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1 1 (June 6, 2022)

handle is hein.crs/govefwn0001 and id is 1 raw text is: Congressional Research Service Informing the Iegitive diebate since 1914 0 June 6, 2022 FEMA's Community Disaster Loan Program: Loan Forgiveness Local governments often need financial assistance following major disasters. Such incidents can cause businesses to close, people to lose jobs, and other events that decrease tax revenue, making it difficult for local governments to perform critical functions, sometimes for years after the event. To assist in these scenarios, the Federal Emergency Management Agency (FEMA) has for several decades offered Community Disaster Loans (CDLs) to help local governments with disaster-related revenue shortfalls. The loans are available to local governments that have experienced a presidentially declared major disaster and apply through their state governor's office. CDLs are one component of the federal government's suite of emergency relief programs. CDLs are typically capped by Congress at $5 million and are conditioned on five-year terms, with FEMA able to extend the term to 10 years based on the local government's financial condition. In some cases, FEMA may offer partial or full CDL forgiveness without legislative action. Congress may also choose to forgive the loans. Most recently, on September 30, 2021, Congress forgave all outstanding CDLs (totaling about $860 million) in a continuing resolution (P.L. 117-43). This action extended debate about the structure of the CDL program, which has continued disbursing funds since the forgiveness. Types and Uses of CDLs CDLs were originally authorized by the Disaster Relief Act of 1974 (P.L. 93-288). The program's authorizing language was amended in the Robert T. Stafford Disaster Relief and Emergency Assistance Act (P.L. 100-707), for example by adding the $5 million cap. In the years since, Congress has authorized different types of CDLs, increasing the dollar cap, adding eligible entities, and refining allowable uses. Traditional CDLs (TCDLs) are five-year loans (which may be extended to 10 years) for either up to 25% of a local government's operating budget or $5 million, whichever is less. If a local government's revenue declines by at least 75%, it may receive 50% of its operating budget, up to $5 million. To qualify, local governments must be in a presidentially declared disaster area; show a loss of greater than 5% of tax and other (such as administrative) revenues; not owe money on previous CDLs; and be permitted to take federal loans under state law. TCDLs must be used on a local government's regular operating expenses or to expand operations in response to the disaster. They may not be used for capital expenditures. In 2005 and 2006, after Hurricanes Katrina and Rita, Congress passed legislation (P.L. 109-88 and P.L. 109-234) to create special CDLs (SCDLs) and set aside $1 billion for loans. SCDLs were subject to the same rules as TCDLs, except for (1) an increased dollar cap (up to 50% of the local government's budget if revenue fell by at least 25%), (2) allowing use only for essential services, primarily schools, police and fire, and sanitation, as opposed to all operating expenses, and (3) allowing local governments to apply for more than one loan at a time (local governments are limited to one TCDL). These provisions enabled the many impacted local governments to take out loans sufficient to meet greater financial needs. In 2017, following Hurricanes Harvey, Irma, and Maria, Congress passed supplemental appropriations that transferred $4.9 billion to the CDL program (P.L. 115-72). Although originating from the CDL program, the loans made with the transferred funds differed in key ways. The law made U.S. territories eligible for the loans and lifted the $5 million cap, basing the loan amount on projected revenue losses for 180 days after the disaster. Congress included a similar provision in a consolidated appropriations act in 2020 (P.L. 116-260) after Typhoon Yutu hit the Northern Mariana Islands. The Yutu loans could be made up to three fiscal years later and were based on projected revenue losses up to a year after the event. CDL Forgiveness Forgiveness Eligibility All types of CDLs are or have been forgivable. FEMA determines TCDL forgiveness after a two-part analysis. First, independent auditors hired by FEMA look at a local government's financial statements for three fiscal years following the disaster. If the budget data shows revenues not matching expenditures over that time, auditors analyze whether existing revenue suffices to pay for the local government's operating expenses. If not, and if the auditors determine that the shortfall is due to the disaster, the local government may be eligible for partial or full forgiveness. FEMA includes unreimbursed disaster-related expenses (UDREs) in the total amount eligible for forgiveness. UDREs are general government services, such as garbage pickup, revenue collection, and police and fire services; they do not include spending on capital projects or large projects involving public facilities.

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