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Lawmakers Should Offset Latest Disaster Relief Package

May 24, 2019 | Other Spending

Yesterday, the Senate voted to appropriate an additional $19 billion in disaster relief to aid the damage caused by wildfires, hurricanes, and storms over the last two years. The bill now goes to the House of Representatives for consideration. The proposal contains no offsetting savings and is designated an emergency, so it would add $24 billion to debt over the next ten years with interest costs.

While current budget rules exempt emergencies from discretionary caps and PAYGO rules, this exemption is meant to apply to spending that is necessary, sudden, urgent, unforeseen, and temporary. While this bill certainly fits some of those criteria, it is far from sudden or unforeseen – some of the covered hurricanes occurred more than 20 months ago; that’s plenty of time to come up with offsets.

Failure to pay for this disaster funding not only adds to our mounting debt and makes our fiscal outlook even more bleak, but also further undermines PAYGO principles.

Policy Cost (Billions, 2019-2029)
Farm disaster assistance  $3 billion
Other agriculture assistance $2.5 billion
Military facility repairs (includes defense and military construction)  $2.5 billion
Community Development Block Grants  $2.5 billion
Corps of Engineers flood mitigation  $2 billion
Highway emergency relief  $1.5 billion
Other spending $4 billion
Subtotal $18 billion
Interest costs $6 billion
Total $24 billion

Source: CBO, Senate Appropriations Committee, CRFB calculations. Numbers rounded to the nearest $500 million. Subtotal is less than $19 billion because not all allocated money is projected to be spent. 
 

Luckily, options exist to finance new disaster spending. Our previous plan to offset disaster relief included $100 billion of potential offsets, both from reallocating existing resources and changing policy in a way that would marginally help to mitigate climate change, which may be exacerbating the damage from hurricanes. For example, our plan would redirect lower value highway and community development block grant funding toward rebuilding efforts where they are needed; and it would reform the flood insurance program so it is better equipped to pay out claims.

Our proposal also suggested reducing farm subsidies (see policy options from the Congressional Budget Office here) and establishing a temporary "disaster relief surtax" on oil of $3-4 per barrel over five years. We also suggested alternative revenue options, specifically eliminating fossil fuel tax preferences, eliminating the SUV loophole for vehicle deductions, and reforming the low-income housing and new markets tax credits.

Policy Ten-Year Savings
Flood insurance reforms (raising premiums, deductibles, etc.) $10 billion
Re-prioritization of highway and community development funds toward disaster relief $15 billion
Farm subsidy reductions $25 billion
Disaster relief oil surtax $50 billion
Total $100 billion
Memorandum: Alternative Tax Offsets  
Elimination of Intangible Drilling Cost Expensing $13 billion
Elimination of Percentage Depletion for Oil and Gas $12 billion
Elimination of Other Fossil Fuel Tax Preferences $5 billion
Elimination of "SUV Loophole" for Vehicle Deductions $10 billion
Reform of Low-Income Housing and New Markets Tax Credits $10 billion

Offsetting the latest disaster package would help usher an important return to fiscally responsible budgeting. But as disasters become more frequent and more expensive, new ideas to budget for disasters will be needed – ones that don't rely on emergency designations that allow unoffset spending increases.

As Committee for a Responsible Federal Budget president Maya MacGuineas recently wrote in an opinion piece

It would be better if Congress budgeted for disasters in advance. It doesn’t make sense that we always wait until the last minute, especially when savings can come from enacting new policies to help mitigate some of the root causes of increasingly frequent natural disasters. The threat of our huge and growing national debt might not be as imminent as an approaching storm, but over time it could end up being more destructive to our nation’s economy.