Disaster Discourse: The Hagerty Blog

Post-Disaster Tax Revenue Decline? Consider a FEMA Community Disaster Loan (CDL)

One of the biggest concerns City Managers, City Finance Directors, and School Superintendents face after a disaster is how to address an actual or anticipated loss in revenue that causes cash flow problems. Often disasters result in an immediate decrease in property values, utility taxes, charges for services, and intergovernmental per pupil education funding (due to declines in student population). These losses can be significant and there is no federal disaster grant program to cover losses in revenue. There is, however, the FEMA Community Disaster Loan (CDL) program, a small, relatively unknown federal program whose sole purpose is to allow local governments, which depending on the state definition could include, schools, hospitals, public utilities, and other local level government entities, to receive a low interest loan, up to $5M, that can be forgiven under certain circumstances.

Over the years FEMA has awarded hundreds of CDLs at close to $2B with more than 75% of the loans forgiven (also referred to as cancelled). These loans have allowed local governments to continue to fund their essential municipal operating functions such as police, fire, teachers, and public works. The loan can only be used for operating purposes and not for capital expenses.

To be initially eligible, applicants must be within a presidentially declared disaster area and prove greater than 5% tax or revenue loss. To calculate the loan FEMA multiplies the applicant’s operating budget by 25% and estimates the applicant’s 3-year anticipated revenue loss and increase in unreimbursed disaster related expenses. The applicant will receive a loan amount of the lesser of 25% of their operating budget or $5M. For more details on the nuts and bolts of the program interested applicants can view this FEMA CDL Summary.

To inquire about a loan an applicant should contact their Governor’s Authorized Representative (GAR) to ask that the CDL program be activated. This can only occur after a presidentially declared disaster and upon request by the GAR.

After three years, the applicant may request that the loan be forgiven in part or whole based on whether they have experienced an operating deficit. This deficit must be caused by either a decrease in tax revenue due to the disaster or an increase in unreimbursed disaster-related expenditures. Unreimbursed disaster-related expenditures are those expenses related to the disaster but not covered by any other federal disaster program or insurance. For more information, see the FEMA CDL Cancellation Overview.

In summary, the FEMA CDL program has served as a powerful tool to address cash flow issues for municipalities in states/territories such as Florida, New Jersey, Texas, Puerto Rico, and specific communities like New Orleans, LA, Greensburg, KS, and Cedar Rapids, IA. The program has also served electric utilities and hospitals in the USVI, schools in Texas, and fire departments in New Jersey. The CDL program could do the same for your community if you find yourself in a disaster with declining cash flow. Just remember, it’s a program that’s only activated by interested local governments making a request of the Governor’s Authorized Representative and the State making the request to FEMA.

Sam Currie is an associate for Hagerty Consulting in the firm’s Preparedness Division. Based in Arizona, Sam has supported clients in their recovery efforts, specifically focusing on CDL program support for the past year. Before working at Hagerty, Sam attended and graduated from the W.P. Carey School of Business at Arizona State University when he participated in the Leaders Academy.


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