Public Budgeting FEMA S Budget

Finance and Budgeting

Mission and Goals of the Organization

The Federal Emergency Management Agency (FEMA) is an agency within the Department of Homeland Security. FEMA's stated mission also encompasses its goals. The mission statement is "to support our citizens and first responders to ensure that as a nation we work together to build, sustain and improve our capability to protect against, respond to, recover from and mitigate all hazards" ("About the Agency," 2016) This mission is fairly sweeping, allowing the organization substantial scope to handle a wide range of issues. From a budgetary perspective, there are several implications of this mission. First, there are preventative measures, which implies that FEMA will have certain ongoing programs regardless of whether any emergencies arise. There will also need to be an infrastructure in place to handle disasters, and this infrastructure will need regular funding. The mission also specifically addresses the need to respond to hazards, and the unpredictable nature of these hazards means that FEMA will need to have funds ready to mobilize quickly in the event of a disaster. Disasters range from those that are somewhat predictable ahead of time, such as hurricanes, to things like earthquakes that happen without warning.

Some of the current issues that FEMA is dealing with are as follows. It is assisting with Health and Human Services in the Flint water crisis. It is providing frontline assistance in Missouri and Mississippi in specific counties for the tornadoes, floods and other weather conditions of December, 2015. FEMA had also previously responded to flooding in South Carolina in October, 2015. An example of one of FEMA's ongoing programs is the Youth Preparedness Council, which was formed in 2012 to help mobilize young people in disaster mitigation. FEMA also has things like an app that can be used to help people understand the organization when there is no crisis, but also to directly link those in need of response with FEMA during times of crisis.

The organizational structure of FEMA begins with a corporate superstructure with the Department of Homeland Security under Administrator W. Craig Fugate. There are a number of offices that handle general issues at a national level, such as legal affairs, finance, law enforcement, grant programs and neighborhood partnerships. There are also a number of regional offices for ten different regions of the country. There are specific administrators for things like mitigation, insurance, response and recovery, fire, and functional groupings like human capital, procurement and information ("FEMA Organizational Chart," 2015).

II. Ethical Considerations

Schervish and Havens (2015) provide some insight into the ethical considerations faced by FEMA. The agency's role in disaster mitigation, readiness and response was born out of ethical considerations. The existence of FEMA is part of the social contract between U.S. taxpayers and their government, in that disaster recovery is essentially a public good. Individuals and corporations can assist in disaster recovery, but as disasters affect entire communities on a large scale, and the nature of disaster management is comprehensive, only an agency as powerful as the federal government, with its resource base, formal authority and ability to coordinate, can help a region to recover effectively, especially in areas where disaster recovery would not be profitable for a private entity. Thus, FEMA has a particular moral authority and its formation closed an ethical gap in the structure of the federal government.

FEMA's status as an agency within Homeland Security also hints at the ethics of the organization. Disasters weaken the nation as a whole. Without the ability to manage disasters, and recover from them, the nation is more vulnerable. Thus, FEMA has a particular moral imperative that is related to national security. Having sufficient funds in its budget to perform its duties, and using those funds most efficiently, is critical to the fulfillment of the federal government's obligations to defend the nation, as per Article I, Section 8 of the United States Constitution, which grants Congress the power to provide for the common defense, including the provision of the necessary infrastructure to perform that role.

Given the relationship between the existence of FEMA and the ethical obligations of the federal government, it stands to reason that FEMA must also perform its budgeting with the utmost ethical standards in order that it fulfill not only its obligations to Congress but also to the American taxpayer. Budget actions and decisions need to reflect the ethical mandate of the organization, and must be performed at the highest level of integrity so as to ensure that the taxpayer's money is being used to perform only the tasks for which the federal government has been granted powers under the Constitution. FEMA's budgeting process incorporates this common understanding of its mandate, and the ethical responsibility that it has to balance efficient spending with the effective performance of its duties (Menson, 1990). This is not easy, given that FEMA's budget is a blend of regularly-funded programs and the need to have monies available for emergency relief.

III. Technological Considerations

Technology plays an important role in the budgeting process for many governmental organizations, and it is the same for FEMA. The budget for FEMA is set by the Department of Homeland Security. FEMA makes up a relatively small portion of the overall DHS budget. The FEMA budget of $15.4 billion is comprised of around one-third mandatory and two-thirds discretionary spending. There is also a $7.1 billion disaster relief fund, which allows FEMA to mobilize resources quickly in the event of a disaster. The FEMA strategic plan is the basis for this budget.

Information technology plays a key role in setting the budget, and in budget management. The first way it does this is that FEMA can communicate its spending in real time, as items are entered into the accounting systems. This allows for FEMA and DHS to track spending effectively. The FEMA budget for one fiscal year is based on the prior fiscal year, with adjustments. Thus, tracking spending is one of the more important tasks in the budgeting process, to ensure that spending targets are being met. Information technology allows for more effective tracking of expenditures, so that these can be recorded and communicated more quickly within FEMA and to DHS, allowing for more accurate preparation of the budget as a whole.

For the budget allotment for disaster relief, more complex calculations are utilized. FEMA utilizes the prior year's expenditures, but also builds in a ten-year moving average of disaster relief expenditures in order to estimate the need based on the normal rate and scope of disasters faced by the nation (DHS, 2016). There are other ways to do this -- actuarial data could provide estimates about specific disasters that could be rolled into a total budget estimate. However, the DHS and FEMA have chosen the 10-year-moving average to simplify this particular calculation for the budget allotment for disaster relief via the disaster relief fund.

IV. Applicable Laws and Regulations

FEMA was created under the Robert T. Stafford Disaster Relief and Emergency Assistance Act of 1988, and was transferred to the Department of Homeland Security in 2003 when that department was created. The Act provided FEMA was the authority to coordinate government-wide relief efforts. FEMA's operational role is thus more oriented towards preparation for disaster relief and coordination of efforts ("About the Agency," 2016). Other parties that contribute to disaster relief are the National Guard, first responders, corporate partners, charities and other NGOs, and other federal government agencies. For example, in the Flint water crisis FEMA plays a support role for Health and Human Services.

Over the years, there have been other acts that influence the mandate and the budgeting for FEMA. The Post Katrina Emergency Management Reform Act and the Sandy Recovery Improvement Act were both passed to remedy some of the shortcomings of emergency management response to those two particular hurricanes. The latter also made supplemental appropriations in order to bolster the budget of FEMA in order to better assist with Sandy response. It is conceivable that future disasters would also see Congressional action to bolster the FEMA budget, should the financial need for disaster relief exceed the total provided in the disaster relief fund. Thus, FEMA's budget in general is set out in the Stafford Act and the DHS Act, but can be bolstered in times of specific emergencies as Congress sees fit.

FEMA's budget can also be bolstered by executive action. President Carter in 1979 folded a number of agencies into FEMA, for example. This provided the agency with different roles, and FEMA absorbed the budget appropriation mandates from the laws that created the various agencies that it absorbed. Likewise, when FEMA was placed under the auspices of the Department of Homeland Security, the legal right to appropriations for FEMA was transferred to that department. Today, FEMA continues to receive its funding via DHS by way of the various laws that originally provided funding for FEMA and for the different agencies that were rolled into FEMA under President Carter.

Ultimately, FEMA's legal authority is derived from the Constitution, where Congress is given the mandate to provide for the national defense. FEMA's role in national defense is to ensure that the nation remains strong, even in the face of natural disaster, and that it recovers quickly from natural disasters so as to not have any substantial vulnerabilities on its home soil. Thus, FEMA's budgetary powers are granted by Congress by way of numerous acts over the years, all of which ultimately derive authority from the Constitution The different acts, including the Stafford and DHS acts, also outline to some extent how FEMA is to spend its money, providing guidance in general terms, in particular with respect to the specific operational mandates that FEMA has. FEMA administrators, however, do have some leeway as to how they will interpret their mandate, given that they are theoretically the experts on emergency management preparation and disaster relief.

V. Budget Processes and Funding Sources

The federal government provides all of the funding for FEMA. The process by which this occurs is as follows. The budget is first presented by the President to Congress for approval. Typically, the budgeting department of the agency will prepare its budget based on the prior spending, the prior approvals, and the expected future need. For this like the disaster relief fund, the administrators of FEMA must choose the best formula for estimating what the budget need might be for any given year. The White House receives this information and uses it in the budget that is then presented to Congress.

At the Congressional level, one of the most important steps is that the members of Congress are to verify the budget, and ensure that the appropriations contained within the budget are justified. The U.S. House of Representatives has a Committee on Appropriations that plays this role ("Budget Hearings -- Federal Emergency Management Agency," 2015). In April 2015, for example, they heard testimony from the head of FEMA regarding that agency's performance, and its budget requests. This is a normal part of the budgeting process, where the agency must argue before Congress -- as representatives of the American people -- that the agency has used its budget allocations effectively in the performance of its duties. This is one of the times where individual agencies are directly accountable to external stakeholders.

Congress has the power to set appropriations but in general will not alter appropriations to an individual agency too much. FEMA is likely to receive most of its budget request, though there is no guarantee that it will. The Department of Homeland Security is responsible as well for the oversight of FEMA, and budget requests are processed through it as well. All told, when the final budget is approved, it will contain the funds necessary to run FEMA. The final budget appropriation for FEMA will then be available to the agency for use in its operations. The management of FEMA will then allocate these funds as they see fit, but as a point of accountability is largely responsible for allocating the funds as laid out in the budget request documents.

FEMA does not otherwise collect fees or revenue for its services. Federal appropriations as approved by Congress are the entirety of its incoming funding.

The budget process itself is fairly straightforward, and quite similar to that of other agencies within the federal government. The use of prior budgets as the basis for the current one is standard practice. In the DHS Budget in Brief, the year-over-year changes are noted both in the financial line items and in the text. For example, there was a request for an increase of 85 FTEs at FEMA, and the nature of this request was outlined. Further, such requests are subject to scrutiny from the House Appropriations Committee prior to approval.

The trickiest aspect of the budgeting process for FEMA is with respect to the disaster relief fund. The way that this is determined appears to be an overly simplistic methodology that only looks at aggregate totals. The number is based on the average of the past ten years' disaster relief funding. However, this does not account for unusual disasters that might occur only once every twenty years or more. For example, the gap between massive hurricanes Andrew and Katrina was over twenty years. Only once or twice in a century are there massive earthquakes along the San Andreas fault. That no such disaster has occurred in the past ten years to date means that the funding level for disaster relief might not be sufficient for a major disaster. This raises some particular ethical issues, because FEMA's foremost responsibility is to those directly affected by disaster, but the budgeting technique used to determine the level of disaster assistance funding seems weighted towards the benefit of the taxpayer. Yet in the long run, it is entirely reasonable that the taxpayer will also suffer, as Congress will simply need to enact emergency appropriations in the event of a major disaster for which FEMA does not have adequate financial preparedness. So this particular aspect of FEMA's budgeting process seems to be inadequate. Ideally, actuarial data would be used, in particular with respect to the likelihood of a major disaster that would carry relief costs in excess of the $7 billion or so that FEMA presently allots for emergency disaster relief. The agency should use calculations that most accurately reflect the risk of major disaster while simultaneously allowing the agency to respond effectively, thus meeting the mandate that it has under the Constitution to ensure that America is able to manage disasters in such a manner as to maintain its strength. The agency has developed some tools to adopt this type of approach, even if they are not used in the budgeting approach. For example, FEMA has an earthquake risk evaluation tool to analyze the hazard curve, and this has been adopted by other countries for risk evaluation as well (Vamvatsikos, 2012). Again, however, greater implementation of such knowledge in budgeting would benefit the budgeting process, and make it more robust.

VI. Internal Factors Affecting Strategic Financial Planning

Internally, the structure of FEMA, and evaluation of past performance, affect the budgeting process. In particular, the agency's approaches has been altered in response to Katrina and Sandy. FEMA's operations were evaluated, especially as its response to Katrina was heavily criticized by other stakeholders. An internal performance review conducted by the Department of Homeland Security found a number of issues with FEMA performance during Katrina and its immediate aftermath ("A performance review ... ," 2006). The recommendations for improvement that flowed from this internal analysis led to changes that swept through the agency, including operations, organizational structure and budgeting. This process can be expected to be repeated after most major disasters. Such events are few and far between, and thus provide unique opportunities for feedback with respect to FEMA's operations. The budget in part draws on FEMA's operations, structure and contingencies, so any changes that are made to how FEMA prepares for, and manages, disasters is going to have an influence on the organization's budget.

Strategic financial planning can also be affected by the means by which FEMA examines risk. The largest budget item is the disaster relief fund, and major disasters are the largest drain on FEMA's budget. Such disasters bring about exceptional expenses on short notice, as well as insurance payouts that may run years after the precipitating event. As such, much of FEMA's budgeting effectiveness derives from its ability to plan for, and anticipate disasters. There is considerable scientific data that can allow FEMA to reasonably predict the likelihood of most disasters -- earthquakes, hurricanes, tornados, floods and volcanic eruptions occur with a certain frequency, and have a certain likelihood with respect to affecting major population centers. Thus, the methodology by which FEMA evaluates these risks and sets aside resources to manage such risks is a key internal factor in budgeting. Note that FEMA still would need to justify any requests for appropriations, and therefore must use a methodology that is defensible to DHS and to Congress, but there are nonetheless a number of different options that it can choose from, and this choice is going to be a significant long-run factor in the size and structure of the FEMA budget where discretionary and disaster relief contingency funds are concerned.

VII. Cost-Benefit Analysis

FEMA is a growing agency. While many public officials and critics call for hiring freezes and other such measures to curtail federal spending (Stephenson & Lopez, 2015), the reality is that FEMA maintains a growth trajectory for its budget. Still, because of the pressure that exists for federal agencies to manage their spending carefully -- not to mention the ethical obligation to do so -- FEMA must weigh the benefits and costs of its programs. Indeed, FEMA's ethical mandate contains two balancing elements. It must help American manage disaster risk, and it must simultaneously operate its budget in a manner that aligns with its mandate under law. The reality of disaster management is that full, 100% preparedness will have a near-infinite cost, so there must always be a balance between risk and reward, between cost and benefit.

Hanley and Spash (1993) note that the environment is an especially tricky area to balance with respect to budgets, because of the high degree of uncertainty. Even if there is a reasonable degree of certainty with respect to the likelihood of a disaster, the costs associated with such a disaster can be difficult to predict, especially long-run costs. As an example, it was not unreasonable to think that something like Deepwater Horizon could occur. FEMA could have had some funds available for immediate relief of an oil rig disaster. However, there are long-run effects of some of the damage that was done during that disaster. These costs were difficult to determine, and the cost of preventing such damage would also have been very difficult to determine. Such uncertainty makes running effective cost-benefit analysis in anticipation of disasters that are unknown in terms of size, timing and geographic scope almost impossible. As another example, any given hurricane season, several with touch down on U.S. soil. But their intensity and location will determine the damage, and there are far too many variables for FEMA to know exactly where best to draw the line in terms of its prevention spending.

Mikesell (2012) also outlines these challenges. Noting that there are a number of different methodologies to determine cost, Mikesell makes the argument that cost-benefit analysis is challenged when dealing with public goods. Market-based information is often only a starting point. For example, if Deepwater Horizon wipes out Louisiana's shrimp and fishing industries, that is relatively easy to quantify. But there is also going to be social disruption from those industries failing, yet there may also be offsets if other states produce more shrimp in response to the market opportunity. There is a fairly limited extent to which FEMA can consider so many different variables in its analysis of the potential costs that it will face in the event of disasters, in particular given how many different individual permutations of disasters could occur on U.S. soil in any given year. The reason FEMA avoids such direct cost-benefit analysis is likely because there are too many variables and contingencies within the context of its particular mandate to really perform a reasonably accurate cost-benefit analysis.

Only through examination of past disasters, with reports that analyze where additional spending could have helped reduce harm, can any reasonable determination be made, and only to the extent that knowledge from one disaster is even transferable to another. There are few similarities between Katrina and Sandy, for example, so lessons learned from Katrina might not have been applicable to Sandy anyway. FEMA operates - and sets its budget -- with a higher degree of uncertainty than just about any governmental agency, and this provides unique challenges with respect to the cost-benefit analysis that it must run, especially since FEMA must also convince the White House and Congress of the merits of its cost-benefit analysis as well. It is likely that FEMA is underfunded for major disasters, but usually this would not be known until after such a disaster occurs. This high degree of uncertainty, and lack of effective performance measures that can be applied to the unique and disparate circumstances to which FEMA's most high-profile work applies, makes for a unique challenge in deriving an appropriate and effective cost-benefit analysis for the agency (Van Dooren, De Caluwe & Lonti, 2012).

VIII. Cash Management and Investment Strategies

For operational expenses, FEMA uses cash as it receives it. The annual budget is spent each year, and future spending is subject to future appropriations. However, FEMA's disaster relief fund is essential cash that must be ready to be employed, very quickly and in very large amounts, to provide immediate relief in the aftermath of a disaster. Thus, the disaster relief fund is a contingency fund of over $7 billion that needs to be available when disaster strikes, presenting FEMA's financial managers with an interesting challenge.