unforeseen." This
fund is further restricted to cover costs associated with (1) destruction
or damage to public property caused by disasters such as fires, tornadoes,
and floods, (2) operation of the National Guard when activated during an
emergency, and (3) expenditures necessary to provide matching funds for
any federal disaster relief program. In Florida, the Working Capital Fund
is used for governor-declared emergencies, and spending is limited to
"conditions that were unforeseen at the time the General Appropriations
Act was adopted . . . and that constitute an imminent threat to public
health, safety, or welfare."

In contrast, the emergency component of Oklahoma's Constitutional Reserve
Fund (as distinguished from the State Emergency Fund described above)
lacks specific criteria for its use and has been used for purposes other
than emergencies. Oklahoma may use one-half of its Constitutional Reserve
Fund for emergency spending needs each year, with the only criteria for
such designation being that the governor and the legislature agree to
define the need as an emergency. According to state officials, the
emergency portion of this fund has routinely been used for items that were
for non-emergencies, such as highway construction, water projects, and
education funding./Footnote19/ 

State Processes for Releasing Reserve Funds
-------------------------------------------

In addition to criteria guiding the use of emergency reserves, our work in
five states indicates that factors such as executive branch control over
budget execution and/or legislative review of emergency spending requests
can help to ensure that criteria for emergency spending are
met./Footnote20/ In many states, the governor has a great deal of
authority and control over budget execution, in part because the state
legislatures are only in session for a few months during the year. For
example, governors may have additional powers related to budget execution,
including the ability to reduce agency spending midyear in response to
lower revenue collections, to borrow internally across agencies or funds,
to issue short-term debt in the capital markets, or to reprogram budgeted
funds from one agency to another. In many cases, the legislature is not
involved in these decisions. In some cases, the legislature and executive
branch have joint bodies that are convened to review spending after
legislative adjournment.

We found significant differences in how funds are released depending on
whether reserves were for general purposes (the "rainy day" funds) or for
specific purposes (the emergency funds). General-purpose reserves are
usually controlled by the legislature, which appropriates needed amounts
to the general fund based upon a request made by the governor. In the case
of specific-purpose reserves, the legislature has already appropriated a
portion of general fund revenues and the administration evaluates and
decides on emergency funding requests. As a result, the governor or the
budget director has substantial control over access to the reserves. 

For those reserves for which the legislature must take action to release
funds, there may be additional controls over the use of reserves. Two
states in our study require the legislature to approve the use of certain
reserves by a super-majority vote. Delaware requires a three-fifths vote
of the general assembly to use either its rainy day fund or its non-
appropriated revenue reserve, while in Oklahoma the emergency component of
the rainy day fund requires a two-thirds vote of the legislature for
emergencies declared by the governor and a three-fourths vote of the
legislature for emergencies declared by the legislative leadership.
However, because Delaware has not used its reserves in many years and
Oklahoma's super-majority requirements do not appear to have presented a
significant hurdle to using some of its reserves, it is difficult to
determine the effectiveness of this type of control on the basis of our
state work.

Some states have established review procedures for emergency funding
requests to ensure that they meet the criteria before spending approval is
granted. For example, agencies in Oklahoma that request funds from the
emergency fund must submit written findings to the governor if the
emergency situation is specifically identified in statute (for example,
floods) or to the fund's contingency review board if the statute does not
specifically list the item requested by the agency. In California, the
director of the Department of Finance is required to review agency
requests for emergency funds, and if a request is approved, must send a
report to the Joint Legislative Budget Committee and the appropriating
committee chairs stating that the expenditures satisfy the criteria for
emergency funding. Spending from Missouri's Governmental Emergency Fund
must be approved by a majority vote of the fund's controlling committee,
which includes the governor, commissioner of administration, and the
chairman and ranking minority member of the state senate and house
appropriations committees.

States Also Have Other Budget Mechanisms to Respond to Unplanned
Expenditures
---------------------------------------------------------------------------

While reserves are a useful tool for states in dealing with budget
uncertainty, we also found that states may use other mechanisms as well to
meet unexpected needs. In contrast to advance funding using reserves,
these other mechanisms are used after an adverse situation has been
identified. For example, since most states budget on a fund basis, they
may have borrowed internally, via interfund transfers, to cope with fiscal
stress. Florida transferred money from state trust funds to the general
fund to help address a fiscal crisis in the early 1990s. Some states also
reduce spending and/or increase taxes to respond to fiscal problems. In
the early 1990s, Delaware faced a budget shortfall and responded by
reducing general fund spending by 7 percent and increasing certain taxes
to generate an additional $130 million over 2 years even though the state
had reserves available. California may use external short-term borrowing
to fund unexpected needs.

States may also use supplemental appropriations to meet unexpected needs,
either as a vehicle to release reserves, such as budget stabilization fund
transfers made by the legislature, or as a direct infusion to state
agencies in need of additional resources to cover unexpected
costs./Footnote21/ For example, California's legislature enacts
supplemental appropriations amounting to several hundred million dollars
each year to augment the regular appropriations of various agencies and
departments that incur costs that were not anticipated during budget
enactment.

Federal Government Often Uses a More After-the-Fact Strategy to Address
Budget Emergencies
---------------------------------------------------------------------------

Our analysis of federal emergency funding from 1991 to the present showed
that many different types of programs were funded through emergency 

supplemental appropriations--a more "after-the-fact" strategy./Footnote22/
When the federal government provides funding in advance for programs that
play a role in emergency activities, such as for FEMA's Disaster Relief
Fund, it is usually only a portion of the total eventually appropriated in
a given year. As mentioned previously, state balanced budget requirements--
which generally apply to the states' operating budgets--and bond market
pressures provide a strong incentive for states to set aside funds in
advance to guard against violating these requirements or risk a lower bond
rating when faced with budget surprises. The current federal strategy, on
the other hand, is consistent with the federal budget environment that
allows for more budgetary flexibility. Unlike the states, which budget on
a fund basis, the federal government uses a unified budget approach. The
unified budget approach allows policymakers to consider and set priorities
across all federal activities and allows for greater flexibility. Also,
the federal government is neither subject to balanced budget requirements
nor constrained by bond market pressures to the same degree as states.
Furthermore, some cite the federal budget's role in stabilizing the
economy during recession and the need to provide for national defense as
important reasons for maintaining this budget flexibility./Footnote23/

In our review of federal emergency appropriations, the majority of which
were contained in supplemental appropriations bills, we found that the
emergency designation has been applied to a wide variety of federal
program and budget accounts. Table 2 shows annual emergency budget
authority as a percentage of total discretionary budget authority since
passage of BEA from 1991 through May 1999. From 1991 through May 1998,
emergency appropriations averaged approximately $14.3 billion annually,
roughly 2.7 percent of total discretionary spending. However, since the
beginning of fiscal year 1999 (through May 1999) emergency appropriations
have totaled nearly $36 billion, 6.1 percent of total discretionary budget
authority for fiscal year 1999./Footnote24/ 

Table****Helvetica:x11****2:    Emergency Budget Authority as Percentage
                                of Discretionary Budget Authority Fiscal
                                Years 1991 Through 1999 (Dollars in
                                Billions)

                                                                    
--------------------------------------------------------------------------
| Fiscal year     :           Total :       Emergency :      Percentage  |
|                 :   discretionary : budget authority:                  |
|                 : budget authority:                 :                  |
|------------------------------------------------------------------------|
| 1991            :          $545.8 :           $45.0 :            8.2%  |
|------------------------------------------------------------------------|
| 1992            :          $531.8 :           $21.2 :            4.0%  |
|------------------------------------------------------------------------|
| 1993            :          $524.2 :            $5.9 :            1.1%  |
|------------------------------------------------------------------------|
| 1994            :          $514.8 :           $11.4 :            2.2%  |
|------------------------------------------------------------------------|
| 1995            :          $501.9 :            $9.3 :            1.9%  |
|------------------------------------------------------------------------|
| 1996            :          $502.2 :            $5.7 :            1.1%  |
|------------------------------------------------------------------------|
| 1997            :          $512.5 :           $10.2 :            2.0%  |
|------------------------------------------------------------------------|
| 1998            :          $534.2 :            $5.9 :            1.1%  |
|------------------------------------------------------------------------|
| 1999            :          $583.8 :           $35.8 :            6.1%  |
|------------------------------------------------------------------------|
| Total           :        $4,751.2 :          $150.4 :            3.2%  |
--------------------------------------------------------------------------

Note: Fiscal year 1999 figures are through May 1999.

Source: GAO analysis.

Appendix II shows the use of the emergency designation by arraying
emergency appropriations into seven categories covering more than 250
different program and budget accounts since enactment of the Budget
Enforcement Act of 1990. Table 3 below shows the percentage of budget
authority by category for emergency appropriations from 1991 through May
1999. These categories range from natural disasters to the year 2000 (Y2K)
computer problem, while specific accounts receiving emergency funding
include such varied items as construction of a new capitol visitor center
and ballistic missile defense. 

Table****Helvetica:x11****3:    Emergency Budget Authority by Category,
                                Fiscal Years 1991 Through 1999 (Dollars in
                                Billions)

                                                                  
-----------------------------------------------------------------------
| Category             :                Total :           Percentage  |
|---------------------------------------------------------------------|
| Disaster and/or      :                $56.9 :                  38%  |
| Economic             :                      :                       |
| Emergencies          :                      :                       |
| (Domestic)           :                      :                       |
|---------------------------------------------------------------------|
| Defense-related      :                $81.0 :                  54%  |
| Emergencies          :                      :                       |
|---------------------------------------------------------------------|
| Antiterrorism and    :                 $3.9 :                   3%  |
| Security Emergencies :                      :                       |
|---------------------------------------------------------------------|
| Information System   :                 $3.4 :                   2%  |
| Emergencies (Y2K)    :                      :                       |
|---------------------------------------------------------------------|
| International        :                 $3.7 :                   2%  |
| Humanitarian         :                      :                       |
| Emergencies          :                      :                       |
|---------------------------------------------------------------------|
| Drug Interdiction    :                 $1.0 :                   1%  |
| Emergencies          :                      :                       |
|---------------------------------------------------------------------|
| Other Emergencies    :                  $.5 :                   0%  |
|---------------------------------------------------------------------|
| Totals               :               $150.4 :                 100%  |
-----------------------------------------------------------------------

Source: GAO analysis.

Many federal programs that carry out emergency responsibilities are
routinely provided with significant budget authority through emergency
supplemental appropriations. Appendix III provides data on selected
programs that received emergency supplemental appropriations in at least 5
of the last 8 years. The most notable example is FEMA's Disaster Relief
program where a large portion of the program's budget authority comes from
emergency supplemental appropriations./Footnote25/ Public Law 102-229,
enacted in 1992, limits FEMA's regular Disaster Relief Fund appropriations
for Stafford Act/Footnote26/ disaster assistance to $320 million or the
President's 

budget request, whichever is lower./Footnote27/ According to the law, any
Disaster Relief Fund appropriations over this amount must be considered
"emergency requirements" and are exempt from the discretionary spending
caps. In the 1999 Omnibus Appropriations Act (P.L. 105-277), FEMA's
Disaster Relief fund received $906 million in contingent emergency funds
in addition to the nearly $308 million it received in regular
appropriations for that year (P.L. 105-276). In addition, FEMA received
$1.1 billion in emergency appropriations in the 1999 Emergency
Supplemental Appropriations Act (P.L. 106-31). Several other programs,
such as the Small Business Administration Disaster Loan Program and the
United States Department of Agriculture Emergency Conservation Program,
also received much of their budget authority through emergency
supplemental appropriations.

In at least one case, the Low-Income Home Energy Assistance Program
(LIHEAP), the Congress routinely provides contingency funds in advance for
emergencies. The Administration for Children and Families, part of the
Department of Health and Human Services, administers LIHEAP and typically
receives $300 million annually in contingency funding for extreme weather
conditions that necessitate additional home energy grant payments to the
states./Footnote28/ LIHEAP funds can only be released upon a request from
the President and must meet specific criteria including extreme
temperatures, flooding, earthquakes, tornadoes, hurricanes, or ice storms.
The criteria define emergency to include a significant increase in public
benefit program caseloads (for example, Food Stamps) or unemployment
claims. The criteria also specify that the Secretary of HHS must take into
account whether a member of Congress has requested that the state receive
LIHEAP funds and require the Secretary to notify the Congress upon
determining that the contingency fund will be used. 

The Congress has taken a different approach to providing emergency funding
for federal fire fighting activities. Fire fighting costs incurred by the
Department of the Interior and the National Forest Service are considered
emergency spending only to the extent that they exceed the average annual
level of such costs over the preceding 10 years. This provision,
instituted in 1993, acknowledges that certain unpredictable events, such
as forest fires, will likely occur and that these costs should not be
ignored in the regular budget.

Informing the Federal Emergency Funding Debate
----------------------------------------------

Dissatisfaction with the federal process for funding emergency needs has
most often focused on two issues--the overly broad application of the
emergency designation leading to uncontrolled emergency spending and the
need to recognize emergency costs earlier in budget deliberations. Many
have questioned whether all emergency spending is for "true emergencies"
and ask why the budget cannot more effectively recognize likely but
unpredictable emergency needs.

In this section we discuss options for changing the federal emergency
funding process that have surfaced either in the congressional debate or
in our study of state approaches to budgeting for uncertainty. State
practices can offer some insight into how the federal government might
consider the following options, either separately or in combination:

o establishing criteria for the emergency designation; and

o creating either a governmentwide and/or agency-specific emergency
  reserve(s). 

Criteria for Emergency Spending
-------------------------------

As the congressional debate indicates, there is inherent tension between
having criteria strict enough to prevent misuse of the emergency
designation and providing enough flexibility to respond to unpredictable
situations. The broader and more flexible the criteria, the more likely it
is that the emergency designation might be used for non-emergency items. A
broad definition of an emergency may include situations such as "actual or
potential loss of life," "destruction of property," or a "threat to
national security" while a narrower definition might be limited to
specific events such as hurricanes or earthquakes. Criteria may also be
defined by limitations such as requiring that a situation be "unforeseen"
or "temporary." Ideally, the criteria must usefully define legitimate
emergency spending without being so restrictive as to exclude spending for
unexpected needs perceived to be legitimate emergencies by the Congress
and the President.

At the state level, the existence of criteria for the use of emergency
reserve funds has been useful in helping to control emergency spending,
according to state officials we interviewed. Officials in some of our
study states said criteria associated with emergency reserves were
effective in limiting their use to appropriate needs. For example,
Oklahoma officials told us that in contrast to its Constitutional Reserve
Fund, the State Emergency Fund requires specific criteria for its use and
has been used only for spending allowed by the established criteria.
Criteria for these reserves define conditions under which the reserves can
be used and may also identify certain types of events that would qualify
for emergency funds. In addition, these reserves may have additional
conditions that must be met before funds can be released. Florida and
Missouri expect state agencies to exhaust funds from already appropriated
emergency-related accounts before asking for additional emergency funds.
In Oklahoma, the State Emergency Fund cannot be used for spending items
considered, but not approved, by the legislature. In California and
Florida, the statutes state that emergency funds should not be used to
fund new programs or initiatives. 

In addition, a statement of how proposed funding met the criteria can be
required. According to one official we interviewed, state agencies may be
subject to added scrutiny when emergency funding requests are reviewed
against established criteria. First, agencies are expected to closely
review their budgets before requesting emergency funds. Second, agency
requests for additional funding can be evaluated based on the emergency
criteria, thus making it easier to defer additional spending requests for
existing programs or new initiatives until consideration of the next
fiscal year's budget. Finally, agencies that request emergency funds are
exposed to additional scrutiny and visibility by the legislature and the
executive branch, which can affect future budget decisions. 

Some have proposed that criteria be added to the current federal process
for funding emergencies./Footnote29/ Emergency conditions proposed in 1991
by OMB are often referred to and have been included in proposed
legislation. Under the OMB proposal, any emergency spending would have to
meet all of the following five conditions to qualify for the emergency
designation: (1) the expenditure was "necessary," (2) the situation
requiring the emergency appropriations was "sudden," (3) the situation was
"unforeseen," (4) the need for emergency appropriations was "urgent," and
(5) the situation requiring the emergency appropriations was "not
permanent."/Footnote30/ The fiscal year 2000 Budget Resolution contained
similar criteria for designating a proposed provision of legislation as an
emergency requirement. During the debate on the 1999 Emergency
Supplemental Act, a point of order was raised against some of the items in
the emergency bill. However, a vote was taken to waive the point of order
against the emergency designation, which passed by a vote of 70 to
30./Footnote31/

As mentioned above, the broader and more flexible the criteria, the easier
it is to expand the emergency designation. If the Congress wished to
create agency-specific reserves with appropriations that could be used
without further congressional action, it might wish to establish more
specific criteria for the release and use of such funds. For example, the
LIHEAP contingent emergency criteria establishes specific conditions for
fund release. Some would argue that the more specific and measurable the
criteria, the less likely there would be disagreement over when the funds
can be used. Even if criteria are written into the law, however, emergency
definitions are not self-enforcing. Whether or not the criteria serve to
limit fund use depends on both their specificity and on the commitment of
the various actors to enforce them. 

Emergency Reserves
------------------

Reserve funds at the federal level have been proposed as a way to require
up-front recognition of the likelihood that there will be a call on
federal resources for some unforeseen event or situation--thus providing
greater transparency in the budget process. As such, these costs could be
considered as part of the annual resource allocation process and could
ensure that emergency needs are considered along with other competing
needs in the budget. Some have also suggested that emergency reserves may
reduce the need for supplemental appropriations. Depending on how the
reserve is designed, agencies may have easier access to funding to respond
to emergencies more quickly. However, potential pitfalls exist as well--
there may be pressure to use the reserve even if a triggering emergency
does not occur.

Proposals for reserve funds have fallen into two broad categories:
governmentwide reserves and agency-specific reserves. While both types of
reserves raise similar design questions, the answers may be different for
each type. In addition to the question of what criteria should be used for
each type of fund, important design questions for either type of reserve
would include

o   scope: should the emergency reserve be governmentwide or agency-
  specific (or should both be used)? 

o   delegation: who may approve the use of these funds? 

o   size: how large should the reserve be?

o   duration: do unused funds lapse at the end of each fiscal year?

o   relationship to budget caps: should the reserve be included under the
  spending caps? 

Scope: Should the Emergency Reserve Be Governmentwide or Agency-Specific?

One approach taken by states is to set aside some portion of the budget as
unallocated budget authority in a statewide reserve for emergencies by
appropriating less than their estimated revenues each year or retaining
funds in a "rainy day" fund. A similar approach at the federal level would
be to set aside budget authority in a governmentwide reserve. Such a set-
aside might limit emergency spending to the amount set aside. On the other
hand, the creation of an emergency reserve could produce an expectation
that the entire fund should be spent and as the year progresses claims on
the fund might increase. Combining a governmentwide reserve with specific
criteria for its use might alleviate this pressure, if the criteria are
adhered to.

Another approach would be to establish agency-specific reserve funds for
those agencies that regularly respond to federal emergencies. Such
reserves could be established along with governmentwide reserves. Some
have argued that the current emergency exemption has led to a situation in
which these agencies are routinely and knowingly under-funded under the
budget caps--with the expectation that necessary funds will be provided
later using the emergency provision, which results in an increase to the
caps. Under a system of agency-specific reserves, funds would be
appropriated to these agencies on a contingent basis, meaning that certain
agency-specific criteria would have to be met before the funds could be
used. In one state we visited, we were told that the creation of dedicated
reserves for agencies that are likely to need emergency or supplemental
funding each year has reduced the need for midyear supplemental
appropriations. As shown in appendix III, several federal programs that
routinely carry out emergency activities have relied on funds provided
through emergency supplemental appropriations. If these federal agencies
received more funds in advance for emergencies, the need for emergency
supplemental appropriations would likely be reduced. As noted earlier,
FEMA typically receives approximately $300 million annually for its
Disaster Relief Fund while FEMA's past 10-year obligation level averaged
$2.4 billion annually./Footnote32/

Delegation: Who May Release the Funds and Approve Their Use?

The creation of reserves requires a process to decide how and when they
should be released so that the Congress can assure itself that the funds
will be spent on intended purposes. As discussed above, we found that how
state emergency funds are released depended on whether they were
statewide, general-purpose reserves, or agency-specific reserves. In the
states we studied, the governor or a designee usually controls the release
of smaller emergency reserves while large statewide reserves require
legislative approval before use. Similarly, the procedure to release
federal reserve funds could depend upon whether they were for
governmentwide or agency-specific emergency reserves. 

Because of constitutional constraints, not all of the release mechanisms
available to the states may be used by the Congress to control the use of
governmentwide emergency funds./Footnote33/ However, there are a variety
of mechanisms available to the Congress that would not pose constitutional
concerns. 

The Congress could set aside funds for a governmentwide emergency reserve
as part of the congressional budget resolution. Appropriations would be
made out of this congressional emergency fund on an as needed basis. The
Congress may also wish to adopt a super majority vote--as used by two
states in our study, Delaware and Oklahoma--to appropriate emergency
funding from this allocation or to waive the criteria established for
using the emergency reserve. 

Another approach would be for the Congress to appropriate emergency
funding to the President and require that the President notify the
Congress of the proposed emergency need a certain number of days prior to
releasing the funds. This would afford the Congress time to enact
legislation prohibiting the proposed use of emergency funds. One example
of this type of approach is the emergency funding set aside in the account
for "Year 2000 Information Technology Systems and Related Expenses." Most
of these funds are available to be transferred by the Director of OMB to
affected federal departments and agencies. However, none of the funds may
be transferred until 15 days after the Director of OMB has submitted a
proposed allocation and plan for the federal entity to several legislative
committees./Footnote34/ 

In addition to the above, the Congress could require certification for
contingent emergency appropriations in agency-specific reserves--
appropriations available for obligation after the Executive Branch
certifies that the relevant emergency criteria have been met. As mentioned
earlier, the LIHEAP program includes a contingency reserve that enables
the President to release funds when certain criteria are met. Some states
in our study established review procedures to ensure that certain criteria
are met prior to release of reserve funds. Furthermore, in some cases
where the release of funds has been delegated to the governor's office, a
process has been established where legislative committees, legislative
fiscal agencies, or special review boards play a role in the review
process. 

Size: How Large Should the Reserve(s) Be?

Lawmakers would need to strike a balance between setting aside sufficient
funds for emergencies and maintaining their ability to adequately fund
other important priorities. One approach to determining the size of an
emergency reserve would be to simply set aside some fixed percentage of
revenue or spending. Some states set the level of their governmentwide
reserve funds in this way. As mentioned in appendix I, Missouri's Budget
Stabilization Fund contains about 2.5 percent of prior year general fund
receipts and it may not exceed 5 percent. Others have suggested that the
size of an emergency reserve could be based on a historical average of
emergency spending. If a historical average were used in a governmentwide
reserve, however, the Congress might wish to link it to the criteria
established for emergency spending. For example, an emergency reserve with
criteria limited to natural disasters could be based on historical
spending averages for natural disasters. However, determining the
appropriate size of a reserve based either on a fixed percentage or
historical average could be challenging given the year-to-year variation
in emergency spending over the past decade. 

Duration: Would Unused Funds Lapse at the End of the Year?

When creating emergency reserves, a decision would need to be made on
whether the balances will be allowed to build up over time or whether they
should lapse at the end of each fiscal year. States generally allow build-
up in their budget stabilization funds up to a predetermined fixed
percentage of state general fund expenditures and then seek to replenish
the fund after its use. State accounts designated for emergencies usually
lapse at fiscal year-end and are re-authorized each year. Of our study
states, Florida, Missouri, and Oklahoma annually appropriate an amount for
emergency use that lapses at the end of the fiscal year. 

Federal emergency reserves that lapse at fiscal year-end could tighten
control of the funds. However, lapsing emergency funds might also
encourage a rush of year-end spending of remaining funds if criteria for
their use proved to be too weak. Conversely, the federal government could
establish an emergency reserve that does not lapse at the end of the year.
Creating a reserve that does not lapse might promote the notion that
responding to emergencies needs to be a permanent feature of the budget.
However, the pressure to spend the available funds could increase if the
balance in the emergency reserve fund becomes large.

Relationship to Budget Caps: Should the Reserve Be Included Under the Caps?

Proponents of placing emergency reserves under the budget caps argue that
it is a way to ensure that emergency needs are considered along with other
competing needs in the budget, making it a more responsible way to budget
for expected but unpredictable costs. Doing this would reduce funds
available elsewhere in the budget and would be somewhat analogous to the
states in our study, none of which treated emergency costs differently
than other state expenditures under their budget rules. 

Others argue that it would not be advisable to include an emergency
reserve within the budget caps since emergencies are by nature
unpredictable and prefunding these events would be at the expense of more
certain programmatic needs, especially as the discretionary caps become
tighter. Furthermore, the Congress has the option to offset emergency
spending items that are exempt from the caps and, in fact, has done so to
some extent in recent years.

Another approach would be to establish emergency reserves over and above
the existing caps or by raising the caps. Like the current system, this
would have the effect of using some of the unified budget surplus for
emergencies. Unlike the current system, however, the amount would be
identified in advance. This approach might increase transparency,
recognize the near inevitability of unpredictable events, and possibly
provide a limit on the amount of emergency spending.

Compatibility With Other Budget Process Changes
-----------------------------------------------

Any changes in the current treatment of funding for emergencies, whether
imposing emergency criteria on the emergency designation and/or
establishing an emergency reserve, will need to be considered in the
context of other proposed changes to the budget rules and processes. For
example, determining whether a reserve should be under the caps raises the
question of whether a permanent change in the discretionary caps is also
to be made. Similarly, decisions about whether to establish and how much
to set aside in a governmentwide reserve should be linked to decisions
about whether to create additional agency-specific reserves or to increase
regular funding for programs that normally carry out emergency response
activities. For example, the amount of funds in a governmentwide reserve
might depend on whether a separate emergency fund was created for
agencies, such as Agriculture's Emergency Conservation Program, or whether
FEMA received a larger annual appropriation. Furthermore, if the Congress
were to move to biennial budgeting, an emergency reserve could become
important to provide additional budgetary flexibility in the second year.
Also, if criteria were established that limited emergencies to specific
events, such as natural disasters or national security, the Congress may
wish to reconsider how it will fund other activities, such as drug
interdiction, that were funded through emergency supplementals before the
criteria were established. 

Conclusions
-----------

Experience at both the federal and state levels shows that governments are
pressed to respond to emergencies at various points during the fiscal
year. However, constrained by balanced budget requirements and concerns
over bond ratings, the states have generally chosen to fund a portion of
their emergency costs up front as part of their regular budget process.
For many years, significant federal emergency costs have been incurred
annually but have not been subject to the discipline of the regular budget
process. Although the federal government often funds emergencies on an
"after-the-fact" basis, some have suggested that the Congress could
consider moving to a reserve-funding model. State practices offer some
insights in designing such a process. 

Some argue that shifting the budget timing to an up-front recognition of
emergency costs through reserves may promote a more comprehensive and
transparent debate over federal budgetary priorities during the regular
budget process. While a primary rationale for establishing reserves at the
state level is the real constraints imposed by balanced budget
requirements and the credit markets, the state model may become of more
interest as the federal budget becomes more constrained--either by current
budget rules such as discretionary spending caps or by any potential
future reforms such as "saving" the Social Security surplus. 

Even though there will always be a subjective element to defining
emergencies, establishing emergency criteria may improve federal decision-
making by providing a useful framework for sorting out emergency claims.
States in our study reported that establishing emergency criteria has been
useful in controlling emergency spending. Sound emergency criteria at the
federal level might be important to controlling the use of the emergency
designation and/or accessing emergency reserves. 

Agency Comments
---------------

We provided a draft copy of this report to OMB and CBO for technical
review and comment. OMB and CBO generally concurred with our report, and
we incorporated their comments as appropriate. 

We are sending copies of this report to the Honorable Pete V. Domenici,
Chairman, Senate Budget Committee; the Honorable John R. Kasich, Chairman,
and the Honorable John M. Spratt, Jr., Ranking Minority Member, House
Budget Committee; and other interested parties. We will also make copies
available to others upon request.

Please contact me at (202) 512-9573 if you or your staff have any
questions concerning this letter. Key contributors to this assignment were
Thomas James, Raymond Hendren, Robert Yetvin, Inez Azcona, and George Senn.

Sincerely yours,

*****************

*****************

Paul L. Posner
Director, Budget Issues

--------------------------------------
/Footnote1/-^Federal Disaster Assistance, Bipartisan Task Force on Funding
  Disaster Relief, United States Senate, Document 104-4, March 1995 and
  Report of the Bipartisan Task Force on Disasters, U.S. House of
  Representatives, December 1994.
/Footnote2/-^For a discussion of emergency spending see also the
  Congressional Budget Office memorandum entitled "Emergency Spending
  Under the Budget Enforcement Act" (December 1998).
/Footnote3/-^The budget rules contained in the Budget Enforcement Act of
  1990 have been reaffirmed in two subsequent laws: the Omnibus Budget
  Reconciliation Act of 1993, which extended BEA's caps through 1998, and
  the Balanced Budget Act of 1997, which extends the caps through 2002.
/Footnote4/-^Although commonly referred to as an "exemption" from the
  caps, the caps are actually adjusted upward to account for the amount of
  emergency spending.
/Footnote5/-^Although rescissions may offset some spending, the caps are
  raised by the full amount of the spending designated as "emergency."
  Thus, the rescissions, in effect, free up funds under the caps.
/Footnote6/-^For a discussion on how states plan for emergencies, see
  Congressional Budget Office testimony entitled How States Budget and
  Plan for Emergencies (June 23, 1998).
/Footnote7/-^In addition to the general (operating) fund, states may also
  have other funds such as capital funds, special revenue funds, and trust
  funds.
/Footnote8/-^Under current law, the Social Security trust funds and the
  Postal Service are "off-budget." Since Social Security currently
  collects more through payroll taxes than it pays out in benefits, it
  runs a cash surplus. Requiring that this surplus be "saved" would limit
  additional spending and tax cuts to the amount of the "on-budget" surplus.
/Footnote9/-^For example, California officials told us that the state
  increased the sales tax by 1/4 percent for about a year to generate the
  funds it needed to pay the state's share of disaster recovery costs
  related to the 1989 Loma Prieta earthquake.
/Footnote10/-^See Balanced Budget Requirements: State Experiences and
  Implications for the Federal Government (GAO/AFMD-93-58BR, March 26,
  1993).
/Footnote11/-^General obligation debt is debt backed by the full faith and
  credit of the state government and most often represents borrowing by
  the state to fund capital projects such as highways, public schools, and
  correctional facilities.
/Footnote12/-^Revenue or tax limits specify the amount of taxes that can
  be collected and retained by the state in a fiscal year, and are usually
  tied to measures of economic activity such as personal income growth. In
  most cases, amounts in excess of the limit must be refunded to taxpayers
  in a subsequent fiscal year. Spending limits usually constrain the
  amount the state can appropriate for general fund programs and may also
  be tied to economic activity or other factors such as inflation rates or
  population growth.
/Footnote13/-^However, some have argued that states are not adequately
  funding their reserves given the healthy economy. See the report from
  the Center on Budget and Policy Priorities entitled When It Rains It
  Pours, March 1999.
/Footnote14/-^Conversely, states may forecast a budget deficit to begin
  the fiscal year, in which case actions to close the fiscal gap would be
  necessary.
/Footnote15/-^Any surplus at the end of the federal fiscal year is
  generally used to reduce debt levels. See Federal Debt: Answers to
  Frequently Asked Questions--An Update (GAO/OCG-99-27, May 28, 1999) for
  additional information.
/Footnote16/-^See Emergency Criteria: How Five States Budget for
  Uncertainty (GAO/AIMD-99-156R, April 20, 1999) for a discussion of
  reserves and criteria for our five study states.
/Footnote17/-^States budget on a fund basis and use general purpose,
  statewide reserves to provide cash resources when the state experiences
  fiscal stress. Under the federal government's unified budget approach,
  it would set aside budget authority rather than cash; this avoids a
  situation in which the federal government would hold excess cash while
  simultaneously issuing additional debt and increasing its interest costs.
/Footnote18/-^California may not appropriate its entire revenue estimate
  in a given year, but its reserve is less formal and can be used at any
  time after the budget is enacted.
/Footnote19/-^The other half of Oklahoma's Constitutional Reserve Fund can
  only be used if the upcoming year's revenue forecast is lower than the
  current year's revenue.
/Footnote20/-^See appendix I for detailed information on controls over
  reserves that we identified in our five states.
/Footnote21/-^States have a variety of ways to fund supplemental
  appropriations within the constraints of balanced budget rules including
  existing reserves, unallocated general fund resources, interfund
  transfers, and reprogramming funds from one agency to another.
  Supplemental appropriations are not typically used to respond to
  emergencies such as natural disasters. 
/Footnote22/-^This report primarily addresses emergency spending in
  discretionary accounts since discretionary accounts are the focus of
  significant federal debate. Direct spending accounts such as Medicare,
  Social Security, and debt service, which comprise approximately two-
  thirds of the federal budget, are open-ended and allow federal agencies
  to automatically spend funds as needed. 
/Footnote23/-^When the economy weakens federal revenues generally decrease
  while, at the same time, federal spending may increase slightly for
  social programs sensitive to the economy (for example, unemployment
  insurance).
/Footnote24/-^Emergency designations are currently being discussed in the
  fiscal year 2000 appropriations cycle for such items as the year 2000
  census and farm assistance.
/Footnote25/-^According to testimony delivered by the Director of FEMA in
  June 1998, FEMA had received about $2.9 billion in regular (non-
  emergency) appropriations for disaster relief over the previous 10
  years, whereas approximately $22 billion had been provided through
  emergency supplemental appropriations.
/Footnote26/-^The Robert T. Stafford Disaster Relief and Emergency
  Assistance Act authorizes the President to issue major disaster or
  emergency declarations and specifies the types of assistance the
  Executive Branch may authorize.
/Footnote27/-^FEMA's Disaster Relief Fund functions as an emergency
  reserve since no-year budget authority allows the agency to accumulate
  reserves to address natural disaster emergencies.
/Footnote28/-^States then provide assistance payments, either directly to
  households or to home energy suppliers through designated state agencies.
/Footnote29/-^Those who propose incorporating criteria into the current
  process would retain the system under which spending designated as an
  emergency is exempt from the discretionary spending caps, but they would
  require that such spending meet a predefined set of conditions or be
  limited to only certain types of events. 
/Footnote30/-^See Report on Costs of Domestic and International
  Emergencies and on the Threats Posed by the Kuwaiti Oil Fires (OMB, June
  1991). 
/Footnote31/-^Section 206 (d) of the House Concurrent Resolution 68
  provides that the emergency point of order it establishes may be waived
  or suspended in the Senate only by an affirmative vote of three-fifths
  of the members.
/Footnote32/-^For fiscal year 2000, the President's Budget requested about
  $2.5 billion in contingent emergency funds for disaster relief.
/Footnote33/-^Under the separation of powers doctrine, the Congress may
  disapprove a policy decision delegated to the Executive only through
  enactment of legislation. INS v. Chadha, 462 U.S. 919 (1983).
/Footnote34/-^These committees include House and Senate Committees on
  Appropriations, the Senate Special Committee on the Year 2000 Technology
  Problem, the House Committee on Science, and the House Committee on
  Government Reform and Oversight.

STATE BUDGET RESERVES IN FIVE SITE VISIT STATES
===============================================

Table****Helvetica:x11****4:    Governmentwide Reserves for General Purposes

                                      Continued from Previous Page
-----------------------------------------------------------------------
| Reserve type         : Purpose/criteria     : Access/control        |
|---------------------------------------------------------------------|
| Cash on hand set     : Meets unanticipated  : Funds generally       |
| aside for any        : revenue shortfalls   : appropriated by the   |
| agency into general  : or cash flow needs.  : legislature with      |
| operating fund.      : In some cases, may   : governor's consent.   |
|                      : also be used for     :                       |
|                      : emergencies.         :                       |
|---------------------------------------------------------------------|
| Budget               : Meets unanticipated  : Legislature           |
| Stabilization Fund   : revenue shortfalls.  : appropriates fund     |
| (Missouri)           : Fund contains about  : but only with         |
|                      : 2.5 percent of       : authorization from    |
|                      : prior year receipts  : the governor.         |
|                      : in the general fund  :                       |
|                      : but not to exceed 5  :                       |
|                      : percent. Fund can    :                       |
|                      : only be used to      :                       |
|                      : replenish existing   :                       |
|                      : appropriations.      :                       |
|---------------------------------------------------------------------|
| Cash Operating       : Meets annual cash-   : Commissioner of       |
| Reserve Fund         : flow needs by        : Administration        |
| (Missouri)           : allowing the state   : controls its use      |
|                      : to make timely       : and ensures that      |
|                      : payments. Fund is    : its balance remains   |
|                      : maintained at 5      : at 5 percent of       |
|                      : percent of general   : general fund          |
|                      : fund revenues.       : revenues.             |
|---------------------------------------------------------------------|
| Budget Reserve       : Meets unanticipated  : Legislature           |
| Account (Delaware)   : revenue shortfalls   : authorizes            |
|                      : or if revenue is     : spending. Release     |
|                      : reduced by           : of funds requires a   |
|                      : legislation. May     : three-fifths          |
|                      : not exceed 5         : majority vote.        |
|                      : percent of general   :                       |
|                      : revenues received    :                       |
|                      : in the preceding     :                       |
|                      : fiscal year (not     :                       |
|                      : including interest). :                       |
|---------------------------------------------------------------------|
| Constitutional       : Half of fund meets   : If the governor       |
| Reserve Fund         : unanticipated        : declares an           |
| (Oklahoma)           : revenue shortfalls.  : emergency, funds      |
|                      : Half of the fund     : can be appropriated   |
|                      : may be used if the   : through a two-        |
|                      : governor declares    : thirds approval       |
|                      : an emergency--       : from both houses of   |
|                      : although specific    : the legislature.      |
|                      : emergency criteria   : The legislature may   |
|                      : have not been        : declare an            |
|                      : established.         : emergency and         |
|                      :                      : access the fund if    |
|                      :                      : it obtains a three-   |
|                      :                      : fourths majority      |
|                      :                      : vote.                 |
|---------------------------------------------------------------------|
| Special Cash Fund    : Sets aside unspent   : Legislature           |
| (Oklahoma)           : funds from the       : authorizes spending   |
|                      : previous fiscal      : through regular or    |
|                      : year that are        : supplemental          |
|                      : reappropriated for   : appropriations.       |
|                      : general purposes.    :                       |
|---------------------------------------------------------------------|
|                      : Meets annual cash-   : Executive branch      |
|                      : flow needs by        : controls this fund.   |
| Cash Flow Reserve    : helping to reduce    : The legislature may   |
| Fund (Oklahoma)      : borrowing and        : appropriate           |
|                      : allowing the state   : unneeded portions     |
|                      : to make timely       : of the fund.          |
|                      : payments.            :                       |
|                      : If the balance of    :                       |
|                      : this fund exceeds    :                       |
|                      : cash needs, then     :                       |
|                      : the legislature may  :                       |
|                      : appropriate all or   :                       |
|                      : a portion of this    :                       |
|                      : fund.                :                       |
|---------------------------------------------------------------------|
| Working Capital      : Sets aside monies    : Legislature           |
| Fund (Florida)       : in the general       : authorizes spending   |
|                      : revenue fund in      : through regular       |
|                      : excess of the        : appropriations. The   |
|                      : amount needed to     : governor can access   |
|                      : meet general         : these funds by        |
|                      : revenue fund         : evoking emergency     |
|                      : appropriations.      : powers through an     |
|                      :                      : executive order.      |
|---------------------------------------------------------------------|
| Budget               : Meets unanticipated  : The legislature       |
| Stabilization Fund   : revenue shortfalls.  : provides direction    |
| (Florida)            : Also available for   : in the                |
|                      : funding an           : appropriations act    |
|                      : emergency with       : for use of these      |
|                      : criteria provided    : funds.                |
|                      : in Florida law.      :                       |
|                      : The fund must be     :                       |
|                      : replenished after    :                       |
|                      : use.                 :                       |
|---------------------------------------------------------------------|
| Nonappropriated      : Meets unanticipated  : Funds generally       |
| revenue set aside    : spending needs or    : appropriated by the   |
| for general          : revenue shortfalls.  : legislature with      |
| operating fund.      :                      : governor's consent.   |
|---------------------------------------------------------------------|
| Supplemental         : Nonappropriated      : Legislature           |
| Reserve (Missouri)   : general revenues     : authorizes spending   |
|                      : set aside for        : after governor's      |
|                      : general purposes.    : supplemental          |
|                      :                      : recommendation.       |
|                      :                      : Legislature cannot    |
|                      :                      : add new items to      |
|                      :                      : governor's            |
|                      :                      : recommendations but   |
|                      :                      : can increase dollar   |
|                      :                      : amounts.              |
|---------------------------------------------------------------------|
| Nonappropriated      : Two percent of the   : Legislature           |
| revenues (Delaware)  : revenue estimate is  : authorizes spending   |
|                      : set aside in this    : and governor must     |
|                      : reserve. Fund's use  : sign.                 |
|                      : is limited to        : Release of these      |
|                      : emergencies.         : funds requires a      |
|                      :                      : three-fifths          |
|                      :                      : majority.             |
|---------------------------------------------------------------------|
| Special Fund for     : Sets aside           : CA Department of      |
| Economic             : unreserved and       : Finance oversees      |
| Uncertainties        : undesignated         : use of this fund.     |
| (California)         : revenues for         :                       |
|                      : general purposes.    :                       |
|                      : Normally used to     :                       |
|                      : (1) augment general  :                       |
|                      : fund cash flows (2)  :                       |
|                      :  cover general fund  :                       |
|                      : deficits, and (3)    :                       |
|                      : fund emergency-      :                       |
|                      : related expenses.    :                       |
|---------------------------------------------------------------------|
| Nonappropriated      : Five percent of      : Legislature           |
| revenue (Oklahoma)   : revenue forecast is  : authorizes spending.  |
|                      : set aside for        :                       |
|                      : general purposes.    :                       |
|                      : This reserve is not  :                       |
|                      : available during     :                       |
|                      : the current fiscal   :                       |
|                      : year but is          :                       |
|                      : available for        :                       |
|                      : general fund use in  :                       |
|                      : the next fiscal year.:                       |
|                      : If more than 100     :                       |
|                      : percent of revenue   :                       |
|                      : is collected during  :                       |
|                      : the year, the        :                       |
|                      : remainder is         :                       |
|                      : deposited in the     :                       |
|                      : "Constitutional      :                       |
|                      : Reserve Fund."       :                       |
-----------------------------------------------------------------------

Source: Information provided by state budget officials.

Table****Helvetica:x11****5:    Governmentwide Reserves for Specific
                                Purposes

                                                from Previous Page
-----------------------------------------------------------------------
| Reserve type         : Purpose/criteria     : Access/control        |
|---------------------------------------------------------------------|
| General or special   : Addresses specific   : Usually controlled    |
| fund appropriation   : events or            : by executive branch   |
| available to any     : situations meeting   : or controlling board. |
| agency but limited   : established criteria.:                       |
| to defined purposes. :                      :                       |
|---------------------------------------------------------------------|
| Governmental         : An appropriation to  : Must be approved by   |
| Emergency Fund       : provide emergency    : a majority vote of    |
| (Missouri)           : funds for state      : the full membership   |
|                      : services when the    : of the governmental   |
|                      : legislature is not   : emergency fund        |
|                      : in session.          : committee.            |
|---------------------------------------------------------------------|
| Augmentation for     : An appropriation     : Controlled by the     |
| Emergencies and      : used to cover        : CA Department of      |
| Contingencies        : unanticipated but    : Finance.              |
| (California)         : necessary            :                       |
|                      : obligations not      :                       |
|                      : covered in regular   :                       |
|                      : budget act. Not to   :                       |
|                      : be used for capital  :                       |
|                      : outlays.             :                       |
|---------------------------------------------------------------------|
| Emergency            : An appropriation     : The Administration    |
| Appropriation        : whose funds can be   : Commission can        |
| (Florida)            : released if they     : approve release of    |
|                      : meet certain         : these funds after     |
|                      : "emergency"          : requested in          |
|                      : criteria contained   : writing by a state    |
|                      : in Florida law.      : agency. The           |
|                      :                      : governor's office     |
|                      :                      : then determines       |
|                      :                      : whether the request   |
|                      :                      : meets the emergency   |
|                      :                      : requirements          |
|                      :                      : specified in          |
|                      :                      : Florida law.          |
|---------------------------------------------------------------------|
| Deficiency           : An appropriation     : The Administration    |
| Appropriation        : for state agency     : Commission            |
| (Florida)            : operations when      : authorizes these      |
|                      : regular              : funds under           |
|                      : appropriations are   : specified             |
|                      : inadequate because   : circumstances.        |
|                      : the workload or      :                       |
|                      : cost of the          :                       |
|                      : operation exceeds    :                       |
|                      : that anticipated by  :                       |
|                      : the legislature.     :                       |
|---------------------------------------------------------------------|
| Agricultural         : Primarily designed   : Commissioner of       |
| Emergency            : to eradicate the     : Agriculture can use   |
| Eradication Trust    : citrus canker        : funds with notice     |
| Fund (Florida)       : emergencies.         : to the legislature.   |
|                      :                      :                       |
|                      : Financed by a fuel   :                       |
|                      : sales tax and the    :                       |
|                      : general fund.        :                       |
|---------------------------------------------------------------------|
| Legal Fees Fund      : Appropriation to     : State budget office   |
| (Delaware)           : finance the          : and Controller        |
|                      : anticipated cost of  : General may release   |
|                      : judgments or         : these funds for       |
|                      : settlements against  : approved purposes.    |
|                      : the state during     :                       |
|                      : the fiscal year.     :                       |
|---------------------------------------------------------------------|
| Self-Insurance Fund  : Appropriation to     : State budget office   |
| (Delaware)           : finance emergency    : and Controller        |
|                      : repairs/             : General may release   |
|                      : replacement of       : these funds when      |
|                      : state buildings,     : criterion is met.     |
|                      : schools, etc.,       :                       |
|                      : which are damaged    :                       |
|                      : due to natural or    :                       |
|                      : other disasters      :                       |
|                      : (i.e., arson and     :                       |
|                      : bombings). State     :                       |
|                      : purchases an         :                       |
|                      : insurance policy     :                       |
|                      : for damage costs     :                       |
|                      : exceeding $10        :                       |
|                      : million.             :                       |
|---------------------------------------------------------------------|
| State Emergency      : Appropriation for    : Governor can          |
| Fund  (Oklahoma)     : destruction of       : approve               |
|                      : property due to      : expenditures from     |
|                      : natural disasters    : the fund that meet    |
|                      : or other disasters,  : the criteria. State   |
|                      : or matching federal  : agencies must         |
|                      : disaster relief      : submit written        |
|                      : program funds or     : findings to the       |
|                      : for situations not   : governor that         |
|                      : foreseen or          : emergency request     |
|                      : reasonably           : was not foreseen or   |
|                      : foreseeable by the   : reasonably            |
|                      : legislature.         : foreseeable by the    |
|                      :                      : legislature.          |
-----------------------------------------------------------------------

Source: Information provided by state budget officials.

Table****Helvetica:x11****6:    Agency-Specific Reserves for Specific
                                Purposes

-----------------------------------------------------------------------
| Reserve type         : Purpose/criteria     : Access/control        |
|---------------------------------------------------------------------|
| Contingency          : Provides a cushion   : Governor controls     |
| appropriations       : if agency            : release of funds.     |
| designated to a      : appropriations are   :                       |
| specific agency.     : insufficient.        :                       |
|---------------------------------------------------------------------|
| Missouri Disaster    : Appropriation for    : Governor can          |
| Fund (Missouri)      : the MO State         : release funds to      |
|                      : Emergency            : the State Emergency   |
|                      : Management Agency    : Management Agency     |
|                      : for emergency        : when the              |
|                      : expenditures caused  : legislature is not    |
|                      : by disasters and to  : in session.           |
|                      : provide required     :                       |
|                      : state match for      :                       |
|                      : federal grants.      :                       |
|---------------------------------------------------------------------|
| Missouri             : Appropriation for    : Governor can          |
| Corrections Growth   : the MO Department    : release funds when    |
| Pool (Missouri)      : of Corrections for   : regular               |
|                      : costs associated     : appropriation fails   |
|                      : with increased       : to cover costs.       |
|                      : inmate populations.  :                       |
|---------------------------------------------------------------------|
| Missouri Youth       : Appropriation for    : Governor can          |
| Services Growth      : the MO Department    : release funds when    |
| Pool (Missouri)      : of Social Services   : regular               |
|                      : for costs            : appropriation fails   |
|                      : associated with      : to cover costs.       |
|                      : increased caseloads. :                       |
|---------------------------------------------------------------------|
| Missouri Medicaid    : Appropriation for    : Governor can          |
| Supplemental Pool    : the MO Division of   : release funds when    |
| (Missouri)           : Medical Services to  : regular               |
|                      : cover additional     : appropriation fails   |
|                      : costs beyond those   : to cover costs.       |
|                      : covered by its       :                       |
|                      : regular Medicaid     :                       |
|                      : appropriation.       :                       |
|---------------------------------------------------------------------|
| Missouri Work First  : Appropriation for    : Governor can          |
| Pool (Missouri)      : the MO Department    : release funds when    |
|                      : of Social Services   : regular               |
|                      : for costs            : appropriation fails   |
|                      : associated with the  : to cover costs.       |
|                      : Temporary            :                       |
|                      : Assistance for       :                       |
|                      : Needy Families,      :                       |
|                      : child care, Work     :                       |
|                      : First Initiatives,   :                       |
|                      : and other purposes   :                       |
|                      : related to welfare   :                       |
|                      : reform.              :                       |
-----------------------------------------------------------------------

Source: Information provided by state budget officials.

(This page intentionally blank.)

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EMERGENCY BUDGET AUTHORITY, FISCAL YEARS 1991 THROUGH 1999
==========================================================

The categories in the Emergency Appropriations table are defined as follows:

Disasters and/or Economic Emergencies (Domestic) - Emergencies related to
natural disasters such as earthquakes, floods, hurricanes or other
disasters such as airplane crashes or riots in the United States or its
territories. In addition, emergencies related to both disasters such as
floods, hurricanes or earthquakes and the resultant loss of business
activity or product such as crop loss or livestock loss or economic
factors such as unemployment insurance in the case of a recession.

Defense Related Emergencies - Emergencies related to military conflicts
such as the Kosovo war.

Antiterrorism and Security Emergencies - Emergencies related to protecting
persons from terrorist attack or organizations from the loss of sensitive
information.

Information Systems Emergencies (Y2K) - Emergencies related to a crisis in
information systems such as year 2000 computer conversion.

International Humanitarian Assistance - Emergencies requiring aid to
foreign countries related to events such as natural disasters
(earthquakes) or wars (refugee assistance).

Drug Interdiction Emergencies - Emergencies related to national drug
control.

Other Emergencies - Emergencies for items that do not fall into the above
categories.

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Notes:

1. The chart represents budget authority for each budget account included
in appropriation bills within the fiscal year, however, budget authority
may be available in more than one fiscal year. For example, fiscal year
1999 amounts may include appropriations also available for fiscal year 2000.

2. The chart represents budget authority enacted at the time the bill was
passed but other actions may have occurred such as rescissions or
transfers after the bill was passed and these actions have not been
reflected in the chart.

3. Budget authority was included for the agency receiving the original
appropriation and not for the agency or program account receiving transfer
of budget authority. Budget Authority may be new or previously made
available from prior appropriation if transferred and newly designated as
an emergency requirement.

4. Public Laws contain some items where dollar amounts were not specified
at the time of bill enactment and so amounts are not included in the chart.

5. Fiscal Year 1999 budget authority through May 1999.

6. Funds for the Department of Interior and the Forest Service to fight
forest fires are counted as an emergency only when the amounts for
emergency rehabilitation and wildfire suppression activities are in excess
of the average of such costs for the previous 10 years.

NONMILITARY PROGRAMS THAT RECEIVED EMERGENCY SUPPLEMENTAL APPROPRIATIONS
IN AT LEAST FIVE OF THE LAST EIGHT YEARS
===========================================================================

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^aFiscal year 1999 figures are through May 1999.

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(935267)

Table 1:  Fiscal Year 1998 General Fund Reserves for Five Study States
(Dollars in Millions)11

Table 2:  Emergency Budget Authority as Percentage of Discretionary Budget
Authority Fiscal Years 1991 Through 1999 (Dollars in Billions)18

Table 3:  Emergency Budget Authority by Category, Fiscal Years 1991
Through 1999 (Dollars in Billions)19

Table 4:  Governmentwide Reserves for General Purposes32

Table 5:  Governmentwide Reserves for Specific Purposes34

Table 6:  Agency-Specific Reserves for Specific Purposes35

*** End of document. ***