FEMA Recently Increased the Public Assistance Small Project Threshold to $1 Million: What it Means for Recovering Communities

On August 3, 2022, FEMA implemented a major change to its Public Assistance (PA) program by increasing the Small Project threshold to $1 million. Small Projects are PA grants that are subject to “simplified procedures” under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) and federal regulation. This means that eligible government or private nonprofit (PNP) entities are not required to take as many steps – like providing extensive documentation and reconciling final project costs – to apply for and obtain PA funding. Prior to this change, the previous threshold was $139,800 (updated annually).

FEMA Administrator Deanne Criswell heralded this change as “a reflection of FEMA and President Biden’s commitment to reduce red tape, cut back on bureaucracy and ensure that communities get the resources they deserve when they need them most.” Indeed, this could simplify and expedite recovery for many communities. According to FEMA, if the threshold was always $1 million, 94 percent of PA projects historically awarded would have been Small Projects; however, due to previously lower thresholds, just 77 percent of all PA projects were considered Small. The logic is that a greater proportion of Small Projects will create lower barriers to access as well as take considerable weight off FEMA, state, local, tribal, and territorial (SLTT) governments and PNPs when it comes to PA program administration.

At Hagerty, we encourage efforts by FEMA to simplify its programs and accelerate the provision of assistance – particularly the PA program, which has historically been complex and burdensome.

That said, this dramatic shift introduces several novel risks and considerations FEMA, SLTTs and PNPs alike must keep in mind going forward. Given the extensive influence this change will have across the country, we felt it was important to outline such risks and considerations below in addition to summarizing the potential benefits it could bring to recovering communities.

Why is this change important?

FEMA can award Small Project funding based on far less documentation than is required for Large Projects. In fact, Small Projects are supposed to be written based on estimated costs to the maximum extent possible. After FEMA awards the Small Project funds to the Recipient, most states, tribes, and territories (STT) disburse Small Project funding immediately to PA Applicants – even based on estimates. Once awarded, Small Project funding is capped at the originally awarded amount, except in rare cases (e.g., major change in the scope of work or a Net Small Project Overrun appeal). In contrast, Large Project funding is mainly disbursed by Recipients to Subrecipients on a reimbursement basis and requires extensive documentation to obtain awarded funds. As such, proponents of this threshold change believe it will expedite disaster recovery by getting money on the streets faster.

How will FEMA implement this change?

On August 3, 2022, pursuant to Section 422 of the Stafford Act, FEMA issued a final rule revising federal regulations that govern the PA program to increase the simplified procedures (i.e., Small Project) threshold. Specifically, this rule amends 44 Code of Federal Regulations (CFR) §206.203(c) by increasing the threshold to $1 million, which will be annually updated to reflect changes in the Consumer Price Index (CPI).

When does this rule take effect and to what disaster declarations does it apply?

This rule change is effective immediately. It applies to:

• All projects for major disasters and emergencies declared on or after March 13, 2020, that have not been obligated as of August 3, 2022; and
• All PA projects under incidents declared on or after August 3, 2022.

This means, for example, all PA projects not yet obligated under the nationwide COVID-19 major disaster declarations are subject to this new $1 million Small Project threshold.

What are some risks and considerations to keep in mind going forward?

1. Because Small Project funding is capped, SLTTs and PNPs must work with FEMA on adequate cost estimates – or there will be insufficient funding for communities to recover.

FEMA will often produce cost estimates as the basis of capped Small Project funding; however, PA Applicants have long complained that estimates for both Small and Large Projects are not enough to pay for recovery work as intended. For example, if a community believes it will cost $600,000 to repair a damaged facility and FEMA awards a capped Small Project at $400,000, there is currently limited recourse under this increased threshold for that community to receive the additional $200,000 needed for the repair. Many communities and organizations will find it difficult to fund this gap, while others may forego recovery altogether – particularly those without the resources to compensate for the insufficient federal funds.

While FEMA has taken steps to improve its cost estimating process, the end-user experience in the field remains mixed, raising potential equity concerns – that only well-resourced entities may be able to fund underestimated projects or hire the experts needed to advocate for higher estimates with FEMA. To mitigate this risk, FEMA should direct its costing specialists to build in the full scope of needed repairs with healthy factors to cover unknowns like higher future material and labor prices. FEMA also needs to provide clear and pragmatic guidance and oversight to ensure that sufficient funds are being provided for the newly increased Small Project threshold grants.

 2. Although there are fewer steps required to obtain Small Project funding, PA Applicants must still comply with all   relevant laws, regulations, and policies, which will be a challenge to execute and enforce.

The PA program abounds with complex federal requirements. These include strict procurement and contracting, environmental, historic preservation, duplication of benefits, and insurance rules. Yet, with Small Projects, PA Applicants must simply certify compliance, rather than demonstrate it with full documentation and reviews. As such, Applicants that must comply and Recipients (i.e., states, tribes, and territories) that oversee compliance will assume greater risk of future funding deobligation without FEMA directly validating compliance upfront. In turn, some Recipients may impose new rules around Small Projects that could increase the administrative burden long-term. To account for this, Applicants will likely need to strengthen internal compliance standards and processes to withstand future scrutiny by an auditor or another party.

3. Certain Recipients may impose procedures for Small Projects that are not required by FEMA, which could establish  the type of administrative burden FEMA sought to reduce. 

Recipients have the authority – or might be required by their own statutes and regulations – to add requirements to the PA program beyond those that are written in federal law, regulation, and policy. For instance, Recipients typically disburse Small Project funding immediately to allow recovering communities and organizations to use it right away without waiting to be reimbursed later. However, now that small project funding can be up to $1 million, the risk is greater and some Recipients may be reluctant, or unable, to make these advances, thereby requiring Applicants to fully reconcile the actual costs of recovery work under Small Projects, even though FEMA does not.

In its final rule, FEMA notes that it “lacks control over what rules States may impose upon themselves” and acknowledges that some Recipients may “impose upon themselves rules that may ultimately prevent their recovery in the most expedited manner.” Accordingly, PA Applicants, must proceed with caution – ensuring they fully understand Small Project rules that may be in effect and impact them at the state, tribe, or territorial level.

What’s next?

Next, we anticipate further FEMA guidance, and recommend that PA Applicants closely monitor how their Recipient (state, tribe, or territorial government) treats this change. We will continue to provide updates on Disaster Discourse – stay tuned!

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Ari Renoni is a Deputy Director of Recovery at Hagerty and has over 13 years of professional emergency management experience working with government and international public organizations. He has a deep familiarity with federal policy, given his experience supporting FEMA projects for clients in New York, California, Puerto Rico, Texas, and Florida.

Chris Thomas is a Deputy Director of Recovery at Hagerty and has almost two decades of experience as a leader of large, complex disaster recovery projects. He has extensive experience implementing disaster emergency plans, providing analyses of PA policy, cost recovery strategy, and supporting grants management.

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