News, Op-Eds, Reports and Photos

August 24, 2011


Funding catastrophe recovery following Budget Control Act
By James Lee Witt and Admiral James M. Loy, co-chairs of

The debt ceiling deal, the Budget Control Act of 2011, should please taxpayers in at least one respect – ending the practice of the federal government writing what amounted to blank checks to cover damages in major natural disasters.

The new approach makes financial sense to taxpayers, but it also leaves huge potential liabilities blowing in the wind for those who will be statistically and inevitably in harm's way of catastrophe. And, with Hurricane Irene bearing down the East Coast and an unpredicted earthquake shaking our nation's capital on August 23, we are reminded that anyone can be in harm's way.

Over the next 10 years, the Office of Management and Budget projects that future disaster recovery costs requiring federal assistance for relief and reconstruction will total $225 billion. However, the recently enacted cap will limit federal disaster relief expenditures to roughly one-fourth of that amount.

The nation needs to face that fact and build upon this first step of fiscal reform by fully changing the way natural catastrophes are dealt with financially, humanely and sensibly. We must continue the transition from the after-the-fact, government-heavy, reactive model to a pre-funded, proactive, public-private one.

Failure to complete this transition before the next major catastrophe strikes could result in a financially disastrous aftermath.

We continue to be reminded of that with Hurricane Irene forecasts, which could leave many in devastation.

While the 5.9 magnitude East Coast earthquake earlier this week was only a tiny fraction of the size of the largest earthquakes we have experienced and will inevitably strike again, anyone who felt the shaking can attest to the scary and helpless feeling a natural catastrophe can cause. Congress should remember that the moments of uncertainty we may have felt on August 23 were very mild compared to Northridge Earthquake, the 1906 San Francisco Earthquake, or the New Madrid quakes of 1811-1812.

Congress has considered and now needs to create a public-private partnership that would pre-fund the financial costs of large-scale natural catastrophes – precisely the kind of model that would complement the Budget Control Act.

This would help ensure that a natural catastrophe won't be followed by a new financial one.

Our solution would create a privately-funded national catastrophe fund for those states that choose to participate. It would be publicly administered by the federal government, and private insurance companies would pay into the fund. The fund would provide a backstop for major events and be available to provide relief to victims of catastrophe. It would enable the private market to provide more homeowner protection at a lower cost to consumers, while building additional capacity and stability in the homeowner insurance markets which serve our most vulnerable citizens. Explicit requirements would guarantee the program would be fully funded and operated with no cost to the American taxpayers. stood behind a similar bill - the Homeowners' Defense Act – which passed the House of Representatives in 2007 and the House Financial Services Committee in 2009 with strong bi-partisan sponsorship by members from more than 30 states.

The recent change in funding for disaster assistance is dramatic. Our comprehensive mechanism is the only viable proposal that will help fill the gap being created by the debt bill provision capping federal aid for the first time.

Individuals and communities can better cope with the obligation to be prepared with pre-funded mitigation measures, from improved land-use planning to better funding for first-responders. That will make everyone less reliant on after-the-fact help, and will help cut down on lost lives, and property and recovery costs.

No place is immune from the wrath of Mother Nature. A better, proactive approach that leverages private sector dollars and that strengthens Americans financial and preparedness infrastructure to deal with catastrophe is a solution the victims of the next major event deserve. It's a solution to which Republicans and Democrats both should agree.

The time to act is now.

The authors are co-chairs of James Lee Witt is CEO of Witt Associates and was director of the Federal Emergency Management Agency under President Clinton. Admiral James M. Loy is Senior Counselor at The Cohen Group and was commandant of the US Coast Guard and deputy secretary of the US Department of Homeland Security under President George W. Bush.


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