Lawmakers Should Offset Upcoming Disaster Relief

One of many things lawmakers are poised to take up early in the year is additional disaster relief in response to Hurricanes Harvey, Irma, and Maria that hit last August and September (and to a lesser extent wildfires in the West). The Trump Administration requested $44 billion in November, while the House proposed an $81 billion package last month. These costs should be offset over a reasonable period of time – and our Mini-Bargain to Improve the Budget proposes a possible set of pay-fors.

The Administration and House proposals differ in both size and details, but generally focus on further rebuilding efforts, including infrastructure repair, and future disaster mitigation. They would be offered on top of the $53 billion of disaster funding enacted last year, which mainly went to the Federal Emergency Management Agency (FEMA), flood insurance, and tax relief for disaster victims. While last year's disaster relief largely fit the definition of emergency spending, further funding has been anticipated for some time and certainly should be offset.

In fact, without offsets total disaster spending for 2017-2018 may surpass the amount the federal government spent for recovery efforts after Hurricane Katrina in several rounds of disaster relief during 2005-2007. In addition, failure to offset disaster funding, along with the lack of sufficient offsets for tax reform and a potential budget caps deal, is likely to lead to the return of trillion dollar deficits by next fiscal year.

Luckily, options exist to finance new disaster spending. Our Mini-Bargain included $100 billion of potential offsets, both from reallocating existing resources and changing policy in a way that would marginally help to mitigate climate change, which may be exacerbating the damage from hurricanes in recent years. For example, our plan would redirect lower value highway and community development block grant funding toward rebuilding efforts where they are needed; and it would reform the floor insurance program so it is better equipped to pay out claims.

At the same time, our mini-Bargain suggested reducing farm subsidies (see policy options from the Congressional Budget Office here) and establishing a temporary "disaster relief surtax" on oil of $3-4 per barrel over five years. We also suggest alternative revenue options, specifically eliminating fossil fuel tax preferences, eliminating the SUV loophole for vehicle deductions, and reforming the low-income housing and new markets tax credits.

Disaster Offsets Proposed in Mini-Bargain

Policy Ten-Year Savings
Flood insurance reforms (raising premiums, deductibles, etc.) $10 billion
Re-prioritization of highway and community development funds toward disaster relief $15 billion
Farm subsidy reductions $25 billion
Disaster relief oil surtax $50 billion
Total $100 billion
Memorandum: Alternative Tax Offsets  
Elimination of Intangible Drilling Cost Expensing $13 billion
Elimination of Percentage Depletion for Oil and Gas $12 billion
Elimination of Other Fossil Fuel Tax Preferences $5 billion
Elimination of "SUV Loophole" for Vehicle Deductions $10 billion
Reform of Low-Income Housing and New Markets Tax Credits $10 billion

Offsetting the upcoming disaster package could help usher an important return to fiscally responsible budgeting. But as disasters become more frequent and more expensive*, new ideas to budget for disasters will be needed – ones that don't rely on emergency designations that allow ongoing spending increases.

One option is to build on ideas recommended by the Peterson-Pew Commission on Budget Reform and partially implemented under the Budget Control Act to account for (and allow for) disaster funding in advance. But even if brought to scale for large disasters, this approach doesn't answer how such costs should be paid for. A new funding stream to build a fully-financed disaster fund may be needed; certainly, new ideas should be considered.

The upcoming disaster relief package is necessary to help places across the U.S. recover from natural disasters, but since it comes months after those disasters happened, it should be offset. In addition, lawmakers should look to improve the budget process so that emergency spending isn't dealt with in such an ad hoc and often fiscally irresponsible way.

*According to the National Oceanic and Atmospheric Administration, there have been an average of 11.6 weather disasters causing at least $1 billion of damages over 2013-2017, double the 5.8 billion-dollar disasters occurring annually since 1980. The Congressional Budget Office also projects that expected annual damage from hurricanes will increase by about one-third, or 0.06 percent of GDP, between now and 2075 because of coastal development and climate change.