Disaster Assistance: Information on the Cost-Effectiveness of Hazard
Mitigation Projects (Statement/Record, 03/04/99, GAO/T-RCED-99-106).

Pursuant to a congressional request, GAO discussed how the Federal
Emergency Management Agency (FEMA) ensures the cost-effectiveness of
projects funded under the Hazard Mitigation Grant Program.

GAO noted that: (1) for disasters that occurred between 1989 and 1993,
average annual obligations in FEMA's disaster relief fund totalled +$1.6
billion, in 1998 dollars, while average annual obligations over the past
five years have increased to $2.5 billion annually in 1998 dollars; (2)
to reduce these costs, FEMA is using, among other things, hazard
mitigation efforts; (3) FEMA's efforts include providing federal flood
insurance, converting flood-prone properties to open space, mitigating
damage to public facilities, reducing earthquake risks, and helping
mitigate the loss of life and damage from fires; (4) FEMA uses
benefit-cost analysis--an approach recommended by the Office of
Management and Budget--as its primary approach for ensuring that
mitigation measures within the Hazard Mitigation Grant Program are
cost-effective; (5) however, FEMA also excludes certain types of Hazard
Mitigation Grant Program projects from benefit-cost analysis--including
projects that fund the removal of certain structures from floodways,
research for new building codes, and planning efforts; (6) FEMA
officials stress a need for flexibility in assessing these projects,
citing the difficulties of quantifying the benefits of some projects and
the time needed to gather data to conduct a benefit-cost analysis; (7)
however, these exemptions limit the agency's ability to demonstrate that
the funded mitigation measures are cost-effective; (8) additionally,
according to GAO's review of selected benefit-cost analyses in two FEMA
regions, officials conducting these analyses were generally
knowledgeable and had been trained in how to conduct the analyses; and
(9) however, they did not always use the best available information in
analyzing projects designed to mitigate future damage from flooding
events.

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

 REPORTNUM:  T-RCED-99-106
     TITLE:  Disaster Assistance: Information on the Cost-Effectiveness 
             of Hazard Mitigation Projects
      DATE:  03/04/99
   SUBJECT:  Disaster relief aid
             Federal aid to states
             Cost effectiveness analysis
             Emergency preparedness
             Flood insurance
             Relief agencies
IDENTIFIER:  FEMA Hazard Mitigation Grant Program
             Disaster Relief Fund
             FEMA National Flood Insurance Program
             
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Cover
================================================================ COVER


Before the Subcommittee on VA, HUD, and Independent Agencies,
Committee on Appropriations, U.S.  Senate

To Be Released
at 9:30 a.m.  EST
Thursday
March 4, 1999

DISASTER ASSISTANCE - INFORMATION
ON THE COST-EFFECTIVENESS OF
HAZARD MITIGATION PROJECTS

Statement for the Record by
Stanley J.  Czerwinski, Associate Director,
Housing and Community Development Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-99-106

GAO/RCED-99-106T


(385785)


Abbreviations
=============================================================== ABBREV

  FEMA -
  OMB -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

This statement for the record provides our preliminary views on how
the Federal Emergency Management Agency (FEMA) ensures the
cost-effectiveness of projects funded under the Hazard Mitigation
Grant Program.  We are conducting this work at the request of this
Subcommittee and the Chairman of the Subcommittee on Oversight,
Investigations, and Emergency Management, House Committee on
Transportation and Infrastructure. 

For a number of years, the Congress has been concerned about the
increasing costs of federal disaster assistance.  One of FEMA's
primary approaches for reducing these costs is to promote mitigation
measures that will reduce future damage within
communities--potentially decreasing future federal disaster
expenditures.  However, there are concerns that FEMA's mitigation
funding is not targeted to cost-effective measures, as mandated by
the Robert T.  Stafford Disaster Relief and Emergency Assistance Act. 
Our statement is based on previous and ongoing work and provides (1)
an overview of the increases in disaster assistance costs and FEMA's
mitigation programs and (2) our preliminary views on the approaches
FEMA uses to ensure that funding under the Hazard Mitigation Grant
Program is targeted to cost-effective mitigation measures. 

In summary: 

  -- Federal disaster assistance costs billions of dollars annually. 
     For disasters that occurred between 1989 and 1993, average
     annual obligations in FEMA's disaster relief fund totaled $1.6
     billion, in 1998 dollars, while average annual obligations over
     the past 5 years (1994 through 1998) have increased to $2.5
     billion annually in 1998 dollars (even with the exclusion of one
     of FEMA's costliest disasters--California's Northridge
     earthquake).  The growth in disaster assistance costs in the
     1990s has been attributed to a number of factors, including a
     sequence of unusually large and costly disasters; an increase in
     the number of presidential disaster declarations; and a gradual
     expansion in eligibility for assistance.  To reduce these costs,
     FEMA is using, among other things, hazard mitigation efforts. 
     These efforts promote community involvement in mitigation
     measures by providing grants and training to state and local
     governments.  FEMA's efforts include providing federal flood
     insurance, converting flood-prone properties to open space,
     mitigating damage to public facilities, reducing earthquake
     risks, and helping mitigate the loss of life and damage from
     fires. 

  -- Our ongoing review of FEMA's efforts to ensure the
     cost-effective use of federal dollars for hazard mitigation has
     focused on the Hazard Mitigation Grant Program--one of FEMA's
     primary sources of funding for implementing hazard mitigation
     measures within communities.  FEMA uses benefit-cost analysis\1
     --an approach recommended by the Office of Management and
     Budget--as its primary approach for ensuring that mitigation
     measures within the Hazard Mitigation Grant Program are
     cost-effective.  However, FEMA also excludes certain types of
     Hazard Mitigation Grant Program projects from benefit-cost
     analysis--including projects that fund the removal of certain
     structures from floodways, research for new building codes, and
     planning efforts.  FEMA officials stress a need for flexibility
     in assessing these projects, citing the difficulties of
     quantifying the benefits of some projects and the time needed to
     gather data to conduct a benefit-cost analysis.  However, these
     exemptions limit the agency's ability to demonstrate that the
     funded mitigation measures are cost-effective.  Additionally,
     according to our review of selected benefit-cost analyses in two
     FEMA regions, officials conducting these analyses were generally
     knowledgeable and had been trained in how to conduct the
     analyses.  However, they did not always use the best available
     information in analyzing projects designed to mitigate future
     damage from flooding events.  For example, the officials did not
     always use flood damage information available from past
     insurance claims. 


--------------------
\1 Benefit-cost analysis is used to determine how the anticipated
dollar savings gained through implementing a project compare with its
cost.  In order to be considered cost-effective, a project must
return more money over its life than it cost. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Following a disaster, at the request of a state governor, the
President may issue a major disaster declaration for the affected
areas, thus triggering a range of assistance from federal agencies. 
The costs of this disaster assistance have grown notably between the
late 1970s and 1990s.  Between 1979 and 1988, FEMA's obligations in
its disaster relief fund exceeded $500 million only in 1 year.  In
comparison, since 1989, the obligations in the fund have exceeded $1
billion every year except for 1991.  The increase in costs is also
seen in the number of large, costly disasters.  Prior to 1989, only
Hurricane Agnes cost the fund in excess of $500 million, while 10
disasters have cost over $500 million since 1989.  While FEMA has
implemented a number of approaches to reduce the costs of disaster
assistance--such as consolidating multiple disaster response and
recovery functions at individual disaster sites to reduce
administrative costs--the agency has made disaster mitigation a
primary goal in its efforts to reduce the long-term costs of
disasters. 

FEMA's September 1997 strategic plan, entitled "Partnership for a
Safer Future," states that the agency is concentrating its activities
on reducing disaster costs through mitigation because "no other
approach is as effective over the long term." Mitigation activities
are undertaken to reduce the losses from disasters or prevent such
losses from occurring.  The agency's hazard mitigation efforts
include grants and training for state and local governments; funding
for mitigating damage to public facilities; the purchase and
conversion of flood-prone properties to open space; federal flood
insurance; the development of land-use plans and zoning ordinances to
discourage building in hazardous areas; and programs targeted at
reducing the loss of life and property from earthquakes and fires. 

However, as we noted in previous testimony,\2 quantifying the effects
of mitigation efforts can be difficult.  Specifically, determining
the extent to which cost-effective mitigation projects will result in
federal dollar savings is uncertain because the savings depend on the
actual incidence of future disasters and the extent to which the
federal government would bear the resulting losses. 

The Stafford Act requires that hazard mitigation measures under the
Hazard Mitigation Grant Program be cost-effective and that they
substantially reduce the risk of future damage, hardship, loss, or
suffering.  According to Office of Management and Budget (OMB)
guidelines, contained in OMB Circular A-94, the use of benefit-cost
analysis is the recommended approach for determining
cost-effectiveness.  FEMA's guidance for determining the
cost-effectiveness of hazard mitigation projects\3 states that ï¿½a key
criterion for mitigation projects to be eligible for funding is that
they must be cost-effectiveï¿½ and that ï¿½benefit-cost analysis is used
for all cost-effectiveness determinations.ï¿½

Benefit-cost analysis is used to assess whether the expected costs of
investing in a hazard mitigation project are justified because the
project will help avoid damages expected from future disasters (the
benefits).  FEMA generally conducts the benefit-cost analysis for the
projects that states submit for approval.\4 By conducting a
benefit-cost analysis, the analyst determines a benefit-cost
ratioï¿½the ratio of the expected benefits divided by the expected
costs.  If the expected benefits are greater than the expected costs,
the ratio is greater than 1.0 and the project is considered
cost-effective.  If the expected benefits are less than the expected
costs, the ratio is less than 1.0 and the project is considered not
cost-effective.  FEMA's guidance describes four main elements of a
benefit-cost analysis: 

  -- an estimate of damages and losses before mitigation,

  -- an estimate of damages and losses after mitigation,

  -- an estimate of the frequency and severity of the hazard causing
     the damages (such as the risk of flooding), and

  -- economic factors used in the analysis (a project's expected life
     span, for example). 

After all of these elements are considered, along with a project's
expected costs, a project's cost-effectiveness can be determined. 
However, other factors outside of the benefit-cost analysis can also
influence whether a project is accepted for funding, such as the
project's potential impact on environmental conditions. 


--------------------
\2 Disaster Assistance:  Information on Federal Disaster Mitigation
Efforts (GAO/T-RCED-98-67, Jan.  28, 1998). 

\3 How to Determine Cost-Effectiveness of Hazard Mitigation Projects,
A New Process for Expediting Application Reviews, Interim Edition,
Dec.  1996. 

\4 Three states (Florida, North Dakota, and Ohio) typically conduct
the benefit-cost analysis for projects from their communities and
submit a sheet summarizing the analysis for FEMA's review.  These
states have been given additional responsibilities as participants in
a pilot program called the ï¿½managing state concept.ï¿½


   GROWTH IN FEDERAL DISASTER
   ASSISTANCE COSTS
---------------------------------------------------------- Chapter 0:2

Federal disaster assistance costs have increased in the 1990s for
several reasons, including several unusually large and costly
disasters, increasing population and development in hazard-prone
areas, increases in the federal share of disaster assistance costs in
larger disasters, an upward trend in the annual number of
presidential disaster declarations, and an increase in the types of
facilities eligible for disaster assistance.  Total obligations from
FEMA's Disaster Relief Fund for the 10-year period prior to 1989 were
$4 billion; since 1989, they have totaled $25 billion.\5


--------------------
\5 Since these figures are expressed in nominal dollars, they do not
reflect the effects of inflation over the time periods cited. 


      FACTORS UNDERLYING
      INCREASING COSTS
-------------------------------------------------------- Chapter 0:2.1

The large disaster assistance costs in the 1990s have been attributed
to a number of factors.  Since 1989, the United States has
experienced a series of unusually large and costly disasters,
including Hurricane Hugo, Hurricane Andrew, the 1993 Midwest floods,
and the Northridge earthquake.  Hurricane Georges was added to this
list in 1998--FEMA is projecting that it might be the agency's second
costliest disaster ever.  The close occurrence of such costly
disasters in the United States is unprecedented.  Furthermore,
increases in population and development, especially in hazard-prone
areas, increase the potential losses associated with these disasters. 
For example, FEMA expects that by 2010 the number of people living in
the most hurricane-prone counties (36 million in 1995) will double. 

For several of these large disasters, the federal government has
increased its share of the disaster relief costs to provide
additional assistance to the states.  For example, while the federal
share of funding is at least 75 percent for assistance to repair or
replace disaster-damaged public and nonprofit facilities, the
President used his authority to raise the federal share to 90 percent
for the Northridge earthquake and to 100 percent for Hurricane
Andrew. 

There has also been an upward trend in the annual number of
presidential disaster declarations.  From fiscal years 1989 through
1993, the average number of major disaster declarations was 38 per
year, while from fiscal years 1994 through 1998, the average number
increased to 49. 

Additionally, over the years, the Congress has generally increased
eligibility by expanding the categories of assistance and/or
specified persons or organizations eligible to receive assistance. 
For example, a 1988 law expanded the categories of private nonprofit
organizations that are eligible for FEMA's public assistance program. 

According to a report by the Senate Bipartison Task Force on Funding
Disaster Relief,\6 federal budgeting procedures for disaster
assistance may also have influenced the amounts appropriated for
disaster assistance.  This is because disaster relief appropriations
have often been designated as "emergency" spending, thus excluding
them from the strict budget disciplines that apply to other spending. 
Some views in the report suggested that the assistance provided is
more generous than would be the case if it had to compete with other
spending priorities. 


--------------------
\6 Federal Disaster Assistance, Document No.  104-4, U.S.  Senate
(Washington, D.C.:  U.S.  Government Printing Office, 1995). 


   FEMA'S HAZARD MITIGATION
   EFFORTS
---------------------------------------------------------- Chapter 0:3

To reduce disaster assistance costs, one of FEMA's primary approaches
has been to emphasize hazard mitigation through various incentives. 
Mitigation consists of taking measures to prevent future losses or to
reduce the losses that might otherwise occur from disasters.  For
example, floodplain management and building standards required by the
National Flood Insurance Program might reduce future costs from
flooding.  FEMA estimates that the building standards that apply to
floodplain structures annually prevent more than $500 million in
flood losses. 


      A NUMBER OF PROGRAMS PROVIDE
      FOR HAZARD MITIGATION
      ASSISTANCE
-------------------------------------------------------- Chapter 0:3.1

FEMA funds or otherwise promotes hazard mitigation through a number
of programs.  As part of its National Flood Insurance Program, FEMA
attempts to reduce future flood losses by providing federally backed
flood insurance to communities that adopt and enforce floodplain
management ordinances that help mitigate the effects of flooding upon
new or existing construction.  This program also funds a flood
mitigation assistance program through the National Flood Mitigation
Fund.  In 1998, FEMA distributed over $14 million to states and
communities to plan and implement measures to reduce future flood
damage in homes and other properties that had experienced repeated
losses from flooding.  Eligible projects under this program include
elevating structures, flood-proofing properties, and buying out and
converting flood-prone properties to open spaces. 

FEMA also provides grants to states to prevent or reduce the risks of
earthquakes by using mitigation measures such as the seismic
retrofitting of buildings.  The agency also conducts training, public
education, and research programs in subjects related to fire
protection technologies.  The agency's efforts support the nation's
fire service and emergency medical service communities through such
services as the national fire incident reporting system, which
collects and analyzes data in order to help mitigate the loss of life
and damage from fires. 

In 1997, FEMA began Project Impact--an initiative based on the
premise that consistently building safer and stronger buildings,
strengthening existing infrastructures, enforcing building codes, and
making proper preparations prior to a disaster would save lives,
reduce property damage, and accelerate economic recovery.  The
initiative intended to build ï¿½disaster-resistant communitiesï¿½ through
public-private partnerships, and it included a national awareness
campaign, the designation of pilot communities showcasing the
benefits of disaster mitigation, and an outreach effort to community
and business leaders.  Project Impact received an appropriation of
$25 million in the fiscal year 1999 budget. 

Under section 406 of the Stafford Act, communities recovering from
disasters can use federal funds to mitigate future damage to public
facilities that have been damaged.  For example, as a damaged
building is rebuilt, seismic retrofitting is added to help reduce
damages from future earthquakes.  Mitigation measures funded under
the section 404 program--the Hazard Mitigation Grant Program--differ
from the 406 program in that they can be targeted to either damaged
or undamaged facilities.  For example, putting storm shutters on the
windows of structures is expected to help mitigate wind and rain
damage from future hurricanes.  Our statement focuses on the measures
funded under the Hazard Mitigation Grant Program. 


      HAZARD MITIGATION GRANT
      PROGRAM
-------------------------------------------------------- Chapter 0:3.2

Under the Hazard Mitigation Grant Program, up to 15 percent of the
total funds spent on a disaster may be spent specifically on hazard
mitigation measures.  Subject to certain dollar limits, the act
generally allows the funding of up to 75 percent of the cost of
hazard mitigation measures within communities that have been affected
by a disaster\7 (the states or local governments pay the remaining
portion of the costs).  In fiscal year 1998, FEMA approved and
obligated over $415 million in Hazard Mitigation Grant Program
grants.  These grants can be used to protect either public or private
property, including the acquisition and relocation of structures from
hazard-prone areas.  The Stafford Act establishes that the federal
contribution is based on measures that ï¿½the President has determined
are cost-effective and which substantially reduce the risk of future
damage, hardship, loss, or suffering in any area affected by a major
disaster.ï¿½ The program funds a range of projects, including
purchasing properties in flood-prone areas, adding shutters to
windows to prevent future damage from hurricane winds and rains, or
rebuilding culverts in drainage ditches to prevent future flooding
damage. 

Historically, hazard mitigation has been considered primarily a
responsibility of local and state governments as well as private
citizens, since these entities often control the decisions affecting
hazard mitigation.  For example, building code enforcement and
land-use planning are generally under local jurisdictions.  As a
result, FEMA works with state and local governments to instill a
community-based approach to implementing disaster mitigation efforts. 
Section 409 of the Stafford Act plays a role in developing this
approach because it helps to establish the requirement for a
comprehensive state hazard mitigation plan that includes an
evaluation of a state's vulnerability to natural hazards. 
Additionally, as a condition of receiving a Hazard Mitigation Grant
Program grant, the state must prepare an administrative plan that
establishes its procedures and priorities for identifying and
selecting mitigation projects.  FEMA, however, has final approval
authority for funding these projects.  FEMA guidance states that an
"ideal" plan would include a statewide mitigation strategy and
identify potential hazard mitigation projects that are consistent
with the plan. 

We talked with FEMA staff responsible for approving these plans and
reviewed plans from several states.  In general, we found that state
administrative plans exhibited a broad range of approaches for
identifying and selecting mitigation projects.  Additionally, a 1996
study\8 found that many of the 39 state plans reviewed were "merely
intended to qualify the state for post-disaster mitigation grants
under section 404 of the Act." FEMA officials generally agreed with
this conclusion.  However, several officials noted that the agency
has recently initiated changes to improve the states' planning
efforts. 


--------------------
\7 In an October 10, 1997 regulation, FEMA announced that for
disasters declared after April 6, 1997, eligibility for program
funding would be statewide rather than limited to the communities
affected by the disaster.  FEMA was attempting to give the states
enhanced flexibility in using the funding for priority projects
across the states and to expedite closing out the funding from older
disasters. 

\8 Edward J.  Kaiser and R.  Matthew Goebel, Analysis of Content and
Quality of State Hazard Mitigation Plans Under Section 409 of the
Stafford Act, June 1996. 


   FEMA DOES NOT ALWAYS USE
   BENEFIT-COST ANALYSIS TO
   DETERMINE COST-EFFECTIVENESS
   AND AT TIMES DOES NOT USE BEST
   AVAILABLE DATA
---------------------------------------------------------- Chapter 0:4

Our preliminary review found that FEMA's guidance recommends the use
of benefit-cost analysis as the primary approach for determining a
project's cost-effectiveness.  However, the agency excludes certain
categories of Hazard Mitigation Grant Program projects from this
analysis.  These categories include projects that fund the removal of
certain structures from floodways, tornado-related measures, research
for new building codes, and planning efforts.  While FEMA has
explained the rationales for these exemptions, certain factors, such
as the lack of an analytical basis for an exemption on the
acquisition of certain floodplain properties, are limiting the
agency's ability to demonstrate that these mitigation measures are in
fact cost-effective. 


      CERTAIN TYPES OF PROJECTS
      EXEMPTED FROM BENEFIT-COST
      ANALYSIS
-------------------------------------------------------- Chapter 0:4.1

The Stafford Act requires that Hazard Mitigation Grant Program
projects be cost-effective.  FEMA's guidance establishes that
benefit-cost analysis is the preferred method for making this
determination.  However, since September 1996, FEMA has exempted the
following four categories of Hazard Mitigation Grant Program projects
from the use of benefit-cost analysis: 

  -- projects involving the purchase of substantially damaged
     structures in 100-year floodplains;

  -- up to 5 percent of the Hazard Mitigation Grant Program funding
     for a variety of hazard mitigation measures, such as disaster
     warning systems or the application of new, unproven mitigation
     techniques;

  -- hazard mitigation planning projects for older disasters; and

  -- an additional 5 percent of the Hazard Mitigation Grant Program
     funding for tornado-related projects. 

FEMA's general rationale for the exemptions varies, although the
agency's policy guidance establishes that two of the exemptions were
made because some mitigation projects were often difficult to
evaluate against ï¿½traditional quantitative program cost-effectiveness
and eligibility criteria.ï¿½ FEMA officials have explained that the
benefits of some projects are difficult to quantify against known
project costs and that the time involved in gathering the data on
some mitigation projects can be excessive.  For example, it is
difficult to determine the benefits of establishing an educational
program that uses fliers to inform the public about the risks of
living in a floodplain because it is hard to predict the resulting
changes in public behavior that might result from the fliers. 
However, without any measurement and subsequent comparison of a
project's expected benefits with its expected costs, it is unclear
what criteria the agency is using to determine cost-effectiveness. 


      EXEMPTION OF PROJECTS
      INVOLVING THE PURCHASE OF
      SUBSTANTIALLY DAMAGED
      STRUCTURES
-------------------------------------------------------- Chapter 0:4.2

Through policy guidance established in September 1996, FEMA exempted
projects that involved purchasing structures located in floodways and
floodplains--if the cost of restoring the damaged structures equaled
or exceeded 50 percent of the structures' market value and the
structures were located in a 100-year floodplain.  This particular
exemption has come under criticism by FEMA's Inspector General.  In a
March 1998 report,\9 the Inspector General questioned the exemption's
lack of analytical data supporting the contention that acquisition
projects involving substantially damaged properties in the 100-year
floodplain were cost-effective.  While FEMA officials have begun to
retroactively analyze some of the acquisition projects exempted under
this policy, the agency is currently unable to provide the analytical
data that would support exempting all substantially damaged
structures in a 100-year floodplain.  FEMA officials explained that
they need to conduct a detailed and rigorous analysis of acquisition
projects to support the policy.  Without this analytical basis, it is
difficult for FEMA to demonstrate that the exempted acquisition
projects it is funding are cost-effective. 


--------------------
\9 Improvements Are Needed in the Hazard Mitigation Buyout Program,
FEMA OIG, Inspection Report I-01-98, March 1998. 


      EXEMPTION OF UP TO 5 PERCENT
      OF THE HAZARD MITIGATION
      GRANT PROGRAM FUNDING FOR
      VARIOUS PROJECTS
-------------------------------------------------------- Chapter 0:4.3

In September 1996, FEMA established another policy that exempted
projects from benefit-cost analysis.  Known as the ï¿½5 percent Hazard
Mitigation Grant Program initiatives,ï¿½ this policy allowed the states
to use up to 5 percent of their Hazard Mitigation Grant Program
project funding for a variety of hazard mitigation measures. 
According to FEMA's policy memo for this exemption, the evaluation of
funding for certain mitigation measures, such as hazard warning
systems or research for new building codes, required a large amount
of time at the state and federal levels, although it was generally
recognized that such measures reduced the potential losses from a
future disaster.  The policy was intended to provide the states with
discretion in deciding which mitigation measures they wanted funded,
as well as the responsibility for providing the rationale for the
cost-effectiveness of the projects selected.  FEMA officials
explained that the intent of the policy was to spur creativity and
avoid the time and expense involved with conducting a benefit-cost
analysis. 

To be eligible, a project type had to be identified in the state's
hazard mitigation plan and reduce or prevent future property damage,
injury, or the loss of life.  Instead of conducting a benefit-cost
analysis, the states were instructed to include a narrative that
identified the mitigation benefits and the reasonable expectation
that future property damage, injury, or the loss of life would be
reduced or prevented.  In fact, FEMA's guidance instructs project
applicants to use 5-percent funding if the project was ï¿½previously
denied because of difficulty in measuring cost-effectiveness.ï¿½ While
FEMA's guidance instructs the states to identify a project's
benefits, it does not specifically suggest any comparison of the
benefits with the project's costs or competing alternative projects. 
Without any measurement and subsequent comparison of a project's
expected benefits with its expected costs, the criteria the agency is
using to determine cost-effectiveness are unclear.  Additionally, by
using such a broad determination of a project's cost-effectiveness,
it appears that almost any project could be determined as
cost-effective. 


      EXEMPTION OF HAZARD
      MITIGATION PLANNING PROJECTS
      FOR OLDER DISASTERS
-------------------------------------------------------- Chapter 0:4.4

About 1 year later, in October 1997, FEMA announced its third policy
decision, when it exempted hazard mitigation planning projects
associated with older disasters from benefit-cost analysis.  FEMA
decided that in the interest of expediting the closeout of disasters
that occurred on or after June 10, 1993, the agency would make
remaining program funds from these disasters available for hazard
mitigation planning purposes.\10 States were invited to submit Hazard
Mitigation Grant Program applications for funding that would help
them develop multi-hazard mitigation plans.  The policy memo stated
that ï¿½funds provided for planning purposes shall be considered a
cost-effective measure.ï¿½


--------------------
\10 When the Hazard Mitigation Grant Program was established, it
provided federal matching grants on a cost-share basis of up to 50
percent of a project.  Thus, FEMA refers to these mitigation projects
as ï¿½50/50 planningï¿½ projects.  With the 1993 amendments to the
Stafford Act, the federal cost share was changed from up to 50
percent to up to 75 percent. 


      EXEMPTION OF UP TO 5 PERCENT
      OF THE HAZARD MITIGATION
      GRANT PROGRAM FUNDING FOR
      TORNADO-RELATED PROJECTS
-------------------------------------------------------- Chapter 0:4.5

In August 1998, FEMA announced the fourth policy exempting certain
projects from benefit-cost analysis.  FEMA extended its 5-percent
set-aside funding by another 5 percent to fund tornado-related
projects.  The agency noted an increase in tornado activity that it
associated with the 1997-98 El Nino weather pattern and suggested
that the need for additional funding for warning systems could not be
accommodated through existing programs.  In essence, the agency
increased the 5-percent set-aside policy to a 10-percent set-aside
policy, although the additional 5 percent of Hazard Mitigation Grant
Program funding was limited to states that had received a
presidential disaster declaration for tornadoes.  In addition to
including a narrative that identified the project's mitigation
benefits and the expectation that future damage or loss of life or
injury would be reduced or prevented, the states were required to
develop a comprehensive plan for warning their citizens, including a
public education component.  The policy applied to all disasters with
unobligated funds that were declared before fiscal year 1998, as well
as all fiscal year 1998 and future declarations in which tornadoes or
high winds played a role.  The policy remains in effect until FEMA
adopts proposed regulatory changes stating that warning systems will
only be funded from the original 5-percent set-aside.  FEMA officials
expect that the regulatory changes will be made final in mid-March
1999. 


      ESTIMATING THE NUMBER AND
      DOLLAR FIGURE OF HAZARD
      MITIGATION GRANT PROGRAM
      GRANTS EXEMPTED FROM
      BENEFIT-COST ANALYSIS
-------------------------------------------------------- Chapter 0:4.6

We are working with FEMA to quantify the number and dollar amount of
all of the Hazard Mitigation Grant Program measures exempted from
benefit-cost analysis.  However, for a number of reasons, FEMA is
unable to readily provide us with this information for all of the
exempted projects.  For example, it is hindered in providing this
information because there is no data field in the Hazard Mitigation
Grant Program database that would allow the agency to specifically
identify the projects that fall under the exemption for acquiring
property that has been substantially damaged.  Additionally, agency
officials have expressed reservations about the accuracy of the data. 
For these reasons, our preliminary numbers are limited to the 55
hazard mitigation project files we examined for four states
(Arkansas, Florida, Louisiana, and Texas) in FEMA regions 4 and 6. 

These 55 projects represented approximately $20 million in hazard
mitigation grant funding, with Florida accounting for 36 projects, or
$17.2 million of the amounts reviewed, while the other states
accounted for the remaining 19 projects, or approximately $2.8
million in funding.  Of the 55, 14 (25 percent), or over $8 million
(42 percent) of the funding, were exempted from benefit-cost
analysis.  One-half of the exempted projects were property
acquisitions, while the remaining exempted projects included funding
for emergency satellite communications, all-weather radios, emergency
alert systems, and a public awareness campaign.  The 41 remaining
projects subjected to benefit-cost analysis included wind retrofits
(shutter projects), drainage improvements, seismic retrofits of
buildings, and the installation of gas shut-off valves in structures. 


      SOME BENEFIT-COST ANALYSES
      CONDUCTED ON ACQUISITION
      PROJECTS DO NOT USE THE BEST
      AVAILABLE DATA
-------------------------------------------------------- Chapter 0:4.7

In the four states we reviewed, the officials conducting the
benefit-cost analysis were generally knowledgeable about the process
and had received training on how to use FEMA's computerized modules. 
However, we also found that the officials did not always use the best
available data for estimating the benefits of projects involving the
acquisition of property located in floodplains.  These data help
determine the extent of the expected benefits attributed to a project
and significantly influence the accuracy and final outcome of the
benefit-cost analysis. 

For example, in determining flood hazard data--which establishes the
probability and severity of a flood event--FEMA's guidance suggests
using the flood insurance rate maps available through the National
Flood Insurance Program.\11 These maps establish the number of times
a flood is expected to occur in a given area (the frequency of future
flooding) and the level of the flooding (its severity).  The quality
of this information can significantly influence the benefit-cost
analysis' outcome because overestimating the frequency or severity of
a flood can inflate the estimated benefits attributed to an
acquisition project.  We found little evidence that information from
flood rate maps was used in the benefit-cost analyses we reviewed. 
Therefore, we are in the process of reviewing several of the analyses
to determine how the use of information from the flood rate maps
would have affected the analyses' outcomes. 

We also found that the officials conducting the benefit-cost analysis
may not always use the best available data on damage claims from past
flooding.  The quality of this information has a significant
influence on the outcome of the benefit-cost analysis because
overestimating the extent of the damage from a previous flood event
can inflate the estimated benefits attributed to an acquisition
project.  FEMA officials told us that information on flood claims
available from the National Flood Insurance Program was not always
used, suggesting that they simply used information supplied by
project applicants.  We also found that the officials conducting the
analysis do not always validate the damage claims information
submitted by the applicants.  As a result, the benefit-cost analysis
may rely on testimonial evidence from the applicant--the individual
most likely to benefit from the acquisition project.  We are now
working with FEMA to determine if the agency can easily provide
damage claims information from the National Flood Insurance Program
to the officials conducting the benefit-cost analysis. 


--------------------
\11 The flood hazard data needed is actually found in flood insurance
reports which accompany the flood insurance rate maps. 


-------------------------------------------------------- Chapter 0:4.8

We provided a draft of this statement to FEMA to verify its factual
content and modified the statement where appropriate.  Our review was
initiated in December 1998, and it is continuing in accordance with
generally accepted government audit standards. 

RELATED GAO PRODUCTS

Disaster Assistance:  Information on Federal Costs and Approaches for
Reducing Them (GAO/T-RCED-98-139, Mar.  26, 1998). 

Disaster Assistance:  Information on Federal Disaster Mitigation
Efforts (GAO/T-RCED-98-67, Jan.  28, 1998). 

Disaster Assistance:  Information on Expenditures and Proposals to
Improve Effectiveness and Reduce Future Costs (GAO/T-RCED-95-140,
Mar.  16, 1995). 

GAO Work on Disaster Assistance (GAO/RCED-94-293R, Aug.  31, 1994). 


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