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1 1 (July 13, 2020)

handle is hein.crs/govdasi0001 and id is 1 raw text is: FF.ri E~$~ & July 13, 2020 FEMA's Community Disaster Loan (CDL) Program: A Primer Following a major disaster, local governments may face fiscal and economic distress as well as physical damage. As a result, revenue shortfalls could impact both service delivery and the long-term fiscal health in the affected locality. To address these issues, the Federal Emergency Management Agency (FEMA) offers the Community Disaster Loan (CDL) program, which provides forgivable loans capped at $5 million to units of local government based on real revenue shortfalls. This In Focus examines the basic structure of the CDL program and also briefly considers two CDL variants developed in response to distinct disaster situations. CDLs were first authorized in the Disaster Relief Act of 1974 (P.L. 93-288) but were defined and established by the Stafford Act (P.L. 100-707), which amended and renamed the preceding Disaster Relief Act. CDLs were developed to help local governments (as defined by the Stafford Act) manage acute tax and other revenue loss after a major disaster, which could inhibit their ability to adequately serve their communities during recovery. CDLs are funded through the Direct Assistance Disaster Loan Program (DADLP), to which Congress may appropriate funds directly for CDL program purposes. More commonly, however, funds are transferred to the DADLP from the Disaster Relief Fund-the fund which supports most federal disaster relief operations. The CDL program offers forgivable loans to units of local government equal to the amount of the revenue shortfall caused by the disaster up to 25% of the locality's operating budget, with a maximum of $5 million. Under the conventional program, those funds may be utilized to provide any normal governmental service or for services necessary to respond to the disaster. CDLs are five-year loans, extendable to 10 years at FEMA's discretion, with interest rates determined by the Treasury Secretary. C'D , Q,Oaifyi,,,gm ,, , p ,y , Y To qualify for a conventional CDL, an applicant local government must: * Be located in a presidentially declared disaster area; * Show substantial loss (greater than 5%) of tax and other (such as administrative) revenues; * Not be in arrears on any other previous CDL loans; and * Be permitted to take federal loans under its respective state law. A local government meeting these criteria may be eligible to apply for a CDL, and may apply from the end of the disaster, as determined by FEMA, through the end of the following fiscal year. FEMA calculates loan amounts by estimating cumulative revenue loss for the fiscal year of the disaster and the subsequent three fiscal years, up to 25% of the local government's total budget for the fiscal year when the disaster occurred (or the subsequent fiscal year). If the estimated revenue loss equals 75% of the locality's budget for the fiscal year of the disaster, the CDL may exceed the 25% threshold up to 50% of the operating budget. Loans may not exceed a $5 million statutory cap. To initiate the application process, FEMA assists local governments with eligibility screening, loan qualification estimates, and application development in advance of a formal application. Localities then formally apply for the CDL through their state (or territory) Governor's Authorized Representative, who requests activation of the CDL Program from FEMA. Federally recognized tribal governments may also be eligible for CDLs directly following a major tribal disaster declaration. FEMA may forgive all or part of the CDL if a local government can demonstrate that it has a three-year operating deficit following and associated with the disaster. This may include increases in operating expenditures as a result of unreimbursed disaster-related expenses. To adjudicate forgiveness eligibility, FEMA reviews audited financial statements of the local government borrower for the three years following the disaster. The review has two parts: (1) a deficit analysis; and (2) a revenue analysis. The deficit analysis compares revenues and expenditures for the full three calendar years following the disaster. If the analysis shows a deficit, FEMA conducts the revenue analysis, which compares pre-disaster revenues against operating revenues to determine the existence of a three-year cumulative revenue loss. If the analysis shows a deficit and a loss, the lesser of the two is used to provide either partial or full forgiveness. If a surplus is found, the local government is ineligible for cancelation, and the loan must be repaid according to the terms of the promissory note issued with the disbursement. In extraordinary circumstances, Congress has authorized FEMA to administer non-traditional CDLs and CDL-type rq\\ - , gn'a', ggmm 'S a X 11LULANJILiN,

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