Disaster Assistance: FEMA Can Improve Its Cost-Effectiveness
Determinations for Mitigation Grants (Testimony, 08/04/1999,
GAO/T-RCED-99-274).

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

GAO noted that: (1) the states and FEMA work together, using different
approaches, to help ensure that hazard mitigation grants are awarded for
cost-effective projects; (2) the states in GAO's review established
procedures and priorities for identifying and selecting mitigation
projects; (3) however, not all of them conducted formal analyses of
their projects' cost effectiveness before submitting applications for
their projects to FEMA; (4) FEMA uses benefit-cost analysis as its
primary approach for ensuring that mitigation projects submitted by the
states are cost-effective; (5) however, FEMA also exempts certain types
of hazard mitigation projects from benefit-cost analysis, including
projects that fund the removal of certain structures from floodways and
floodplains and mitigation planning efforts; (6) FEMA officials stress a
need for flexibility in assessing these projects, suggesting that
benefit-cost analysis does not always apply to all mitigation projects,
because of difficulties in quantifying the benefits of some projects and
the time needed to gather data for conducting the analyses; (7) GAO's
review of +$20.1 million in funding for hazard mitigation projects in
four states found that projects receiving the majority of this funding
were considered cost-effective on the basis of the benefit-cost analyses
conducted; (8) however, the best available information--such as flood
damage information available from past insurance claims and updated
information on flood hazards--was not always used in conducting the
analyses; (9) GAO's review also found that projects receiving over
one-third of the funding were exempt from benefit-cost analysis, even
though no established analytical basis supported the exemption of the
majority of these projects; (10) FEMA officials explained that some
projects were difficult to evaluate against traditional quantitative
benefit-cost criteria and the exemptions were meant to speed the
delivery of grants to the states; and (11) establishing the basis for
exempting these acquisition projects and reviewing the
cost-effectiveness of other exempt projects after they have been
implemented would help FEMA better ensure that these mitigation projects
are cost-effective.

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

 REPORTNUM:  T-RCED-99-274
     TITLE:  Disaster Assistance: FEMA Can Improve Its
	     Cost-Effectiveness Determinations for Mitigation Grants
      DATE:  08/04/1999
   SUBJECT:  Relief agencies
	     Emergency preparedness
	     Disaster relief aid
	     Grants to states
	     Federal/state relations
	     Cost effectiveness analysis
	     Federal aid to states
	     Flood control
IDENTIFIER:  FEMA Hazard Mitigation Grant Program
	     FEMA National Flood Insurance Program

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Cover
================================================================ COVER

Before the Subcommittee on Oversight, Investigations, and Emergency
Management, Committee on Transportation and Infrastructure, House of
Representatives

For Release
on Delivery
Expected at
2:00 p.m., EDT,
Wednesday
August 4, 1999

DISASTER ASSISTANCE - FEMA CAN
IMPROVE ITS COST-EFFECTIVENESS
DETERMINATIONS FOR MITIGATION
GRANTS

Statement of Stanley J.  Czerwinski, Associate Director,
Housing and Community Development Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-99-274

GAO/RCED-99-274T

(385821)

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

  FEMA -
  OMB -

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

Madam Chairman and Members of the Subcommittee: 

We are here today to discuss how the Federal Emergency Management
Agency (FEMA), in conjunction with the states, ensures the
cost-effectiveness of projects funded under the Hazard Mitigation
Grant Program.  We conducted this work at the request of this
Subcommittee and of the Chairman and Ranking Minority Member of the
Subcommittee on VA, HUD, and Independent Agencies, Senate Committee
on Appropriations. 

FEMA has made disaster mitigation a primary goal in its efforts to
reduce the long-term costs of disasters.  Under its Hazard Mitigation
Grant Program, state and local projects to mitigate the impact of
future disasters must be cost-effective, as required by the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act.  However, the
act does not specify how to determine cost-effectiveness.  According
to the Office of Management and Budget's (OMB) guidelines and FEMA's
guidance, benefit-cost analysis is the recommended approach for
determining cost-effectiveness.  Benefit-cost analysis is used to
determine how the anticipated dollar savings gained through
implementing a project compares with its cost.  To be considered
cost-effective under benefit-cost analysis, a project must return
more money over its life than it cost. 

Our statement, which is based on the report we are issuing today,\1

provides (1) an overview of the approaches FEMA and the states use to
ensure that the program's grants are targeted to cost-effective
mitigation projects and (2) our findings on whether the approaches
ensure that the mitigation measures are cost-effective. 

In summary, we found the following: 

  -- The states and FEMA work together, using different approaches,
     to help ensure that hazard mitigation grants are awarded for
     cost-effective projects.  The states in our review\2 established
     procedures and priorities for identifying and selecting
     mitigation projects; however, not all of them conducted formal
     analyses of their projects' cost-effectiveness before submitting
     applications for their projects to FEMA.  FEMA uses benefit-cost
     analysis as its primary approach for ensuring that mitigation
     projects submitted by the states are cost-effective.  However,
     FEMA also exempts certain types of hazard mitigation projects
     from benefit-cost analysis, including projects that fund the
     removal of certain structures from floodways and floodplains and
     mitigation planning efforts.  FEMA officials stress a need for
     flexibility in assessing these projects, suggesting that
     benefit-cost analysis does not always apply to all mitigation
     projects, because of difficulties in quantifying the benefits of
     some projects and the time needed to gather data for conducting
     the analyses. 

  -- Our review of $20.1 million in funding for hazard mitigation
     projects in four states found that projects receiving the
     majority of this funding ($11.7 million) were considered
     cost-effective on the basis of the benefit-cost analyses
     conducted.  However, the best available informationï¿½such as
     flood damage information available from past insurance claims
     and updated information on flood hazardsï¿½was not always used in
     conducting the analyses.  Our review also found that projects
     receiving over one-third of the funding ($8.4 million) were
     exempt from benefit-cost analysis, even though no established
     analytical basis supported the exemption of the majority of
     these projects.  FEMA officials explained that some projects
     were difficult to evaluate against traditional quantitative
     benefit-cost criteria and the exemptions were meant to speed the
     delivery of grants to the states.  Establishing the basis for
     exempting these acquisition projects and reviewing the
     cost-effectiveness of other exempt projects after they have been
     implemented would help FEMA better ensure that these mitigation
     projects are cost-effective. 

--------------------
\1 Disaster Assistance:  Opportunities to Improve Cost-Effectiveness
Determinations for Mitigation Grants, (GAO/RCED-99-236, Aug.  4,
1999). 

\2 We performed work in Florida and in FEMA's Region 6 (for Arkansas,
Louisiana, and Texas).  We selected Florida primarily because of the
state's role in analyzing projects for cost-effectiveness.  We
selected the states in Region 6 because they have addressed a wide
range of disasters and have thus gained varied experience in hazard
mitigation. 

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

FEMA is working to reduce disaster costs through mitigation
activities that reduce losses from disasters or prevent such losses
from occurring.  The activities include providing grants and training
for state and local governments, funding for preventing damage to
public facilities and for purchasing structures in flood-prone areas,
and federal flood insurance.  While a number of FEMA programs and
initiatives provide funding for hazard mitigation assistance, our
review focused on hazard mitigation measures funded under the Hazard
Mitigation Grant Program. 

Up to 15 percent of the total grant funds spent on a disaster may be
spent under the Hazard Mitigation Grant Program for hazard mitigation
measures.  Subject to certain dollar limits, the Stafford Act
generally allows federal funding of up to 75 percent of the cost of
hazard mitigation measures within communities that have been affected
by a disaster (the states or local governments pay the remaining
portion of the costs).\3 As a condition of receiving a program grant,
a state must prepare an administrative plan that establishes its
procedures and priorities for identifying and selecting mitigation
projects.  FEMA, however, has the final authority to approve the
funding for these projects.  In fiscal year 1998, FEMA approved and
obligated over $415 million in Hazard Mitigation Grant Program
grants. 

--------------------
\3 In an Oct.  10, 1997, Federal Register notice, FEMA announced that
for disasters declared after Apr.  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 close out the funding from older disasters
as soon as possible. 

   THE STATES AND FEMA WORK
   TOGETHER, USING DIFFERENT
   APPROACHES TO ENSURE THAT
   COST-EFFECTIVE PROJECTS ARE
   FUNDED
---------------------------------------------------------- Chapter 0:2

The states in our review established procedures and priorities for
identifying and selecting mitigation projects; however, not all of
them conducted formal analyses of their projects' cost-effectiveness
before submitting applications for their projects to FEMA.  FEMA uses
benefit-cost analysisï¿½an approach recommended by OMBï¿½as its primary
approach for ensuring that mitigation projects are cost-effective. 
However, FEMA also exempts certain categories of projects from
benefit-cost analysis for a number of reasons, including the fact
that some projects do not have proven or clearly measurable benefits. 

The state administrative plans we reviewed exhibited a broad range of
approaches for identifying and selecting mitigation projects.  In
general, the states screened their projects using various criteria,
such as the overall costs of the projects, their potential
environmental effects, and their cost-effectiveness.  For example,
Louisiana calculates an initial benefit-cost ratio for projects,
which it uses as a part of its criteria for evaluating and scoring
them.  The state's scoresheet consists of three
componentsï¿½engineering (50 points), effectiveness (100 points), and
environmental impact (50 points)ï¿½which combine to produce a total
possible score of 200 points.  Projects that receive the highest
scores are then given priority for funding. 

Several FEMA officials noted that the agency is initiating changes to
improve the states' planning efforts.  For example, FEMA has
developed a checklist of elements for a model state plan, which will
help the states identify cost-effective projects.  Among other
things, the checklist addresses whether the state plan ranks projects
on the basis of the ï¿½greatest opportunity for loss reduction.ï¿½ FEMA
uses benefit-cost analysis to assess whether the expected costs of
investing in a hazard mitigation project are justified.  That is, to
what extent will the project help avoid the costs of damage expected
from future disasters (the benefits)?  FEMA generally conducts the
benefit-cost analysis for the projects that states submit for
approval.\4 FEMA developed several computer programs (known as
modules) to simplify the calculations needed to determine a project's
benefit-cost ratio.  Each module employs established economic
principles, OMB guidance, and risk calculations to determine the
benefits (discounted to present-day dollars) of a proposed project
over its expected life.  FEMA has provided these computer programs to
regional, state, and local mitigation staff and taught them how to
use the modules. 

--------------------
\4 As participants in a pilot program called the ï¿½managing state
concept,ï¿½ three states (Florida, North Dakota, and Ohio) typically
conduct benefit-cost analyses for projects from their communities and
submit summaries of the analyses for FEMA's review. 

      CERTAIN CATEGORIES OF
      MITIGATION PROJECTS ARE
      EXEMPTED FROM BENEFIT-COST
      ANALYSIS
-------------------------------------------------------- Chapter 0:2.1

Since September 1996, FEMA has exempted the following four categories
of Hazard Mitigation Grant Program projects from 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's 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's
     funding for tornado-related projects. 

FEMA's rationale for the exemptions varies, although the agency's
policy guidance indicates that two of the exemptions were established
because some mitigation projects were often difficult to evaluate
against traditional quantitative criteria for determining
cost-effectiveness and eligibility.  FEMA officials stress a need for
flexibility in assessing these projects, suggesting that benefit-cost
analysis models do not always apply to all mitigation projects.  For
example, the benefits of some projects are difficult to quantify and
compare with the projects' costs.  Thus, it may be difficult to
determine the benefits of an educational program that uses brochures
to inform the public about the risks of living in a floodplain,
because it is hard to predict the changes in public behavior that may
occur when people read the brochures.  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. 

      PROJECTS INVOLVING THE
      PURCHASE OF SUBSTANTIALLY
      DAMAGED STRUCTURES
-------------------------------------------------------- Chapter 0:2.2

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.  A senior FEMA
mitigation official explained that under the National Flood Insurance
Program, these substantially damaged structures had to be either
elevated or relocated.  Thus, the Hazard Mitigation Grant Program was
simply following the policy already established by the flood
insurance program.  The official also stated that the exemption was
intended to speed the delivery of hazard mitigation grants to the
states.  This particular exemption has been criticized by FEMA's
Inspector General.  In a March 1998 report,\5 the Inspector General
noted the lack of analytical data supporting the exemption's
contention that acquisition projects involving substantially damaged
properties in a 100-year floodplain were cost-effective.  While FEMA
officials have begun to retroactively analyze some of the acquisition
projects exempted under this policy and agency officials expect to
complete this analysis by the end of August 1999,\6 the agency is
currently unable to provide data that would support the exemption. 
Without this analytical basis, it is difficult for FEMA to
demonstrate the cost-effectiveness of the exempt acquisition projects
it is funding. 

--------------------
\5 Improvements Are Needed in the Hazard Mitigation Buyout Program,
FEMA OIG, Inspection Report I-01-98 (Mar.  1998). 

\6 The officials explained that FEMA would be reviewing acquisition
projects in communities within three states.  These projects
encompass thousands of individual properties. 

      THE 5-PERCENT INITIATIVES
-------------------------------------------------------- Chapter 0:2.3

In September 1996, FEMA established another policy that exempted
certain projects from benefit-cost analysis.  Known as the ï¿½5 percent
Hazard Mitigation Grant Program initiatives,ï¿½ this policy allows the
states to use up to 5 percent of their Hazard Mitigation Grant
Program project funding for a variety of hazard mitigation projects,
including new, unproven mitigation techniques and technologies and
hazard identification or mapping efforts. 

Projects eligible for funding under this initiative can have unproven
or not clearly measurable benefits, making it difficult to evaluate
the projects under traditional criteria for determining
cost-effectiveness and eligibility.  To be eligible, a project type
had to be identified in the state's hazard mitigation plan and had to
reduce or prevent future property damage, injury, or loss of life. 
The policy's intent was to provide the states with discretion in
deciding which mitigation measures to fund, as well as make the
states responsible for providing the rationale for the
cost-effectiveness of the projects.  FEMA officials explained that
the policy was meant to spur creativity and avoid the time and
expense involved in conducting benefit-cost analyses. 

FEMA's guidance instructs prospective grantees to apply for 5-percent
funding if a project was previously denied funding because of
difficulty in measuring its cost-effectiveness.  However, projects
denied funding for other reasons may also be submitted under the
5-percent funding policy.  For example, a project to retrofit a
homeless assistance center with items such as shutters, a generator,
a well, and a storage tank was originally denied funding by FEMA
because it was submitted more than 2 years past the agency's deadline
for submitting projects.  However, after the project was resubmitted
under the 5-percent initiative, it was approved for over $220,000 in
federal funding. 

The 5-percent initiative policy states that instead of conducting a
benefit-cost analysis, the states are to include a narrative that
identifies the project's mitigation benefits and establishes a
reasonable expectation that future property damage, injury, or loss
of life will be reduced or prevented.  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 with the benefits and costs of competing
alternative projects.  Without any measurement and subsequent
comparison of a project's expected benefits and expected costs, the
criteria the agency is using to determine cost-effectiveness are
unclear.  Additionally, the 5-percent initiative allowed for funding
projects that were difficult to evaluate against traditional program
eligibility criteria, thus providing the appearance that any project
could be funded under the 5-percent initiative.  For example, a
mitigation project to develop a ï¿½Hurricane Information
Center/Partnership in Educationï¿½ was denied funding three times by
FEMA.  FEMA initially ruled that because the project was an
ï¿½education and awareness campaign,ï¿½ it did not meet the Hazard
Mitigation Grant Program's eligibility requirements and was thus
ineligible for funding.  However, after the project was submitted for
funding under the 5-percent initiative, it was approved for $4,700 in
federal funding. 

      HAZARD MITIGATION PLANNING
      PROJECTS FOR OLDER DISASTERS
-------------------------------------------------------- Chapter 0:2.4

In October 1997, FEMA exempted hazard mitigation planning projects
associated with older disasters.  FEMA decided that in the interest
of expediting the closeout of funding for disasters that occurred on
or before June 10, 1993, the agency would make program funds
remaining from these disasters available for hazard mitigation
planning purposes.\7 The policy memo stated that planning projects
would be considered cost-effective measures. 

--------------------
\7 When the Hazard Mitigation Grant Program was established, it
provided federal matching grants on a cost-share basis of up to 50
percent for 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. 

      TORNADO-RELATED PROJECTS
-------------------------------------------------------- Chapter 0:2.5

In August 1998, FEMA announced a policy that temporarily exempted
tornado-related projects from benefit-cost analysis.  In announcing
this exemption, FEMA noted that tornado mitigation projects, such as
warning systems, were often difficult to evaluate against traditional
quantitative criteria for determining cost-effectiveness and
eligibility.  The policy memorandum stated that in lieu of conducting
a benefit-cost analysis, FEMA would allow the states to include a
narrative that identified a project's mitigation benefits and
established an expectation that the project would reduce or prevent
future property damage, injury, or loss of life.  To receive funding,
a project had to be identified in a state's hazard mitigation plan
and needed to reduce or prevent future damage to property, injury, or
loss of life from tornadoes.  Additionally, among other requirements,
states had to develop a comprehensive plan for warning citizens. 
This policy will remain in effect until FEMA adopts a proposed
regulatory change that warning systems will be funded only from the
original 5-percent set-aside.  FEMA officials expect that the
regulatory changes will be made final in August 1999. 

      FEMA CANNOT QUANTIFY THE
      NUMBER AND DOLLAR VALUE OF
      EXEMPT PROJECTS
-------------------------------------------------------- Chapter 0:2.6

For a number of reasons, FEMA is unable to quantify the actual number
and dollar amount of the projects exempted from benefit-cost
analysis.  FEMA officials explain that, to present accurate data,
headquarters would need to make a special effort to gather the
information directly from regional project files.  However, FEMA
officials estimate that the maximum amount that has been or could be
spent for three categories of exempt projects is approximately $258
million.  This $258 million estimate includes $113.5 million for
exempt 5-percent initiative projects, $56.5 million for exempt
tornado-related projects, and $88.3 million for planning projects
using funding from older disasters.  FEMA does not know the maximum
potential funding for the fourth category of exempt
projectsï¿½acquisitions of substantially damaged propertiesï¿½although
agency officials state that some portion of an estimated $1.6
billion\8 in Hazard Mitigation Grant Program funding will be spent on
these projects. 

--------------------
\8 FEMA's estimate of $1.6 billion is based on total program funds
(i.e., $2.5 billion) minus (1) $626 million for two large projects
that underwent benefit-cost analysis and (2) $258 million in
potential funding for projects in the other exempted
categoriesï¿½5-percent initiative, tornado-related, and planning. 

   FEMA'S APPROACHES DO NOT ALWAYS
   ENSURE THAT MITIGATION PROJECTS
   ARE COST-EFFECTIVE
---------------------------------------------------------- Chapter 0:3

FEMA's use of benefit-cost analysis appears to demonstrate that
certain hazard mitigation projects are cost-effective, although the
agency could provide better information to the officials conducting
benefit-cost analyses for some projects.  Several factors are
limiting the agency's ability to demonstrate the cost-effectiveness
of projects that are exempt from benefit-cost analysis.  For example,
our review of $20.1 million in funding for hazard mitigation projects
in two FEMA regions\9 found that projects receiving over one-third of
the funding were exempt from benefit-cost analysis, even though there
was no established analytical basis supporting the exemption for the
majority of these projects.  Establishing the basis for exempting
these acquisition projects and reviewing the cost-effectiveness of
other exempt projects after they are implemented would help FEMA
better ensure that these mitigation projects are cost-effective. 

--------------------
\9 The states in our review are located in FEMA's regional offices in
Atlanta, Georgia (Region 4), and Denton, Texas (Region 6). 

      FEMA'S USE OF BENEFIT-COST
      ANALYSIS APPEARS TO
      DEMONSTRATE PROJECTS'
      COST-EFFECTIVENESS, ALTHOUGH
      THE BEST AVAILABLE DATA ARE
      NOT ALWAYS USED
-------------------------------------------------------- Chapter 0:3.1

Forty-one (75 percent) of the 55 projects we reviewed were evaluated
using benefit-cost analysis.  The projects included wind retrofits
(shutter projects), drainage improvements, and seismic retrofits of
buildings.  These projects, which accounted for 58 percent of the
funding we reviewed ($11.7 million of $20.1 million), were judged as
cost-effective.  However, we also found that the best available
informationï¿½such as flood hazard information from flood insurance
studies and flood damage information from past insurance claimsï¿½was
not always used in benefit-cost analyses on flooding projects,
because the best data were not readily available.  The quality of
this information can influence the outcome of a benefit-cost analysis
because overestimating the frequency or severity of a flood, or the
damage associated with a previous flood event, can inflate the
estimated benefits attributed to an acquisition project.  FEMA
officials have acknowledged the shortcomings and understand the
importance of providing the best available data for analyzing the
cost-effectiveness of proposed flood hazard mitigation projects. 

      SEVERAL FACTORS ARE LIMITING
      FEMA'S ABILITY TO
      DEMONSTRATE THE
      COST-EFFECTIVENESS OF
      PROJECTS EXEMPT FROM
      BENEFIT-COST ANALYSIS
-------------------------------------------------------- Chapter 0:3.2

While FEMA has explained its reasons for exempting four types of
mitigation projects, there are factors limiting its ability to
demonstrate that these mitigation measures are, in fact,
cost-effective.  Of the 55 projects we reviewed, 14 underwent no
benefit-cost analysis.  Certain factors, such as the lack of an
analytical basis supporting the exemption for acquisition projects
and a broad approach for determining cost-effectiveness, limit FEMA's
ability to demonstrate cost-effectiveness.  The 14 projects account
for $8.4 million (42 percent) of the funding, and they include
funding for emergency satellite communications, all-weather radios,
emergency alert systems, a public awareness campaign, and property
acquisitions.  Figure 1 shows the breakout of the $8.4 million in
funding for these exempt projects. 

   Figure 1:  Breakout of the $8.4
   Million in Funding for Exempt
   Mitigation Projects Reviewed by
   GAO

   (See figure in printed
   edition.)

Note:  This figure does not include a category for exempt planning
projects because the 55 projects we selected did not include any such
projects. 

As figure 1 shows, the majority ($5.8 million of the $8.4 million, or
69 percent) of the funding for exempt projects in our review went for
property acquisition projects.  FEMA's Inspector General reported in
March 1998 that FEMA had not produced the data or analysis to
demonstrate the cost-effectiveness of buying substantially damaged
structures in the floodplain, adding that the agency lacked an
analytical basis for exempting such projects from benefit-cost
analysis.  While FEMA officials have begun initiating efforts to
address this concern, over a year has passed since the Inspector
General's report was issued, and the analytical basis has still not
been established. 

For two other categories of exempt projectsï¿½the 5-percent initiative
and tornado-related projectsï¿½states are asked to provide a narrative
that identifies their potential mitigation benefits and establishes a
reasonable expectation that the projects will reduce or prevent
future property damage, injury, or loss of life.  For example, one of
the exempt projects involved the development of a tornado warning
network and a tornado mitigation demonstration project.  The project,
which was approved for $2.3 million in Hazard Mitigation Grant
Program funding, was expected to reduce storm-related damages. 
Another exempt project involved $45,000 in funding for the
development of a public awareness campaign and a brochure, which were
intended to educate residents about the hazards of living in a
floodplain.  While these projects may be cost-effectiveï¿½because they
could reasonably be expected to reduce or prevent future property
damage, injury, or loss of lifeï¿½it is difficult to determine their
cost-effectiveness.  Given such a broad approach for determining a
project's cost-effectiveness, it is difficult to provide an example
of a project that would not be considered cost-effective. 

FEMA also exempted planning projects associated with older disasters,
although the agency has not demonstrated that such projects are
cost-effective.  While we agree that it is difficult to determine the
cost-effectiveness of planning projects and that certain planning
projects could prove to be cost-effective, exempting all planning
projects allows for a wide range of project approvals. 

One means of determining the cost-effectiveness of exempt projects
would be to conduct periodic reviews of selected projects after they
have been implemented.  For example, FEMA could undertake targeted
reviews of projects that funded local efforts to establish mitigation
strategies or plans.  These reviews could be used to demonstrate the
value of the projectsï¿½whether they enabled the localities to better
identify future mitigation projects or helped reduce potential
disaster-related damage by alerting residents to certain hazards.  To
the extent that the reviews demonstrated the cost-effectiveness of
the projects, they would establish a basis for exempting similar
projects in the future. 

In conclusion, Madam Chairman, the majority of the projects that
underwent benefit-cost analyses appeared to be cost-effective, though
we also found that the best available informationï¿½such as flood
hazard information from flood insurance studies and flood damage
information from past insurance claimsï¿½was not always used in
analyzing proposed mitigation projects.  FEMA could assist the
officials performing the analyses by conducting postdisaster reviews
of flood hazards that could be used to update flood hazard
information and by making information on past insurance claims more
readily accessible. 

Additionally, while FEMA has explained its rationale for exempting
certain types of projects from benefit-cost analysis, it is limited
in its ability to demonstrate their cost-effectiveness because it
lacks an analytical basis for exempting acquisitions of certain
floodplain properties, uses a broad approach to determine the
cost-effectiveness of other projects, and seldom reviews the
cost-effectiveness of projects after they have been implemented. 
FEMA estimates that approximately $258 million could be spent on
exempt projects, not counting the funding for exempt acquisition
projects.  Our review of $20.1 million in funding for 55 mitigation
projects found that $5.8 million, or 29 percent of the funding, was
for acquisition projects that FEMA had exempted from benefit-cost
analysis.  Until FEMA establishes an analytical basis supporting the
cost-effectiveness of these projects, it cannot ensure that it has
allocated this funding cost-effectively.  Although FEMA officials
have begun initiating efforts to address this concern, over a year
has passed since the Inspector General questioned the
cost-effectiveness of exempt acquisition projects, and an analytical
basis remains to be established. 

The report we are issuing today includes recommendations designed to
improve how FEMA determines the cost-effectiveness of projects funded
under the Hazard Mitigation Grant Program including conducting
periodic reviews of projects after they have been implemented to
determine whether they were cost-effective.  We look forward to
working with you, Madam Chairman and Members of the Subcommittee, as
you consider various means of ensuring that hazard mitigation funding
is targeted to cost-effective mitigation measures. 

This concludes my prepared remarks.  We will be pleased to respond to
questions that you or other Members of the Subcommittee may have. 

   CONTACT AND ACKNOWLEDGMENTS
---------------------------------------------------------- Chapter 0:4

For information about this testimony, please contact Stan Czerwinski
at (202) 512-7631.  Individuals making key contributions to this
testimony included Pat Moore and R.  Tim Baden. 

RELATED GAO PRODUCTS
============================================================ Chapter 1

Disaster Assistance:  Opportunities to Improve Cost-Effectiveness
Determinations for Mitigation Grants (GAO/RCED-99-236, Aug.  4,
1999). 

Disaster Assistance:  Information on the Cost-Effectiveness of Hazard
Mitigation Projects (GAO/T-RCED-99-106, Mar.  4, 1999). 

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). 

*** End of document. ***