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1 1 (December 21, 2023)

handle is hein.crs/govenuf0001 and id is 1 raw text is: Congressional Research Servi Infrmring the legislitive debate since 1914 Local Fiscal Effects of Disasters In addition to potential loss of life and property, natural disasters and other emergencies can cause negative fiscal consequences for local governments. This can occur for a number of reasons. For example, damages may reduce property assessments, thereby lowering property tax revenue, or business closures may reduce employment, possibly reducing income tax revenue. Given the localized nature of some disasters, such fiscal effects can be felt acutely at the local government level. Local governments are often responsible for providing certain day-to-day services that play direct roles in citizens' lives. This may include duties such as providing public safety and sanitation services in addition to responsibilities such as operating a school system. When disasters threaten local government tax revenue, critical local government activities can face reductions, potentially causing further fiscal problems, particularly as many local governments are required to balance their budgets. The federal government primarily addresses local governments' post-disaster fiscal needs through the Community Disaster Loan (CDL) program, which is administered by the Federal Emergency Management Agency (FEMA). The CDL program provides forgivable loans of up to $5 million to local governments to help them operate essential municipal functions after presidentially declared disasters under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act; 42 U.S.C. §§5121 et seq.). Potential Fiscal Impacts Disasters can have broad impacts on local governments' finances. A 2021 working paper from the National Bureau of Economic Research found that, in the decade following a hurricane, local government tax revenues and expenditures decreased and costs related to debt increased. While the paper found that the revenue and expenditure declines were initially offset by various intergovernmental fund transfers, major hurricanes ultimately reduced local government revenues by 7% over the ensuing 10 years. Expenditures on public services-including water, sewer, trash, and public transit-declined by 13% over the same period. Some of the effects of disasters on local government finances may vary by the type of disaster and geography. For example, a 2022 study found that wildfires in California actually increased both revenues and expenditures for local governments, in part because the fires resulted in long-term increases in local spending on recovery efforts and because of a California law limiting property reassessments until time of sale. Nevertheless, the study noted that the overall impact of wildfires on municipal budgets is negative and substantial. December 21, 2023 One reason that disasters impact some local government finances is local governments' reliance on property tax revenue. According to U.S. Census Bureau data, in 2021 (the most recent year for which data is available) property tax revenue accounted for 30% of local governments' collective general revenue. In contrast, that same year, property tax revenue accounted for 0.8% of state governments' collective general revenue. (States generally rely more heavily on sales and/or income tax revenue than do local governments.) Disasters, which often entail physical damage to homes and other structures, often diminish property tax revenue. Not all research concludes that natural disasters are entirely harmful to local government finances, at least in the long term. A 2023 working paper from the Federal Reserve Bank of San Francisco found that while certain disasters caused a small immediate decline in employment and personal income in an affected area, those declines turned into growth over time as the area transitioned to recovery activities. Similarly, the paper found that housing prices in affected areas saw long-term increases beginning about five years after the disasters. The paper also noted that not all localities reacted the same way to disasters. For example, it found that counties with more experience with disasters had larger increases in personal income than did those with less experience. Recent Examples Several disasters in the United States in recent years have led to shifts in local government finances. For example, some have forecasted that the August 2023 wildfires on the Hawaiian island of Maui will have significant impacts on Maui County's tax revenue. Thus far, Maui County officials have revised their FY2024 estimates for the county's property tax revenue-the county's largest source of revenue-from $535 million to $515 million and revised estimated total revenue collection downward by 3%. To make up the anticipated shortfall, Maui County's mayor proposed a series of budget cuts, including to the Maui Fire and Public Safety Department. Other observers projected that Maui County's Transient Accommodations Tax-the county's second-largest revenue source, for which it projected collecting $60 million for FY2024-would be down about $5 million from projections each month through the end of FY2024. Hurricane Ian made landfall in Florida in late September 2022 and caused $112 billion worth of damage, making it the costliest hurricane in state history. Some local governments in Ian's path continue to deal with the fiscal repercussions of the storm. The City of Sanibel, which experienced significant damage, reported property value declines of 31% year on year, resulting in a potential tax te

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