In the first week of his second term, President Donald Trump visited North Carolina to see the western part of the state that was affected by Hurricane Helene, and also visited Los Angeles to assess the damage by the wildfires. His takeaway from the visit? That the Federal Emergency Management Agency (FEMA) should be reformed or eliminated. He even signed an executive order to commission a comprehensive review of FEMA. My reaction? I think he is on to something.
The federal government is not the best to handle disaster management. As the Congressional Research Service accurately points out, "The responsibility for responding to disasters begins at the local level with survivors, elected officials, and emergency service personnel. If local government resources are overwhelmed, nongovernmental voluntary organizations in the community and governments in neighboring jurisdictions may be called upon to provide assistance." State and local governments are closer to the action, and thus able to respond more quickly, than the federal government. Plus, FEMA is not a first responder agency; their primary function is to provide disaster aid.
Nonprofits and private-sector entities are more responsive and agile than FEMA. Given the lengthy government hiring process, FEMA cannot quickly expand hiring when disaster strikes. Private disaster management companies, such as Civix, AAECom, and Deloitte, can move much more quickly. Nor does government contracting permit laying off workers during a slow disaster season, thereby creating greater inefficiency from FEMA.
FEMA does not have a good track record. The Government Accountability Office (GAO) detailed in a 2019 report how the federal government has challenges in helping communities recover from disasters, particularly when it comes to disaster resilience and long-term recovery. Another issue with FEMA, according to GAO, is poor advanced planning.
This GAO report points out a greater trend with FEMA intransigence. After Hurricane Sandy in 2012, DHS' After-Action Report illustrated how FEMA had challenges with coordinating with various partners and meeting survivor needs. FEMA seems to at least have done a better job with Hurricane Sandy than it did with Hurricane Katrina. A bipartisan committee report concluded that FEMA's response to Hurricane Katrina in 2005 was riddled with unpreparedness, slow response time, miscommunication, and mismanagement of resources. Time will tell with how FEMA's performance with Hurricane Helene will fare in the eyes of evaluators.
Then there is the spending aspect. In its 2024 budget, FEMA was allocated $30 billion dollars. $20 billion of that $30 billion was spent on direct disaster relief. The remaining third was spent on bureaucracy, insurance, and grants. I could not imagine a private-sector firm or nonprofit spend with such profligacy and stay in business.
Another aspect I found of interest is that FEMA paid $7.4 billion to individuals for home repair assistance through the Individuals and Households Programs (IHP) from 2003 to 2018. The DHS Office of Inspector General found that $3 billion of that $7.4 billion, or over 40 percent, was either improper payments or fraud.
2-6-2025 Addendum: This lovely report from the Office of Inspector General (OIG) was released on January 30, 2025. In it, the OIG details how FEMA partook in $9.6 billion in wasteful spending during the COVID pandemic. $8.5 billion of that was questionable spending and the other $1.5 billion was over-obligated spending. Way to go, FEMA!
FEMA creates perverse incentives for states being prepared for disasters. The Stafford Act, which is the Act determining the laws behind disaster aid, covers 75 percent of disaster costs when the U.S. President declares an emergency. As the Heritage Foundation points out, the Stafford Act words what constitutes an emergency is that it is "beyond the capabilities of the State and affected local governments and that Federal assistance is necessary." That vague standard creates a disincentive for states to be underprepared, thereby setting a lower threshold for what constitutes as an emergency. It would explain why the Congressional Research Service found an increase in disaster declarations since FEMA first started in 1979 (see below).
In economic terms, the phenomenon of removing the incentive to guard against risk is moral hazard. I have illustrated how moral hazard has been a problem with student loan forgiveness, unemployment benefits, COVID-era bailouts of state governments, the federal government paying for flood insurance, and moral hazard in the banking industry. Aside from incentivizing states to be underprepared, this increase in declarations spreads FEMA funds thin and strains its resources, thereby reducing its efficacy.
Flood Insurance and Moral Hazard. FEMA does not only create moral hazard through the Stafford Act, but also through its flood insurance program: the National Flood Insurance Program (NFIP). You can read my 2017 analysis on the NFIP and why we should privatize flood insurance. Essentially, the federal government promising to cover costs in the event of flood incentivizes people to move to hurricane-prone areas, which further increases the costs both in the market and to the government. The flood insurance program is so problematic that the Left-leaning Washington Post scrutinized it last October after Hurricane Helene struck.
Postscript. FEMA programs have created moral hazard while being inefficient with taxpayer dollars. At a minimum, I would implement considerable reforms, such as increasing the threshold to which states are eligible for FEMA funds so that FEMA could focus on the most intense and destructive disasters. At the same time, I can see an argument for abolishing FEMA while allowing for its unique functions, e.g., flood mapping, to be covered under other federal agencies. Bringing disaster management back to the states could help make states more prepared and responsive to natural disasters instead of expecting the federal government to swoop in and take its sweet time to assist state and local governments.
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