Hurricanes Katrina and Rita have put the spotlight on the Federal Emergency Management Agency, which goes into action when a governor asks the president to declare an emergency. It is proper that the states initiate the process, because they know their territories, needs, and capabilities. FEMA knows technical expertise, training, and coordination, but it has also been given the questionable role of extensive, expensive personal assistance and community rebuilding.

There are two reasons not to have a nationally funded disaster-relief program: One is that we are reducing the penalty for locating in dangerous areas. People can settle in flood plains or on a geologic fault knowing that they won’t have to bear the full financial consequences. The second reason is that spending is separated from accountability. The people of North Carolina don’t monitor how their taxes are spent in the Mississippi-Missouri valley floods and California mudslides and earthquakes.

It would be better public policy to make each state responsible for its own reconstruction. Then the disaster-prone ones would have higher taxes, which would tend to discourage settlement in irrational places. States in turn might be advised to make their counties fund much of the rebuilding, so that the ones primarily exposed would adopt prudent development practices. The analysis that follows shows how FEMA funding worked out for North Carolina and Wake County in hurricane Fran, typical of the bad ones, which hit our coast at Wilmington and came through Raleigh.

We got the full array of FEMA aid for it, so we were just getting back our federal taxes in support of it, weren’t we? No, not nearly. North Carolinians had been taxed $420 million to support FEMA disaster aid over the agency’s 17-year existence and got back $370 million, given primarily to people who had located in exposed coastal areas and therefore suffered damage in hurricanes Diana, Hugo, Emily, Bertha, and Fran. The other $50 million of the taxes collected in our state for disaster aid went to people who had built in the known flood plains of the Mississippi-Missouri Valley and in the earthquake-forest fire-mudslide subdivisions of California.

FEMA has cost each North Carolinian an average of almost $5 per year, but assuming a large storm hits as often as every five years, the bill could be covered by the state’s investment of $20 million per year at 5 percent in a “sinking fund” for emergencies. The cost would be $4 per person per year.

For Wake County’s taxpayers the deal was much worse. Its residents and local governments got $18 million for Fran and about $500,000 for the 1989 tornado. Wake County taxpayers’ contributions to FEMA’s budget had been $42 million, so they got back less than half as much as they put in. The $18 million to pay for a storm such as Fran about once every 30 years could be covered by investing $270,000 per year at 5 percent. The cost would be $0.45 per person per year, whereas FEMA aid has cost us $4.10.

Coastal New Hanover County is an exception. Over the agency’s life New Hanover County has paid in $12 million and gotten back $29 million, so the county came out well ahead.
FEMA’s long-term rebuilding aid should “face the sunset” in about four years, enough time for a couple of legislative sessions in which the states can organize. FEMA can then provide what it does best: expertise, training, and coordination.

George M. Stephens is an economist and author of Locke, Jefferson and the Justices, 2002.