Establishing a Deductible for FEMA's Public Assistance Program, 4064-4097 [2017-00467]

Download as PDF 4064 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules Federal Emergency Management Agency 44 CFR Part 206 [Docket ID FEMA–2016–0003] RIN 1660–AA84 Establishing a Deductible for FEMA’s Public Assistance Program Federal Emergency Management Agency, DHS. ACTION: Supplemental advance notice of proposed rulemaking. AGENCY: The Federal Emergency Management Agency (FEMA) is considering implementing a Public Assistance deductible that would condition States’ receipt of FEMA reimbursement for the repair and replacement of public infrastructure damaged by a disaster event. The primary intent of the deductible concept is to incentivize greater State resilience to future disasters, thereby reducing future disaster costs nationally. On January 20, 2016, FEMA (the Agency) published an Advance Notice of Proposed Rulemaking (ANPRM) seeking comment on a Public Assistance deductible concept. The ANPRM provided a general description of the concept that many commenters found insufficient to provide meaningful comment. In an effort to offer the public a more detailed deductible concept upon which to provide additional feedback, the Agency is issuing a supplemental ANPRM (SANPRM) that presents a conceptual deductible program, including a methodology for calculating deductible amounts based on a combination of each State’s fiscal capacity and disaster risk, a proposed credit structure to reward States for undertaking resilience-building activities, and a description of how FEMA could consider implementing the program. At this stage of the rulemaking process, the deductible remains only something that FEMA is considering. The policy conceived of in this document is not a proposal. In this document, FEMA is providing what is merely a description of a direction FEMA could take in future rulemaking in an effort to solicit further feedback from the public. After considering the comments it receives, or as a result of other factors, FEMA may expand on or redevelop this concept. DATES: Comments must be submitted by April 12, 2017. mstockstill on DSK3G9T082PROD with PROPOSALS3 SUMMARY: VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 You may submit comments, identified by Docket ID FEMA–2016– 0003, by one of the following methods: Federal eRulemaking Portal: https:// www.regulations.gov. Follow the instructions for submitting comments. Mail/Hand Delivery/Courier: Regulatory Affairs Division, Office of Chief Counsel, Federal Emergency Management Agency, 8NE, 500 C Street SW., Washington, DC 20472. FOR FURTHER INFORMATION CONTACT: Jotham Allen, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, 202–646–1957. SUPPLEMENTARY INFORMATION: ADDRESSES: DEPARTMENT OF HOMELAND SECURITY I. Public Participation We encourage you to participate in this rulemaking by submitting comments and related materials. We will consider all comments and material received during the comment period. If you submit a comment, identify the agency name and the docket ID for this rulemaking, indicate the specific section of this document to which each comment applies, and give the reason for each comment. You may submit your comments and material by electronic means, mail, or delivery to the address under the ADDRESSES section. Please submit your comments and material by only one means. Regardless of the method used for submitting comments or material, all submissions will be posted, without change, to the Federal e-Rulemaking Portal at https://www.regulations.gov, and will include any personal information you provide. Therefore, submitting this information makes it public. You may wish to read the Privacy Act notice that is available via a link on the homepage of www.regulations.gov. Viewing comments and documents: For access to the docket to read supporting documents, a supplemental guidance document, and an annual notice template, and comments received, go to the Federal eRulemaking Portal at https:// www.regulations.gov. Background documents and submitted comments may also be inspected at FEMA, Office of Chief Counsel, 500 C Street SW., Washington, DC 20472–3100. II. Executive Summary On January 20, 2016, FEMA published an Advance Notice of Proposed Rulemaking (ANPRM), 81 FR 3082, seeking comment on a concept that would incorporate a deductible requirement into the Public Assistance program. The ANPRM provided a general description of this concept, PO 00000 Frm 00002 Fmt 4701 Sfmt 4702 followed by a list of questions for the public, the answers to which would help FEMA assess all aspects of the deductible concept, including how to calculate the deductible, the scope of the deductible, how to satisfy the deductible, how this concept could influence change, implementation considerations and an estimated impact. With input received from the ANPRM, FEMA has developed a more detailed potential deductible concept and seeks further public comment via this SANPRM. The goal of this SANPRM is to gather additional public comment about the specific aspects of a programmatic approach that the Agency recognizes would represent a change to the existing Federal disaster support system. The Public Assistance deductible would condition the States’ receipt of FEMA reimbursement for the permanent repair and replacement of public infrastructure damaged by a disaster event. FEMA believes the deductible requirement could incentivize State risk reduction efforts, mitigate future disaster impacts, and lower recovery costs for the whole community. In addition, the deductible requirement addresses concerns raised by Members of Congress, the Government Accountability Office (GAO), and the Department of Homeland Security’s Office of the Inspector General (DHS OIG) over the last several years, and potentially addresses concerns that the current disaster declaration process inadequately assesses State capacity to respond to and recover from a disaster without Federal assistance. In this SANPRM, FEMA is presenting a model, or potential, deductible program to provide more specifics of what the deductible requirement may entail for detailed public feedback. Detailed public comments on this potential program, in particular on the methodologies for calculating each State’s deductible and the estimates for each State’s projected credits, could assist FEMA in the development of a future proposed rule. Under the deductible concept, each State would be expected to expend a predetermined, annual amount of its own funds on emergency management and disaster costs before FEMA would provide Public Assistance for the repair and replacement of public infrastructure damaged by a disaster event. This annually predetermined amount is the State’s deductible. However, satisfying the deductible would not be required before FEMA would provide assistance for other types of assistance, such as debris removal or emergency protective measures. Importantly, States may E:\FR\FM\12JAP3.SGM 12JAP3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules choose to earn credits toward satisfying their deductible through a variety of activities that could reduce risk and improve preparedness, thereby reducing future disaster costs to both the State and Federal government. FEMA could calculate annually the deductible amount (in dollars) for each State based on an index of State risk and fiscal capacity. FEMA anticipates a scaled implementation of a deductible requirement over a yet-to-be-determined period of years with starting deductibles in year one as follows in Table 1: TABLE 1—FIRST YEAR STARTING DEDUCTIBLES BEFORE CREDITS 1 First year starting deductibles (before credits) mstockstill on DSK3G9T082PROD with PROPOSALS3 State Year 1 starting deductible (in millions) Alabama ............................ Alaska ............................... Arizona .............................. Arkansas ........................... California ........................... Colorado ........................... Connecticut ....................... Delaware ........................... Florida ............................... Georgia ............................. Hawaii ............................... Idaho ................................. Illinois ................................ Indiana .............................. Iowa .................................. Kansas .............................. Kentucky ........................... Louisiana .......................... Maine ................................ Maryland ........................... Massachusetts .................. Michigan ........................... Minnesota ......................... Mississippi ........................ Missouri ............................ Montana ............................ Nebraska .......................... Nevada ............................. New Hampshire ................ New Jersey ....................... New Mexico ...................... New York .......................... North Carolina .................. North Dakota .................... Ohio .................................. Oklahoma ......................... Oregon .............................. Pennsylvania .................... Rhode Island .................... South Carolina .................. South Dakota .................... Tennessee ........................ Texas ................................ Utah .................................. Vermont ............................ $6.74 1.00 9.01 4.11 52.53 7.08 5.04 1.27 26.51 13.66 1.92 2.21 14.43 9.14 4.30 4.02 6.12 6.39 1.87 8.14 9.23 13.94 7.48 4.18 8.44 1.40 2.58 3.81 1.86 12.40 2.90 27.32 13.45 1.00 16.27 5.29 5.40 17.91 1.48 6.52 1.15 8.95 35.46 3.90 1.00 1 For a full explanation of how the first year starting deductibles could be calculated under this model program, please refer to Section V, Subsections A–F of this notice. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 TABLE 1—FIRST YEAR STARTING DEDUCTIBLES BEFORE CREDITS 1— Continued First year starting deductibles (before credits) Virginia .............................. Washington ....................... West Virginia .................... Wisconsin ......................... Wyoming ........................... Potential first year ‘‘final’’ deductibles (adjusted for projected credits) 11.28 9.48 2.61 8.02 1.00 To offset the deductible requirement, FEMA could provide each State with an opportunity to apply for credits. The credits could incentivize States to dedicate resources on activities that are demonstrated to promote and support readiness, preparedness, mitigation, and resilience. Such activities could include adopting and enforcing building codes that promote disaster resilience, funding mitigation projects, or investing in disaster relief, insurance, and emergency management programs. FEMA believes that every State is already undertaking activities that would qualify them for credits and reduce their deductible requirement, such as investing in mitigation projects or granting tax incentives for projects that reduce risk. Based on FEMA’s projection of possible credits for activities each State is presently engaged in, FEMA estimates a potential adjusted deductible requirement in year one as follows in Table 2: TABLE 2—POTENTIAL FIRST YEAR FINAL DEDUCTIBLES ADJUSTED FOR PROJECTED CREDITS 2 Potential first year ‘‘final’’ deductibles (adjusted for projected credits) ‘‘Final’’ adjusted deductible (in millions) State Alabama ............................ Alaska ............................... Arizona .............................. Arkansas ........................... California ........................... Colorado ........................... Connecticut ....................... Delaware ........................... Florida ............................... Georgia ............................. Hawaii ............................... Idaho ................................. Illinois ................................ 5.01 0.74 4.88 2.49 7.63 5.24 3.72 0.94 10.85 9.99 1.68 1.66 3.47 2 For a full explanation of how each State’s projected credits were calculated and how those credits impacted the projected first year’s final deductibles under this model program, please refer to Section V, Subsections G–H of this notice. PO 00000 Frm 00003 Fmt 4701 TABLE 2—POTENTIAL FIRST YEAR FINAL DEDUCTIBLES ADJUSTED FOR PROJECTED CREDITS 2—Continued Year 1 starting deductible (in millions) State Sfmt 4702 4065 State Indiana .............................. Iowa .................................. Kansas .............................. Kentucky ........................... Louisiana .......................... Maine ................................ Maryland ........................... Massachusetts .................. Michigan ........................... Minnesota ......................... Mississippi ........................ Missouri ............................ Montana ............................ Nebraska .......................... Nevada ............................. New Hampshire ................ New Jersey ....................... New Mexico ...................... New York .......................... North Carolina .................. North Dakota .................... Ohio .................................. Oklahoma ......................... Oregon .............................. Pennsylvania .................... Rhode Island .................... South Carolina .................. South Dakota .................... Tennessee ........................ Texas ................................ Utah .................................. Vermont ............................ Virginia .............................. Washington ....................... West Virginia .................... Wisconsin ......................... Wyoming ........................... ‘‘Final’’ adjusted deductible (in millions) 2.81 1.70 3.45 4.65 5.57 1.46 5.78 5.11 8.53 1.25 2.51 4.78 0.77 1.52 2.03 0.91 4.89 2.02 19.59 2.48 0.30 11.75 3.33 3.91 5.52 1.20 4.92 0.92 7.06 26.99 1.99 0.63 4.89 8.91 1.91 6.17 0.71 Under the deductible concept, FEMA would continue to recommend whether a State should receive a major disaster declaration pursuant to the current factors outlined in Federal policy (44 CFR 206.48(a)). If a State receives a major disaster declaration authorizing Public Assistance reimbursement, the State would then be required to first satisfy its annual deductible requirement (as adjusted by credits) before FEMA would provide reimbursement for Public Assistance permanent work. If a State has not fully satisfied its deductible through earned credits, following a major disaster declaration the State would then identify one or more permanent work projects proposed under the disaster declaration to satisfy the remaining deductible amount (i.e., the State chooses the selected project(s) and the project(s) would be ineligible for FEMA assistance). In order to ensure timely E:\FR\FM\12JAP3.SGM 12JAP3 mstockstill on DSK3G9T082PROD with PROPOSALS3 4066 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules and complete response to the evacuation and immediate protection of life and property, FEMA would fund eligible emergency protective measures and debris removal regardless of whether or not the State has met its deductible requirement. FEMA could implement the deductible program by regulation, supplemented by a guidance document and annual notices. The regulation could set forth broadly that FEMA will annually calculate deductible and credit amounts and could describe how a deductible requirement could be applied post-declaration. The guidance document could set forth more specifically the annual schedule, and how FEMA will calculate deductible and credit amounts, and the annual notice could provide FEMA’s determination on State deductible amounts for the following year. A draft guidance document and example annual notice are included in the docket for this rulemaking at www.regulations.gov under docket ID FEMA–2016–0003 for public review and comment. Under this concept, FEMA would condition the provision of grant assistance for the permanent repair and replacement of building infrastructure that is damaged by a major disaster upon the State’s meeting a Public Assistance deductible. It would not apply to any other form of FEMA assistance, including emergency assistance, Individual Assistance, or the Hazard Mitigation Grant Program. Since the Public Assistance deductible would condition States’ receipt of FEMA funds, it would not apply to Indian Tribes, the District of Columbia, or US territories. The deductible would not change the official disaster declaration request process, or the factors that FEMA considers when making disaster declaration recommendations to the President. A deductible program could leverage FEMA’s Public Assistance program to reward States for investing in readiness, preparedness, mitigation, and resilience, thereby increasing the nation’s ability to reduce disaster impacts and costs for all levels of government, individuals, and the private sector. FEMA seeks comment on all details of this concept, especially regarding how the deductible could be calculated and the types and amounts of deductible credit that could be granted. III. Background and Development of the Deductible Concept Although the Federal government has been providing supplemental disaster relief to States and localities since the early 1800s, the Disaster Relief Act of VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 1974,3 which was amended and renamed the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) in 1988,4 formally established the foundation of the current disaster assistance system. Generally, FEMA directly provides or coordinates this assistance. Pursuant to this system, the Federal government provides various forms of financial and direct assistance following disasters. One of the primary types of support FEMA provides to affected jurisdictions is repair, restoration, and replacement assistance through the Public Assistance program.5 The Public Assistance program is FEMA’s principal means for assisting jurisdictions that are financially overwhelmed by the costs of repairing, restoring, and replacing public facilities damaged by disasters, such as buildings, roads, bridges, and other types of publicly-owned infrastructure. On average, FEMA has distributed approximately $4.6 billion in grants each year through the Public Assistance program over the past decade. Of the nearly $60 billion awarded through the Public Assistance program between 2005 and 2014, over 65 percent was for eligible recovery projects termed ‘‘permanent work’’ and for project management costs. Permanent work includes expenses for repair, restoration, and replacement that are not related to debris removal or emergency protective measures.6 Before an affected jurisdiction can receive funding through the Public Assistance program, the President of the United States must authorize it.7 The Governor typically makes a request through FEMA for a Presidential declaration of an emergency or major disaster authorizing the Public Assistance program.8 Upon receipt, FEMA is responsible for evaluating the Governor’s request and providing a recommendation to the President regarding its disposition.9 When considering a jurisdiction’s request for a major disaster declaration authorizing the Public Assistance program, FEMA considers six factors.10 These factors include: 3 Disaster Relief Act of 1974, Public Law 93–288 (1974). 4 Public Law 100–707 (1988). Robert T. Stafford Disaster Relief and Emergency Assistance Act, Public Law 93–288 (1974), as amended; 42 U.S.C. 5121 et seq. 5 See 42 U.S.C. 5172. 6 See 44 CFR 206.201(j). 7 See 42 U.S.C. 5170b, 5192; see also 44 CFR 206.38, 206.40. 8 42 U.S.C. 5170, 5191. 9 See 44 CFR 206.37(c). 10 See 44 CFR 206.48(a). PO 00000 Frm 00004 Fmt 4701 Sfmt 4702 1. Estimated cost of the assistance; 11 2. Localized impacts; 12 3. Insurance coverage in force; 13 4. Hazard mitigation; 14 5. Recent multiple disasters; 15 and 6. Programs of other Federal assistance.16 FEMA evaluates every request with regard to each of these delineated factors, to the extent applicable. However, there is a very strong correlation between the first factor, estimated cost of the assistance, and the likelihood that FEMA will recommend that the President issue a major disaster declaration. Under the current system, if a State demonstrates that an incident has caused a certain level of damage to a State to address the damage caused, FEMA would likely recommend that the President declare a major disaster. A major disaster indicates that the President has determined that the incident has caused ‘‘damage of sufficient severity and magnitude to warrant major disaster assistance under [the Stafford Act] to supplement the efforts and available resources of States, local governments, and disaster relief organizations in alleviating the damage, loss, hardship, or suffering caused thereby.’’ 17 Consequently, if the President declares a major disaster authorizing Public Assistance, FEMA will provide supplemental financial assistance grants, which pay for not less than 75 percent of eligible costs.18 Conversely, if the President does not issue a major disaster declaration, the amount of damage is presumed to be within the capabilities of the affected jurisdictions and any supporting disaster relief organizations. In that case, the affected State is responsible for all of the costs of the incident, although the State will often pass many of the costs on to local jurisdictions. For example, under current regulations FEMA may determine a particular State based on its population is able to independently handle up to $1,000,000 in damage without the need for supplemental Federal assistance. Under the current approach, an incident need only identify damage at that amount to suggest that supplemental Federal assistance is needed. If the governor of that State requests a major disaster declaration for an incident causing $999,999 in damage, it is likely that 11 Id. at § 206.48(a)(1). at § 206.48(a)(2). 13 Id. at § 206.48(a)(3). 14 Id. at § 206.48(a)(4). 15 See 44 CFR 206.48(a)(5). 16 Id. at § 206.48(a)(6). 17 42 U.S.C. 5122(2) (defining a major disaster for purposes of the Act). 18 42 U.S.C. 5170b(b). 12 Id. E:\FR\FM\12JAP3.SGM 12JAP3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules supplemental Federal assistance will not be authorized and the State will be responsible for the entirety of the loss. However, if instead the incident caused exactly $1,000,000 in damage, supplemental Federal assistance may be authorized and FEMA would provide reimbursement grants through the Public Assistance program for at least $750,000 (75 percent of eligible costs). This has the effect of FEMA providing Public Assistance funding for activities and damage that are identified to be within State capabilities. Since 1986, FEMA has used a per capita indicator to compare the estimated cost of the incident and the capabilities of the requesting jurisdiction.19 This per capita indicator was originally set at $1.00 per person and is based on the jurisdiction’s decennial census population. FEMA selected $1.00 because it appeared at the time to be a reasonable portion of per capita personal income (PCPI) for a State to contribute towards the cost of a disaster.20 Collectively, this amount also ‘‘correlate[d] closely to about onetenth of one percent of estimated General Fund expenditures by States.’’ 21 The per capita indicator remained at $1.00 from 1986 until 1999 when FEMA began to add inflation to the value annually. FEMA did not, however, adjust the per capita indicator for inflation retroactively. Consequently, since 1999, the per capita indicator has risen to its 2016 value of $1.41.22 FEMA publishes the updated per capita indicator in the Federal Register each year. FEMA then multiplies the indicator by the State’s most recent decennial population to determine the amount of damage that a State is expected to be able to independently manage without the need for supplemental Federal assistance. For example, if a State had a population at the time of the 2010 decennial census population of 1,500,000, FEMA would multiply that by the 1.41 indicator and arrive at a State-level indicator of 2,115,000. In other words, FEMA would expect that the State would be able to handle at least 2,115,000 in eligible damage without the need for supplemental Federal assistance. FEMA has established, through regulation, a 1,000,000 minimum for any major disaster, regardless of the calculated indicator.23 The 1,000,000 floor is not subject to inflationary adjustments. Although FEMA considers every request for a Presidential major disaster declaration in the light of each applicable regulatory factor, the probability of an incident being declared based on the amount of disaster damage and the State-specific per capita indicator has been over 80 percent for the past 10 years (494 of 589 declared major disasters). In other words, whether damage assessments find an amount of damage that meets or exceeds the Public Assistance per capita indicator is highly correlated to whether that State will ultimately receive supplemental Federal assistance for that incident. Since the per capita indicator was initially adopted in 1986, it has lost its relation to both of the metrics upon which it was first calculated. In 1986, PCPI in the United States was 11,687.24 By 2015, PCPI had risen to 48,112, an increase of over 300 percent.25 FEMA 4067 has applied inflation adjustments since 1999, and the per capita indicator has risen by just 41 percent over that same period. A retrospective analysis conducted by FEMA suggests that if the per capita indicator had kept pace with PCPI, 70 percent of the major disasters between 2005 and 2014 would not have been declared. This would have transferred all of the costs for 408 disasters to the 49 States that would likely have each had at least one less major disaster declared. As an example, Missouri and Oklahoma would have each have had 19 fewer major disasters declared. Overall, Public Assistance grants would have been reduced by 10 percent had these 408 major disasters not been declared, resulting in 5 billion dollars less in Federal disaster assistance to the States.26 Twenty-one States would have each received over 100 million less in Public Assistance, with California having received 761 million less, New York more than 600 million less, and Texas over 366 million less. Table 3 presents a State-by-State retrospective synopsis of the likely impacts a PCPI-adjusted per capita indicator would have had on declared major disasters between 2005 and 2014. To conduct this analysis, FEMA adjusted the per capita indicator for each year by multiplying the previous year’s national per capita personal income value for each State by 0.0001. This maintains the 0.01% ratio of the per capita indicator to per capita personal income that FEMA noted when it established the original per capita indicator. TABLE 3—IMPACT OF PCPI-ADJUSTED PER CAPITA INDICATOR ON PAST DISASTER ACTIVITY [2005–2014] Change in numbers of disasters State mstockstill on DSK3G9T082PROD with PROPOSALS3 Alabama ........................................................................................................................................................... Alaska .............................................................................................................................................................. Arizona ............................................................................................................................................................. Arkansas .......................................................................................................................................................... California .......................................................................................................................................................... Colorado .......................................................................................................................................................... 19 The per capita indicator is applied at the State level for major disaster declarations; however, a second indicator is also used at the local level to determine which counties are declared within the State. 20 Disaster Assistance; Subpart C, the Declaration Process and State Commitments, 51 FR 13332, Apr. 18, 1986. 21 Id. 22 Notice of Adjustment of Statewide Per Capita Indicator, 80 FR 61836, Oct. 14, 2015. 23 44 CFR 206.48(a)(1). VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 24 See Disaster Assistance; Subpart C, the Declaration Process and State Commitments, 51 FR 13332, Apr. 18, 1986 25 Per Capita Personal Income (PCPI) is calculated annually by the United States Department of Commerce’s Bureau of Economic Analysis. The 2015 PCPI data is available at https://www.bea.gov/ iTable/iTable.cfm?reqid=70&step=1&isuri= 1&acrdn=6%20-%20reqid=70&step=30&isuri=1& 7022=21&7023=0&7024=non-industry&7033=1&7025=0&7026=00000&7027=2015&7001= 421&7028=3&7031=0&7040=-1&7083= levels&7029=21&7090=70#reqid=70&step= 30&isuri=1&7022=21&7023=0&7024=non- PO 00000 Frm 00005 Fmt 4701 Sfmt 4702 ¥12 ¥8 ¥5 ¥15 ¥12 ¥3 Public assistance change (actual in 2015$) ¥$156,634,854 ¥16,686,176 ¥32,864,734 ¥105,560,705 ¥761,414,191 ¥12,035,081 industry&7033=-1&7025=0&7026=00000&7027= 2015&7001=421&7028=3&7031=0&7040=1&7083=levels&7029=21&7090=70. [1) Select Annual State Personal Income and Employment. 2) Select Personal Income, Population, Per Capita Personal Income, Disposable Personal Income, and Per Capita Disposable Personal Income (SA1, SA51). 3) Select SA1—Personal Income Summary: Personal Income, Population, Per Capita Personal Income. 4) Select United States, Levels, and Per Capita Personal Income (Dollars). 5) Select 2015. 26 Dollar amounts were adjusted to 2015 dollars (2015). E:\FR\FM\12JAP3.SGM 12JAP3 4068 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules TABLE 3—IMPACT OF PCPI-ADJUSTED PER CAPITA INDICATOR ON PAST DISASTER ACTIVITY—Continued [2005–2014] Change in numbers of disasters State Public assistance change (actual in 2015$) ¥4 ¥2 ¥7 ¥5 ¥5 ¥5 ¥11 ¥8 ¥13 ¥12 ¥11 ¥6 ¥11 ¥7 ¥7 ¥3 ¥10 ¥7 ¥19 ¥5 ¥16 ¥4 ¥11 ¥11 ¥6 ¥15 ¥8 ¥6 ¥6 ¥19 ¥8 ¥7 ¥1 ¥1 ¥8 ¥13 ¥9 ¥6 ¥8 ¥8 ¥8 ¥10 ¥6 ¥34,539,160 ¥2,734,920 ¥170,847,001 ¥105,365,782 ¥19,758,046 ¥11,113,622 ¥279,253,502 ¥98,604,662 ¥103,292,537 ¥74,419,056 ¥98,057,973 ¥40,610,199 ¥31,102,969 ¥120,907,360 ¥135,316,467 ¥36,000,794 ¥114,692,904 ¥37,337,169 ¥275,421,878 ¥11,589,893 ¥67,235,065 ¥15,984,383 ¥39,448,267 ¥207,572,077 ¥37,173,106 ¥600,294,475 ¥124,991,358 ¥11,015,041 ¥131,629,728 ¥120,128,934 ¥61,741,829 ¥144,293,529 ¥641,448 ¥12,859,770 ¥11,791,000 ¥113,576,960 ¥366,759,151 ¥33,421,146 ¥10,790,332 ¥159,073,446 ¥158,351,021 ¥59,884,181 ¥55,046,806 Total .......................................................................................................................................................... mstockstill on DSK3G9T082PROD with PROPOSALS3 Connecticut ...................................................................................................................................................... Delaware .......................................................................................................................................................... Florida .............................................................................................................................................................. Georgia ............................................................................................................................................................ Hawaii .............................................................................................................................................................. Idaho ................................................................................................................................................................ Illinois ............................................................................................................................................................... Indiana ............................................................................................................................................................. Iowa ................................................................................................................................................................. Kansas ............................................................................................................................................................. Kentucky .......................................................................................................................................................... Louisiana .......................................................................................................................................................... Maine ............................................................................................................................................................... Maryland .......................................................................................................................................................... Massachusetts ................................................................................................................................................. Michigan ........................................................................................................................................................... Minnesota ........................................................................................................................................................ Mississippi ........................................................................................................................................................ Missouri ............................................................................................................................................................ Montana ........................................................................................................................................................... Nebraska .......................................................................................................................................................... Nevada ............................................................................................................................................................. New Hampshire ............................................................................................................................................... New Jersey ...................................................................................................................................................... New Mexico ..................................................................................................................................................... New York ......................................................................................................................................................... North Carolina .................................................................................................................................................. North Dakota .................................................................................................................................................... Ohio ................................................................................................................................................................. Oklahoma ......................................................................................................................................................... Oregon ............................................................................................................................................................. Pennsylvania .................................................................................................................................................... Rhode Island .................................................................................................................................................... South Carolina ................................................................................................................................................. South Dakota ................................................................................................................................................... Tennessee ....................................................................................................................................................... Texas ............................................................................................................................................................... Utah ................................................................................................................................................................. Vermont ........................................................................................................................................................... Virginia ............................................................................................................................................................. Washington ...................................................................................................................................................... West Virginia .................................................................................................................................................... Wisconsin ......................................................................................................................................................... ¥408 ¥5,429,864,688 The Public Assistance per capita indicator has also fallen short of keeping pace with State general fund expenditures. According to the National Association of State Budget Officers (NASBO), State general fund spending in 2015 totaled 759.4 billion.27 Collectively, the States’ per capita indicators equaled 435.3 million in 2015. Consequently, the relation of the per capita indicator to State general 27 NASBO, Fiscal Survey of States, Fall 2015, located at https://higherlogicdownload.s3.amazo naws.com/NASBO/9d2d2db1-c943-4f1b-b750fca152d64c2/UploadedImages/Fiscal%20Survey/ Fall%202015%20Fiscal%20Survey%20of%20 States%20(S).pdf. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 fund expenditures is just 57 percent of what it was in 1986. The failure of the per capita indicator to keep pace with changing economic conditions and the increasing frequency and costs of disasters has led to criticism of the per capita indicator. Those critiques have emphasized that the per capita indicator is artificially low. Many have called for FEMA to find ways to decrease the frequency of disaster declarations and Federal disaster costs, by increasing the per capita indicator to transfer costs back to State and local jurisdictions. These have included recommendations from PO 00000 Frm 00006 Fmt 4701 Sfmt 4702 GAO,28 reports of the DHS OIG,29 and proposed legislation.30 28 See, e.g., GAO, Disaster Assistance: Improvements Needed in Disaster Declaration Criteria and Eligibility Assurance Procedures, GAO–01837 (2001); See also, GAO, GAO–12–838, Federal Disaster Assistance: Improved Criteria Needed to Assess Eligibility and a Jurisdiction’s Capability to Respond and Recover On Its Own, 29 (2012). 29 See Office of Inspector General, OIG–12–79, Opportunities to Improve FEMA’s Public Assistance Preliminary Damage Assessment Process 3, Department of Homeland Security (2012). 30 See, e.g., S.1960, Fairness in Federal Disaster Declarations Act of 2014, 113th Cong.; H.R. 3925, Fairness in Federal Disaster Declarations Act of 2014, 113th Cong. (establishing criteria for FEMA to incorporate in rulemaking with specific weighted factors); H.R. 1859, Disaster Declaration Improvement Act of 2013, 113th Cong. (requiring E:\FR\FM\12JAP3.SGM 12JAP3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules mstockstill on DSK3G9T082PROD with PROPOSALS3 Concluding that the per capita indicator is artificially low,31 the GAO recommended that the FEMA Administrator ‘‘develop and implement a methodology that provides a more comprehensive assessment of a jurisdiction’s capability to respond and to recover from a disaster without federal assistance.’’ 32 As FEMA considered these observations and recommendations, FEMA was finalizing its 2014–2018 Strategic Plan 33 that includes Strategic Priority 4: Enable Disaster Risk Reduction Nationally.34 Objective 4.2 of the Strategic Plan is to ‘‘incentivize and facilitate investments to manage current and future risk’’ 35 through ‘‘facilitate[ing] collaboration to strengthen risk standards, leverage market forces, and guide resilient investments’’ 36 as well as through ‘‘reshap[ing] funding agreements with States, tribal governments, and localities to expand cost-sharing and deductibles,’’ 37 inter alia. FEMA also considered the President’s emphasis on advancing national resilience. The President issued three related Executive Orders in the past two years to build resilience through (1) establishing a Federal flood risk management standard,38 (2) establishing a Federal earthquake risk management standard,39 and (3) requiring agencies to enhance the resilience of buildings to wildfire in the wildland-urban interface.40 FEMA has been seeking ways to leverage its programs and resources to further other resiliencebuilding efforts as well. For example, FEMA has instituted a policy to establish hazard resistant minimum standards for Public Assistance projects.41 In early 2014, FEMA began to explore the possibility of introducing a deductible to the Public Assistance new regulations concerning major disaster declarations). 31 GAO 12–838, supra FN22, at 24. 32 Id. at 50. 33 See generally FEMA Strategic Plan: 2014–2018, available at https://www.fema.gov/media-librarydata/1405716454795-3abe60aec989ecce518c4 cdba67722b8/July18FEMAStratPlanDigital508Hi ResFINALh.pdf. 34 Id. at 23. 35 Id. at 26. 36 Id. at 27. 37 Ibid. 38 Executive Order 13,690, 80 FR 6425, Feb. 4, 2015. 39 Executive Order 13,717, 81 FR 6407, Feb. 2, 2016. 40 Executive Order 13,728, 81 FR 32223, May 20, 2016. 41 Public Assistance Required Minimum Standards Policy, FP–104–109–4, Sep. 30, 2016, available at https://www.fema.gov/media-library/ assets/documents/124326. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 program as a way to leverage the program to encourage resilience and address some of the concerns raised by GAO. Accordingly, FEMA convened a working group of subject-matter experts from within the agency. During the ensuing months, the working group extensively explored the declaration process, the policies and workings of the Public Assistance program, the applicable legal authorities and limitations, and many other areas that would be necessary to inform the development of a deductible concept. In the course of this research, FEMA reviewed a related rulemaking effort that was a contemporary to the 1986 development of the per capita indicator. FEMA had proposed a regulation that sought to establish (1) ‘‘capability indicators’’ for the major disaster declaration decision-making process, (2) a requirement for Governors to make commitments on behalf of their States and local governments to assume a portion of the Public Assistance costs, and (3) a sliding cost-share based on the capability indicators.42 The proposed rule was met with vocal and widespread criticism by Congress and the emergency management community and FEMA ultimately abandoned the effort.43 Two of the primary criticisms of FEMA’s proposed 1986 rulemaking: 1. FEMA did not recognize the efforts and expenditures that States were already committing to disaster response and recovery; and 2. FEMA did not offer sufficient engagement with key stakeholders during the developmental process. Considering this background, the FEMA working group developed three guiding principles that were designed to control and direct the impact of the deductible concept: 1. Encourage and incentivize riskinformed mitigation strategies on a broad scale, while also recognizing current State activities; 2. Incentivize consistent fiscal planning by all States for disasters and establish mechanisms to better assess State fiscal capacity to respond to disasters; and 3. Ensure the supplemental nature of FEMA assistance. 42 See Disaster Assistance; Subpart C, the Declaration Process and State Commitments, 51 FR 13332, Apr. 18, 1986; see also Disaster Assistance; Subpart E—Public Assistance—Eligibility Criteria, 51 FR 13341, Apr. 18, 1986; Disaster Assistance; Subpart H, Public Assistance Project Administration, 51 FR 13357, Apr. 18, 1986. 43 Inquiry into FEMA’s Proposed Disaster Relief Regulations: Hearing Before the Subcomm. on Investigations and Oversight of the H. Comm. On Public Works and Transportation, 99th Cong. (1986). PO 00000 Frm 00007 Fmt 4701 Sfmt 4702 4069 Through these guiding principles, the working group designed an initial deductible concept that could leverage the Public Assistance program to recognize risk reduction investments that the States were already undertaking and to incentivize risk reduction best practices nationwide as a means to reduce future disaster impacts and costs for the whole community rather than simply transferring response and recovery costs from the Federal government to State and local jurisdictions. The working group also determined further exploration of the deductible concept should be cognizant of the two primary criticisms of FEMA’s proposed 1986 rulemaking: The failure to recognize the efforts and expenditures that States were already committing to disaster response and recovery and the insufficient engagement with key stakeholders. In its 2015 updated response to the GAO recommendations, FEMA presented three options that it planned to continue investigating: 1. Adjust the per capita indicator to better reflect current national and Statespecific economic conditions; 2. Develop an improved methodology for considering factors in addition to the per capita indicator; and 3. Implement a State-specific deductible concept for States to satisfy before qualifying for Public Assistance. After further investigation and consideration of the alternatives, FEMA decided to further develop the deductible concept because of its relationship to Strategic Priority 4 and its potential for reducing risk and disaster costs for the whole community through incentivizing targeted investments. Moving forward, FEMA plans to pursue closeout of the GAO recommendation through development of the deductible concept for the Public Assistance program. However, FEMA will continue to consider alternatives to the deductible concept going forward, including the GAO’s recommendation to significantly increase the current per capita indicator as described in Sections III and VI(A). IV. Advance Notice of Proposed Rulemaking FEMA issued the ANPRM to introduce the deductible concept with the emergency management community and the public. The ANPRM consisted of basic background information concerning the declarations process and a very high-level overview of a deductible concept. In keeping with the preliminary and developmental state of the concept at that time, the ANPRM offered few specifics concerning the E:\FR\FM\12JAP3.SGM 12JAP3 mstockstill on DSK3G9T082PROD with PROPOSALS3 4070 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules organization or implementation of a deductible. Chiefly, the ANPRM included an extensive list of questions that FEMA was seeking to answer regarding how a deductible program could be best structured and applied to achieve the principles outlined above. These questions were wide ranging in specificity to address all potential aspects of the deductible concept. FEMA presented these questions in an impartial manner to solicit as many relevant responses as possible. This was effective in generating varied responses to questions upon which opinions differed, but in many cases commenters noted it was difficult if not impossible to answer specific questions without a more detailed description of the deductible concept. As a result, commenters provided more general and conceptual responses to the questions asked. FEMA believes that it would have benefited from receiving more specific and detailed feedback, and that the information contained in those types of comments would have been very helpful to the rulemaking process. In all, FEMA received approximately 150 comments on the ANPRM.44 These comments came from 35 entities representing 28 individual States, 28 local jurisdictions, and 2 Indian Tribal Nations. FEMA also received comments from 19 professional industry groups, 3 governmental associations, and 9 research and policy organizations. FEMA reviewed the comments that were received and incorporated the concerns and suggestions into the potential deductible program presented in this SANPRM. FEMA noted many concerns in the comments regarding how the deductible could be applied, or the burdens, either financial or administrative, that it could create for the States. FEMA addressed these concerns in the design concept. In other cases, it was clear that FEMA had not provided enough background information for commenters to offer practicable suggestions. Some comments may have benefited from FEMA providing additional explanation of the current disaster declaration processes, more specificity regarding the Public Assistance program, and a more expansive description of the deductible concept itself. FEMA concluded that it had not offered sufficient information in the ANPRM to enable the public to fully participate in commenting on all aspects of the concept. Consequently, FEMA is providing the public more detail on its 44 The comments can be viewed on the docket for this rulemaking at www.regulations.gov under docket ID FEMA–2016–0003. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 concept for a deductible program in this SANPRM. Notwithstanding the limitations on specificity in the ANPRM, FEMA received support for the concept as a means by which to achieve the goals of reducing disaster impacts and costs through improved preparedness activities and expanded investments in mitigation and risk reduction. Many commenters pointed out that the deductible program could be a preferred outcome compared to increasing the per capita indicator and the potential transfer of financial responsibility to State and local governments that would result. Some commenters found merit in the deductible concept as a way through which to reduce costs, but also to improve disaster resiliency by investing before an incident and incurring reduced costs related to response and recovery over the long term. In addition to seeking comment via the ANPRM, FEMA continued to conduct research to inform the design of the deductible concept. FEMA recognizes that establishing the methodology for calculating the deductible in an equitable, accurate, and transparent way is essential to any future deductible proposal. Further, for any approach to sustain the rigors of analytic and economic review, FEMA recognized that it would benefit from leveraging external expertise to better develop a methodology that was defensible and reproducible. With the assistance of the Department of Homeland Security (DHS) Science and Technology Directorate’s Office of University Programs, FEMA contracted with the Center for Risk and the Economic Analysis of Terrorism Events (CREATE), a DHS Center of Excellence, to support development of the deductible calculation. CREATE is known for its experience in hazard assessment research, as well as statistical and economic modeling capabilities. CREATE dedicated a team of research and academic experts to develop a reliable methodology for calculating a deductible that is cognizant of the principles established by the FEMA working group; namely that the proposed formula be reflective of the individual capabilities and risks unique to each State and that the calculus function in a transparent and replicable way utilizing publically available information and data. FEMA also contracted with a leading emergency management consulting firm to conduct additional research pertinent to developing the deductible. With the assistance of the National Emergency Management Association, this firm reached out to nine States on FEMA’s PO 00000 Frm 00008 Fmt 4701 Sfmt 4702 behalf to assist those States with identifying information pertinent to the development of the deductible concept.45 At the next stage of development, FEMA will make every effort to gather data from a larger sample of States, preferably all States, so that the proposal may be as representative as possible. FEMA also invites States to specifically correct any erroneous assumptions made for purposes of developing this SANPRM deductible concept during the comment period. Specifically, the consulting firm assisted FEMA with understanding the methods and strategies currently used by these nine States to pay for the costs of emergency management programs, mitigation initiatives, and disaster response and recovery. The firm also researched innovative preparedness programs that the nine States have developed to further encourage planning and resiliency-building, such as tax credit incentive programs for individuals, localities, and State entities. FEMA primarily used the information it obtained from the consulting firm to estimate baselines of current State investments that FEMA then used to set initial credit approvals at levels likely to encourage additional investment and program growth. FEMA also leveraged the information to assist in preparing targeted outreach efforts during the comment period of the ANRPM, such as those held with the National Governor’s Association, the National Association of Counties, the National Emergency Management Association, Big City Emergency Managers, National League of Cities, and the International Association of Emergency Managers. These targeted engagements enabled FEMA to draw attention to the ANPRM, explain the purpose and background of the deductible concept with key stakeholders, and to solicit additional details that could be particularly pertinent to informing FEMA’s deductible design considerations. Following closure of the ANPRM comment period, FEMA compiled the comments received, the research performed by CREATE, and the research on State disaster funding and incentive programs and formulated the potential deductible program concept described in this SANPRM. FEMA believes that this deductible concept is capable of meaningfully reducing the nation’s overall risk profile over time. Calculating a deductible is, however, complex. FEMA also 45 The States contacted were California, Florida, Minnesota, New York, Pennsylvania, Texas, Washington, Wyoming, and Vermont. E:\FR\FM\12JAP3.SGM 12JAP3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules understands a deductible could be a significant change to FEMA’s largest supplemental disaster assistance program. FEMA is therefore committed to continuing to dialogue with its emergency management partners on how best to design a program that will achieve mutually-beneficial goals without the undue transfer of responsibility or the creation of unnecessarily burdensome administrative bureaucracy. V. Potential Deductible Program A. Calculation Methodology There is innate uncertainty in the likelihood of disaster events that prevents perfection in a deductible concept and complicates a complete understanding of the complex disaster environment within which the deductible program would operate. However, not unlike the commercial insurance markets, these uncertainties can be quantified and analyzed over geographic areas and over long periods of time with increasing precision. These calculations could be used to approximate the relative exposure of certain regions, in this case the States, to future disaster costs. These estimates could then be reflected in the relative value of a State’s deductible. Arriving at a calculation methodology is thus one of the most critical aspects of moving the deductible program beyond the conceptual stage and requires public comment. FEMA believes that the methodology should be transparent, reproducible, defensible, and equitable. Additionally, FEMA believes that the approach should reflect fundamental purposes of the Stafford Act, namely that the Federal government support those States that are overwhelmed by the response to and recovery from a natural disaster. Therefore, it is most appropriate to calculate each State’s deductible based upon the aspects of fiscal capacity and disaster risk that are unique to the State. FEMA could do this through a four-step process: (1) Establishing the base deductible, (2) calculating the fiscal capacity index, (3) calculating the risk index, and (4) normalizing the deductible amounts. FEMA has included a step-by-step table in the rulemaking docket that demonstrates how each State’s starting deductible amount was calculated for purposes of this SANPRM. That table and those deductible amounts are included only as an example of how the deductible concept may function. If implemented, the actual deductible amounts will be dictated by the parameters of the proposal ultimately adopted. B. Establishing the Base Deductible As with the rest of the SANPRM all numbers, figures, criteria and processes detailed in this section are notional. They are intended to aid the public in understanding how a potential deductible program could operate and to spur discussion and feedback. FEMA begins its conceptual methodology by establishing an annual base deductible that would be shared nationwide (i.e., the same amount for each State), and would then be increased or decreased for each State based upon a State’s fiscal capacity and risk profile relative to the other States. FEMA utilized historic annual amounts of Public Assistance provided to States to establish the model base deductible. Although FEMA hopes to incentivize risk reduction and resilience that could reduce overall disaster impacts and costs, not solely those eligible for reimbursement through the Public Assistance program, FEMA believes it is important that the base deductible for the Public Assistance program shares a nexus with the program itself.46 As developed by FEMA, the base deductible utilized in this conceptual 4071 model is the median average amount of Public Assistance received across all 50 States in the past 17 years.47 FEMA summed the total amount of Public Assistance delivered to each State from 1999 to 2015 and then divided by 17 to determine the per State average annual amount of Public Assistance. FEMA then created a ranked list of those average amounts and determined the median value. Because there are 50 States, the median value is the average of the results for the States situated at the 25th and 26th positions, which was 22,202,726. FEMA rounded the median average amount to 22.2M and imputed this amount to every State as the initial base deductible for the subsequent year. FEMA believes that this may be a reasonable approach to establishing a base deductible because it would leverage approximately 25 percent of the average amount that FEMA awards in Public Assistance each year to incentivize reducing risk. Based on comments received in response to the ANPRM, FEMA believes that States are already making investments that would offset a portion of this amount through credits. By adjusting each State’s base deductible amount to account for its individual risk and fiscal capacity, as described in the subsequent subsections, this approach could yield a meaningful deductible amount for each State, while still providing the greatest incentive to States that have the greatest potential for effectively reducing risk and future disaster costs. FEMA believes this could balance the potential benefits of the disaster deductible program with the need to continue supporting our State partners when disasters exceed their capabilities. See Table 4 for a breakdown of the cumulative and average amount of Public Assistance that each State received from 1999 through 2015. TABLE 4—STATE RANK OF FEDERAL ASSISTANCE FROM 1999–2015 [In 2015 dollars] Total federal share obligated (1999–2015) State 1 ........................ 2 ........................ 3 ........................ mstockstill on DSK3G9T082PROD with PROPOSALS3 No. New York ................................................................................................. Louisiana .................................................................................................. Florida ...................................................................................................... 46 See generally Section 406 of the Stafford Act which authorizes FEMA to provide funding to assist State, territorial, Tribal and local governments, as well as certain private nonprofit organizations that provide governmental-type services, with the restoration of disaster damaged infrastructure. Because this underlying authority for the program is for public infrastructure, FEMA believes that it is important that the deductible remains connected to Public Assistance funding for that infrastructure. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 47 FEMA used Public Assistance data from 1999 to 2015 adjusted for inflation to 2015 dollars where necessary using the Consumer Price Index inflation calculator provided by the Bureau of Labor Statistics and available at https://www.bls.gov/data/ inflation_calculator.htm. Prior to 1999, FEMA utilized a data management process that was different from the current system. Furthermore, prior to 1999, FEMA had different policies in place that would have also affected the way that Public PO 00000 Frm 00009 Fmt 4701 Sfmt 4702 $21,671,388,334 16,621,415,286 6,399,822,001 Annual average federal share obligated $1,274,787,549 977,730,311 376,460,118 Assistance was awarded. The data from the 1999– 2015 period is the most reliable that FEMA has available. FEMA expects to add additional data to the calculation each year to increase accuracy over time and to account for long-term shifts in Public Assistance, rather than using a rolling window of data for the annual calculation. This will also limit the impact of any outlier years in terms of Public Assistance awards, both for high and low extremes. E:\FR\FM\12JAP3.SGM 12JAP3 4072 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules TABLE 4—STATE RANK OF FEDERAL ASSISTANCE FROM 1999–2015—Continued [In 2015 dollars] Total federal share obligated (1999–2015) State 4 ........................ 5 ........................ 6 ........................ 7 ........................ 8 ........................ 9 ........................ 10 ...................... 11 ...................... 12 ...................... 13 ...................... 14 ...................... 15 ...................... 16 ...................... 17 ...................... 18 ...................... 19 ...................... 20 ...................... 21 ...................... 22 ...................... 23 ...................... 24 ...................... 25 ...................... M ....................... 26 ...................... 27 ...................... 28 ...................... 29 ...................... 30 ...................... 31 ...................... 32 ...................... 33 ...................... 34 ...................... 35 ...................... 36 ...................... 37 ...................... 38 ...................... 39 ...................... 40 ...................... 41 ...................... 42 ...................... 43 ...................... 44 ...................... 45 ...................... 46 ...................... 47 ...................... 48 ...................... 49 ...................... 50 ...................... mstockstill on DSK3G9T082PROD with PROPOSALS3 No. Mississippi ................................................................................................ Texas ....................................................................................................... New Jersey .............................................................................................. Iowa .......................................................................................................... California .................................................................................................. Oklahoma ................................................................................................. Kansas ..................................................................................................... North Carolina .......................................................................................... Missouri .................................................................................................... Alabama ................................................................................................... Arkansas .................................................................................................. North Dakota ............................................................................................ Virginia ..................................................................................................... Kentucky .................................................................................................. Tennessee ............................................................................................... Pennsylvania ............................................................................................ Nebraska .................................................................................................. Washington .............................................................................................. Minnesota ................................................................................................. Massachusetts ......................................................................................... Colorado ................................................................................................... South Carolina ......................................................................................... Median ..................................................................................................... Ohio .......................................................................................................... Georgia .................................................................................................... West Virginia ............................................................................................ Illinois ....................................................................................................... Vermont .................................................................................................... Connecticut .............................................................................................. South Dakota ........................................................................................... New Mexico ............................................................................................. Maryland .................................................................................................. Indiana ..................................................................................................... Alaska ...................................................................................................... Wisconsin ................................................................................................. Oregon ..................................................................................................... New Hampshire ....................................................................................... Maine ....................................................................................................... Hawaii ...................................................................................................... Montana ................................................................................................... Arizona ..................................................................................................... Rhode Island ............................................................................................ Michigan ................................................................................................... Delaware .................................................................................................. Utah .......................................................................................................... Nevada ..................................................................................................... Wyoming .................................................................................................. Idaho ........................................................................................................ After establishing this base deductible that is shared by every State, FEMA differentiated the States and ascribed individual deductibles according to each State’s relative fiscal capacity and unique disaster risk profile. Fiscal capacity is important because the intent of FEMA’s Stafford Act programs, including Public Assistance, is to supplement the capabilities of State and local jurisdictions. Disaster risk is important because it is the primary driver of Public Assistance expenditures and its reduction is the primary purpose of the deductible concept. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 Because FEMA is seeking to reduce risk through the deductible, and it is precisely through this risk reduction that the nation could realize the promise of the deductible program in decreasing disaster impacts and costs, FEMA has considered in this calculation prioritizing the risk portion of the deductible calculation by a ratio of 3:1 compared to the fiscal capacity portion. In other words, when a State’s base deductible is adjusted, 75 percent of the adjustment results from the State’s relative risk profile and the remaining 25 percent stems from the State’s relative fiscal capacity. PO 00000 Frm 00010 Fmt 4701 Sfmt 4702 4,180,836,633 4,094,422,168 2,357,737,579 1,826,578,453 1,437,292,282 1,131,691,340 1,080,772,444 953,206,418 888,379,570 841,956,023 744,651,963 679,833,405 643,863,349 615,307,272 602,295,312 557,230,633 435,308,536 428,584,871 426,982,553 422,663,583 408,338,653 384,041,986 377,446,341 370,850,697 328,820,892 311,011,683 309,990,918 297,996,556 284,870,352 284,612,022 274,303,673 265,115,281 237,955,033 203,258,189 174,472,096 144,641,218 137,674,702 91,683,905 87,697,345 70,196,126 68,642,964 63,361,303 42,583,629 39,007,437 34,208,312 30,275,261 12,973,750 11,695,737 Annual average federal share obligated 245,931,567 240,848,363 138,690,446 107,445,791 84,546,605 66,570,079 63,574,850 56,070,966 52,257,622 49,526,825 43,803,057 39,990,200 37,874,315 36,194,545 35,429,136 32,778,273 25,606,384 25,210,875 25,116,621 24,862,564 24,019,921 22,590,705 22,202,726 21,814,747 19,342,405 18,294,805 18,234,760 17,529,209 16,757,080 16,741,884 16,135,510 15,595,017 13,997,355 11,956,364 10,263,064 8,508,307 8,098,512 5,393,171 5,158,667 4,129,184 4,037,821 3,727,135 2,504,919 2,294,555 2,012,254 1,780,898 763,162 687,985 C. Calculating the Fiscal Capacity Index As with the rest of the SANPRM all numbers, figures, criteria and processes detailed in this section are notional. They are intended to aid the public in understanding how a potential deductible program could operate and to spur discussion and feedback. To calculate a State’s relative fiscal capacity, FEMA, with the assistance of CREATE, developed a composite of four individual fiscal capacity indices. FEMA and CREATE considered multiple potential indicators of fiscal capacity. The four indicators selected to E:\FR\FM\12JAP3.SGM 12JAP3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules mstockstill on DSK3G9T082PROD with PROPOSALS3 comprise the composite fiscal capacity index were each determined to represent a separate and distinct aspect of a State’s economy and governmental resources; however. FEMA welcomes comment on whether these are the best indicators to leverage and whether there are others that should be considered as well. The four fiscal capacity indices that FEMA includes in the model deductible calculation are based on each State’s per capita Total Taxable Resources (TTR), per capita surplus/ deficit, per capita reserve funding, and the State’s bond rating. FEMA will use the most recent indices. TTR is an annual measure of fiscal capacity calculated by the United States Department of Treasury.48 Essentially, TTR considers all of the income streams available within each State, including gross domestic product, corporate withheld earnings, and other capturable revenue. TTR does not measure how much revenue a State actually captures, but instead, measures how much revenue, in real dollars, a State has access to as compared to other States. As a per capita index, the State’s total TTR in real dollars is then divided by the State’s population. This places highpopulation States on equal footing with low-population States with regard to the index. The surplus/deficit and the reserve fund indices operate in similar fashion. In each case, the State’s value (surplus/ deficit or reserve) is divided by the State’s population. That amount is then compared with the per capita value of the median State. This creates indices of relative strength for each. The surplus/deficit index is built using data provided by the Annual Survey of State Government Finances provided by the United States Census Bureau of the Department of Commerce.49 The reserve fund index is built using data provided by the Fiscal Survey of the States conducted regularly by NASBO.50 FEMA believes that both the surplus or deficit that a State is 48 Additional information regarding Total Taxable Resources (TTR), including the methods for calculating and the current TTR estimates, can be found on the Web site of the Department of the Treasury at https://www.treasury.gov/resourcecenter/economic-policy/taxable-resources/Pages/ Total-Taxable-Resources.aspx. 49 Additional information concerning the Annual Survey of State Government Finances, including the survey methodology and latest survey results, can be found on the Web site of the United States Census Bureau at https://www.census.gov/govs/ state/. 50 Additional information concerning the Fiscal Survey of States, including the survey methodology and latest survey results, can be found on the Web site of the National Association of State Budget Officers at https://www.nasbo.org/mainsite/reportsdata/fiscal-survey-of-states. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 running and the amount of funding that a State holds in reserve are relevant indicators of a State’s overall fiscal wellbeing and ability to independently address the financial costs of disasters. Finally, the bond rating index is similarly calculated by dividing the State’s bond rating by the median State’s bond rating. In this model, FEMA calculates the bond rating index based upon data provided by the Pew Charitable Trusts from Standard & Poor’s State Credit Ratings.51 FEMA believes that the resulting relative index is an indicative proxy of the State’s ability to quickly raise the funding liquidity necessary to respond to and recover from disaster incidents. FEMA averaged these four indices of relative fiscal strength into a consolidated fiscal capacity index, each factor being equally weighted. This index accounts for 25 percent of a State’s base deductible adjustment. However, FEMA also realized that, due to diversity in economic drivers and varying population sizes, some States may demonstrate a particular fiscal capacity indicator that is a statistical outlier compared with its other factors and the indicators of other States. To minimize the impact of these outliers on the disaster deductible formula, FEMA capped the impact of any individual fiscal capacity indicator at five times the median State’s relative strength. In other words, if the median State’s per capita reserve fund is $100 and is ascribed a value of 1.0 on the index, a State with an outlier per capita reserve fund value of $800 could be imputed the maximum per capita reserve fund value of $500, and therefore still receive an index value of 5.0, instead of the 8.0 index value that could otherwise be warranted. FEMA capped each fiscal capacity indicators in this way to contain the variability of the overall index and smooth the impact on outlier States. D. Calculating the Composite Risk Index As with the rest of the SANPRM, all numbers, figures, criteria and processes detailed in this section are notional. They are intended to aid the public in understanding how a potential deductible program could operate and to spur discussion and feedback. FEMA explored multiple leading alternatives for predicting disaster losses. For the model described in this SANPRM, FEMA used an Average Annualized Loss (AAL) methodology for 51 Additional information concerning the data provided by the Pew Charitable Trusts can be found on their Web site at https://www.pewtrusts.org/en/ research-and-analysis/blogs/stateline/2014/06/09/ sp-ratings-2014. PO 00000 Frm 00011 Fmt 4701 Sfmt 4702 4073 calculating each State’s relative disaster risk level. AAL is a proxy for risk commonly used in risk modeling that considers the expected losses from a particular hazard per year when averaged over many years. Generally, AAL is calculated by multiplying the likelihood of the hazard occurring in a particular year by the likely cost of the event if it does occur. For example, if the likelihood of a hazard occurring is 0.2 percent, such as for a 500-year event, and the likely loss generated by that level of event is $1 billion, the AAL for the hazard in the vulnerable area would be $2 million ($1B x 0.002).52 There are numerous sources of AAL data for hazards. Proprietary catastrophic risk models developed by companies such as AIR Worldwide (AIR), Risk Management Solutions (RMS), and CoreLogic (EQECAT) are three primary sources of AAL and risk information used by the reinsurance industry.53 FEMA considered these sources, but did not pursue them due to the proprietary, closed nature of the underlying risk models. Instead, FEMA used the AAL values produced using FEMA’s Hazus platform. Hazus is a nationally applicable standardized methodology that contains models for estimating potential losses from earthquakes, floods, and hurricanes. Hazus uses Geographic Information Systems (GIS) technology to estimate physical, economic, and social impacts of disasters.54 FEMA used AAL estimates generated using Hazus because it is a well-established and familiar platform for many emergency managers and, most importantly, it is an open-source platform that will provide complete transparency to stakeholders concerning FEMA’s deductible calculations. FEMA used the Hazus-based AAL estimates to create a simplified risk index for each State. Specifically, FEMA summed the most recently available AAL estimates 55 for each State for each 52 A 500-year event is an event that has the statistical likelihood of occurring once every 500 years, or in other words, a 1 in 500 chance (0.2%). 53 A short discussion about catastrophic modeling and a description of the three proprietary AAL models identified here can be found on the Marsh, LLC Web site at https://www.marsh.com/content/ dam/marsh/Documents/PDF/US-en/Marsh-InsightsProperty-Fall-2012.pdf. 54 For additional information, visit FEMA’s Hazus Web site at https://www.fema.gov/hazus. 55 FEMA uses estimates of AAL generated using FEMA’s Hazus software. Cited AAL estimates were inflation-adjusted to 2015 dollars where necessary using the Consumer Price Index inflation calculator provided by the Bureau of Labor Statistics and available at https://www.bls.gov/data/inflation_ calculator.htm. E:\FR\FM\12JAP3.SGM 12JAP3 4074 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules of the three Hazus hazards: Earthquakes,56 floods (both coastal and riverine),57 and hurricanes (wind only).58 Collectively, these three hazards accounted for more than 75 percent of all Public Assistance awarded during the 10-year period between 2005 and 2014. FEMA created a composite risk index around the median cumulative AAL. FEMA arranged each State’s cumulative AAL (the sum of the State’s earthquake, flooding, and hurricane AALs) in order from the largest cumulative AAL to the smallest. Because there is an even number of States, FEMA averaged the cumulative AALs of the States in the 25th and 26th positions to determine the overall median cumulative AAL. FEMA assigned this amount a value of 1.0 and indexed each State’s relative cumulative AAL to determine the State’s risk index score. For example, consider a State with the following Hazus-based AALs: Hurricane: $875 million Flooding: $2 billion Earthquake: $25 million mstockstill on DSK3G9T082PROD with PROPOSALS3 Cumulative: $2.9 billion (Hurricane AAL + Flooding AAL + Earthquake AAL) FEMA conducted the same calculation for each State and then ordered them from largest to smallest in terms of each State’s cumulative AAL. If the median cumulative AAL across all of the States is $1.45 billion, that would be ascribed a score of 1.0 on the risk index, the hypothetical State above would receive a risk index score of 2.0 because its cumulative AAL is twice as large as the median cumulative AAL ($2.9 billion versus $1.45 billion, respectively). For purposes of calculating the State’s Public Assistance deductible, the State could be considered to have twice the risk of the median State. 56 KS Jaiswal, et al. (2015). Estimating Annualized Earthquake Losses for the Conterminous United States. Earthquake Spectra: December 2015, Vol. 31, No. S1, pp. S221–S243. FEMA is unable to post a copy of the document in the docket due to copyright restrictions. A summary of the document and purchase information is available at https:// dx.doi.org/10.1193/010915EQS005M. 57 Hazus AAL results for flood (coastal and riverine) are available at https:// data.femadata.com/Hazus/FloodProjects/AAL/State AAL_proj.zip and https://www.arcgis.com/home/ item.html?id=cb8228309e9d405ca6b4db 6027df36d9. Accessed June 2, 2016. Note that Hazus flood AAL estimates are not available for Hawaii and Alaska; these losses are estimated by indexing against National Oceanic and Atmospheric Administration (NOAA) flood loss estimates from 2011–2014, available at https://www.nws.noaa.gov/ hic/summaries/. 58 FEMA Mitigation Directorate, Hazus-MH Estimated Annualized Hurricane Losses for the United States (unpublished draft report), September 2006. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 The AALs produced using Hazus vary from State to State depending upon the types of hazards that each State is prone to and the levels of loss that those hazards have the ability to create in those States. Consequently, the per capita cumulative AALs are not evenly distributed across the States and a few States have higher risk index scores because of that. Every State should be assigned a deductible that is reasonable and achievable. In this model, FEMA capped the composite risk index values in a manner similar to the way FEMA capped the components of the fiscal capacity index. FEMA capped the fiscal capacity components at a value of 5.0. This means that FEMA ignored any computed fiscal capacity that is greater than five times the median State’s fiscal capacity for that factor. Because of the overall emphasis on risk, and similar to the deductible formula ratio of 3:1 risk to fiscal capacity, FEMA capped a State’s risk index at a score of 15.0. In other words, FEMA ignored any calculated risk that is in excess of 15 times the risk of the median State. E. Normalizing the Deductible Amounts As with the rest of the SANPRM, all numbers, figures, criteria and processes detailed in this section are notional. They are intended to aid the public in understanding how a potential deductible program could operate and to spur discussion and feedback. FEMA used the base deductible, composite risk index, and fiscal capacity index established above to calculate the post-indexed deductible value for each State. As explained previously, 75 percent of the total index adjustment to the base deductible is determined by the State’s relative risk profile and the remaining 25 percent is determined by the State’s relative fiscal capacity. For the final step in the deductible calculation process, FEMA normalized the post-indexed values to establish each State’s final deductible amount. Normalization is a statistical term that can mean different things in different contexts. In the case of the deductible, FEMA uses normalization to mean adjusting the post-indexed values to equal the pre-indexed values overall. Specifically, FEMA multiplied the base deductible that it established in the first step by 50 to establish the overall deductible ceiling for the 50 States. FEMA then summed all of the postindexed deductible values of each State. If the sum of these post-indexed values exceeded the deductible ceiling established by the base deductible, FEMA made a downward adjustment to each State’s post-indexed deductible so PO 00000 Frm 00012 Fmt 4701 Sfmt 4702 that its final amount remained the same relative to every other State, but so that the sum of all of the States’ postindexed deductibles equaled the base deductible ceiling. For example, assume that the base deductible is calculated to be $25 million. This is the amount that each State begins with prior to the application of the fiscal capacity index and risk index. FEMA multiplies the base deductible ($25 million) by 50 to calculate the cumulative deductible ceiling for that year. In this case the deductible ceiling would be $1.25 billion for the year ($25 million × 50 = $1.25 billion). If, after applying the indices to each State’s base deductible, the sum of all of the resulting, post-indexed deductibles exceeded the $1.25 billion dollar ceiling, FEMA would normalize the deductible amounts so that the sum of all of them equals $1.25 billion. This would decrease the final deductible amounts of every State, but each State would remain in the same position relative to every other State. If a State had a post-indexed deductible that was twice that of another State that State would still have a final deductible that was twice the deductible of the other State, but both final deductibles would be lower. Normalization is a common statistical approach for addressing variations that occur when adjustments are made to values through indices of relativity, which both the fiscal capacity and risk index are. This important step could ensure that the Public Assistance deductibles remain rooted in their nexus to the Public Assistance program. This final step, normalization, will establish the Starting Deductible for each state. F. Calculating Each State’s Starting Deductible As with the rest of the SANPRM, all numbers, figures, criteria and processes detailed in this section are notional. They are intended to aid the public in understanding how a potential deductible program could operate and to spur discussion and feedback. As summarized above, the base deductible will be multiplied by the sum of: 0.75 multiplied by the State’s Composite Risk Index and 0.25 multiplied by the State’s Composite Fiscal Capacity Index. That calculation establishes an adjusted deductible for each State. FEMA will then normalize the adjusted deductibles to ensure that the total sum of all of the adjusted deductibles equals the sum of the base deductibles. This methodology yields E:\FR\FM\12JAP3.SGM 12JAP3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules the following model normalized deductibles for each State in 2016: TABLE 5—MODEL 2016 STARTING DEDUCTIBLES State Starting deductible ($M) $12.96 19.42 18.67 8.01 141.03 7.08 20.85 8.03 141.53 17.65 9.17 7.68 14.43 12.23 10.63 9.54 9.47 73.90 8.52 9.26 30.34 23.20 9.44 13.32 11.38 6.23 9.93 8.81 7.92 29.28 11.11 51.70 17.50 10.09 25.86 10.40 24.62 21.88 12.30 11.60 8.25 16.68 73.72 7.73 8.64 13.51 27.30 23.39 13.50 10.47 Average ......................... Median ........................... Minimum ........................ Maximum ....................... mstockstill on DSK3G9T082PROD with PROPOSALS3 Alabama ................................ Alaska ................................... Arizona .................................. Arkansas ............................... California ............................... Colorado ............................... Connecticut ........................... Delaware ............................... Florida ................................... Georgia ................................. Hawaii ................................... Idaho ..................................... Illinois .................................... Indiana .................................. Iowa ...................................... Kansas .................................. Kentucky ............................... Louisiana .............................. Maine .................................... Maryland ............................... Massachusetts ...................... Michigan ............................... Minnesota ............................. Mississippi ............................ Missouri ................................ Montana ................................ Nebraska .............................. Nevada ................................. New Hampshire .................... New Jersey ........................... New Mexico .......................... New York .............................. North Carolina ...................... North Dakota ........................ Ohio ...................................... Oklahoma ............................. Oregon .................................. Pennsylvania ........................ Rhode Island ........................ South Carolina ...................... South Dakota ........................ Tennessee ............................ Texas .................................... Utah ...................................... Vermont ................................ Virginia .................................. Washington ........................... West Virginia ........................ Wisconsin ............................. Wyoming ............................... 22.20 12.26 6.23 141.53 These deductibles represent FEMA’s assessment of each State’s fiscal capacity and risk profile as of 2016. FEMA has included a table in the rulemaking docket for this SANPRM that shows every step for each State with regard to how these notional deductibles were calculated for purposes of this concept. These VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 deductibles would be reduced by any credits that FEMA approves for the State pursuant to the annual deductible credit menu. The following section will detail the types of credits that FEMA expects to initially offer. G. Credit Structure As with the rest of the SANPRM all numbers, figures, criteria and processes detailed in this section are notional. They are intended to aid the public in understanding how a potential deductible program could operate and to spur discussion and feedback. A potential credit structure could offer States the ability to partially or fully satisfy their deductible in advance of a major disaster declaration. While simply raising the per capita indicator to qualify for Public Assistance would reduce Federal costs, a potential credit structure, if successful, could eventually deliver the true benefits of reduced risk and realized disaster response and recovery cost savings nationwide. FEMA’s goal is to design a model credit structure that would create financial and economic incentives for meaningful State investments in preparedness and risk-reduction measures. FEMA believes that the model credit structure described in this SANPRM would allow every State to earn credits for activities that each would already be undertaking, and also improve risk reduction and resilience building for States that choose to expand those activities. To that end, the deductible model described in this SANPRM includes seven potential categories of credits. Due to the differences among the credit categories and their likely effects upon reducing risk, each category offers a unique credit-to-cost ratio, and a few have caps to provide States with an opportunity to develop a potentially diverse portfolio of risk reduction strategies. FEMA would monitor which credits States elect to earn and would continue to refine its credit offerings each year. FEMA would provide an annual notice of credit offerings so that States would have ample opportunity to carefully consider all of their options. FEMA would also continue to engage with the States and with key intergovernmental organizations to ensure that the credit structure is calibrated to provide the right levels of reward to incentivize continuous improvement for each State in the disaster resilience and emergency management contexts. FEMA recognizes that any additional program could create some additional administrative burden to State and Federal governments. However, FEMA PO 00000 Frm 00013 Fmt 4701 Sfmt 4702 4075 is committed to limiting that burden to successfully carry out the program and ensure that it is applied effectively. The following sections detail the administrative steps and timelines currently envisioned for the program. FEMA has carefully considered both the likely burden and the likely benefit underlying each of the seven credit categories and believes that each category represents potential activities worth pursuing and incentivizing. Each of the seven credit categories received generally favorable support from those who commented on the ANPRM. FEMA seeks additional public input on these categories and on the potential administrative burdens of assembling the supporting information. 1. Dedicated Funding for Emergency Response/Recovery Activities A State that has planned for and taken fiscal steps to address the financial impacts of potential disasters ahead of time is better prepared to immediately respond to and to rapidly recover from a major disaster. FEMA recognizes that States use multiple strategies for addressing the financial consequences of a disaster, including: Supplemental State appropriations, issuing recovery bonds, diverting funding from other State programs or cutting State agency operating budgets, and imposing special tax assessments to raise recovery resources. FEMA, however, has also observed that the time required to enact many of these ad-hoc funding strategies can significantly delay a State’s ability to rapidly respond to a disaster. FEMA believes that response and recovery efforts could be improved if the affected States maintain dedicated disaster relief funds. By having this funding available, these States also could potentially obviate the need to reduce or eliminate other planned State services to divert funding to disaster operations and infrastructure repair. For example, a State could divert funding for summer roadway maintenance or improvements to cover debris removal costs following a hurricane or snow removal costs following a major winter storm. States that maintain a dedicated disaster relief fund may be able to more rapidly ameliorate disaster consequences, leverage supplemental Federal assistance programs, and repair public buildings and infrastructure, without diverting funding from other important initiatives. Furthermore, States without dedicated disaster relief funds could find themselves in the position of incurring new public obligations, or in some cases debt, while simultaneously suffering from the tax losses of disaster- E:\FR\FM\12JAP3.SGM 12JAP3 4076 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules mstockstill on DSK3G9T082PROD with PROPOSALS3 induced decreased economic activity. By having a dedicated fund available to address the direct costs of disaster response and damage restoration, States could be better positioned to address these secondary disaster consequences. In order to incentivize States to take the proactive step of establishing and funding a dedicated disaster relief fund in advance, this potential model credit structure includes $1.00 in deductible credit for every $1.00 of State funding that the State has appropriated and deposited in a qualifying disaster relief fund during the course of the previous year. This credit may account for up to 20 percent of the State’s annual deductible. Funds that are carried over or that expire and are reappropriated for the same limited purpose could still qualify for the credit. 2. Expenditures for Non-Stafford Act Response and Recovery Activities FEMA received multiple comments during the ANPRM comment period that emphasized that FEMA does not fully understand or appreciate the amount of investment that States already make in emergency management and disaster recovery. Commenters pointed out that for every major disaster declared, that there are multiple smaller incidents that do not rise to the level of warranting supplemental Federal assistance, but nonetheless exceed local capabilities and often require State funding support for response and recovery activities. FEMA seeks to encourage States to continue providing State-level assistance to overwhelmed localities, even when Federal assistance may be unavailable. Commenters also noted that counties and cities often lack the independent ability to raise the necessary financial resources to address the costs of significant localized impacts. In these cases, the support provide by their State partners is invaluable to ensuring that adequate funding is available to support the response and recovery operations necessary to assist the affected localities and survivors. Additionally, commenters explained that, even following a major disaster declaration, supplemental Federal assistance is typically only made available to the most severely impacted jurisdictions within the affected State. However, there are other communities that are not designated, but nonetheless have experienced damage resulting from the same incident. The commenters postulated that the damage experienced within these non-declared jurisdictions may nevertheless still exceed their individual capacities to effectively respond and recover, necessitating VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 additional support from their State partners. This is, the commenters offered, an additional burden upon the State that the current system of Public Assistance does not recognize or incentivize. FEMA seeks to preserve and strengthen this important State-local relationship and to incentivize States to continue providing assistance when jurisdictional capabilities are exceeded, regardless of the availability of supplemental Federal assistance. In order to do so, this potential deductible model includes $1.00 in deductible credit for every $1.00 of annual State funding that the State expends to respond and/or recover from an incident that either: (1) Does not receive a Stafford Act declaration or, (2) affects a locality not designated for Public Assistance by a major disaster declaration. In either case, the Governor of the State would be required to declare a State of emergency, or issue a similar proclamation, pursuant to applicable State law. In this model, this credit could account for up to 20 percent of the State’s annual deductible. 3. Expenditures for Mitigation Activities Integral to any effort to lessen the risks associated with and consequences of disaster is effective mitigation. Mitigation is the act of lessening or avoiding the impacts of a hazard, typically through engineered solutions. The linkage between advanced mitigation and lowering disaster impacts and costs has been demonstrated many times, both through academia and research, and also in practical application. FEMA provides funding assistance for mitigation projects through several programs, including the Hazard Mitigation Grant Program and the PreDisaster Mitigation Grant Program, as well as to mitigation-enhanced restoration projects through the Public Assistance program authorized by Section 406 of the Stafford Act.59 FEMA recognizes, however, that States often invest significantly in mitigation efforts apart from these Federal assistance programs. FEMA seeks to recognize those continued investments and incentivize additional investments by providing significant credit for direct mitigation-related expenditures through the Public Assistance deductible program. This model includes $3.00 in deductible credit for every $1.00 in State spending on qualifying mitigation activities. FEMA will not count State matching funds toward the calculation 59 42 PO 00000 U.S.C. 5172. Frm 00014 Fmt 4701 Sfmt 4702 of the credit, so therefore these State expenditures must be either independent of any other Federal assistance program or must be in excess of the minimum cost-share requirement of any applicable Federal assistance program. For purposes of this credit, FEMA defined qualifying mitigation activities as it does under FEMA’s Hazard Mitigation Assistance Guidance.60 Due to the importance of incentivizing mitigation activities to the success of the deductible program in reducing future disaster impacts and costs nationwide, FEMA is not currently considering capping the potential mitigation credit that may be earned in this model. In other words, a State could fully satisfy its annual deductible by investing at least one-third of its deductible amount in qualifying mitigation activities each year. This could not only fully satisfy the State’s deductible well in advance of any declaration activity, thereby eliminating application of the deductible in the State for that year, but could also deliver the State future savings by reducing the severity or consequences of forthcoming disasters. FEMA also seeks comment specifically on whether incentivizing further spending by State governments using credit mechanisms of mitigation expenditure credits and non-Stafford expenditure credits could potentially dampen or crowd out private mitigation expenditures. 4. Insurance Coverage for Public Facilities, Assets, and Infrastructure States have choices when it comes to how they elect to address their disaster risks. Some States have chosen to establish dedicated disaster relief funds that can be leveraged to address the costs of disasters without jeopardizing other services and operations. Other States have elected to purchase thirdparty insurance to cover some of those costs, while others have established selfinsurance risk pools to better distribute the risk. Regardless of the choice that is made, FEMA may choose to encourage pre-disaster financial preparedness through the deductible program. The model FEMA is currently contemplating includes percentage deductible credits for States that elect to utilize insurance policies as a means to address future disaster costs. To qualify for credit, the insurance policy must cover costs related to losses that would otherwise qualify for reimbursement 60 See Hazard Mitigation Assistance Guidance, Part III, section E.1.3.1, available at this link https:// www.fema.gov/media-library-data/142498316544938f5dfc69c0bd4ea8a161e8bb7b79553/ HMA_Guidance_022715_508.pdf. E:\FR\FM\12JAP3.SGM 12JAP3 4077 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules assistance through the Public Assistance program. For purposes of the credit, the policies must provide guaranteed coverage for losses from natural hazards, fires, explosions, floods, or terrorist attacks. For a self-insurance fund or risk pool, FEMA would verify through the State Insurance Commissioner, or similar State official, that the fund or pool is actuarially sound and solvent. This model includes credit based on the aggregate limits of applicable State policies, rather than on the premiums paid for coverage. Consequently, FEMA believes that States choosing to insure against future disaster risk would have very large overall limits, even though a particular incident would likely only affect a fraction of the total insured property. For example, if a State maintains $1M policies on 10 facilities across the State, the aggregate limit of the policy coverage is $10M, even though it is unlikely that all 10 facilities will suffer an insured loss at the same time. FEMA believes this could be a reasonable and equitable approach because both the deductible and insurance coverage levels should largely be driven by each State’s individual risk profile. This model includes a potential threetier incentive structure for insurance coverage based upon multiples of each State’s annual deductible amount as follows: TABLE 6—INSURANCE COVERAGE CREDIT SCHEDULE 120 times the amount of the State’s deductible ($30 million) and is within the range of 100 to 150 times the deductible that FEMA suggests should receive a 10 percent credit. This outcome could be the same whether the State chose to purchase its insurance through third-party insurers or reinsurers or chose to self-insure and self-manage the risk. FEMA could confirm coverage level through the insurance contract or, for self-insurance, through the appropriate State official that the self-insurance fund is actuarially sound up to the $3.6 billion limit. Given the specific goal of incentivizing mitigation, FEMA seeks comment on the inclusion of insurance coverage credits in the deductible model. 5. Building Code Effectiveness Grade Schedule (BCEGS®) The Insurance Services Office, Inc. (ISO), a leading provider of information concerning risk assessment and property and casualty insurance, has explored the relationship of building codes to risk reduction. According to a recent ISO report: [M]odel building codes have most clearly addressed the hazards associated with wind, earthquake, and fire. Experts maintain that buildings constructed according to the requirements of model building codes suffer fewer losses from those perils. If municipalities adopt and rigorously enforce up-to-date codes, losses from other risks (including man-made perils) may also decrease.61 FEMA agrees with the ISO’s analysis that building codes, when adopted and properly enforced, have the ability to reduce future disaster risk on a broad 50x Deductible ≤ Coverage scale. Consequently, in this model <100x Deductible .............. 5 FEMA incorporated deductible credits 100x Deductible ≤Coverage <150x Deductible .............. 10 to States that have committed to 150x Deductible ≤ Coverage 15 adopting, promoting, and enforcing building codes. This model includes an escalating For example, if a State has an annual credit structure that provides moderate deductible of $30 million and carries insurance policies on public facilities 61 Insurance Services Office, Inc., National with an aggregate limit of $3.6 billion, Building Code Assessment Report: ISO’s Building the State could receive a credit equal to Code Effectiveness Grading Schedule (2015), 8, 10 percent of its initial deductible, or $3 available at https://www.isomitigation.com/ million. This is because $3.6 billion is downloads/ISO-BCEGS-State-Report_web.pdf. mstockstill on DSK3G9T082PROD with PROPOSALS3 Coverage amount VerDate Sep<11>2014 20:40 Jan 11, 2017 Credit (percentage of deductible) Jkt 241001 PO 00000 Frm 00015 Fmt 4701 Sfmt 4702 incentive to simply participate in ISO’s Building Code Effectiveness Grading Schedule (BCEGS®) program and increasing incentives as States reach higher levels of adoption and enforcement. ISO provides BCEGS® scores for both residential and commercial codes and enforcement, each on an improving scale from 10 to 1. In 2015, over 60 percent of States had BCEGS® scores of 4 or 5 in each category. The following model incentive structure is based on each State’s annual BCEGS® score for both residential and commercial building codes: TABLE 7—BCEGS CREDIT SCHEDULE BCEGS® score 1 ................ 2 ................ 3 ................ 4 ................ 5 ................ 6 ................ 7 ................ 8 ................ 9 ................ 10 .............. Residential credit (percentage of deductible) Commercial credit (percentage of deductible) 20 15 12 9 8 6 5 4 3 2 20 15 12 9 8 6 5 4 3 2 This structure could allow States to earn between 4 percent and 40 percent credits based upon their residential and commercial BCEGS® scores. As of 2015, 45 States participate in the BCEGS® program and could have received, at a minimum, the 4 percent credit for doing so under this structure. Based on 2015 scores, the average participating State could receive a 16 percent reduction to their deductible amount. The smallest credit would have been 7 percent and the largest would have been 24 percent. The following chart depicts the number of States per credit level in 2015. E:\FR\FM\12JAP3.SGM 12JAP3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules mstockstill on DSK3G9T082PROD with PROPOSALS3 6. Tax Incentive Programs FEMA recognizes that the most effective ways to reduce risk across the entire nation employ a wholecommunity approach that involves every level of government, the private sector, and the citizenry in taking steps to promote and increase resilience. With that in mind, FEMA included in this model credit to States for tax-incentive programs designed to encourage preparedness or mitigation activities. For example, a State may offer an income tax credit for elevating homes or host a sales-tax holiday for personal preparedness supplies. FEMA would defer to the States to decide what types of programs would be most successful and appropriate given each State’s unique considerations and risks, however the program would still need to maintain a clear nexus with preparedness, mitigation, or resilience building. In some cases, a State may offer a program that incentivizes general preparedness, or it may decide to target a program to a specific hazard, such as the installation of hurricane straps or seismic retrofits to existing building foundations. Regardless, this model includes credits to States for these types of innovative tax incentive programs. FEMA would allow States to request credit for both the direct costs of the program (administration, advertising, etc.), and for the indirect costs, such as forgone tax revenue. In both cases, FEMA would approve $2.00 in VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 deductible credit for every $1.00 in State funding expended or foregone. Because FEMA sees this credit as a type of whole-community risk reduction, in this model FEMA is not currently including a cap on this particular credit. In other words, a State with a large enough tax incentivize program(s) could largely offset its deductible by annually foregoing tax revenue, through credits/deductions offered to businesses and/or citizens, equal to half of its deductible amount. FEMA specifically requests comment on the types of tax incentive programs that have a nexus to preparedness and disaster risk reduction and their effectiveness, both in terms of cost effectiveness and outcome effectiveness. 7. Expenditures on State Emergency Management Programs Perhaps the most visible factor in a State’s ability to address disasters in the broad sense is the quality of its emergency management program. States have organized their emergency management function in a number of different ways. In some States, emergency management is a standalone office, whereas in other States the function is embedded in a broader public safety or military organization. The Federal government provides numerous types of assistance to States to develop, maintain, and implement their emergency management programs. At FEMA, assistance is generally available through the Emergency Management Performance Grant PO 00000 Frm 00016 Fmt 4701 Sfmt 4702 Program,62 the Homeland Security Grant Program,63 including both the State Homeland Security Program 64 and the Urban Area Security Initiative,65 and through management costs awarded in administering Stafford Act declarations. In order to further incentivize States to allocate their own resources to their emergency management enterprises, this model includes a deductible credit for annual State expenditures supporting State emergency management programs beyond any cost-share required by a Federal assistance program or grant. FEMA solicits comments on what types of emergency management enterprises and activities could be eligible for deductible credit within this category and information relating to the current level of State investment in these enterprises and activities. FEMA includes in this model $1.00 in deductible credit for every $1.00 that a State invests in emergency management beyond the cost-share required by a Federal program. A State could satisfy up to 20 percent of its annual Public Assistance deductible through this credit. 8. Emergency Management Accreditation Program (EMAP®) Credit Enhancement The Emergency Management Accreditation Program (EMAP®) is an independent non-profit organization 62 6 U.S.C. 762. U.S.C. 603. 64 6 U.S.C. 605. 65 6 U.S.C. 604. 63 6 E:\FR\FM\12JAP3.SGM 12JAP3 EP12JA17.023</GPH> 4078 4079 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules that offers an emergency management program review and recognition program.66 EMAP® is a completely voluntary program and accreditation is not presently a factor in any FEMA program. However, FEMA recognizes that EMAP® provides a valuable resource to accredited programs by establishing best practices and offering a level of independent accountability. This model includes a credit enhancement to States that voluntarily seek and achieve provisional or full EMAP® accreditation. FEMA could increase the credit amount by 5 percent for three credit types for EMAP® accreditation, but specifically seeks comment on the appropriate value of this credit amount. These three credits could be: 1. Dedicated funding for emergency response and recovery activities; 2. expenditures for non-Stafford Act response and recovery activities; and 3. expenditures on State emergency management programs. Specifically, instead of offering $1.00 in deductible credit for each $1.00 in qualifying State funding and expenditures, FEMA would instead approve $1.05 for each $1.00 in qualifying State funding and expenditures for States maintaining current EMAP® provisional or full accreditation. The credit caps applicable to each credit category would remain unchanged. FEMA believes that applying the credit enhancement in this manner could encourage States to seek and/or maintain EMAP® accreditation and that by doing so, could demonstrate improved readiness to confront the consequences of disasters. 9. Credit Summary Table 8 provides an overview of the credits that FEMA is envisioning, the amount of credit that could be approved, any cap that FEMA envisions applying, and whether an enhancement is available to the credit. TABLE 8—SUMMARY CREDIT MENU EMAP® enhancement Credit No. Credit name Credit amount Credit cap 1 .................. Dedicated Funding for Emergency Response/ Recovery Activities. Expenditures for Non-Stafford Act Response and Recovery Activities. Expenditures for Mitigation Activities ................ $1.00 in credit for each $1.00 in qualifying deposits. $1.00 in credit for each $1.00 in qualifying expenditures. $3.00 in credit for each $1.00 in qualifying expenditures. % reduction based on qualifying coverage above deductible amount. % reduction to the starting deductible based on BCEGS®. $2.00 in credit for every $1.00 in qualifying costs. $1.00 in credit for every $1.00 in qualifying expenditures. 20% .............. Yes. 20% .............. Yes. No Cap ......... No. N/A ............... No. N/A ............... No. No Cap ......... No. 20% .............. Yes. 2 .................. 3 .................. 4 .................. 5 .................. 6 .................. 7 .................. Insurance Coverage for Public Facilities, Assets, and Infrastructure. Building Code Effectiveness Grade Schedule (BCEGS®). Tax Incentive Programs .................................... Expenditures on State Emergency Management Programs. Based upon the preliminary research discussed above and interviews with key stakeholders and subject matter experts, FEMA believes that every State would receive deductible credit under the preceding credit structure for activities and investments that each State is already undertaking; however, there may be some States that have been able to undertake more credit-qualifying activities than others. As with the rest of the SANPRM, all numbers, figures, criteria and processes detailed in this section are notional. They are intended to aid the public in understanding how a potential deductible program could operate and to spur discussion and feedback. FEMA has used the information that it has available to estimate the amount of credit that each State might qualify for initially. In many cases, however, FEMA anticipates offering credit for activities for which there is very little information readily available. Where information is lacking, FEMA attempted to use assumptions as to current State activities. For instance, FEMA was unable to identify annual amounts of forgone revenue from a State tax incentive program and thus assumed an amount equal to 1 percent of a State’s starting deductible.67 FEMA intentionally utilized what it believes are conservative estimates where uncertainty exists and assumptions were needed. FEMA has attempted to estimate the amount of credit that each State might qualify for initially to provide context on the potential impact of the deductible requirement. FEMA welcomes comments on its assumptions with information more readily available to each State. Overall, based on this analysis, FEMA anticipates that the average State would receive initial credits worth approximately 40 percent of its first deductible without making any changes to its current spending or activities. BILLING CODE 9111–23–P 66 Additional information on EMAP can be found at https://www.emap.org/index.php. 67 For example, given Alabama’s starting deductible of $12.96 million, FEMA assumes forgone revenues from the State’s tax incentive program of $129,574. mstockstill on DSK3G9T082PROD with PROPOSALS3 H. Estimates of Initial Credits VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4702 Across the States, FEMA expects that these initial credits would range from a minimum of approximately 6 percent to a maximum of approximately 85 percent. Table 9 depicts FEMA’s estimates for each State under this model. Specifically, Table 9 indicates each State’s applicable model starting deductible, the credit amount from each of the seven categories of credits, the total estimated credits (shown both as a dollar value and percentage of the starting deductible amount), and the model final deductible amount that the State would carry into the new year. This potential final deductible amount represents what each State would potentially need to satisfy if it experiences a disaster that results in disaster damages that exceed the amount of credits that FEMA has approved. It is the remaining amount that is not offset by the credits that a State has earned. E:\FR\FM\12JAP3.SGM 12JAP3 mstockstill on DSK3G9T082PROD with PROPOSALS3 4080 VerDate Sep<11>2014 Table 9: Initial Estimated Deductible Credit Amounts- Expected 2016 Investments Only (in millions) Dedicated Fund Credit (20% cap) Non-Stafford Expenditures Credit (20% cap) Mitigation Activity Credit Insurance Coverage Ct·edit Building Code Credit Tax Incentives Credit $0.00 $1.55 $0.2(, Emergency Management Credit (20% cap) Total Estimated Credits Credit% of Full Deductible Full Final Deductible $0.50 $3.33 25.7% S9.63 Jkt 241001 PO 00000 Alabama $12.96 $0.00 $0.51 $0.51 Alaska $19.42 $0.00 $0.20 $0.37 $0.00 $3.11 $0.39 $0.89 $4.96 25.5% $14.46 Arizona** $18.67 $3.73 * $0.10 $0.58 $0.00 $3.36 $0.37 $0.39 $8.55 45.8% $10.12 Arkansas** $8.01 $1.60 * $0.11 $0.32 $0.00 $0.96 $0.16 $0.00 $3.15 39.4% S4.85 * Frm 00018 $141.03 $28.21 $o.14 $21.13 $0.00 $3385 $2.82 $28.21 $120.55 85.5% $20.48 Colorado** $7.08 $0.01 $0.06 $0.14 $0.35 $1.13 $0.14 $0.00 $1.84 26.0% S5.24 Connecticut Califomia** * Fmt 4701 Sfmt 4725 E:\FR\FM\12JAP3.SGM $20.85 $0.00 $0.23 $0.73 $0.00 $1.07 $0.42 $2.41 $5.46 2o.2% $15.39 Delaware $8.03 $0.00 $0.01 $0.30 $0.00 $1.28 $0.16 $0.35 $2.09 26.1% S5.93 Florida** $141.53 $0.00 $9.80 $8.71 $0.00 $33.97 $2.83 $28.31 $83.60 59.1% $57.92 Georgia** $17.65 $0.00 $0.20 $0.48 $0.88 $2.82 $0.35 $0.00 $4.74 26.9% $12.91 $0.01 $0.36 $0.00 $0.00 $0.18 $0.61 $1.17 12.7% S8.00 $0.00 $0.23 $0.00 $0.00 $0.15 $0.00 $1.92 25.0% S5.76 $0.46 $4.87 $0.72 $173 $0.29 $2.89 * $10.96 76.0% S3.47 $0.76 $3.11 $0.61 $0.98 $0.24 $2.45 * $8.47 69.3% S3.76 $0.41 $0.55 $0.00 $1.70 $0.21 $1.43 $6.43 60.5% S4.20 Hawaii Idaho $9.17 $0.00 * * $7.68 $1.54 Illinois** $14.43 $0.00 Indiana** $12.23 $0.32 Iowa** $1o.63 $2.13 Kansas** $9.54 $0.00 $0.17 $0.24 $0.00 $0.76 $0.I9 $0.00 $1.36 I4.2% S8.18 Kentucky** $9.47 $0.00 $0.10 $0.28 $0.00 $1.71 $0.19 $0.00 $2.27 23.9% S7.21 Louisiana** * $0.00 $2.72 $103 $0.00 $0.00 $I.48 $4.2I $9.44 I2.8% $64.46 $8.52 $0.00 $0.17 $0.17 $0.00 $1.36 $0.17 $0.00 $1.87 21.9% S6.66 Maryland** Massachusetts ** $9.26 $0.00 $004 $0.33 $0.46 $1.67 $0.I9 $0.00 $2.69 29.0% S6.57 $30.34 $0.00 $0.07 $194 $0.00 $4.85 $0.61 $6.07 $13.54 44.6% $16.80 Michigan** $23.20 $3.15 $9.01 38.8% $14.19 Minnesota $9.44 $1.89 $7.86 83.3% S1.58 Mississippi** $13.32 Missouri** 12JAP3 $73.90 Maine $11.38 $6.23 $1.25 Montana EP12JA17.024</GPH> * $0 01 $0.74 $0.00 $4.18 $0.46 $0.47 $0.06 $166 $0.47 $1.70 $0.19 $1.89 * $0.70 $0.84 $0.86 $0.00 $0.00 $0.27 $2.66 * $5.33 40.0% S7.99 $0.00 $1.94 $0.37 $0.57 $1.82 $0.23 $0.00 $4.93 43.4% S6.45 $0.11 $0.19 $0.00 $1.12 $0.12 $0.00 $2.79 44.9% S3.44 * * Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules 20:40 Jan 11, 2017 State Full Starting Deductible mstockstill on DSK3G9T082PROD with PROPOSALS3 VerDate Sep<11>2014 Dedicated Fund Credit (20% cap) Non-Stafford Expenditures Credit (20% cap) Mitigation Activity Credit Insurance Coverage Ct·edit Building Code Credit Tax Incentives Credit Emergency Management Credit (20% cap) Total Estimated Credits Credit% of Full Deductible Full Final Deductible Jkt 241001 Nebraska** $9.93 $1.99 * $0.60 $0.28 $0.00 $0.99 $0.20 $0.00 $4.07 40.9% S5.87 Nevada** New Hampshire $8.81 $1.76 * $0.00 $0.06 $0.00 $2.11 $0.18 $0.00 $4.11 46.7% S4.70 $7.92 $0.00 $0.31 $0.72 $0.00 $127 $0.16 $1.58 * $4.04 51.0% S3.88 $7.03 $0.5') $5.86 * $17.74 60.6% $11.55 PO 00000 Frm 00019 New Jersev** New Mexico** $29.28 $0.00 $0.97 $3.30 $0.00 $11.11 $0.00 $0.13 $0.39 $0.00 $2.00 $0.22 $0.62 $3.36 30.2% S7.75 New York** North Carolina** $51.70 $0.00 $7.4() $0.90 $0.00 $5.17 $1.01 $0.00 $14.63 2!U% $37.07 $17.50 $3.50 $108 $1.82 $0.88 $3.15 $0.35 $3.50 * $14.27 81.5% S3.23 * * Fmt 4701 Sfmt 4725 E:\FR\FM\12JAP3.SGM North Dakota $10.09 $1.50 $0.17 $140 $0.00 $182 $0.20 $2.02 $7.11 70.5% S2.98 Ohio** $25.86 $0.00 $0.10 $0.90 $0.00 $4.66 $0.52 $1.01 $7.19 27.8% $18.67 Oklahoma** $10.40 $1.05 $0.85 $0.09 $0.00 $1.66 $0.21 $0.00 $3.85 37.1% S6.54 Oregon PeiiiiSy lvania* * $24.62 $0.05 $0.02 $0.31 $0.00 $5.91 $0.49 $0.00 $6.78 27.5% $17.84 $21.88 $2.10 $0.90 $2.29 $1.09 $3.94 $0.44 $4.38 $15.14 69.2% S6.74 Rhode Island South Carolina** $12.30 $0.00 $0.01 $0.29 $0.00 $148 $0.25 $0.30 $2.32 18.9% S9.98 $11.60 $0.00 $00() $0.44 $0.00 $209 $0.21 $0.04 $2.85 24.G% S8.75 South Dakota $8.25 $0.00 $0.04 $0.12 $0.00 $1.32 $0.16 $0.00 $1.64 19.9% S6.61 * Tennessee** $16.68 $0.00 $009 $0.44 $0.00 $2.G7 $0.31 $0.00 $3.53 21.2% $13.15 Texas $73.72 $0.00 $3.56 $0.79 $0.00 $11.79 $1.47 $0.00 $17.61 23.9% $56.10 12JAP3 Utah** $7.73 $1.55 $0.01 $0.22 $0.00 $1.86 $0.15 $0.00 $3.78 48.9% S3.95 Vermont** $8.64 $0.00 $0.12 $0.37 $0.00 $1.56 $0.17 $0.98 $3.20 37.0% S5.44 * Virginia** $13.51 $0.00 $0.10 $147 $0.68 $2.43 $0.27 $2.70 $7.65 56.7% S5.85 W ashinglon $27.30 $0.00 $0.60 $0.50 $0.00 $0.00 $0.55 $0.00 $1.64 6.0% $25.66 West Virginia $23.39 $0.00 $0.29 $0.48 $0.00 $3.74 $0.47 $1.30 $6.29 26.9% $17.10 Wisconsin $13.50 $0.14 $0.43 $0.50 $0.00 $1.62 $0.27 $0.15 $3.11 23.0% $10.39 Wyoming $10.47 $0.75 $0.00 $0.15 $0.00 $1.88 $0.21 $0.00 $3.00 28.6% S7.47 $22.20 $1.18 $0.87 $137 $0.13 $3.59 $0.44 $2.1() $9.74 38.7% Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules 20:40 Jan 11, 2017 State Full Starting Deductible $12.46 Average * 4081 EP12JA17.025</GPH> mstockstill on DSK3G9T082PROD with PROPOSALS3 4082 VerDate Sep<11>2014 Jkt 241001 Median $12.26 Dedicated Fund Credit (20% cap) Non-Stafford Expenditures Credit (20% cap) Mitigation Activity Credit Insurance Coverage Ct·edit Building Code Credit Tax Incentives Credit $0.00 $0.17 $0.48 $0.00 $1.72 $0.25 Emergency Management Credit (20% cap) $0.37 Total Estimated Credits Credit% of Full Deductible Full Final Deductible $4.43 29.6% S7.61 PO 00000 Minimum $6.23 $0.00 $0.00 $0.06 $0.00 $0.00 $0.12 $0.00 $1.17 6.0% S1.58 Maximum $141.53 $28.21 $9.80 $2113 $1.09 $33.97 $2.83 $28.31 $120.55 85.5% $64.46 Frm 00020 *Values marked with an asterisk in Table 9 indicate that the State has reached the applicable cap for that credit category. ** States marked with a double asterisk in Table 9 indicate that the State received a 5 percent EMAP bonus in the dedicated fund, non-Stafford Fmt 4701 expenditures, and emergency management credit categories. Sfmt 4725 E:\FR\FM\12JAP3.SGM 12JAP3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules 20:40 Jan 11, 2017 EP12JA17.026</GPH> State Full Starting Deductible Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules I. Deductible Program Timeline and Procedures FEMA is committed to developing a Public Assistance deductible program that is effective, but that also minimizes the cost and administrative burden required of our State partners. FEMA expects to request the minimum amount of information and reporting necessary for the program to be successful. To do this, FEMA’s model concept could follow a strict and consistent programmatic schedule throughout the year so that States could have a clear understanding of current and upcoming expectations. FEMA designed this potential model schedule to operate on the calendar year to provide simplicity and standardization across jurisdictions that operate on various iterations of the fiscal year. As with the rest of the SANPRM all numbers, figures, criteria, timeframes, and processes detailed in this section are notional. They are intended to aid the public in understanding how a potential deductible program could operate and to spur discussion and feedback. 1. Model Timeline On August 1 of each year, FEMA could issue an Annual Notice of Public Assistance Deductible Amounts (Annual Notice). This notice could be published in the Federal Register and would indicate each State’s pre-credit deductible amount. The Annual Notice could provide sufficient detail regarding the calculation methodology to provide transparency regarding the source of the deductible figures. If a State believes that FEMA has made a technical error in calculating its deductible, the State could be able to appeal the amount. In addition, FEMA would not expect to otherwise change the calculation methodology without advance notice to the States and an opportunity for each State to offer feedback. Contemporaneously with the issuance of the Annual Notice, FEMA would publish in the Federal Register the Application and Submission Information for Public Assistance Deductible credits to provide guidance concerning the deductible credits that could be offered during the next year and an application form for credits. FEMA does not anticipate making significant changes to the credit structure year over year, but could constantly and actively be monitoring credit types and amounts and may adjust the structure as necessary to improve the program’s effectiveness over time. FEMA anticipates engaging extensively with States in making any adjustments to the credit structure. Credit applications could be due to FEMA by September 1 of each year. Because there might be a limited period of about one month to complete the application for deductible credits, it would be important that States assess and account for their past year’s activities before the Annual Notice is published or quickly thereafter. The actual application could be minimal compared to other Federal applications, grant applications in particular. FEMA envisions a simple form in which a State could request the appropriate amount of credit for each credit category, include a brief description of the activity for which the credit is requested, provide the contact information for a subject matter expert that can answer questions about the activity, and affix the signatures of the appropriate State officials. For example, a State may request $1.5 million in credit for spending $500,000 moving a fire station out of a flood hazard area (mitigation would be credited $3.00:$1.00). Likewise, a State 4083 may request a 16 percent reduction for maintaining BCEGS® scores of 5 for both the commercial and residential building code categories. Generally, the State would not need to submit any additional information or supporting documentation to support its request. FEMA would review the State’s submission and make a determination of the amount of deductible credit to be approved. FEMA could actively reach out to the State-identified subject matter expert if any additional information would be needed for purposes of determining whether the activity would qualify for credit. If the activity appeared to qualify, either from the face of the credit application or after consulting with the State subject matter expert, FEMA would approve the appropriate amount of credit up to the credit category cap (for the categories to which a cap applies). FEMA envisions notifying each State individually by October 1 of the amount of credit approved and the remaining deductible, if any, that would apply during the subsequent calendar year. If FEMA approved any less credit than what the State requested, FEMA would include an explanation of the rationale for the discrepancy. In the case that FEMA did not fully approve the State’s credit request, the State could be able to appeal the determination to FEMA. For this model timeline, FEMA envisions appeals of credit determinations would be due by December 1. Once FEMA has adjudicated any appeals and all credit has been approved, FEMA could issue a notice in the Federal Register no later than January 1 of the subsequent year announcing each State’s beginning deductible amount, the amount of credit approved, and the final remaining deductible, if any. TABLE 10—NOTIONAL DEDUCTIBLE PROGRAM ANNUAL MILESTONES Actor August 1 .............. FEMA ................. September 1 ....... October 1 ............ October 1 ............ mstockstill on DSK3G9T082PROD with PROPOSALS3 Date Activity States ................ States ................ FEMA ................. November 1 ........ December 1 ........ FEMA ................. States ................ January 1 ............ FEMA ................. • FEMA publishes Annual Notice of Public Assistance Deductible Amounts in the Federal Register. • FEMA publishes Application and Submission information for Public Assistance Deductible Credits in the Federal Register, which provides formal credit guidance and the credit application form. • Deadline for States to submit the Application for Public Assistance Deductible Credits.68 • Deadline for States to appeal FEMA’s determination of the pre-credit deductible amounts. • FEMA completes review of the credit applications and notifies each State of the credit amounts approved and FEMA’s proposed final deductible amount. • FEMA notifies States of the outcome of any pre-credit deductible amount appeals. • Deadline for States to appeal FEMA’s approved credit amounts and/or proposed final deductible amount. • FEMA notifies States of the outcome of any pending appeals and publishes each State’s final deductible and credit amounts in the Federal Register. 68 Activities undertaken after the cutoff date for applying for credits would be applied to the next VerDate Sep<11>2014 21:30 Jan 11, 2017 Jkt 241001 year’s deductible. For example, activities undertaken in October would not be applied to the PO 00000 Frm 00021 Fmt 4701 Sfmt 4702 deductible in effect 3 months later, but instead to the one in effect 15 months later. E:\FR\FM\12JAP3.SGM 12JAP3 4084 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules TABLE 10—NOTIONAL DEDUCTIBLE PROGRAM ANNUAL MILESTONES—Continued Date Actor mstockstill on DSK3G9T082PROD with PROPOSALS3 Beginning January 1. Activity FEMA ................. • FEMA provides supplemental Public Assistance for all of the credits that a State has earned in every disaster. • For any permanent work disaster costs exceeding the State’s earned credits, FEMA applies the remaining final deductible amount, if any. 2. Post Disaster Deductible Procedures FEMA believes it is important that for every major disaster, the States receive assistance for emergency protective measures and debris removal. FEMA does not want to delay those essential activities in the immediate aftermath of a disaster incident. Under FEMA’s deductible concept, FEMA assistance for debris removal and emergency protective measure projects could follow the normal procedures and receive funding at the applicable cost share for that disaster. FEMA envisions applying the deductible amount (i.e., the portion of a State’s deductible not fully satisfied by the credits earned, if any) on an annual basis and only to the provision of supplemental Federal assistance for permanent repair and replacement activities. For repair and replacement assistance, the State would receive supplemental Federal assistance only after it has satisfied its deductible requirement. If in a given year the affected State has not fully satisfied its annual Public Assistance deductible with the credits that it earned and a major disaster is declared, after the declaration the State would be asked to identify projects that have a preliminary cost estimate (Federal and non-Federal share combined) equal to the unsatisfied deductible amount. With agreement by FEMA as to the preliminary cost estimate, those projects the State selects to satisfy the remaining deductible would be deemed ineligible under Section 406 of the Stafford Act.69 The State would assume responsibility for these projects.70 FEMA would require that the States identify these projects within the first 60 calendar days after a disaster declaration so as not to impede the provision of supplemental Federal assistance for other projects. After the State satisfies its deductible in any major disaster event, any remaining eligible repair and 69 Stafford Act, supra FN4, § 406(b) (providing the ‘‘Federal share of assistance under this section shall be not less than 75 percent of the eligible cost of repair, restoration, reconstruction, or replacement carried out under this section’’) (emphasis added). 70 Costs of satisfying the deductible, like cost share costs, would not qualify for credit towards the next year’s deductible. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 replacement projects resulting from disasters declared in that year could receive supplemental Federal assistance in accordance with the standard procedures of the Public Assistance program. If there are insufficient projects to satisfy the full remaining deductible requirement, the unsatisfied portion of the deductible could be carried forward to any additional major disasters declared within the State that year. Any deductible that is remaining unsatisfied at the end of the year would expire. Each year could start the deductible cycle anew with regards to the starting deductibles, credits earned, and final deductibles. If a State has an unsatisfied deductible requirement remaining after a major disaster, and it receives a second major disaster declaration that year, pursuant to this initial version of the deductible concept, the State would be required to identify a project or grouping of projects that have a preliminary cost estimate (Federal and non-Federal share combined) equal to the unsatisfied deductible requirement. With agreement by FEMA as to the preliminary cost estimate, these projects would be deemed ineligible costs pursuant to Section 406 of the Stafford Act. Once the State has satisfied its annual deductible requirement, all eligible costs in subsequent disaster declarations could be processed for reimbursement through standard Public Assistance program procedures. Consider a State that has a starting deductible of $25 million and has earned credits of $15 million. The State’s final deductible would be $10 million. This is the amount that the State would need to satisfy before it can receive permanent repair and replacement assistance. Suppose the State experiences a major disaster that requires $3 million in debris removal and causes $8 million in damage to public infrastructure. FEMA would document the debris removal costs on Project Worksheets and process all of those eligible costs for reimbursement assistance at the applicable disaster cost share, typically 75 percent Federal. The State could be responsible for paying for all of the permanent work repairs because the $8 million in damage is less PO 00000 Frm 00022 Fmt 4701 Sfmt 4702 than the State’s $10 million final deductible for that calendar year. If the State receives a second major disaster declaration in the same calendar year, the State would need to identify $2 million in permanent work to satisfy the deductible remaining after the first disaster. After the deductible is fully met, all additional eligible costs could be documented on Project Worksheets and processed for reimbursement assistance pursuant to the applicable cost share and standard rules and procedures of FEMA’s Public Assistance program. Any deductible amount remaining unsatisfied due to lack of eligible disaster costs at the end of a year would be canceled. For example, consider a State with a starting deductible of $30 million. The State then requests and is granted credits worth $20 million. FEMA notifies the State on January 1 that it has a final deductible amount of $10 million for the following calendar year. The State does not experience any incidents during the calendar year for which the President declares a major disaster. The $10 million final deductible could expire and be cancelled at the end of the calendar year and the State could receive a new final deductible amount for the next year. J. Validation Procedures FEMA desires for the deductible program to recognize, reward, and incentivize mitigation and resilience building best practices. As with the rest of the SANPRM all numbers, figures, criteria and processes detailed in this section are notional. They are intended to aid the public in understanding how a potential deductible program could operate and to spur discussion and feedback. In order to ensure that the program is both effective in truly incentivizing risk reduction and is being continually improved, FEMA would seek to validate a portion of the credits that States are approved each year. FEMA believes that its analysis will ultimately show that reviewing a sample of credit approvals would be sufficient to ensure the fidelity of the approvals and ultimately, confidence in the credibility of the deductible program. FEMA solicits comment on this E:\FR\FM\12JAP3.SGM 12JAP3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules mstockstill on DSK3G9T082PROD with PROPOSALS3 assumption and the ideal portion of credit submissions that would be subject to validation. Whatever the case, FEMA would notify the State of its intent to validate credits and would specify precisely which credits are to be validated. During the validation process, FEMA would review the records and documentation that States maintain to support their credit requests. Every State would likely have different standards for documentation and each credit may require a different type of documentation, none of which FEMA plans to prescribe; however, each State would be responsible for maintaining and providing, upon FEMA’s notice of intent to validate a credit, sufficient documentation to reasonably and objectively substantiate the credit approval. FEMA anticipates that States would have to maintain the relevant documentation for at least 5 years. FEMA requests comment from States regarding the capital and startup costs that may be involved in this recordkeeping requirement as well as suggestions for how FEMA may minimize the burden on States to keep this information. In the event that FEMA is unable to validate a credit award, either because the underlying State activity did not actually qualify for deductible credit or because the State was unable to produce sufficient documentation to objectively validate the credit approval, FEMA would notify the State of its failure to validate the credit. FEMA would detail the applicable requirements of the deductible credit that was approved and specifically why FEMA was unable to validate it. Once FEMA notifies the State that FEMA was unable to validate a credit, FEMA could permit the State 60 days to appeal the determination. If the State’s appeal is denied, FEMA would add any credit approval that could not be validated to the applicable State’s deductible amount in the next year. If FEMA was able to validate the credit on appeal, the credit approval would stand and FEMA would make no further inquiry or take any other adverse action. FEMA seeks comment on whether and VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 when further action could be appropriate in the case of a State which has submitted consistently unverifiable credits. For example, consider a State that has received a credit approval of $3 million for a tax incentive program that allows consumers to purchase hurricane preparedness supplies without paying sales tax during the first weekend of hurricane season each year. In this case, this particular credit has been included within the sample of credit approvals selected for validation. FEMA notifies the State of its intent to validate the credit and requests the necessary supporting documentation. The State is able to produce documentation for $100,000 of qualifying advertising costs and $1.1 million worth of foregone sales tax receipts. Because the credit concept offers a deductible credit at a ratio of $2.00:$1.00 for this credit, FEMA would be able to validate $2.4 million worth of credit. FEMA notifies the State of its failure to validate $600,000 of credit and of FEMA’s intent to increase the State’s next annual deductible by $600,000 to compensate for the amount of the previous credit approval that FEMA was unable to validate. In this case, the State appeals the approval and is able to produce documentation of an additional $600,000 in forgone tax receipts from the sales tax holiday. FEMA is now able to validate the entire credit approval and would not add any additional amount to the State’s next deductible. K. Possible Implementation Strategy FEMA will gather the suggestions and concerns that have been expressed through the ANPRM and SANPRM and use them to determine whether it can design a deductible concept that achieves FEMA’s overall guiding principles, but does so in a way that is both appreciative of and responsive to the needs and concerns of its emergency management partners, particularly the States to which it would apply. If FEMA decides the deductible program has continued merit, FEMA would issue a Notice of Proposed Rulemaking (NPRM) before possibly issuing a final rule. No aspect of the deductible concept would PO 00000 Frm 00023 Fmt 4701 Sfmt 4702 4085 be implemented prior to publishing a final rule in the Federal Register. Even if a final rule is published, FEMA also recognizes that implementing such a fundamental change would require sufficient time to enable all parties to thoughtfully and strategically adapt to the new structure in the form best befitting each. Consequently, FEMA would likely not apply any deductible for at least one year following publication of a final rule. Thereafter, FEMA’s concept envisions a phased implementation strategy that would make most States responsible for only a partial deductible amount in the beginning of the program and delaying full application of the deductible requirement for most States over a scheduled implementation period. Specifically, FEMA is considering capping the first year deductible at each State’s then-current per capita indicator as determined by FEMA pursuant to 44 CFR 206.48(a)(1). FEMA could then increase each State’s deductible by a share of the unapplied deductible, which for the purposes of this model is 50 percent, each year thereafter until the State reaches the full deductible amount. FEMA could recalculate the full deductible amount annually based on the fiscal capacity and risk index methodology described above. Through this method and based on the model FEMA provides in this SANPRM, half of the States could reach their full deductible within 4 years and all of the States could reach their full deductible within 9 years. Two States, Illinois and Colorado, could potentially reach their full deductible in the first year because the contemplated deductible methodology produces deductibles below their current Public Assistance per capita indicators. Figure 2 depicts the application of this implementation strategy over the first 3 years of the deductible program. Figure 3 depicts the number of States that are forecast to reach their full deductible, as calculated in this model, in each year. Table 11 depicts the model starting deductibles for each State in each year based on current calculations. BILLING CODE 9111–23–P E:\FR\FM\12JAP3.SGM 12JAP3 4086 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 PO 00000 Frm 00024 Fmt 4701 Sfmt 4725 E:\FR\FM\12JAP3.SGM 12JAP3 EP12JA17.027</GPH> mstockstill on DSK3G9T082PROD with PROPOSALS3 I mstockstill on DSK3G9T082PROD with PROPOSALS3 VerDate Sep<11>2014 Jkt 241001 1 PO 00000 1 Frm 00025 Fmt 4701 Sfmt 4725 E:\FR\FM\12JAP3.SGM 12JAP3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules 20:40 Jan 11, 2017 4087 EP12JA17.028</GPH> Figure 3: Number of Years Until Application of the Futl Starting Deductible- Notional mstockstill on DSK3G9T082PROD with PROPOSALS3 4088 VerDate Sep<11>2014 All Amounts in Millions $ Shaded Cells Indicate Capped Values Year4 Starting Deductible YearS Starting Deductible Year6 Starting Deductible Year7 Starting Deductible Jkt 241001 PO 00000 Frm 00026 YearS Starting Deductible Year9 Starting Deductible $12.96 $12.96 $12.96 $19.42 $19.42 $18.67 $18.67 Current Per Capita Indicator (PC I) State Fmt 4701 Sfmt 4725 Alabama I $6.74 Alaska I $1.00 Arizona I I I I I I $9.01 Arkansas California Colorado Connecticut Delaware I · .$1tJill $rJ./74J I $12.96 I $12.96 I I $18.67 $Hl:U.91 $141.03 I $7.08 $18.67 I $4.ll I $5.04 I $1.27 I $7.09 $7.08 I $7.08 I $7.08 $8.01 I I I I $12.96 $18.67 $8.01 I I I I I I $12.96 $18.67 $141.03 $7.08 $20.85 $8.01 I I I I I I I $12.96 $18.67 $141.03 $7.08 $20.85 $8.03 $8.01 I I I I I I I E:\FR\FM\12JAP3.SGM $8.01 $8.01 $8.01 $141.03 $141.03 $141.03 $7.08 $7.08 $7.08 $20.85 $20.85 $20.85 $8.03 $8.03 $8.03 $141.53 $141.53 $17.65 $17.65 $9.17 $7.68 $9.17 $9.17 $7.68 $7.68 $14.43 $14.43 $14.43 $14.43 $12.23 $12.23 $12.23 $12.23 $141.03 $7.08 $20.85 $8.03 Florida Georgia Hawaii Idaho I I $1.92 $2.21 I· I I I $l.~2.! $~;88 l 12JAP3 I $14.43 $12.23 $4;3'() .!. $().:4$1 $(1Jll{ ; $~/Jsl $18.09 $9.14 Iowa $4.30 Kansas $4.02 .$•k02j Kentucky $6.12 f $6)ij I· $6.39 Maine $1.87 1. <$~.39J · $1.~7 Maryland $8.14 <$~fl4l I $9.:23 t $13.94 I $J.~H41 Minnesota $7.48 1 I I r · .$2.~1.1 Michigan $9.23 j $~:141 $14.43 Illinois Indiana Massachusetts $18.67 $17.65 1··. $8.01 I Full Starting Deductible $141.53 $52.53 Louisiana EP12JA17.029</GPH> Year3 Starting Deductible Year 1 I Year 2 Statiing Starting Deductible Deductible . $.6A8l .$!+:?;(! . ·. , $7A6 I $14.43 I $14.43 $12.23 I $12.23 $4\3:fJ $9.17 $7.68 I I $9.17 $7.68 I I I I $9.17 $7.68 I I $14.43 $14.43 $12.23 $12.23 $10.63 $10.63 I $10.63 $10.63 $10.63 $10.63 I I $9.54 $9.54 $9.54 $9.54 $9.4 7 $9.47 $9.47 $9.47 .$9.:68 j $10.63 ~~. OS 1 I $9.54 $9.54 $9.54 $9.47 $9.47 $9.47 j $2L!i7 $73.90 $73.90 $73.90 1. $6.31. $8.52 $8.52 I $8.52 $8.52 $8.52 $8.52 $9.26 $9.47 $14.313, ]>48.52!·· $9.26 $9.26 $9.26 $9.26 $9.26 $9.26 $9.26 $9.26 $t:ts5 $20,77 $30.34 $30.34 $30.34 $30.34 $30.34 $30.34 $30.34 $2tl;9l $23.20 $23.20 $23.20 $23.20 $23.20 $23.20 $23.20 $23.20 $9.44 $9.44 $9.44 $9.44 $9.44 $9.44 $9.44 $9.44 $9.44 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules 20:40 Jan 11, 2017 Table 11: Notional Phased Deductible Implementation with Starting Cap at the Current Per Capita Indicator and Subsequent Annual Caps at l.Sx the Previous Year's Deductible Amount mstockstill on DSK3G9T082PROD with PROPOSALS3 VerDate Sep<11>2014 .I I Jkt 241001 $8.44 Montana Nebraska $2.58 Nevada New Hampshire New Jersey $1.86 1\ $2:ssl I 1 ;$8.57 l I $12.40 PO 00000 Frm 00027 New Mexico $27.32 Ohio $16.27 $13.32 $13.32 $13.32 $13.32 $11.38 $11.38 $11.38 $11.38 $11.38 $6.23 $6.23 $6.23 $6.23 $6.23 $6.23 $9.93 $9.93 $9.93 $9.93 $9.93 $9.93 $8.81 $8.81 $8.81 $8.81 $8.81 $8.81 $8.81 $7.92 $7.92 $7.92 $7.92 $7.92 $7.92 $29.28 $29.28 $29.28 $29.28 $29.28 $29.28 $29.28 $11.11 $11.11 $11.11 $11.11 $11.11 $51.70 $51.70 $51.70 $51.70 $51.70 $51.70 $17.50 $17.50 $17.50 $17.50 $17.50 $2.90 New York North Carolina North Dakota $ZJ.9<)l $13.32 $11.38 $ltn $11.38 $13.32 • $6..2&. $3.81 $11.38 $11.38 $4,n $1.40 r .$8A4.1 $13.32 $11.11 $4.18 Missouri Fmt 4701 Sfmt 4725 E:\FR\FM\12JAP3.SGM $::Z7J~l $51.70 I $51.70 $17.50 I $17.50 I $17.50 I $17.50 I $s:.oG I $7.59 $10.09 $10.09 $10.09 $10.09 $24.411 $7:94 I $25.86 I $10.40 I $18.23 I $21.88 I $5.Pol $25.86 I I I I $25.86 $25.86 $25.86 $25.86 $25.86 $10.40 $10.40 $10.40 $10.40 $10.40 $24.62 $24.62 $24.62 $24.62 $24.62 $21.88 $21.88 $21.88 $21.88 $21.88 l $11.:24 $12.30 $12.30 $12.30 $12.30 I $11.60 I $11.60 $11.60 $11.60 $11.60 $11.60 $8.25 $8.25 $8.25 $8.25 $8.25 $16.68 $16.68 $16.68 $16.68 $16.68 $73.72 $73.72 $73.72 $73.72 $73.72 $7.73 $7.73 $7.73 $7.73 $7.73 $8.64 $8.64 $8.64 $8.64 I I $5.8-2 I $16.68 I $73.72 I $7.73 I $S.q6 $13.51 I $27.30 I $13.51 $13.51 $13.51 $13.51 $13.51 $27.30 $27.30 $27.30 $27.30 $8.~1<1 $13.~11 $23.39 $23.39 $23.39 $23.39 $13.50 $13.50 $13.50 $13.50 $13.45 I $qA5l $I.oo I I . $U~O l I I $5:4o Oklahoma $5.40 .$1~.27.1. Pennsylvania $17.91 Rhode Island South Carolina SouUt Dakota $1.48 Tennessee Texas Utah $6.52 I I $8.95 I $35.46 I $1.15 $l.oo $11.28 r Washington $9.48 I West Virginia $2.61 I $8.02 Virginia Wyoming $21.88 I ~;521 $1.73{ $35.~6[ '$5U91 $1LZ8 l $9.48j $21.88 I $11.60 $Jj:J j I stoo 1 t $1.~31 . $1A8j. $3.90 Vem1ont \$11.911 $10.40 I I $12.1s $5.29 Oregon Wisconsin 12JAP3 $40.9~f-1 $5.85 j I $2.59!. $16.68 I $73.72 I $7.73 I $tso 1 $13.51 I $25.86 $11.60 $3.88! $16.68 $73.72 $7.73 I I I ~;u~.l $13.51 I I $13.51 $24.62 $21.88 t $13.50 $3:92.j $Ko2l I $13.50 I $13.50 I $27.30 $19Jl2 $13.50 $10.47 $2,.61 [. . $10.47 $10.47 $10.47 $15.94 I $18.19 I $20.28 I $21.24 $22.02 $22.16 $22.20 $22.20 '$5.87' I $27.30 $10.40 $1.00 f. I I I Average Median $8.70 $6.26 $6.26 $8.64 $10.04 $11.01 $11.49 $11.49 $11.92 $12.27 $12.27 $12.27 Maximum Minimum $52.53 $52.53 $78.80 $118.19 $141.03 $141.03 $141.53 $141.53 $141.53 $141.53 $141.53 $1.00 $1.00 $1.50 $2.25 $3.38 $5.06 $6.23 $6.23 $6.23 $6.23 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules 20:40 Jan 11, 2017 I I Mississippi $6.23 $8.62 $12.29 4089 EP12JA17.030</GPH> 4090 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules mstockstill on DSK3G9T082PROD with PROPOSALS3 FEMA believes that this approach would allow States the opportunity to adapt to the deductible concept and to take steps that would earn additional credits and begin to address their future disaster risk, without applying deductibles at levels that would be punitive. Similar to the phased implementation of the deductible amounts, FEMA envisions a phased application of credits in lockstep to each State’s deductible amount. This would be done by applying the credits earned each year in the same proportion of the State’s capped deductible to its full deductible. For example, if a State’s starting deductible is equal to its full deductible in a given year, FEMA would apply all of the credits earned in that year. However, if because of phased VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 implementation the starting deductible is a lesser amount, for example 25 percent of the full deductible, FEMA would apply the same percentage as a cap to the credits earned, or in this case 25 percent. Table 12 depicts each State’s notional starting deductible for the first 9 years of the deductible program. It also depicts the model final deductibles that FEMA expects would be applied in each year. As described above, these model final deductibles are the model starting deductibles minus the amount of credits that each State earns in that particular year. For the purposes of this model, FEMA has estimated the amount of credit that each State might earn in the first year based on activities that FEMA believes every State is already undertaking. These amounts were PO 00000 Frm 00028 Fmt 4701 Sfmt 4702 depicted in Table 9. To extrapolate into the out years, FEMA assumed that each State would increase the amount of credit earned by 5 percent year-overyear. FEMA then deducted that amount, in proportion of the starting deductible to full deductible as described above, to calculate the model projected final deductible amounts for each State in each of the first 9 years. These amounts are only estimates, however, and will be affected by many factors, including changes to the base deductible, changes to each State’s relative risk or fiscal capacity, the amount of credit each State earns in the first year for activities already underway, and changes to those activities that result in more or less than 5 percent year-over-year credit increases. All shaded values are capped. E:\FR\FM\12JAP3.SGM 12JAP3 VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 PO 00000 Frm 00029 Fmt 4701 Sfmt 4725 E:\FR\FM\12JAP3.SGM 12JAP3 4091 EP12JA17.031</GPH> mstockstill on DSK3G9T082PROD with PROPOSALS3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules 4092 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules VI. Alternatives Considered Over the course of developing this deductible model, FEMA has considered many alternatives, and selected the attributes that FEMA believes could best achieve the intended outcomes of the program, adhere to the program’s guiding principles, and minimize administrative burdens. The options that FEMA has considered included alternatives to specific aspects of the program, such as which credits could be offered or the value that FEMA could approve for those credits, but also included alternatives to the entire deductible concept itself. FEMA believes that the deductible program has the potential to improve the nation’s resilience and reduce disaster risk and costs on a broad scale, but FEMA welcomes comment on alternative methodologies for achieving these results. The following subsections detail a few of the alternatives and options that FEMA is considering in developing its potential deductible program concept. FEMA did not use these alternatives in the model described in this SANPRM, but believes that they demonstrated enough promise that including a brief discussion of each could facilitate improved engagement and transparency in this process. FEMA has not made a final determination regarding the most appropriate approach moving forward. In addition to the potential deductible model described in this SANPRM, FEMA is still considering the alternatives described below and may consider and pursue other alternatives that may not necessarily be a logical outgrowth of this SANPRM. A. Increasing the Per Capita Indicator FEMA originally began consideration of the deductible concept in the context of repeated calls—by the GAO, DHS OIG, Congress, and others—to change the Public Assistance per capita indicator.71 Instead, FEMA suggests that the Public Assistance deductible program may be a better option for reducing the costs of future disasters because it incentivizes State investments in risk reduction. FEMA believes simply increasing the per capita indicator, to the levels suggested by the GAO, would likely maintain the same level of disaster risk that exists today and transfer the future costs of disaster to impacted State and local governments. FEMA seeks comment on this assumption. However, recognizing that the status quo is unsustainable in the long term, FEMA has seriously considered adjusting the per capita indicator and may still do so in the future. Increasing the per capita indicator, to include an additional consideration of State fiscal capacity, is the only viable alternative to a deductible that FEMA has identified at this time. As was explained earlier in this SANPRM, the Public Assistance per capita indicator was initially set in 1986 at $1.00 based upon PCPI. At the time, that amount represented approximately one-hundredth of one percent (0.01% or 0.0001) of PCPI. Had FEMA adjusted the per capita indicator each year so that it maintained its ratio to rising PCPI, more than 70 percent of major disasters between 2005 and 2014 would not have been declared. Additionally, the per capita indicator would have risen to $4.81 for 2016.72 For comparison, the current 2016 per capita indicator is just $1.41. Switching to this alternative methodology would result in a nearly a 250-percent increase to the average per capita indicator, which could be phased in over a number of years or decades through accelerated upward adjustment of the per capita indicator at rates higher than inflation. Under this alternative FEMA has explored also adjusting the PCPIadjusted per capita indicator value by the current TTR index for each State.73 GAO recommended adjusting the per capita indicator values by the current TTR index.74 Finally, for purposes of comparison, because the Public Assistance per capita indicator is applied on a disaster-by-disaster basis and FEMA envisions an annual deductible, under this alternative FEMA has multiplied the PCPI-adjusted per capita indicator by each State’s 10-year average disaster frequency to provide a more comparable comparison. Table 13 indicates the amount of cumulative damage that a State would need to experience before FEMA would recommend that the President issue a major disaster declaration in 2016 if the per capita indicator were raised to $4.81 and adjusted by the TTR Index. TABLE 13—CURRENT PER CAPITA INDICATOR COMPARED WITH NATIONAL PCPI GROWTH ADJUSTMENTS Data by state mstockstill on DSK3G9T082PROD with PROPOSALS3 State Current per capita indicator 2016 = $1.41 Current TTR index 2010 population Alabama ..................... Alaska ........................ Arizona ....................... Arkansas .................... California .................... Colorado ..................... Connecticut ................ Delaware .................... Florida ........................ Georgia ...................... Hawaii ........................ Idaho .......................... Illinois ......................... Indiana ....................... Iowa ............................ Kansas ....................... 4,779,736 710,231 6,392,017 2,915,918 37,253,956 5,029,196 3,574,097 897,934 18,801,310 9,687,653 1,360,301 1,567,582 12,830,632 6,483,802 3,046,355 2,853,118 75.9 126.8 70.7 75.9 104.9 107.9 138.2 115.3 82.2 90.7 84.8 70.9 107.1 90.7 98.8 93.3 71 See GAO, supra note 28; OIG supra note 29; see also 44 CFR 206.48. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 Indicator adjusted for national PCPI growth 2016 = $4.81 Current indicator total National PCPI adjusted total (with TTR adjustment) $6,739,428 1,001,426 9,012,744 4,111,444 52,528,078 7,091,166 5,039,477 1,266,087 26,509,847 13,659,591 1,918,024 2,210,291 18,091,191 9,142,161 4,295,361 4,022,896 $17,449,812 4,331,756 21,737,140 10,645,404 187,971,913 26,101,477 23,758,524 4,979,879 74,336,996 42,264,033 5,548,505 5,345,909 66,097,129 28,286,688 14,477,132 12,804,023 72 Per Capita Personal Income in 2015 was $48,112 × 0.0001 = $4.81. PO 00000 Frm 00030 Fmt 4701 Sfmt 4702 Annual average major disaster declarations 1.6 1.6 0.9 1.9 1.5 0.7 1.2 0.6 1.6 0.8 0.9 0.6 1.5 1.2 2.3 2.3 Annualized PCPI-Adjusted per capita indicator $27,919,700 6,930,809 19,563,426 20,226,268 281,957,870 18,271,034 28,510,229 2,987,927 118,939,193 33,811,226 4,993,654 3,207,546 99,145,694 33,944,026 33,297,403 29,449,253 73 Per State PCPI Adjusted Total = $4.81 Per Capita Indicator × (State’s TTR Index/100). 74 See GAO, supra FN28, at 50. E:\FR\FM\12JAP3.SGM 12JAP3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules 4093 TABLE 13—CURRENT PER CAPITA INDICATOR COMPARED WITH NATIONAL PCPI GROWTH ADJUSTMENTS—Continued Data by state State Current per capita indicator 2016 = $1.41 Current TTR index 2010 population Kentucky .................... Louisiana .................... Maine ......................... Maryland .................... Massachusetts ........... Michigan ..................... Minnesota ................... Mississippi .................. Missouri ...................... Montana ..................... Nebraska .................... Nevada ....................... New Hampshire ......... New Jersey ................ New Mexico ............... New York ................... North Carolina ............ North Dakota .............. Ohio ............................ Oklahoma ................... Oregon ....................... Pennsylvania .............. Rhode Island .............. South Carolina ........... South Dakota ............. Tennessee ................. Texas ......................... Utah ............................ Vermont ...................... Virginia ....................... Washington ................ West Virginia .............. Wisconsin ................... Wyoming .................... 4,339,367 4,533,372 1,328,361 5,773,552 6,547,629 9,883,640 5,303,925 2,967,297 5,988,927 989,415 1,826,341 2,700,551 1,316,470 8,791,894 2,059,179 19,378,102 9,535,483 672,591 11,536,504 3,751,351 3,831,074 12,702,379 1,052,567 4,625,364 814,180 6,346,105 25,145,561 2,763,885 625,741 8,001,024 6,724,540 1,852,994 5,686,986 563,626 78.6 97.6 77.6 120.3 133.3 85.3 110.7 68.1 89.6 75.8 105.5 82.3 106.9 129 75.8 133.7 86.7 122.2 92.3 85.3 95.2 98.1 102.3 73.2 97.9 82.5 106.7 83.4 87.1 114.6 105.6 73.4 95.1 128.9 FEMA believes that the deductible concept has the potential to result in a better outcome for the nation than increasing the per capita indicator as it promotes State investment in risk Indicator adjusted for national PCPI growth 2016 = $4.81 Current indicator total National PCPI adjusted total (with TTR adjustment) 6,118,507 6,392,055 1,872,989 8,140,708 9,232,157 13,935,932 7,478,534 4,183,889 8,444,387 1,395,075 2,575,141 3,807,777 1,856,223 12,396,571 2,903,442 27,323,124 13,445,031 948,353 16,266,471 5,289,405 5,401,814 17,910,354 1,484,119 6,521,763 1,147,994 8,948,008 35,455,241 3,897,078 882,295 11,281,444 9,481,601 2,612,722 8,018,650 794,713 Annual average major disaster declarations 16,405,671 21,282,187 4,958,187 33,408,254 41,981,629 40,551,883 28,241,650 9,719,708 25,810,838 3,607,387 9,267,859 10,690,482 6,769,144 54,552,823 7,507,725 124,619,993 39,765,539 3,953,369 51,217,809 15,391,531 17,542,948 59,937,573 5,179,293 16,285,537 3,833,965 25,182,931 129,053,808 11,087,435 2,621,548 44,103,725 34,156,359 6,542,069 26,014,037 3,494,532 reduction that will ultimately reduce the financial impact of future disasters. Compared with the alternative option of linking the Public Assistance per capita indicator to PCPI, the deductible model could deliver financial 1.5 1.2 2 1 1.7 0.4 1.8 1.4 2.4 0.8 2.3 0.7 2.2 1.4 1.3 2.5 1.2 2 1 3 1 1.1 0.7 0.3 2.2 1.6 1.7 0.7 1.6 1.2 1.2 1.6 0.9 0.2 Annualized PCPI-Adjusted per capita indicator 24,608,507 25,538,624 9,916,374 33,408,254 71,368,770 16,220,753 50,834,971 13,607,591 61,946,011 2,885,910 21,316,075 7,483,338 14,892,117 76,373,952 9,760,043 311,549,982 47,718,646 7,906,738 51,217,809 46,174,592 17,542,948 65,931,330 3,625,505 4,885,661 8,434,724 40,292,690 219,391,474 7,761,205 4,194,477 52,924,469 40,987,631 10,467,311 23,412,633 698,906 advantages to the States. These financial advantages could be even greater in the preliminary years over which the full deductible amount is phased in. Table 14 indicates the differences that FEMA expects might occur with each option. TABLE 14—ESTIMATED COSTS OF THE NOTIONAL DEDUCTIBLE PROGRAM VERSUS ADJUSTING THE PER CAPITA INDICATOR FOR PCPI Full starting deductible All amounts in $M mstockstill on DSK3G9T082PROD with PROPOSALS3 Average State ...................................................................... Median State ........................................................................ Minimum State ..................................................................... Maximum State .................................................................... FEMA recognizes that increasing the Public Assistance per capita indictor will likely lower the amount the Federal 75 Although the application of the annualization calculation suggests a per capita indicator below $1 million due to low major disaster frequency in some States, 44 CFR 206.48(a)(1) would still set the minimum per capita indicator at $1 million. See supra FN23. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 Full estimated credits (current activities only) $22.20 12.26 6.23 141.53 $9.74 4.43 1.17 120.55 government spends on disasters. It is also simple to communicate and uses processes that everyone is already familiar with. However, FEMA currently believes the decrease in spending that the Federal government may see with the GAO’s suggested indicators would not result because future incidents are any less devastating, but rather because PO 00000 Frm 00031 Fmt 4701 Sfmt 4702 Final deductible $12.46 7.61 1.58 64.46 National PCPIAdjusted total (with TTR adjustment) Annualized PCPI-Adjusted per capita indicator $29.37 17.35 2.59 186.40 $43.00 23.81 0.69 75 308.95 the responsibility for that damage would be transferred to State and local jurisdictions. It is true that there is likely a level at which a high enough per capita indicator would transfer enough risk to the States that they would be forced to internalize sufficient disaster costs that may incentivize them to increase mitigation. We do not E:\FR\FM\12JAP3.SGM 12JAP3 4094 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules believe that level of per capita indicator is viable at this time. Moreover, we believe that a deductible concept, which creates incentives for States both through a transfer of risk and through rewards provided by a credit system, will be more effective in driving risk reduction and will lower all disaster spending over time. FEMA will undertake more analysis over the course of this rulemaking and will make the ultimate decision based on the outcomes of this analysis, and not on the beliefs expressed in this section. Any direction commenters could provide to support that analysis would be appreciated. B. Alternative Deductible Approaches In developing this potential deductible concept, FEMA is considering many variations, including simpler ways to calculate the deductible amount, additional fiscal capacity indicators, alternative methodologies to determine relative risk among the States, altering the threshold, and additional possible activities that could be incentivized through the credit structure. mstockstill on DSK3G9T082PROD with PROPOSALS3 1. Calculation Alternatives There are many different methods by which FEMA could determine a State’s deductible amount, and FEMA has considered the advantages and disadvantages of many options as it developed the potential deductible program. One of the simplest approaches would be to tie each State’s Public Assistance deductible amount to its current per capita Public Assistance indicator in some way. Many commenters to the ANPRM remarked that they appreciated the simplicity, understandability, stability, and predictability of the current per capita indicator. While FEMA appreciates these values, the deductible concept, to be successful, must incentivize greater State resilience to future disasters. It is important, therefore, that the deductible amounts truly represent the States’ individual characteristics that are relevant in the disaster context. Overall, FEMA believes that assessing fiscal capacity and relative risk is a better strategy for calculating deductibles than utilizing the current per capita indicator that lacks relevance to either of those gauges. 2. Fiscal Capacity Index FEMA considered two additional financial indicators before selecting the four contained in the fiscal capacity index included in this model. Those additional indicators included Total VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 Actual Revenue (TAR),76 which FEMA defined as the amount of revenue a particular State actually raises in a typical year, and State Gross Domestic Product (GDP),77 which FEMA defined as the total value of the goods and services produced within the State in a particular year. Upon closer inspection, however, FEMA found that both of these indicators were closely correlated to TTR by factors of 0.981 and 0.998 respectively. FEMA believes that TTR, with its broad consideration of potential State revenue resources, was the best of these three indicators. FEMA also appreciated that TTR, as a measure of potential, does not suffer from complications of political choice in TAR or GDP that result from differences between States in State tax obligations and the services for which tax dollars are allocated. Since all three measures were so highly correlated, FEMA selected to include TTR as the preferred metric from this group. The other three fiscal capacity indicators used in the model were less correlated with one another and, consequently, represent a unique measure of State fiscal capacity that FEMA believes should be considered to inform that portion of the deductible calculation. 3. Risk Index The model methodology for establishing the risk index utilizes AAL values produced from Hazus to evaluate each State’s relative risk level. One feature of the AAL approach is that AAL reflects the total amount of the loss caused by the hazard. This includes losses by individuals, businesses, economic drivers, and insured losses. However, because of limitations in the types of assistance that FEMA provides through the Public Assistance program, there is inherent variability between Hazus-based AAL estimates of overall disaster losses and any impact that reducing these broader disaster losses would have on Public Assistance costs. FEMA is willing to accept this attribute, however, because the intent of the deductible program is to reduce risk and build resilience to disasters overall. FEMA considers the non-Public Assistance cost reductions that would occur as a result of a deductible program 76 The United States Census Bureau produces an annual State Government Finances report that details the amount and sources of actual revenue captured by each State. Additional information can be found at: https://www.census.gov/govs/state/. 77 The Bureau of Economic Analysis produces annual estimates of each State’s Gross Domestic Product. These estimates are available at: https:// www.bea.gov/iTable/iTable.cfm?reqid= 70&step=1&isuri= 1&acrdn=2#reqid= 70&step=1&isuri=1. PO 00000 Frm 00032 Fmt 4701 Sfmt 4702 to be ancillary benefits of the program. This is no less true if the indirect Public Assistance reduction benefits are just a fraction of the overall deductible improvements through reduced AALs. FEMA seeks comment on this approach. One shortcoming of the AAL methodology, at least at present, is that Hazus does not currently produce loss estimates of any kind for severe storms or tornadoes. Overall, these types of incidents account for the most frequently declared major disasters and count for approximately 20 percent of Public Assistance obligations between 2005 and 2014. However, looking below the surface of the classification, FEMA has found that a significant amount of the damage that occurs in a major disaster declared for severe storms is actually caused by flooding. Consequently, just a small percentage of major disasters are actually issued for damage from storms that do not include some flooding. These would include damage resulting from wind (tornado, derecho, microburst, etc.), hail, or winter storms. Nevertheless, it is likely that the AALbased approach to calculating the risk index will somewhat undervalue the risk to locals that are particularly prone to these types of incidents, such as the Midwest for tornadoes and the Northeast for snow and ice storms. FEMA plans to continue seeking ways to improve the Hazus model and expand the modeling capabilities through AAL estimates, but it also acknowledges this particular limitation of the current approach. FEMA is soliciting comment on ways to potentially overcome these limitations in the Hazus model. FEMA also considered a completely different approach to assessing a State’s relative risk that looks specifically at the likelihood that a State will require Public Assistance and the amount of assistance that will likely be needed. FEMA engaged CREATE to assist in the statistical and economic aspects of designing the deductible concept. CREATE produced an alternative approach for modeling risk using historical Public Assistance obligations to estimate States’ risk. Essentially, CREATE has developed a methodology for modeling the likely amounts of Public Assistance that every State will require by leveraging historical Public Assistance levels to forecast potential future need. Specifically, the CREATE model utilizes Public Assistance data from 1999 to 2015 (the broadest range for which reliable data is available). CREATE’s model assumes that both the magnitude and frequency of disasters are random variables while E:\FR\FM\12JAP3.SGM 12JAP3 mstockstill on DSK3G9T082PROD with PROPOSALS3 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules simultaneously taking a State’s characteristics into account, such as the amount of infrastructure. CREATE then developed statistical models, adjusting the modeling parameters so that the outputs best matched the frequency and magnitude of historical Public Assistance outlays. CREATE was then able to use those models to look forward and determine the likely frequency and amounts of Public Assistance that each State would require in the future, converting those amounts to an index of relative risk. CREATE’s approach advanced FEMA’s ability to forecast Public Assistance requirements. However, FEMA is considering using the Hazusbased AAL methodology for establishing each State’s score on the risk index instead for a number of reasons. First, FEMA was concerned with the small quantity of data that it was able to offer to CREATE and upon which CREATE relied to build its model. FEMA could only provide reliable data for 17 years’ worth of Public Assistance. FEMA was concerned that this dataset was of insufficient length to form the basis for establishing long-term forecast trends for the Public Assistance program. Some types of disasters, in some areas occur on 100-year, 500-year, 1,000-year, or even longer cycles. It is likely that FEMA’s 17-year dataset is insufficient to capture these types of events. This is particularly true of rare but devastating hazards, such as major earthquakes. Conversely, States that have happened to experience a major disaster in the past 17 years may have their relative risk overstated by this dataset compared to what may be expected from a longer-term trend. Likewise, it is also likely that the Public Assistance dataset will include incidents that are unlikely to occur again in the near future and that may be skewing the data. The costs associated with Hurricane Katrina is an example of this possibility. While the chances of the Gulf Coast being struck by a moderate to major hurricane in the coming years are reasonable, the likelihood that it will cause the level of destruction as Hurricane Katrina is much lower. This is because a significant portion of the costs from Katrina stemmed from the flooding that resulted from failure of the water management and levee systems in New Orleans, Louisiana. Following extensive improvements to those systems over the past decade, a hurricane of similar intensity to Katrina might not cause the same level of damage to public facilities and infrastructure today. FEMA was also concerned that because the CREATE approach is novel, VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 it might not engender the same level of public confidence as the AAL-based methodology. AAL estimates are used by many organizations within the risk management and insurance industries and are generally accepted and defensible approaches to modeling future hazard costs. Additionally, FEMA expects that many within the emergency management community will be familiar with Hazus and the capabilities of that platform. Hazus data is openly available and FEMA values the transparency and reproducibility that use of the existing Hazus platform offers to the deductible methodology. Finally, FEMA believes that utilizing Hazus-based AALs will offer benefits to other programs as well by creating a significant use of the Hazus platform. FEMA will enjoy an efficiency by leveraging an existing platform instead of designing and constructing a new one. Additionally, because the deductible program has the potential to become a major consumer of Hazus outputs, it increases the value of the Hazus platform to FEMA and to the nation. This likely would lead to future updates and improvements to Hazus capabilities that would benefit not only the deductible program, but also all other users of Hazus products. However, FEMA certainly welcomes comment on the use of Hazus data, and AALs generally, and their application to formulating a risk-informed deductible calculation. In deciding between the Hazus-based AAL approach and the CREATE historical Public Assistance approach, FEMA decided that the former was the better option to incorporate as the risk index into the broader potential deductible formula. FEMA believes that the advantages of using the Hazus-based AAL approach described above outweigh the disadvantages of slightly lessening the risk assessment portion of the deductible methodology’s strict nexus to the Public Assistance program. In other words, FEMA believes that taking a more expansive view of risk through use of Hazus-based AALs, which include costs not typically associated with the Public Assistance program, is acceptable given the intent of the deductible concept is to reduce risk nationally. 4. Additional Credits FEMA carefully considered the credits included in the model described in this SANPRM. FEMA attempted to offer a menu of credits that cover a range of activities and that would support a diversified approach to risk reduction and improved preparedness. FEMA intended each model credit to PO 00000 Frm 00033 Fmt 4701 Sfmt 4702 4095 independently contribute to those outcomes, but also to work within the broader system to create a cohesive structure of achievable progress for all States. When developing the model credit offerings, FEMA considered other credits as well. These credits were not ultimately selected for the model for a variety of reasons. In some cases, the credit was too complicated or could create an unreasonable burden upon the State or FEMA to administer. In other cases, the ability of the credit to actually reduce risk or improve resilience was dubious. Ultimately, FEMA believes it included in the model the best mix of credits available from what it considered. One credit in particular that FEMA considered at length would have been tied to FEMA’s Community Rating System (CRS). Many of the comments that FEMA received from stakeholders when it published the ANPRM suggested that FEMA should offer deductible credit for CRS participation. CRS is a program administered by FEMA’s National Flood Insurance Program (NFIP). The NFIP provides federally-backed flood insurance within communities that enact and enforce floodplain regulations. FEMA recognizes that CRS is an important program that incentivizes important floodplain management activities, many of which mirror or support activities that FEMA is looking to incentivize through deductible credits, and that inclusion as a separate credit could further incentivize those activities. At this point, however, as discussed below, FEMA does not believe that inclusion of CRS as a credit is appropriate at this time. A structure must be located within an NFIP community to be eligible for federally-backed NFIP coverage. NFIP communities may also elect to participate in the CRS program to receive a percentile reduction to the premiums for every NFIP policy within the community. As of October 2015, 1,368 of the 21,600 NFIP communities have chosen to participate in the CRS program. This provides discounted flood insurance premiums to nearly 3.8 million policyholders. The CRS classifies each participating community on a scale from 10 to 1 based on multiple scoring criteria relating to floodplain management, investments, and enforcement. Each CRS class receives a corresponding percentile reduction to the premiums of all of the NFIP flood insurance policies covering property within those communities. The lower the community’s CRS class, the larger the E:\FR\FM\12JAP3.SGM 12JAP3 4096 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules percentile premium reduction will be. For example, a CRS class 7 community would receive a 15 percent premium reduction on all policies covering property within the community’s Special Flood Hazard Area, whereas a CRS class 1 community would receive a 45 percent reduction. As of October 2015, more than 50 percent of CRS communities were assigned to either class 8 or 9. Less than 1 percent of CRS communities have reached beyond class 5. Figure 4 depicts the number of communities in each CRS class (as of October 2015). FEMA examined multiple ways by which it could potentially include such a credit in the deductible model. The major problem with creating a deductible credit in this instance is that the CRS program is administered exclusively at the community level, and FEMA has never produced statewide CRS scores. FEMA would need to be able to translate participating community classes into statewide scores for purposes of the deductible. In considering the credit, FEMA developed a basic framework for how this process might work. FEMA has considered calculating statewide CRS scores by utilizing population-weighted averages of the participating communities’ CRS classes compared to the statewide population. FEMA would multiply the population of each CRS community by its assigned CRS class. FEMA would then add all of those values together and divide by the population of the State. The resulting number would then be subtracted from 9, the lowest class for which credit would be offered, to derive the statewide CRS score. Consider for example the State of Iowa. As of October 2015, Iowa had seven CRS communities. Those communities are as follows: CRS community Population City of Cedar Falls ....................................................................................................................... City of Cedar Rapids ................................................................................................................... City of Coralville ........................................................................................................................... City of Davenport ......................................................................................................................... City of Des Moines ...................................................................................................................... City of Iowa City .......................................................................................................................... Linn County 78 .............................................................................................................................. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 PO 00000 Frm 00034 Fmt 4701 Sfmt 4702 39,260 126,326 18,907 99,685 203,433 67,862 84,900 E:\FR\FM\12JAP3.SGM 12JAP3 Pop. × CRS class CRS class 5 6 7 8 7 7 8 196,300 757,956 132,349 797,480 1,424,031 475,034 679,200 EP12JA17.032</GPH> mstockstill on DSK3G9T082PROD with PROPOSALS3 TABLE 15—EXAMPLE STATEWIDE CRS CREDIT SCORE—IOWA 4097 Federal Register / Vol. 82, No. 8 / Thursday, January 12, 2017 / Proposed Rules TABLE 15—EXAMPLE STATEWIDE CRS CREDIT SCORE—IOWA—Continued CRS community Pop. × CRS class Population CRS class Sum ...................................................................................................................................... ........................ ........................ 4,462,350 State of Iowa ................................................................................................................. 3,046,355 7.5 ........................ mstockstill on DSK3G9T082PROD with PROPOSALS3 FEMA has also considered multiplying the population of each community by the community’s CRS class. For example, the City of Cedar Falls would contribute 196,300 to the calculation (population of 39,260 multiplied by CRS Class 5). FEMA would then add up all of those values from each CRS community. In this case, that would equal 4,462,350. This total would then be divided by the population of the entire State (4,462,350/3,046,355 = 1.5). The result is then subtracted from 9 to yield the statewide CRS score for purposes of the deductible. In this case, Iowa’s CRS score would be 7.5 (9.00 ¥ 1.5 = 7.5). This value could then be recognized with some level of credit based upon a standardized conversion schedule. At this time, FEMA has not developed a potential deductible credit schedule for the CRS. Ultimately, FEMA decided not to include a model CRS deductible credit in this SANPRM for three reasons. First, FEMA believes that the flood insurance premium reductions should sufficiently incentivize NFIP communities to participate or better their standing within the CRS program. Second, FEMA would need to develop a new methodology for creating statewide CRS classes. This would be a novel undertaking for FEMA and the agency seeks comment from its State partners and the public regarding this endeavor. Furthermore, creating such a methodology is complicated because CRS communities are not necessarily the same as census-based communities, meaning that population numbers will need to be validated on a communityby-community basis for the calculation. Finally, even if FEMA does create a methodology for statewide CRS scores, FEMA is concerned that doing so would be confusing to stakeholders because FEMA would not be offering any NFIP 78 The population of Linn County included in this example excludes the population of the City of Cedar Rapids because it is accounted for separately as an independent CRS community. VerDate Sep<11>2014 20:40 Jan 11, 2017 Jkt 241001 insurance premium discounts for those scores. In other words, if a statewide score is better than a particular NFIP community’s CRS class, there may be an expectation that FEMA would use the statewide score in place of the community’s CRS Class. In fact, FEMA would not be willing to use the statewide score in lieu of the community score for purposes of granting NFIP premium discounts and FEMA believes that the creation of statewide CRS scores solely for the purposes of the deductible program would be confusing, and ultimately disappointing, to some CRS communities and NFIP policyholders. VII. Legal Authority FEMA administers the Public Assistance program pursuant to the President’s statutory authority conferred in Section 406 of the Stafford Act to ‘‘make contributions—(A) to a State or local government for the repair, restoration, reconstruction, or replacement of a public facility damaged or destroyed by a major disaster and for associated expenses incurred by the government.’’ 79 These contributions are limited to ‘‘. . . not less than 75 percent of the eligible costs of repair, restoration, reconstruction, or replacement carried out under this section’’—known as the Federal share.80 The President has delegated this authority to the Administrator of FEMA to authorize the Public Assistance program, inter alia.81 ‘‘Eligible’’ is a term of qualification indicating that not all resultant costs are automatically reimbursable. Because the Stafford Act does not define ‘‘eligible costs’’ within the text of the law itself, it is within FEMA’s discretion to define the term for purposes of its programs authorized pursuant to that provision. FEMA has, through regulation and 79 42 U.S.C. 5172(a)(1)(A). U.S.C. 5172(b)(1). 81 Executive Order 12148, 44 FR 43239 (July 24, 1979). 80 42 PO 00000 Frm 00035 Fmt 4701 Sfmt 9990 policy, leveraged its discretion to determine which disaster costs are ‘‘eligible.’’ For purposes of the deductible program, FEMA is considering revising its regulations and policies to reflect a determination that disaster costs that cumulatively fall below the amount of the State’s annual deductible, as adjusted by its earned credits, are not ‘‘eligible costs’’ as defined by the Stafford Act. VIII. Conclusion The concept for a deductible program responds to calls for FEMA to address the increasing frequency of disaster declarations, particularly smaller events that should be within the capacity of State and local governments, and to decrease Federal disaster costs. While increasing the per capita indicator is one way to accomplish this, solely through the transfer of costs from the Federal government to State and local jurisdictions, FEMA believes that doing so would miss a valuable opportunity to increase the nation’s overall disaster resilience, thereby reducing costs for all stakeholders. While FEMA seeks comment on all aspects of the deductible concept, in particular FEMA seeks detailed comment and supporting data on the methodology for calculating each State’s deductible amount, including how FEMA should consider each State’s individual risk and fiscal capacity; and on whether FEMA’s estimates of projected credits for each State are accurate. Detailed stakeholder comment and supporting data are crucial to FEMA’s development of a fair and transparent means to calculate deductible amounts and creation of an effective and efficient deductible program. Dated: January 6, 2017. W. Craig Fugate, Administrator, Federal Emergency Management Agency. [FR Doc. 2017–00467 Filed 1–11–17; 8:45 am] BILLING CODE 9111–23–P E:\FR\FM\12JAP3.SGM 12JAP3

Agencies

[Federal Register Volume 82, Number 8 (Thursday, January 12, 2017)]
[Proposed Rules]
[Pages 4064-4097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00467]

[[Page 4063]]

Vol. 82

Thursday,

No. 8

January 12, 2017

Part IV

Department of Homeland Security

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Federal Emergency Management Agency

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44 CFR Part 206

Establishing a Deductible for FEMA's Public Assistance Program;
Proposed Rule

Federal Register / Vol. 82 , No. 8 / Thursday, January 12, 2017 /
Proposed Rules

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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

44 CFR Part 206

[Docket ID FEMA-2016-0003]
RIN 1660-AA84

Establishing a Deductible for FEMA's Public Assistance Program

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Supplemental advance notice of proposed rulemaking.

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SUMMARY: The Federal Emergency Management Agency (FEMA) is considering
implementing a Public Assistance deductible that would condition
States' receipt of FEMA reimbursement for the repair and replacement of
public infrastructure damaged by a disaster event. The primary intent
of the deductible concept is to incentivize greater State resilience to
future disasters, thereby reducing future disaster costs nationally. On
January 20, 2016, FEMA (the Agency) published an Advance Notice of
Proposed Rulemaking (ANPRM) seeking comment on a Public Assistance
deductible concept. The ANPRM provided a general description of the
concept that many commenters found insufficient to provide meaningful
comment. In an effort to offer the public a more detailed deductible
concept upon which to provide additional feedback, the Agency is
issuing a supplemental ANPRM (SANPRM) that presents a conceptual
deductible program, including a methodology for calculating deductible
amounts based on a combination of each State's fiscal capacity and
disaster risk, a proposed credit structure to reward States for
undertaking resilience-building activities, and a description of how
FEMA could consider implementing the program. At this stage of the
rulemaking process, the deductible remains only something that FEMA is
considering. The policy conceived of in this document is not a
proposal. In this document, FEMA is providing what is merely a
description of a direction FEMA could take in future rulemaking in an
effort to solicit further feedback from the public. After considering
the comments it receives, or as a result of other factors, FEMA may
expand on or redevelop this concept.

DATES: Comments must be submitted by April 12, 2017.

ADDRESSES: You may submit comments, identified by Docket ID FEMA-2016-
0003, by one of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov. Follow the
instructions for submitting comments.
Mail/Hand Delivery/Courier: Regulatory Affairs Division, Office of
Chief Counsel, Federal Emergency Management Agency, 8NE, 500 C Street
SW., Washington, DC 20472.

FOR FURTHER INFORMATION CONTACT: Jotham Allen, Federal Emergency
Management Agency, 500 C Street SW., Washington, DC 20472, 202-646-
1957.

SUPPLEMENTARY INFORMATION:

I. Public Participation

We encourage you to participate in this rulemaking by submitting
comments and related materials. We will consider all comments and
material received during the comment period.
If you submit a comment, identify the agency name and the docket ID
for this rulemaking, indicate the specific section of this document to
which each comment applies, and give the reason for each comment. You
may submit your comments and material by electronic means, mail, or
delivery to the address under the ADDRESSES section. Please submit your
comments and material by only one means.
Regardless of the method used for submitting comments or material,
all submissions will be posted, without change, to the Federal e-
Rulemaking Portal at https://www.regulations.gov, and will include any
personal information you provide. Therefore, submitting this
information makes it public. You may wish to read the Privacy Act
notice that is available via a link on the homepage of
www.regulations.gov.
Viewing comments and documents: For access to the docket to read
supporting documents, a supplemental guidance document, and an annual
notice template, and comments received, go to the Federal e-Rulemaking
Portal at https://www.regulations.gov. Background documents and
submitted comments may also be inspected at FEMA, Office of Chief
Counsel, 500 C Street SW., Washington, DC 20472-3100.

II. Executive Summary

On January 20, 2016, FEMA published an Advance Notice of Proposed
Rulemaking (ANPRM), 81 FR 3082, seeking comment on a concept that would
incorporate a deductible requirement into the Public Assistance
program. The ANPRM provided a general description of this concept,
followed by a list of questions for the public, the answers to which
would help FEMA assess all aspects of the deductible concept, including
how to calculate the deductible, the scope of the deductible, how to
satisfy the deductible, how this concept could influence change,
implementation considerations and an estimated impact. With input
received from the ANPRM, FEMA has developed a more detailed potential
deductible concept and seeks further public comment via this SANPRM.
The goal of this SANPRM is to gather additional public comment about
the specific aspects of a programmatic approach that the Agency
recognizes would represent a change to the existing Federal disaster
support system.
The Public Assistance deductible would condition the States'
receipt of FEMA reimbursement for the permanent repair and replacement
of public infrastructure damaged by a disaster event. FEMA believes the
deductible requirement could incentivize State risk reduction efforts,
mitigate future disaster impacts, and lower recovery costs for the
whole community. In addition, the deductible requirement addresses
concerns raised by Members of Congress, the Government Accountability
Office (GAO), and the Department of Homeland Security's Office of the
Inspector General (DHS OIG) over the last several years, and
potentially addresses concerns that the current disaster declaration
process inadequately assesses State capacity to respond to and recover
from a disaster without Federal assistance.
In this SANPRM, FEMA is presenting a model, or potential,
deductible program to provide more specifics of what the deductible
requirement may entail for detailed public feedback. Detailed public
comments on this potential program, in particular on the methodologies
for calculating each State's deductible and the estimates for each
State's projected credits, could assist FEMA in the development of a
future proposed rule.
Under the deductible concept, each State would be expected to
expend a predetermined, annual amount of its own funds on emergency
management and disaster costs before FEMA would provide Public
Assistance for the repair and replacement of public infrastructure
damaged by a disaster event. This annually predetermined amount is the
State's deductible. However, satisfying the deductible would not be
required before FEMA would provide assistance for other types of
assistance, such as debris removal or emergency protective measures.
Importantly, States may

[[Page 4065]]

choose to earn credits toward satisfying their deductible through a
variety of activities that could reduce risk and improve preparedness,
thereby reducing future disaster costs to both the State and Federal
government.
FEMA could calculate annually the deductible amount (in dollars)
for each State based on an index of State risk and fiscal capacity.
FEMA anticipates a scaled implementation of a deductible requirement
over a yet-to-be-determined period of years with starting deductibles
in year one as follows in Table 1:
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\1\ For a full explanation of how the first year starting
deductibles could be calculated under this model program, please
refer to Section V, Subsections A-F of this notice.

Table 1--First Year Starting Deductibles Before Credits \1\
------------------------------------------------------------------------
First year starting deductibles (before credits)
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Year 1 starting
State deductible (in
millions)
------------------------------------------------------------------------
Alabama............................................... $6.74
Alaska................................................ 1.00
Arizona............................................... 9.01
Arkansas.............................................. 4.11
California............................................ 52.53
Colorado.............................................. 7.08
Connecticut........................................... 5.04
Delaware.............................................. 1.27
Florida............................................... 26.51
Georgia............................................... 13.66
Hawaii................................................ 1.92
Idaho................................................. 2.21
Illinois.............................................. 14.43
Indiana............................................... 9.14
Iowa.................................................. 4.30
Kansas................................................ 4.02
Kentucky.............................................. 6.12
Louisiana............................................. 6.39
Maine................................................. 1.87
Maryland.............................................. 8.14
Massachusetts......................................... 9.23
Michigan.............................................. 13.94
Minnesota............................................. 7.48
Mississippi........................................... 4.18
Missouri.............................................. 8.44
Montana............................................... 1.40
Nebraska.............................................. 2.58
Nevada................................................ 3.81
New Hampshire......................................... 1.86
New Jersey............................................ 12.40
New Mexico............................................ 2.90
New York.............................................. 27.32
North Carolina........................................ 13.45
North Dakota.......................................... 1.00
Ohio.................................................. 16.27
Oklahoma.............................................. 5.29
Oregon................................................ 5.40
Pennsylvania.......................................... 17.91
Rhode Island.......................................... 1.48
South Carolina........................................ 6.52
South Dakota.......................................... 1.15
Tennessee............................................. 8.95
Texas................................................. 35.46
Utah.................................................. 3.90
Vermont............................................... 1.00
Virginia.............................................. 11.28
Washington............................................ 9.48
West Virginia......................................... 2.61
Wisconsin............................................. 8.02
Wyoming............................................... 1.00
------------------------------------------------------------------------

To offset the deductible requirement, FEMA could provide each State
with an opportunity to apply for credits. The credits could incentivize
States to dedicate resources on activities that are demonstrated to
promote and support readiness, preparedness, mitigation, and
resilience. Such activities could include adopting and enforcing
building codes that promote disaster resilience, funding mitigation
projects, or investing in disaster relief, insurance, and emergency
management programs. FEMA believes that every State is already
undertaking activities that would qualify them for credits and reduce
their deductible requirement, such as investing in mitigation projects
or granting tax incentives for projects that reduce risk. Based on
FEMA's projection of possible credits for activities each State is
presently engaged in, FEMA estimates a potential adjusted deductible
requirement in year one as follows in Table 2:
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\2\ For a full explanation of how each State's projected credits
were calculated and how those credits impacted the projected first
year's final deductibles under this model program, please refer to
Section V, Subsections G-H of this notice.

Table 2--Potential First Year Final Deductibles Adjusted for Projected
Credits \2\
------------------------------------------------------------------------
Potential first year ``final'' deductibles (adjusted for projected
credits)
-------------------------------------------------------------------------
``Final''
adjusted
State deductible (in
millions)
------------------------------------------------------------------------
Alabama............................................... 5.01
Alaska................................................ 0.74
Arizona............................................... 4.88
Arkansas.............................................. 2.49
California............................................ 7.63
Colorado.............................................. 5.24
Connecticut........................................... 3.72
Delaware.............................................. 0.94
Florida............................................... 10.85
Georgia............................................... 9.99
Hawaii................................................ 1.68
Idaho................................................. 1.66
Illinois.............................................. 3.47
Indiana............................................... 2.81
Iowa.................................................. 1.70
Kansas................................................ 3.45
Kentucky.............................................. 4.65
Louisiana............................................. 5.57
Maine................................................. 1.46
Maryland.............................................. 5.78
Massachusetts......................................... 5.11
Michigan.............................................. 8.53
Minnesota............................................. 1.25
Mississippi........................................... 2.51
Missouri.............................................. 4.78
Montana............................................... 0.77
Nebraska.............................................. 1.52
Nevada................................................ 2.03
New Hampshire......................................... 0.91
New Jersey............................................ 4.89
New Mexico............................................ 2.02
New York.............................................. 19.59
North Carolina........................................ 2.48
North Dakota.......................................... 0.30
Ohio.................................................. 11.75
Oklahoma.............................................. 3.33
Oregon................................................ 3.91
Pennsylvania.......................................... 5.52
Rhode Island.......................................... 1.20
South Carolina........................................ 4.92
South Dakota.......................................... 0.92
Tennessee............................................. 7.06
Texas................................................. 26.99
Utah.................................................. 1.99
Vermont............................................... 0.63
Virginia.............................................. 4.89
Washington............................................ 8.91
West Virginia......................................... 1.91
Wisconsin............................................. 6.17
Wyoming............................................... 0.71
------------------------------------------------------------------------

Under the deductible concept, FEMA would continue to recommend
whether a State should receive a major disaster declaration pursuant to
the current factors outlined in Federal policy (44 CFR 206.48(a)). If a
State receives a major disaster declaration authorizing Public
Assistance reimbursement, the State would then be required to first
satisfy its annual deductible requirement (as adjusted by credits)
before FEMA would provide reimbursement for Public Assistance permanent
work. If a State has not fully satisfied its deductible through earned
credits, following a major disaster declaration the State would then
identify one or more permanent work projects proposed under the
disaster declaration to satisfy the remaining deductible amount (i.e.,
the State chooses the selected project(s) and the project(s) would be
ineligible for FEMA assistance). In order to ensure timely

[[Page 4066]]

and complete response to the evacuation and immediate protection of
life and property, FEMA would fund eligible emergency protective
measures and debris removal regardless of whether or not the State has
met its deductible requirement.
FEMA could implement the deductible program by regulation,
supplemented by a guidance document and annual notices. The regulation
could set forth broadly that FEMA will annually calculate deductible
and credit amounts and could describe how a deductible requirement
could be applied post-declaration. The guidance document could set
forth more specifically the annual schedule, and how FEMA will
calculate deductible and credit amounts, and the annual notice could
provide FEMA's determination on State deductible amounts for the
following year. A draft guidance document and example annual notice are
included in the docket for this rulemaking at www.regulations.gov under
docket ID FEMA-2016-0003 for public review and comment.
Under this concept, FEMA would condition the provision of grant
assistance for the permanent repair and replacement of building
infrastructure that is damaged by a major disaster upon the State's
meeting a Public Assistance deductible. It would not apply to any other
form of FEMA assistance, including emergency assistance, Individual
Assistance, or the Hazard Mitigation Grant Program. Since the Public
Assistance deductible would condition States' receipt of FEMA funds, it
would not apply to Indian Tribes, the District of Columbia, or US
territories. The deductible would not change the official disaster
declaration request process, or the factors that FEMA considers when
making disaster declaration recommendations to the President.
A deductible program could leverage FEMA's Public Assistance
program to reward States for investing in readiness, preparedness,
mitigation, and resilience, thereby increasing the nation's ability to
reduce disaster impacts and costs for all levels of government,
individuals, and the private sector. FEMA seeks comment on all details
of this concept, especially regarding how the deductible could be
calculated and the types and amounts of deductible credit that could be
granted.

III. Background and Development of the Deductible Concept

Although the Federal government has been providing supplemental
disaster relief to States and localities since the early 1800s, the
Disaster Relief Act of 1974,\3\ which was amended and renamed the
Robert T. Stafford Disaster Relief and Emergency Assistance Act
(Stafford Act) in 1988,\4\ formally established the foundation of the
current disaster assistance system. Generally, FEMA directly provides
or coordinates this assistance.
---------------------------------------------------------------------------

\3\ Disaster Relief Act of 1974, Public Law 93-288 (1974).
\4\ Public Law 100-707 (1988). Robert T. Stafford Disaster
Relief and Emergency Assistance Act, Public Law 93-288 (1974), as
amended; 42 U.S.C. 5121 et seq.
---------------------------------------------------------------------------

Pursuant to this system, the Federal government provides various
forms of financial and direct assistance following disasters. One of
the primary types of support FEMA provides to affected jurisdictions is
repair, restoration, and replacement assistance through the Public
Assistance program.\5\ The Public Assistance program is FEMA's
principal means for assisting jurisdictions that are financially
overwhelmed by the costs of repairing, restoring, and replacing public
facilities damaged by disasters, such as buildings, roads, bridges, and
other types of publicly-owned infrastructure.
---------------------------------------------------------------------------

\5\ See 42 U.S.C. 5172.
---------------------------------------------------------------------------

On average, FEMA has distributed approximately $4.6 billion in
grants each year through the Public Assistance program over the past
decade. Of the nearly $60 billion awarded through the Public Assistance
program between 2005 and 2014, over 65 percent was for eligible
recovery projects termed ``permanent work'' and for project management
costs. Permanent work includes expenses for repair, restoration, and
replacement that are not related to debris removal or emergency
protective measures.\6\
---------------------------------------------------------------------------

\6\ See 44 CFR 206.201(j).
---------------------------------------------------------------------------

Before an affected jurisdiction can receive funding through the
Public Assistance program, the President of the United States must
authorize it.\7\ The Governor typically makes a request through FEMA
for a Presidential declaration of an emergency or major disaster
authorizing the Public Assistance program.\8\ Upon receipt, FEMA is
responsible for evaluating the Governor's request and providing a
recommendation to the President regarding its disposition.\9\
---------------------------------------------------------------------------

\7\ See 42 U.S.C. 5170b, 5192; see also 44 CFR 206.38, 206.40.
\8\ 42 U.S.C. 5170, 5191.
\9\ See 44 CFR 206.37(c).
---------------------------------------------------------------------------

When considering a jurisdiction's request for a major disaster
declaration authorizing the Public Assistance program, FEMA considers
six factors.\10\ These factors include:
---------------------------------------------------------------------------

\10\ See 44 CFR 206.48(a).

1. Estimated cost of the assistance; \11\
---------------------------------------------------------------------------

\11\ Id. at Sec. 206.48(a)(1).
---------------------------------------------------------------------------

2. Localized impacts; \12\
---------------------------------------------------------------------------

\12\ Id. at Sec. 206.48(a)(2).
---------------------------------------------------------------------------

3. Insurance coverage in force; \13\
---------------------------------------------------------------------------

\13\ Id. at Sec. 206.48(a)(3).
---------------------------------------------------------------------------

4. Hazard mitigation; \14\
---------------------------------------------------------------------------

\14\ Id. at Sec. 206.48(a)(4).
---------------------------------------------------------------------------

5. Recent multiple disasters; \15\ and
---------------------------------------------------------------------------

\15\ See 44 CFR 206.48(a)(5).
---------------------------------------------------------------------------

6. Programs of other Federal assistance.\16\
---------------------------------------------------------------------------

\16\ Id. at Sec. 206.48(a)(6).

FEMA evaluates every request with regard to each of these delineated
factors, to the extent applicable. However, there is a very strong
correlation between the first factor, estimated cost of the assistance,
and the likelihood that FEMA will recommend that the President issue a
major disaster declaration.
Under the current system, if a State demonstrates that an incident
has caused a certain level of damage to a State to address the damage
caused, FEMA would likely recommend that the President declare a major
disaster. A major disaster indicates that the President has determined
that the incident has caused ``damage of sufficient severity and
magnitude to warrant major disaster assistance under [the Stafford Act]
to supplement the efforts and available resources of States, local
governments, and disaster relief organizations in alleviating the
damage, loss, hardship, or suffering caused thereby.'' \17\
Consequently, if the President declares a major disaster authorizing
Public Assistance, FEMA will provide supplemental financial assistance
grants, which pay for not less than 75 percent of eligible costs.\18\
---------------------------------------------------------------------------

\17\ 42 U.S.C. 5122(2) (defining a major disaster for purposes
of the Act).
\18\ 42 U.S.C. 5170b(b).
---------------------------------------------------------------------------

Conversely, if the President does not issue a major disaster
declaration, the amount of damage is presumed to be within the
capabilities of the affected jurisdictions and any supporting disaster
relief organizations. In that case, the affected State is responsible
for all of the costs of the incident, although the State will often
pass many of the costs on to local jurisdictions. For example, under
current regulations FEMA may determine a particular State based on its
population is able to independently handle up to $1,000,000 in damage
without the need for supplemental Federal assistance. Under the current
approach, an incident need only identify damage at that amount to
suggest that supplemental Federal assistance is needed. If the governor
of that State requests a major disaster declaration for an incident
causing $999,999 in damage, it is likely that

[[Page 4067]]

supplemental Federal assistance will not be authorized and the State
will be responsible for the entirety of the loss. However, if instead
the incident caused exactly $1,000,000 in damage, supplemental Federal
assistance may be authorized and FEMA would provide reimbursement
grants through the Public Assistance program for at least $750,000 (75
percent of eligible costs). This has the effect of FEMA providing
Public Assistance funding for activities and damage that are identified
to be within State capabilities.
Since 1986, FEMA has used a per capita indicator to compare the
estimated cost of the incident and the capabilities of the requesting
jurisdiction.\19\ This per capita indicator was originally set at $1.00
per person and is based on the jurisdiction's decennial census
population. FEMA selected $1.00 because it appeared at the time to be a
reasonable portion of per capita personal income (PCPI) for a State to
contribute towards the cost of a disaster.\20\ Collectively, this
amount also ``correlate[d] closely to about one-tenth of one percent of
estimated General Fund expenditures by States.'' \21\ The per capita
indicator remained at $1.00 from 1986 until 1999 when FEMA began to add
inflation to the value annually. FEMA did not, however, adjust the per
capita indicator for inflation retroactively. Consequently, since 1999,
the per capita indicator has risen to its 2016 value of $1.41.\22\
---------------------------------------------------------------------------

\19\ The per capita indicator is applied at the State level for
major disaster declarations; however, a second indicator is also
used at the local level to determine which counties are declared
within the State.
\20\ Disaster Assistance; Subpart C, the Declaration Process and
State Commitments, 51 FR 13332, Apr. 18, 1986.
\21\ Id.
\22\ Notice of Adjustment of Statewide Per Capita Indicator, 80
FR 61836, Oct. 14, 2015.
---------------------------------------------------------------------------

FEMA publishes the updated per capita indicator in the Federal
Register each year. FEMA then multiplies the indicator by the State's
most recent decennial population to determine the amount of damage that
a State is expected to be able to independently manage without the need
for supplemental Federal assistance. For example, if a State had a
population at the time of the 2010 decennial census population of
1,500,000, FEMA would multiply that by the 1.41 indicator and arrive at
a State-level indicator of 2,115,000. In other words, FEMA would expect
that the State would be able to handle at least 2,115,000 in eligible
damage without the need for supplemental Federal assistance.
FEMA has established, through regulation, a 1,000,000 minimum for
any major disaster, regardless of the calculated indicator.\23\ The
1,000,000 floor is not subject to inflationary adjustments. Although
FEMA considers every request for a Presidential major disaster
declaration in the light of each applicable regulatory factor, the
probability of an incident being declared based on the amount of
disaster damage and the State-specific per capita indicator has been
over 80 percent for the past 10 years (494 of 589 declared major
disasters). In other words, whether damage assessments find an amount
of damage that meets or exceeds the Public Assistance per capita
indicator is highly correlated to whether that State will ultimately
receive supplemental Federal assistance for that incident.
---------------------------------------------------------------------------

\23\ 44 CFR 206.48(a)(1).
---------------------------------------------------------------------------

Since the per capita indicator was initially adopted in 1986, it
has lost its relation to both of the metrics upon which it was first
calculated. In 1986, PCPI in the United States was 11,687.\24\ By 2015,
PCPI had risen to 48,112, an increase of over 300 percent.\25\ FEMA has
applied inflation adjustments since 1999, and the per capita indicator
has risen by just 41 percent over that same period.
---------------------------------------------------------------------------

\24\ See Disaster Assistance; Subpart C, the Declaration Process
and State Commitments, 51 FR 13332, Apr. 18, 1986
\25\ Per Capita Personal Income (PCPI) is calculated annually by
the United States Department of Commerce's Bureau of Economic
Analysis. The 2015 PCPI data is available at https://www.bea.gov/
iTable/iTable.cfm?reqid=70&step=1&isuri= 1&acrdn=6%20-
%20reqid=70&step=30&isuri=1& 7022=21&7023=0&7024=non-industry&7033=-
1&7025=0&7026=00000&7027=2015&7001= 421&7028=3&7031=0&7040=-1&7083=
levels&7029=21&7090=70#reqid=70&step=
30&isuri=1&7022=21&7023=0&7024=non- industry&7033=-
1&7025=0&7026=00000&7027= 2015&7001=421&7028=3&7031=0&7040=-
1&7083=levels&7029=21&7090=70. [1) Select Annual State Personal
Income and Employment. 2) Select Personal Income, Population, Per
Capita Personal Income, Disposable Personal Income, and Per Capita
Disposable Personal Income (SA1, SA51). 3) Select SA1--Personal
Income Summary: Personal Income, Population, Per Capita Personal
Income. 4) Select United States, Levels, and Per Capita Personal
Income (Dollars). 5) Select 2015.
---------------------------------------------------------------------------

A retrospective analysis conducted by FEMA suggests that if the per
capita indicator had kept pace with PCPI, 70 percent of the major
disasters between 2005 and 2014 would not have been declared. This
would have transferred all of the costs for 408 disasters to the 49
States that would likely have each had at least one less major disaster
declared. As an example, Missouri and Oklahoma would have each have had
19 fewer major disasters declared.
Overall, Public Assistance grants would have been reduced by 10
percent had these 408 major disasters not been declared, resulting in 5
billion dollars less in Federal disaster assistance to the States.\26\
Twenty-one States would have each received over 100 million less in
Public Assistance, with California having received 761 million less,
New York more than 600 million less, and Texas over 366 million less.
---------------------------------------------------------------------------

\26\ Dollar amounts were adjusted to 2015 dollars (2015).
---------------------------------------------------------------------------

Table 3 presents a State-by-State retrospective synopsis of the
likely impacts a PCPI-adjusted per capita indicator would have had on
declared major disasters between 2005 and 2014. To conduct this
analysis, FEMA adjusted the per capita indicator for each year by
multiplying the previous year's national per capita personal income
value for each State by 0.0001. This maintains the 0.01% ratio of the
per capita indicator to per capita personal income that FEMA noted when
it established the original per capita indicator.

Table 3--Impact of PCPI-Adjusted per Capita Indicator on Past Disaster
Activity
[2005-2014]
------------------------------------------------------------------------
Public
Change in assistance
State numbers of change (actual
disasters in 2015$)
------------------------------------------------------------------------
Alabama............................. -12 -$156,634,854
Alaska.............................. -8 -16,686,176
Arizona............................. -5 -32,864,734
Arkansas............................ -15 -105,560,705
California.......................... -12 -761,414,191
Colorado............................ -3 -12,035,081

[[Page 4068]]

Connecticut......................... -4 -34,539,160
Delaware............................ -2 -2,734,920
Florida............................. -7 -170,847,001
Georgia............................. -5 -105,365,782
Hawaii.............................. -5 -19,758,046
Idaho............................... -5 -11,113,622
Illinois............................ -11 -279,253,502
Indiana............................. -8 -98,604,662
Iowa................................ -13 -103,292,537
Kansas.............................. -12 -74,419,056
Kentucky............................ -11 -98,057,973
Louisiana........................... -6 -40,610,199
Maine............................... -11 -31,102,969
Maryland............................ -7 -120,907,360
Massachusetts....................... -7 -135,316,467
Michigan............................ -3 -36,000,794
Minnesota........................... -10 -114,692,904
Mississippi......................... -7 -37,337,169
Missouri............................ -19 -275,421,878
Montana............................. -5 -11,589,893
Nebraska............................ -16 -67,235,065
Nevada.............................. -4 -15,984,383
New Hampshire....................... -11 -39,448,267
New Jersey.......................... -11 -207,572,077
New Mexico.......................... -6 -37,173,106
New York............................ -15 -600,294,475
North Carolina...................... -8 -124,991,358
North Dakota........................ -6 -11,015,041
Ohio................................ -6 -131,629,728
Oklahoma............................ -19 -120,128,934
Oregon.............................. -8 -61,741,829
Pennsylvania........................ -7 -144,293,529
Rhode Island........................ -1 -641,448
South Carolina...................... -1 -12,859,770
South Dakota........................ -8 -11,791,000
Tennessee........................... -13 -113,576,960
Texas............................... -9 -366,759,151
Utah................................ -6 -33,421,146
Vermont............................. -8 -10,790,332
Virginia............................ -8 -159,073,446
Washington.......................... -8 -158,351,021
West Virginia....................... -10 -59,884,181
Wisconsin........................... -6 -55,046,806
-----------------------------------
Total........................... -408 -5,429,864,688
------------------------------------------------------------------------

The Public Assistance per capita indicator has also fallen short of
keeping pace with State general fund expenditures. According to the
National Association of State Budget Officers (NASBO), State general
fund spending in 2015 totaled 759.4 billion.\27\ Collectively, the
States' per capita indicators equaled 435.3 million in 2015.
Consequently, the relation of the per capita indicator to State general
fund expenditures is just 57 percent of what it was in 1986.
---------------------------------------------------------------------------

\27\ NASBO, Fiscal Survey of States, Fall 2015, located at
https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-fca152d64c2/UploadedImages/Fiscal%20Survey/Fall%202015%20Fiscal%20Survey%20of%20States%20(S).pdf.
---------------------------------------------------------------------------

The failure of the per capita indicator to keep pace with changing
economic conditions and the increasing frequency and costs of disasters
has led to criticism of the per capita indicator. Those critiques have
emphasized that the per capita indicator is artificially low. Many have
called for FEMA to find ways to decrease the frequency of disaster
declarations and Federal disaster costs, by increasing the per capita
indicator to transfer costs back to State and local jurisdictions.
These have included recommendations from GAO,\28\ reports of the DHS
OIG,\29\ and proposed legislation.\30\
---------------------------------------------------------------------------

\28\ See, e.g., GAO, Disaster Assistance: Improvements Needed in
Disaster Declaration Criteria and Eligibility Assurance Procedures,
GAO-01837 (2001); See also, GAO, GAO-12-838, Federal Disaster
Assistance: Improved Criteria Needed to Assess Eligibility and a
Jurisdiction's Capability to Respond and Recover On Its Own, 29
(2012).
\29\ See Office of Inspector General, OIG-12-79, Opportunities
to Improve FEMA's Public Assistance Preliminary Damage Assessment
Process 3, Department of Homeland Security (2012).
\30\ See, e.g., S.1960, Fairness in Federal Disaster
Declarations Act of 2014, 113th Cong.; H.R. 3925, Fairness in
Federal Disaster Declarations Act of 2014, 113th Cong. (establishing
criteria for FEMA to incorporate in rulemaking with specific
weighted factors); H.R. 1859, Disaster Declaration Improvement Act
of 2013, 113th Cong. (requiring new regulations concerning major
disaster declarations).

---------------------------------------------------------------------------

[[Page 4069]]

Concluding that the per capita indicator is artificially low,\31\
the GAO recommended that the FEMA Administrator ``develop and implement
a methodology that provides a more comprehensive assessment of a
jurisdiction's capability to respond and to recover from a disaster
without federal assistance.'' \32\
---------------------------------------------------------------------------

\31\ GAO 12-838, supra FN22, at 24.
\32\ Id. at 50.
---------------------------------------------------------------------------

As FEMA considered these observations and recommendations, FEMA was
finalizing its 2014-2018 Strategic Plan \33\ that includes Strategic
Priority 4: Enable Disaster Risk Reduction Nationally.\34\ Objective
4.2 of the Strategic Plan is to ``incentivize and facilitate
investments to manage current and future risk'' \35\ through
``facilitate[ing] collaboration to strengthen risk standards, leverage
market forces, and guide resilient investments'' \36\ as well as
through ``reshap[ing] funding agreements with States, tribal
governments, and localities to expand cost-sharing and deductibles,''
\37\ inter alia.
---------------------------------------------------------------------------

\33\ See generally FEMA Strategic Plan: 2014-2018, available at
https://www.fema.gov/media-library-data/1405716454795-3abe60aec989ecce518c4cdba67722b8/July18FEMAStratPlanDigital508HiResFINALh.pdf.
\34\ Id. at 23.
\35\ Id. at 26.
\36\ Id. at 27.
\37\ Ibid.
---------------------------------------------------------------------------

FEMA also considered the President's emphasis on advancing national
resilience. The President issued three related Executive Orders in the
past two years to build resilience through (1) establishing a Federal
flood risk management standard,\38\ (2) establishing a Federal
earthquake risk management standard,\39\ and (3) requiring agencies to
enhance the resilience of buildings to wildfire in the wildland-urban
interface.\40\ FEMA has been seeking ways to leverage its programs and
resources to further other resilience-building efforts as well. For
example, FEMA has instituted a policy to establish hazard resistant
minimum standards for Public Assistance projects.\41\
---------------------------------------------------------------------------

\38\ Executive Order 13,690, 80 FR 6425, Feb. 4, 2015.
\39\ Executive Order 13,717, 81 FR 6407, Feb. 2, 2016.
\40\ Executive Order 13,728, 81 FR 32223, May 20, 2016.
\41\ Public Assistance Required Minimum Standards Policy, FP-
104-109-4, Sep. 30, 2016, available at https://www.fema.gov/media-library/assets/documents/124326.
---------------------------------------------------------------------------

In early 2014, FEMA began to explore the possibility of introducing
a deductible to the Public Assistance program as a way to leverage the
program to encourage resilience and address some of the concerns raised
by GAO. Accordingly, FEMA convened a working group of subject-matter
experts from within the agency. During the ensuing months, the working
group extensively explored the declaration process, the policies and
workings of the Public Assistance program, the applicable legal
authorities and limitations, and many other areas that would be
necessary to inform the development of a deductible concept.
In the course of this research, FEMA reviewed a related rulemaking
effort that was a contemporary to the 1986 development of the per
capita indicator. FEMA had proposed a regulation that sought to
establish (1) ``capability indicators'' for the major disaster
declaration decision-making process, (2) a requirement for Governors to
make commitments on behalf of their States and local governments to
assume a portion of the Public Assistance costs, and (3) a sliding
cost-share based on the capability indicators.\42\ The proposed rule
was met with vocal and widespread criticism by Congress and the
emergency management community and FEMA ultimately abandoned the
effort.\43\ Two of the primary criticisms of FEMA's proposed 1986
rulemaking:
---------------------------------------------------------------------------

\42\ See Disaster Assistance; Subpart C, the Declaration Process
and State Commitments, 51 FR 13332, Apr. 18, 1986; see also Disaster
Assistance; Subpart E--Public Assistance--Eligibility Criteria, 51
FR 13341, Apr. 18, 1986; Disaster Assistance; Subpart H, Public
Assistance Project Administration, 51 FR 13357, Apr. 18, 1986.
\43\ Inquiry into FEMA's Proposed Disaster Relief Regulations:
Hearing Before the Subcomm. on Investigations and Oversight of the
H. Comm. On Public Works and Transportation, 99th Cong. (1986).
---------------------------------------------------------------------------

1. FEMA did not recognize the efforts and expenditures that States
were already committing to disaster response and recovery; and
2. FEMA did not offer sufficient engagement with key stakeholders
during the developmental process.
Considering this background, the FEMA working group developed three
guiding principles that were designed to control and direct the impact
of the deductible concept:
1. Encourage and incentivize risk-informed mitigation strategies on
a broad scale, while also recognizing current State activities;
2. Incentivize consistent fiscal planning by all States for
disasters and establish mechanisms to better assess State fiscal
capacity to respond to disasters; and
3. Ensure the supplemental nature of FEMA assistance.
Through these guiding principles, the working group designed an
initial deductible concept that could leverage the Public Assistance
program to recognize risk reduction investments that the States were
already undertaking and to incentivize risk reduction best practices
nationwide as a means to reduce future disaster impacts and costs for
the whole community rather than simply transferring response and
recovery costs from the Federal government to State and local
jurisdictions. The working group also determined further exploration of
the deductible concept should be cognizant of the two primary
criticisms of FEMA's proposed 1986 rulemaking: The failure to recognize
the efforts and expenditures that States were already committing to
disaster response and recovery and the insufficient engagement with key
stakeholders.
In its 2015 updated response to the GAO recommendations, FEMA
presented three options that it planned to continue investigating:
1. Adjust the per capita indicator to better reflect current
national and State-specific economic conditions;
2. Develop an improved methodology for considering factors in
addition to the per capita indicator; and
3. Implement a State-specific deductible concept for States to
satisfy before qualifying for Public Assistance.
After further investigation and consideration of the alternatives,
FEMA decided to further develop the deductible concept because of its
relationship to Strategic Priority 4 and its potential for reducing
risk and disaster costs for the whole community through incentivizing
targeted investments. Moving forward, FEMA plans to pursue closeout of
the GAO recommendation through development of the deductible concept
for the Public Assistance program. However, FEMA will continue to
consider alternatives to the deductible concept going forward,
including the GAO's recommendation to significantly increase the
current per capita indicator as described in Sections III and VI(A).

IV. Advance Notice of Proposed Rulemaking

FEMA issued the ANPRM to introduce the deductible concept with the
emergency management community and the public. The ANPRM consisted of
basic background information concerning the declarations process and a
very high-level overview of a deductible concept. In keeping with the
preliminary and developmental state of the concept at that time, the
ANPRM offered few specifics concerning the

[[Page 4070]]

organization or implementation of a deductible. Chiefly, the ANPRM
included an extensive list of questions that FEMA was seeking to answer
regarding how a deductible program could be best structured and applied
to achieve the principles outlined above. These questions were wide
ranging in specificity to address all potential aspects of the
deductible concept. FEMA presented these questions in an impartial
manner to solicit as many relevant responses as possible. This was
effective in generating varied responses to questions upon which
opinions differed, but in many cases commenters noted it was difficult
if not impossible to answer specific questions without a more detailed
description of the deductible concept. As a result, commenters provided
more general and conceptual responses to the questions asked. FEMA
believes that it would have benefited from receiving more specific and
detailed feedback, and that the information contained in those types of
comments would have been very helpful to the rulemaking process.
In all, FEMA received approximately 150 comments on the ANPRM.\44\
These comments came from 35 entities representing 28 individual States,
28 local jurisdictions, and 2 Indian Tribal Nations. FEMA also received
comments from 19 professional industry groups, 3 governmental
associations, and 9 research and policy organizations.
---------------------------------------------------------------------------

\44\ The comments can be viewed on the docket for this
rulemaking at www.regulations.gov under docket ID FEMA-2016-0003.
---------------------------------------------------------------------------

FEMA reviewed the comments that were received and incorporated the
concerns and suggestions into the potential deductible program
presented in this SANPRM. FEMA noted many concerns in the comments
regarding how the deductible could be applied, or the burdens, either
financial or administrative, that it could create for the States. FEMA
addressed these concerns in the design concept. In other cases, it was
clear that FEMA had not provided enough background information for
commenters to offer practicable suggestions. Some comments may have
benefited from FEMA providing additional explanation of the current
disaster declaration processes, more specificity regarding the Public
Assistance program, and a more expansive description of the deductible
concept itself. FEMA concluded that it had not offered sufficient
information in the ANPRM to enable the public to fully participate in
commenting on all aspects of the concept. Consequently, FEMA is
providing the public more detail on its concept for a deductible
program in this SANPRM.
Notwithstanding the limitations on specificity in the ANPRM, FEMA
received support for the concept as a means by which to achieve the
goals of reducing disaster impacts and costs through improved
preparedness activities and expanded investments in mitigation and risk
reduction. Many commenters pointed out that the deductible program
could be a preferred outcome compared to increasing the per capita
indicator and the potential transfer of financial responsibility to
State and local governments that would result. Some commenters found
merit in the deductible concept as a way through which to reduce costs,
but also to improve disaster resiliency by investing before an incident
and incurring reduced costs related to response and recovery over the
long term.
In addition to seeking comment via the ANPRM, FEMA continued to
conduct research to inform the design of the deductible concept. FEMA
recognizes that establishing the methodology for calculating the
deductible in an equitable, accurate, and transparent way is essential
to any future deductible proposal. Further, for any approach to sustain
the rigors of analytic and economic review, FEMA recognized that it
would benefit from leveraging external expertise to better develop a
methodology that was defensible and reproducible.
With the assistance of the Department of Homeland Security (DHS)
Science and Technology Directorate's Office of University Programs,
FEMA contracted with the Center for Risk and the Economic Analysis of
Terrorism Events (CREATE), a DHS Center of Excellence, to support
development of the deductible calculation. CREATE is known for its
experience in hazard assessment research, as well as statistical and
economic modeling capabilities. CREATE dedicated a team of research and
academic experts to develop a reliable methodology for calculating a
deductible that is cognizant of the principles established by the FEMA
working group; namely that the proposed formula be reflective of the
individual capabilities and risks unique to each State and that the
calculus function in a transparent and replicable way utilizing
publically available information and data.
FEMA also contracted with a leading emergency management consulting
firm to conduct additional research pertinent to developing the
deductible. With the assistance of the National Emergency Management
Association, this firm reached out to nine States on FEMA's behalf to
assist those States with identifying information pertinent to the
development of the deductible concept.\45\ At the next stage of
development, FEMA will make every effort to gather data from a larger
sample of States, preferably all States, so that the proposal may be as
representative as possible. FEMA also invites States to specifically
correct any erroneous assumptions made for purposes of developing this
SANPRM deductible concept during the comment period.
---------------------------------------------------------------------------

\45\ The States contacted were California, Florida, Minnesota,
New York, Pennsylvania, Texas, Washington, Wyoming, and Vermont.
---------------------------------------------------------------------------

Specifically, the consulting firm assisted FEMA with understanding
the methods and strategies currently used by these nine States to pay
for the costs of emergency management programs, mitigation initiatives,
and disaster response and recovery. The firm also researched innovative
preparedness programs that the nine States have developed to further
encourage planning and resiliency-building, such as tax credit
incentive programs for individuals, localities, and State entities.
FEMA primarily used the information it obtained from the consulting
firm to estimate baselines of current State investments that FEMA then
used to set initial credit approvals at levels likely to encourage
additional investment and program growth. FEMA also leveraged the
information to assist in preparing targeted outreach efforts during the
comment period of the ANRPM, such as those held with the National
Governor's Association, the National Association of Counties, the
National Emergency Management Association, Big City Emergency Managers,
National League of Cities, and the International Association of
Emergency Managers. These targeted engagements enabled FEMA to draw
attention to the ANPRM, explain the purpose and background of the
deductible concept with key stakeholders, and to solicit additional
details that could be particularly pertinent to informing FEMA's
deductible design considerations.
Following closure of the ANPRM comment period, FEMA compiled the
comments received, the research performed by CREATE, and the research
on State disaster funding and incentive programs and formulated the
potential deductible program concept described in this SANPRM.
FEMA believes that this deductible concept is capable of
meaningfully reducing the nation's overall risk profile over time.
Calculating a deductible is, however, complex. FEMA also

[[Page 4071]]

understands a deductible could be a significant change to FEMA's
largest supplemental disaster assistance program. FEMA is therefore
committed to continuing to dialogue with its emergency management
partners on how best to design a program that will achieve mutually-
beneficial goals without the undue transfer of responsibility or the
creation of unnecessarily burdensome administrative bureaucracy.

V. Potential Deductible Program

A. Calculation Methodology

There is innate uncertainty in the likelihood of disaster events
that prevents perfection in a deductible concept and complicates a
complete understanding of the complex disaster environment within which
the deductible program would operate. However, not unlike the
commercial insurance markets, these uncertainties can be quantified and
analyzed over geographic areas and over long periods of time with
increasing precision. These calculations could be used to approximate
the relative exposure of certain regions, in this case the States, to
future disaster costs. These estimates could then be reflected in the
relative value of a State's deductible.
Arriving at a calculation methodology is thus one of the most
critical aspects of moving the deductible program beyond the conceptual
stage and requires public comment. FEMA believes that the methodology
should be transparent, reproducible, defensible, and equitable.
Additionally, FEMA believes that the approach should reflect
fundamental purposes of the Stafford Act, namely that the Federal
government support those States that are overwhelmed by the response to
and recovery from a natural disaster. Therefore, it is most appropriate
to calculate each State's deductible based upon the aspects of fiscal
capacity and disaster risk that are unique to the State. FEMA could do
this through a four-step process: (1) Establishing the base deductible,
(2) calculating the fiscal capacity index, (3) calculating the risk
index, and (4) normalizing the deductible amounts. FEMA has included a
step-by-step table in the rulemaking docket that demonstrates how each
State's starting deductible amount was calculated for purposes of this
SANPRM. That table and those deductible amounts are included only as an
example of how the deductible concept may function. If implemented, the
actual deductible amounts will be dictated by the parameters of the
proposal ultimately adopted.

B. Establishing the Base Deductible

\46\ See generally Section 406 of the Stafford Act which
authorizes FEMA to provide funding to assist State, territorial,
Tribal and local governments, as well as certain private nonprofit
organizations that provide governmental-type services, with the
restoration of disaster damaged infrastructure. Because this
underlying authority for the program is for public infrastructure,
FEMA believes that it is important that the deductible remains
connected to Public Assistance funding for that infrastructure.
---------------------------------------------------------------------------

As developed by FEMA, the base deductible utilized in this
conceptual model is the median average amount of Public Assistance
received across all 50 States in the past 17 years.\47\ FEMA summed the
total amount of Public Assistance delivered to each State from 1999 to
2015 and then divided by 17 to determine the per State average annual
amount of Public Assistance. FEMA then created a ranked list of those
average amounts and determined the median value. Because there are 50
States, the median value is the average of the results for the States
situated at the 25th and 26th positions, which was 22,202,726. FEMA
rounded the median average amount to 22.2M and imputed this amount to
every State as the initial base deductible for the subsequent year.
---------------------------------------------------------------------------

\47\ FEMA used Public Assistance data from 1999 to 2015 adjusted
for inflation to 2015 dollars where necessary using the Consumer
Price Index inflation calculator provided by the Bureau of Labor
Statistics and available at https://www.bls.gov/data/inflation_calculator.htm. Prior to 1999, FEMA utilized a data
management process that was different from the current system.
Furthermore, prior to 1999, FEMA had different policies in place
that would have also affected the way that Public Assistance was
awarded. The data from the 1999-2015 period is the most reliable
that FEMA has available. FEMA expects to add additional data to the
calculation each year to increase accuracy over time and to account
for long-term shifts in Public Assistance, rather than using a
rolling window of data for the annual calculation. This will also
limit the impact of any outlier years in terms of Public Assistance
awards, both for high and low extremes.
---------------------------------------------------------------------------

FEMA believes that this may be a reasonable approach to
establishing a base deductible because it would leverage approximately
25 percent of the average amount that FEMA awards in Public Assistance
each year to incentivize reducing risk. Based on comments received in
response to the ANPRM, FEMA believes that States are already making
investments that would offset a portion of this amount through credits.
By adjusting each State's base deductible amount to account for its
individual risk and fiscal capacity, as described in the subsequent
subsections, this approach could yield a meaningful deductible amount
for each State, while still providing the greatest incentive to States
that have the greatest potential for effectively reducing risk and
future disaster costs. FEMA believes this could balance the potential
benefits of the disaster deductible program with the need to continue
supporting our State partners when disasters exceed their capabilities.
See Table 4 for a breakdown of the cumulative and average amount of
Public Assistance that each State received from 1999 through 2015.

Table 4--State Rank of Federal Assistance From 1999-2015
[In 2015 dollars]
----------------------------------------------------------------------------------------------------------------
Total federal share Annual average federal
No. State obligated (1999-2015) share obligated
----------------------------------------------------------------------------------------------------------------
1........................ New York........................... $21,671,388,334 $1,274,787,549
2........................ Louisiana.......................... 16,621,415,286 977,730,311
3........................ Florida............................ 6,399,822,001 376,460,118

[[Page 4072]]

4........................ Mississippi........................ 4,180,836,633 245,931,567
5........................ Texas.............................. 4,094,422,168 240,848,363
6........................ New Jersey......................... 2,357,737,579 138,690,446
7........................ Iowa............................... 1,826,578,453 107,445,791
8........................ California......................... 1,437,292,282 84,546,605
9........................ Oklahoma........................... 1,131,691,340 66,570,079
10....................... Kansas............................. 1,080,772,444 63,574,850
11....................... North Carolina..................... 953,206,418 56,070,966
12....................... Missouri........................... 888,379,570 52,257,622
13....................... Alabama............................ 841,956,023 49,526,825
14....................... Arkansas........................... 744,651,963 43,803,057
15....................... North Dakota....................... 679,833,405 39,990,200
16....................... Virginia........................... 643,863,349 37,874,315
17....................... Kentucky........................... 615,307,272 36,194,545
18....................... Tennessee.......................... 602,295,312 35,429,136
19....................... Pennsylvania....................... 557,230,633 32,778,273
20....................... Nebraska........................... 435,308,536 25,606,384
21....................... Washington......................... 428,584,871 25,210,875
22....................... Minnesota.......................... 426,982,553 25,116,621
23....................... Massachusetts...................... 422,663,583 24,862,564
24....................... Colorado........................... 408,338,653 24,019,921
25....................... South Carolina..................... 384,041,986 22,590,705
M........................ Median............................. 377,446,341 22,202,726
26....................... Ohio............................... 370,850,697 21,814,747
27....................... Georgia............................ 328,820,892 19,342,405
28....................... West Virginia...................... 311,011,683 18,294,805
29....................... Illinois........................... 309,990,918 18,234,760
30....................... Vermont............................ 297,996,556 17,529,209
31....................... Connecticut........................ 284,870,352 16,757,080
32....................... South Dakota....................... 284,612,022 16,741,884
33....................... New Mexico......................... 274,303,673 16,135,510
34....................... Maryland........................... 265,115,281 15,595,017
35....................... Indiana............................ 237,955,033 13,997,355
36....................... Alaska............................. 203,258,189 11,956,364
37....................... Wisconsin.......................... 174,472,096 10,263,064
38....................... Oregon............................. 144,641,218 8,508,307
39....................... New Hampshire...................... 137,674,702 8,098,512
40....................... Maine.............................. 91,683,905 5,393,171
41....................... Hawaii............................. 87,697,345 5,158,667
42....................... Montana............................ 70,196,126 4,129,184
43....................... Arizona............................ 68,642,964 4,037,821
44....................... Rhode Island....................... 63,361,303 3,727,135
45....................... Michigan........................... 42,583,629 2,504,919
46....................... Delaware........................... 39,007,437 2,294,555
47....................... Utah............................... 34,208,312 2,012,254
48....................... Nevada............................. 30,275,261 1,780,898
49....................... Wyoming............................ 12,973,750 763,162
50....................... Idaho.............................. 11,695,737 687,985
----------------------------------------------------------------------------------------------------------------

After establishing this base deductible that is shared by every
State, FEMA differentiated the States and ascribed individual
deductibles according to each State's relative fiscal capacity and
unique disaster risk profile. Fiscal capacity is important because the
intent of FEMA's Stafford Act programs, including Public Assistance, is
to supplement the capabilities of State and local jurisdictions.
Disaster risk is important because it is the primary driver of Public
Assistance expenditures and its reduction is the primary purpose of the
deductible concept.
Because FEMA is seeking to reduce risk through the deductible, and
it is precisely through this risk reduction that the nation could
realize the promise of the deductible program in decreasing disaster
impacts and costs, FEMA has considered in this calculation prioritizing
the risk portion of the deductible calculation by a ratio of 3:1
compared to the fiscal capacity portion. In other words, when a State's
base deductible is adjusted, 75 percent of the adjustment results from
the State's relative risk profile and the remaining 25 percent stems
from the State's relative fiscal capacity.

C. Calculating the Fiscal Capacity Index

[[Page 4073]]

comprise the composite fiscal capacity index were each determined to
represent a separate and distinct aspect of a State's economy and
governmental resources; however. FEMA welcomes comment on whether these
are the best indicators to leverage and whether there are others that
should be considered as well. The four fiscal capacity indices that
FEMA includes in the model deductible calculation are based on each
State's per capita Total Taxable Resources (TTR), per capita surplus/
deficit, per capita reserve funding, and the State's bond rating. FEMA
will use the most recent indices.
TTR is an annual measure of fiscal capacity calculated by the
United States Department of Treasury.\48\ Essentially, TTR considers
all of the income streams available within each State, including gross
domestic product, corporate withheld earnings, and other capturable
revenue. TTR does not measure how much revenue a State actually
captures, but instead, measures how much revenue, in real dollars, a
State has access to as compared to other States. As a per capita index,
the State's total TTR in real dollars is then divided by the State's
population. This places high-population States on equal footing with
low-population States with regard to the index.
---------------------------------------------------------------------------

\48\ Additional information regarding Total Taxable Resources
(TTR), including the methods for calculating and the current TTR
estimates, can be found on the Web site of the Department of the
Treasury at https://www.treasury.gov/resource-center/economic-policy/taxable-resources/Pages/Total-Taxable-Resources.aspx.
---------------------------------------------------------------------------

The surplus/deficit and the reserve fund indices operate in similar
fashion. In each case, the State's value (surplus/deficit or reserve)
is divided by the State's population. That amount is then compared with
the per capita value of the median State. This creates indices of
relative strength for each.
The surplus/deficit index is built using data provided by the
Annual Survey of State Government Finances provided by the United
States Census Bureau of the Department of Commerce.\49\ The reserve
fund index is built using data provided by the Fiscal Survey of the
States conducted regularly by NASBO.\50\ FEMA believes that both the
surplus or deficit that a State is running and the amount of funding
that a State holds in reserve are relevant indicators of a State's
overall fiscal well-being and ability to independently address the
financial costs of disasters.
---------------------------------------------------------------------------

\49\ Additional information concerning the Annual Survey of
State Government Finances, including the survey methodology and
latest survey results, can be found on the Web site of the United
States Census Bureau at https://www.census.gov/govs/state/.
\50\ Additional information concerning the Fiscal Survey of
States, including the survey methodology and latest survey results,
can be found on the Web site of the National Association of State
Budget Officers at https://www.nasbo.org/mainsite/reports-data/fiscal-survey-of-states.
---------------------------------------------------------------------------

Finally, the bond rating index is similarly calculated by dividing
the State's bond rating by the median State's bond rating. In this
model, FEMA calculates the bond rating index based upon data provided
by the Pew Charitable Trusts from Standard & Poor's State Credit
Ratings.\51\ FEMA believes that the resulting relative index is an
indicative proxy of the State's ability to quickly raise the funding
liquidity necessary to respond to and recover from disaster incidents.
---------------------------------------------------------------------------

\51\ Additional information concerning the data provided by the
Pew Charitable Trusts can be found on their Web site at https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2014/06/09/sp-ratings-2014.
---------------------------------------------------------------------------

FEMA averaged these four indices of relative fiscal strength into a
consolidated fiscal capacity index, each factor being equally weighted.
This index accounts for 25 percent of a State's base deductible
adjustment. However, FEMA also realized that, due to diversity in
economic drivers and varying population sizes, some States may
demonstrate a particular fiscal capacity indicator that is a
statistical outlier compared with its other factors and the indicators
of other States. To minimize the impact of these outliers on the
disaster deductible formula, FEMA capped the impact of any individual
fiscal capacity indicator at five times the median State's relative
strength. In other words, if the median State's per capita reserve fund
is $100 and is ascribed a value of 1.0 on the index, a State with an
outlier per capita reserve fund value of $800 could be imputed the
maximum per capita reserve fund value of $500, and therefore still
receive an index value of 5.0, instead of the 8.0 index value that
could otherwise be warranted. FEMA capped each fiscal capacity
indicators in this way to contain the variability of the overall index
and smooth the impact on outlier States.

D. Calculating the Composite Risk Index

\52\ A 500-year event is an event that has the statistical
likelihood of occurring once every 500 years, or in other words, a 1
in 500 chance (0.2%).
---------------------------------------------------------------------------

There are numerous sources of AAL data for hazards. Proprietary
catastrophic risk models developed by companies such as AIR Worldwide
(AIR), Risk Management Solutions (RMS), and CoreLogic (EQECAT) are
three primary sources of AAL and risk information used by the
reinsurance industry.\53\ FEMA considered these sources, but did not
pursue them due to the proprietary, closed nature of the underlying
risk models. Instead, FEMA used the AAL values produced using FEMA's
Hazus platform.
---------------------------------------------------------------------------

\53\ A short discussion about catastrophic modeling and a
description of the three proprietary AAL models identified here can
be found on the Marsh, LLC Web site at https://www.marsh.com/content/dam/marsh/Documents/PDF/US-en/Marsh-Insights-Property-Fall-2012.pdf.
---------------------------------------------------------------------------

Hazus is a nationally applicable standardized methodology that
contains models for estimating potential losses from earthquakes,
floods, and hurricanes. Hazus uses Geographic Information Systems (GIS)
technology to estimate physical, economic, and social impacts of
disasters.\54\ FEMA used AAL estimates generated using Hazus because it
is a well-established and familiar platform for many emergency managers
and, most importantly, it is an open-source platform that will provide
complete transparency to stakeholders concerning FEMA's deductible
calculations.
---------------------------------------------------------------------------

\54\ For additional information, visit FEMA's Hazus Web site at
https://www.fema.gov/hazus.
---------------------------------------------------------------------------

FEMA used the Hazus-based AAL estimates to create a simplified risk
index for each State. Specifically, FEMA summed the most recently
available AAL estimates \55\ for each State for each

[[Page 4074]]

of the three Hazus hazards: Earthquakes,\56\ floods (both coastal and
riverine),\57\ and hurricanes (wind only).\58\ Collectively, these
three hazards accounted for more than 75 percent of all Public
Assistance awarded during the 10-year period between 2005 and 2014.
---------------------------------------------------------------------------

\55\ FEMA uses estimates of AAL generated using FEMA's Hazus
software. Cited AAL estimates were inflation-adjusted to 2015
dollars where necessary using the Consumer Price Index inflation
calculator provided by the Bureau of Labor Statistics and available
at https://www.bls.gov/data/inflation_calculator.htm.
\56\ KS Jaiswal, et al. (2015). Estimating Annualized Earthquake
Losses for the Conterminous United States. Earthquake Spectra:
December 2015, Vol. 31, No. S1, pp. S221-S243. FEMA is unable to
post a copy of the document in the docket due to copyright
restrictions. A summary of the document and purchase information is
available at https://dx.doi.org/10.1193/010915EQS005M.
\57\ Hazus AAL results for flood (coastal and riverine) are
available at https://data.femadata.com/Hazus/FloodProjects/AAL/StateAAL_proj.zip and https://www.arcgis.com/home/item.html?id=cb8228309e9d405ca6b4db6027df36d9. Accessed June 2,
2016. Note that Hazus flood AAL estimates are not available for
Hawaii and Alaska; these losses are estimated by indexing against
National Oceanic and Atmospheric Administration (NOAA) flood loss
estimates from 2011-2014, available at https://www.nws.noaa.gov/hic/summaries/.
\58\ FEMA Mitigation Directorate, Hazus-MH Estimated Annualized
Hurricane Losses for the United States (unpublished draft report),
September 2006.
---------------------------------------------------------------------------

FEMA created a composite risk index around the median cumulative
AAL. FEMA arranged each State's cumulative AAL (the sum of the State's
earthquake, flooding, and hurricane AALs) in order from the largest
cumulative AAL to the smallest. Because there is an even number of
States, FEMA averaged the cumulative AALs of the States in the 25th and
26th positions to determine the overall median cumulative AAL. FEMA
assigned this amount a value of 1.0 and indexed each State's relative
cumulative AAL to determine the State's risk index score.
For example, consider a State with the following Hazus-based AALs:

Hurricane: $875 million
Flooding: $2 billion
Earthquake: $25 million

Cumulative: $2.9 billion (Hurricane AAL + Flooding AAL + Earthquake
AAL) FEMA conducted the same calculation for each State and then
ordered them from largest to smallest in terms of each State's
cumulative AAL.
If the median cumulative AAL across all of the States is $1.45
billion, that would be ascribed a score of 1.0 on the risk index, the
hypothetical State above would receive a risk index score of 2.0
because its cumulative AAL is twice as large as the median cumulative
AAL ($2.9 billion versus $1.45 billion, respectively). For purposes of
calculating the State's Public Assistance deductible, the State could
be considered to have twice the risk of the median State.
The AALs produced using Hazus vary from State to State depending
upon the types of hazards that each State is prone to and the levels of
loss that those hazards have the ability to create in those States.
Consequently, the per capita cumulative AALs are not evenly distributed
across the States and a few States have higher risk index scores
because of that. Every State should be assigned a deductible that is
reasonable and achievable. In this model, FEMA capped the composite
risk index values in a manner similar to the way FEMA capped the
components of the fiscal capacity index.
FEMA capped the fiscal capacity components at a value of 5.0. This
means that FEMA ignored any computed fiscal capacity that is greater
than five times the median State's fiscal capacity for that factor.
Because of the overall emphasis on risk, and similar to the deductible
formula ratio of 3:1 risk to fiscal capacity, FEMA capped a State's
risk index at a score of 15.0. In other words, FEMA ignored any
calculated risk that is in excess of 15 times the risk of the median
State.

E. Normalizing the Deductible Amounts

As with the rest of the SANPRM, all numbers, figures, criteria and
processes detailed in this section are notional. They are intended to
aid the public in understanding how a potential deductible program
could operate and to spur discussion and feedback.
FEMA used the base deductible, composite risk index, and fiscal
capacity index established above to calculate the post-indexed
deductible value for each State. As explained previously, 75 percent of
the total index adjustment to the base deductible is determined by the
State's relative risk profile and the remaining 25 percent is
determined by the State's relative fiscal capacity. For the final step
in the deductible calculation process, FEMA normalized the post-indexed
values to establish each State's final deductible amount. Normalization
is a statistical term that can mean different things in different
contexts. In the case of the deductible, FEMA uses normalization to
mean adjusting the post-indexed values to equal the pre-indexed values
overall.
Specifically, FEMA multiplied the base deductible that it
established in the first step by 50 to establish the overall deductible
ceiling for the 50 States. FEMA then summed all of the post-indexed
deductible values of each State. If the sum of these post-indexed
values exceeded the deductible ceiling established by the base
deductible, FEMA made a downward adjustment to each State's post-
indexed deductible so that its final amount remained the same relative
to every other State, but so that the sum of all of the States' post-
indexed deductibles equaled the base deductible ceiling.
For example, assume that the base deductible is calculated to be
$25 million. This is the amount that each State begins with prior to
the application of the fiscal capacity index and risk index. FEMA
multiplies the base deductible ($25 million) by 50 to calculate the
cumulative deductible ceiling for that year. In this case the
deductible ceiling would be $1.25 billion for the year ($25 million x
50 = $1.25 billion).
If, after applying the indices to each State's base deductible, the
sum of all of the resulting, post-indexed deductibles exceeded the
$1.25 billion dollar ceiling, FEMA would normalize the deductible
amounts so that the sum of all of them equals $1.25 billion. This would
decrease the final deductible amounts of every State, but each State
would remain in the same position relative to every other State. If a
State had a post-indexed deductible that was twice that of another
State that State would still have a final deductible that was twice the
deductible of the other State, but both final deductibles would be
lower.
Normalization is a common statistical approach for addressing
variations that occur when adjustments are made to values through
indices of relativity, which both the fiscal capacity and risk index
are. This important step could ensure that the Public Assistance
deductibles remain rooted in their nexus to the Public Assistance
program. This final step, normalization, will establish the Starting
Deductible for each state.

F. Calculating Each State's Starting Deductible

[[Page 4075]]

the following model normalized deductibles for each State in 2016:

Table 5--Model 2016 Starting Deductibles
------------------------------------------------------------------------
Starting
State deductible
($M)
------------------------------------------------------------------------
Alabama................................................. $12.96
Alaska.................................................. 19.42
Arizona................................................. 18.67
Arkansas................................................ 8.01
California.............................................. 141.03
Colorado................................................ 7.08
Connecticut............................................. 20.85
Delaware................................................ 8.03
Florida................................................. 141.53
Georgia................................................. 17.65
Hawaii.................................................. 9.17
Idaho................................................... 7.68
Illinois................................................ 14.43
Indiana................................................. 12.23
Iowa.................................................... 10.63
Kansas.................................................. 9.54
Kentucky................................................ 9.47
Louisiana............................................... 73.90
Maine................................................... 8.52
Maryland................................................ 9.26
Massachusetts........................................... 30.34
Michigan................................................ 23.20
Minnesota............................................... 9.44
Mississippi............................................. 13.32
Missouri................................................ 11.38
Montana................................................. 6.23
Nebraska................................................ 9.93
Nevada.................................................. 8.81
New Hampshire........................................... 7.92
New Jersey.............................................. 29.28
New Mexico.............................................. 11.11
New York................................................ 51.70
North Carolina.......................................... 17.50
North Dakota............................................ 10.09
Ohio.................................................... 25.86
Oklahoma................................................ 10.40
Oregon.................................................. 24.62
Pennsylvania............................................ 21.88
Rhode Island............................................ 12.30
South Carolina.......................................... 11.60
South Dakota............................................ 8.25
Tennessee............................................... 16.68
Texas................................................... 73.72
Utah.................................................... 7.73
Vermont................................................. 8.64
Virginia................................................ 13.51
Washington.............................................. 27.30
West Virginia........................................... 23.39
Wisconsin............................................... 13.50
Wyoming................................................. 10.47
---------------
Average............................................. 22.20
Median.............................................. 12.26
Minimum............................................. 6.23
Maximum............................................. 141.53
------------------------------------------------------------------------

These deductibles represent FEMA's assessment of each State's
fiscal capacity and risk profile as of 2016. FEMA has included a table
in the rulemaking docket for this SANPRM that shows every step for each
State with regard to how these notional deductibles were calculated for
purposes of this concept. These deductibles would be reduced by any
credits that FEMA approves for the State pursuant to the annual
deductible credit menu. The following section will detail the types of
credits that FEMA expects to initially offer.

G. Credit Structure

As with the rest of the SANPRM all numbers, figures, criteria and
processes detailed in this section are notional. They are intended to
aid the public in understanding how a potential deductible program
could operate and to spur discussion and feedback.
A potential credit structure could offer States the ability to
partially or fully satisfy their deductible in advance of a major
disaster declaration. While simply raising the per capita indicator to
qualify for Public Assistance would reduce Federal costs, a potential
credit structure, if successful, could eventually deliver the true
benefits of reduced risk and realized disaster response and recovery
cost savings nationwide. FEMA's goal is to design a model credit
structure that would create financial and economic incentives for
meaningful State investments in preparedness and risk-reduction
measures.
FEMA believes that the model credit structure described in this
SANPRM would allow every State to earn credits for activities that each
would already be undertaking, and also improve risk reduction and
resilience building for States that choose to expand those activities.
To that end, the deductible model described in this SANPRM includes
seven potential categories of credits.
Due to the differences among the credit categories and their likely
effects upon reducing risk, each category offers a unique credit-to-
cost ratio, and a few have caps to provide States with an opportunity
to develop a potentially diverse portfolio of risk reduction
strategies.
FEMA would monitor which credits States elect to earn and would
continue to refine its credit offerings each year. FEMA would provide
an annual notice of credit offerings so that States would have ample
opportunity to carefully consider all of their options. FEMA would also
continue to engage with the States and with key intergovernmental
organizations to ensure that the credit structure is calibrated to
provide the right levels of reward to incentivize continuous
improvement for each State in the disaster resilience and emergency
management contexts.
FEMA recognizes that any additional program could create some
additional administrative burden to State and Federal governments.
However, FEMA is committed to limiting that burden to successfully
carry out the program and ensure that it is applied effectively. The
following sections detail the administrative steps and timelines
currently envisioned for the program. FEMA has carefully considered
both the likely burden and the likely benefit underlying each of the
seven credit categories and believes that each category represents
potential activities worth pursuing and incentivizing. Each of the
seven credit categories received generally favorable support from those
who commented on the ANPRM. FEMA seeks additional public input on these
categories and on the potential administrative burdens of assembling
the supporting information.
1. Dedicated Funding for Emergency Response/Recovery Activities
A State that has planned for and taken fiscal steps to address the
financial impacts of potential disasters ahead of time is better
prepared to immediately respond to and to rapidly recover from a major
disaster. FEMA recognizes that States use multiple strategies for
addressing the financial consequences of a disaster, including:
Supplemental State appropriations, issuing recovery bonds, diverting
funding from other State programs or cutting State agency operating
budgets, and imposing special tax assessments to raise recovery
resources. FEMA, however, has also observed that the time required to
enact many of these ad-hoc funding strategies can significantly delay a
State's ability to rapidly respond to a disaster.
FEMA believes that response and recovery efforts could be improved
if the affected States maintain dedicated disaster relief funds. By
having this funding available, these States also could potentially
obviate the need to reduce or eliminate other planned State services to
divert funding to disaster operations and infrastructure repair. For
example, a State could divert funding for summer roadway maintenance or
improvements to cover debris removal costs following a hurricane or
snow removal costs following a major winter storm. States that maintain
a dedicated disaster relief fund may be able to more rapidly ameliorate
disaster consequences, leverage supplemental Federal assistance
programs, and repair public buildings and infrastructure, without
diverting funding from other important initiatives.
Furthermore, States without dedicated disaster relief funds could
find themselves in the position of incurring new public obligations, or
in some cases debt, while simultaneously suffering from the tax losses
of disaster-

[[Page 4076]]

induced decreased economic activity. By having a dedicated fund
available to address the direct costs of disaster response and damage
restoration, States could be better positioned to address these
secondary disaster consequences.
In order to incentivize States to take the proactive step of
establishing and funding a dedicated disaster relief fund in advance,
this potential model credit structure includes $1.00 in deductible
credit for every $1.00 of State funding that the State has appropriated
and deposited in a qualifying disaster relief fund during the course of
the previous year. This credit may account for up to 20 percent of the
State's annual deductible. Funds that are carried over or that expire
and are reappropriated for the same limited purpose could still qualify
for the credit.
2. Expenditures for Non-Stafford Act Response and Recovery Activities
FEMA received multiple comments during the ANPRM comment period
that emphasized that FEMA does not fully understand or appreciate the
amount of investment that States already make in emergency management
and disaster recovery. Commenters pointed out that for every major
disaster declared, that there are multiple smaller incidents that do
not rise to the level of warranting supplemental Federal assistance,
but nonetheless exceed local capabilities and often require State
funding support for response and recovery activities. FEMA seeks to
encourage States to continue providing State-level assistance to
overwhelmed localities, even when Federal assistance may be
unavailable.
Commenters also noted that counties and cities often lack the
independent ability to raise the necessary financial resources to
address the costs of significant localized impacts. In these cases, the
support provide by their State partners is invaluable to ensuring that
adequate funding is available to support the response and recovery
operations necessary to assist the affected localities and survivors.
Additionally, commenters explained that, even following a major
disaster declaration, supplemental Federal assistance is typically only
made available to the most severely impacted jurisdictions within the
affected State. However, there are other communities that are not
designated, but nonetheless have experienced damage resulting from the
same incident. The commenters postulated that the damage experienced
within these non-declared jurisdictions may nevertheless still exceed
their individual capacities to effectively respond and recover,
necessitating additional support from their State partners. This is,
the commenters offered, an additional burden upon the State that the
current system of Public Assistance does not recognize or incentivize.
FEMA seeks to preserve and strengthen this important State-local
relationship and to incentivize States to continue providing assistance
when jurisdictional capabilities are exceeded, regardless of the
availability of supplemental Federal assistance. In order to do so,
this potential deductible model includes $1.00 in deductible credit for
every $1.00 of annual State funding that the State expends to respond
and/or recover from an incident that either: (1) Does not receive a
Stafford Act declaration or, (2) affects a locality not designated for
Public Assistance by a major disaster declaration. In either case, the
Governor of the State would be required to declare a State of
emergency, or issue a similar proclamation, pursuant to applicable
State law. In this model, this credit could account for up to 20
percent of the State's annual deductible.
3. Expenditures for Mitigation Activities
Integral to any effort to lessen the risks associated with and
consequences of disaster is effective mitigation. Mitigation is the act
of lessening or avoiding the impacts of a hazard, typically through
engineered solutions. The linkage between advanced mitigation and
lowering disaster impacts and costs has been demonstrated many times,
both through academia and research, and also in practical application.
FEMA provides funding assistance for mitigation projects through
several programs, including the Hazard Mitigation Grant Program and the
Pre-Disaster Mitigation Grant Program, as well as to mitigation-
enhanced restoration projects through the Public Assistance program
authorized by Section 406 of the Stafford Act.\59\ FEMA recognizes,
however, that States often invest significantly in mitigation efforts
apart from these Federal assistance programs. FEMA seeks to recognize
those continued investments and incentivize additional investments by
providing significant credit for direct mitigation-related expenditures
through the Public Assistance deductible program.
---------------------------------------------------------------------------

\59\ 42 U.S.C. 5172.
---------------------------------------------------------------------------

This model includes $3.00 in deductible credit for every $1.00 in
State spending on qualifying mitigation activities. FEMA will not count
State matching funds toward the calculation of the credit, so therefore
these State expenditures must be either independent of any other
Federal assistance program or must be in excess of the minimum cost-
share requirement of any applicable Federal assistance program. For
purposes of this credit, FEMA defined qualifying mitigation activities
as it does under FEMA's Hazard Mitigation Assistance Guidance.\60\
---------------------------------------------------------------------------

\60\ See Hazard Mitigation Assistance Guidance, Part III,
section E.1.3.1, available at this link https://www.fema.gov/media-library-data/1424983165449-38f5dfc69c0bd4ea8a161e8bb7b79553/HMA_Guidance_022715_508.pdf.
---------------------------------------------------------------------------

Due to the importance of incentivizing mitigation activities to the
success of the deductible program in reducing future disaster impacts
and costs nationwide, FEMA is not currently considering capping the
potential mitigation credit that may be earned in this model. In other
words, a State could fully satisfy its annual deductible by investing
at least one-third of its deductible amount in qualifying mitigation
activities each year. This could not only fully satisfy the State's
deductible well in advance of any declaration activity, thereby
eliminating application of the deductible in the State for that year,
but could also deliver the State future savings by reducing the
severity or consequences of forthcoming disasters. FEMA also seeks
comment specifically on whether incentivizing further spending by State
governments using credit mechanisms of mitigation expenditure credits
and non-Stafford expenditure credits could potentially dampen or crowd
out private mitigation expenditures.
4. Insurance Coverage for Public Facilities, Assets, and Infrastructure
States have choices when it comes to how they elect to address
their disaster risks. Some States have chosen to establish dedicated
disaster relief funds that can be leveraged to address the costs of
disasters without jeopardizing other services and operations. Other
States have elected to purchase third-party insurance to cover some of
those costs, while others have established self-insurance risk pools to
better distribute the risk. Regardless of the choice that is made, FEMA
may choose to encourage pre-disaster financial preparedness through the
deductible program.
The model FEMA is currently contemplating includes percentage
deductible credits for States that elect to utilize insurance policies
as a means to address future disaster costs. To qualify for credit, the
insurance policy must cover costs related to losses that would
otherwise qualify for reimbursement

[[Page 4077]]

assistance through the Public Assistance program. For purposes of the
credit, the policies must provide guaranteed coverage for losses from
natural hazards, fires, explosions, floods, or terrorist attacks. For a
self-insurance fund or risk pool, FEMA would verify through the State
Insurance Commissioner, or similar State official, that the fund or
pool is actuarially sound and solvent.
This model includes credit based on the aggregate limits of
applicable State policies, rather than on the premiums paid for
coverage. Consequently, FEMA believes that States choosing to insure
against future disaster risk would have very large overall limits, even
though a particular incident would likely only affect a fraction of the
total insured property. For example, if a State maintains $1M policies
on 10 facilities across the State, the aggregate limit of the policy
coverage is $10M, even though it is unlikely that all 10 facilities
will suffer an insured loss at the same time. FEMA believes this could
be a reasonable and equitable approach because both the deductible and
insurance coverage levels should largely be driven by each State's
individual risk profile.
This model includes a potential three-tier incentive structure for
insurance coverage based upon multiples of each State's annual
deductible amount as follows:

Table 6--Insurance Coverage Credit Schedule
------------------------------------------------------------------------
Credit
Coverage amount (percentage of
deductible)
------------------------------------------------------------------------
50x Deductible <= Coverage <100x Deductible............. 5
100x Deductible <=Coverage <150x Deductible............. 10
150x Deductible <= Coverage............................. 15
------------------------------------------------------------------------

For example, if a State has an annual deductible of $30 million and
carries insurance policies on public facilities with an aggregate limit
of $3.6 billion, the State could receive a credit equal to 10 percent
of its initial deductible, or $3 million. This is because $3.6 billion
is 120 times the amount of the State's deductible ($30 million) and is
within the range of 100 to 150 times the deductible that FEMA suggests
should receive a 10 percent credit. This outcome could be the same
whether the State chose to purchase its insurance through third-party
insurers or reinsurers or chose to self-insure and self-manage the
risk. FEMA could confirm coverage level through the insurance contract
or, for self-insurance, through the appropriate State official that the
self-insurance fund is actuarially sound up to the $3.6 billion limit.
Given the specific goal of incentivizing mitigation, FEMA seeks comment
on the inclusion of insurance coverage credits in the deductible model.
5. Building Code Effectiveness Grade Schedule (BCEGS[supreg])
The Insurance Services Office, Inc. (ISO), a leading provider of
information concerning risk assessment and property and casualty
insurance, has explored the relationship of building codes to risk
reduction. According to a recent ISO report:

[M]odel building codes have most clearly addressed the hazards
associated with wind, earthquake, and fire. Experts maintain that
buildings constructed according to the requirements of model
building codes suffer fewer losses from those perils. If
municipalities adopt and rigorously enforce up-to-date codes, losses
from other risks (including man-made perils) may also decrease.\61\
---------------------------------------------------------------------------

\61\ Insurance Services Office, Inc., National Building Code
Assessment Report: ISO's Building Code Effectiveness Grading
Schedule (2015), 8, available at https://www.isomitigation.com/downloads/ISO-BCEGS-State-Report_web.pdf.

FEMA agrees with the ISO's analysis that building codes, when adopted
and properly enforced, have the ability to reduce future disaster risk
on a broad scale. Consequently, in this model FEMA incorporated
deductible credits to States that have committed to adopting,
promoting, and enforcing building codes.
This model includes an escalating credit structure that provides
moderate incentive to simply participate in ISO's Building Code
Effectiveness Grading Schedule (BCEGS[supreg]) program and increasing
incentives as States reach higher levels of adoption and enforcement.
ISO provides BCEGS[supreg] scores for both residential and commercial
codes and enforcement, each on an improving scale from 10 to 1. In
2015, over 60 percent of States had BCEGS[supreg] scores of 4 or 5 in
each category.
The following model incentive structure is based on each State's
annual BCEGS[supreg] score for both residential and commercial building
codes:

Table 7--BCEGS Credit Schedule
------------------------------------------------------------------------
Residential Commercial
credit credit
BCEGS[supreg] score (percentage of (percentage of
deductible) deductible)
------------------------------------------------------------------------
1....................................... 20 20
2....................................... 15 15
3....................................... 12 12
4....................................... 9 9
5....................................... 8 8
6....................................... 6 6
7....................................... 5 5
8....................................... 4 4
9....................................... 3 3
10...................................... 2 2
------------------------------------------------------------------------

This structure could allow States to earn between 4 percent and 40
percent credits based upon their residential and commercial
BCEGS[supreg] scores. As of 2015, 45 States participate in the
BCEGS[supreg] program and could have received, at a minimum, the 4
percent credit for doing so under this structure. Based on 2015 scores,
the average participating State could receive a 16 percent reduction to
their deductible amount. The smallest credit would have been 7 percent
and the largest would have been 24 percent. The following chart depicts
the number of States per credit level in 2015.

[[Page 4078]]

[GRAPHIC] [TIFF OMITTED] TP12JA17.023

6. Tax Incentive Programs
FEMA recognizes that the most effective ways to reduce risk across
the entire nation employ a whole-community approach that involves every
level of government, the private sector, and the citizenry in taking
steps to promote and increase resilience. With that in mind, FEMA
included in this model credit to States for tax-incentive programs
designed to encourage preparedness or mitigation activities.
For example, a State may offer an income tax credit for elevating
homes or host a sales-tax holiday for personal preparedness supplies.
FEMA would defer to the States to decide what types of programs would
be most successful and appropriate given each State's unique
considerations and risks, however the program would still need to
maintain a clear nexus with preparedness, mitigation, or resilience
building. In some cases, a State may offer a program that incentivizes
general preparedness, or it may decide to target a program to a
specific hazard, such as the installation of hurricane straps or
seismic retrofits to existing building foundations.
Regardless, this model includes credits to States for these types
of innovative tax incentive programs. FEMA would allow States to
request credit for both the direct costs of the program
(administration, advertising, etc.), and for the indirect costs, such
as forgone tax revenue. In both cases, FEMA would approve $2.00 in
deductible credit for every $1.00 in State funding expended or
foregone.
Because FEMA sees this credit as a type of whole-community risk
reduction, in this model FEMA is not currently including a cap on this
particular credit. In other words, a State with a large enough tax
incentivize program(s) could largely offset its deductible by annually
foregoing tax revenue, through credits/deductions offered to businesses
and/or citizens, equal to half of its deductible amount. FEMA
specifically requests comment on the types of tax incentive programs
that have a nexus to preparedness and disaster risk reduction and their
effectiveness, both in terms of cost effectiveness and outcome
effectiveness.
7. Expenditures on State Emergency Management Programs
Perhaps the most visible factor in a State's ability to address
disasters in the broad sense is the quality of its emergency management
program. States have organized their emergency management function in a
number of different ways. In some States, emergency management is a
standalone office, whereas in other States the function is embedded in
a broader public safety or military organization.
The Federal government provides numerous types of assistance to
States to develop, maintain, and implement their emergency management
programs. At FEMA, assistance is generally available through the
Emergency Management Performance Grant Program,\62\ the Homeland
Security Grant Program,\63\ including both the State Homeland Security
Program \64\ and the Urban Area Security Initiative,\65\ and through
management costs awarded in administering Stafford Act declarations.
---------------------------------------------------------------------------

\62\ 6 U.S.C. 762.
\63\ 6 U.S.C. 603.
\64\ 6 U.S.C. 605.
\65\ 6 U.S.C. 604.
---------------------------------------------------------------------------

In order to further incentivize States to allocate their own
resources to their emergency management enterprises, this model
includes a deductible credit for annual State expenditures supporting
State emergency management programs beyond any cost-share required by a
Federal assistance program or grant. FEMA solicits comments on what
types of emergency management enterprises and activities could be
eligible for deductible credit within this category and information
relating to the current level of State investment in these enterprises
and activities.
FEMA includes in this model $1.00 in deductible credit for every
$1.00 that a State invests in emergency management beyond the cost-
share required by a Federal program. A State could satisfy up to 20
percent of its annual Public Assistance deductible through this credit.
8. Emergency Management Accreditation Program (EMAP[supreg]) Credit
Enhancement
The Emergency Management Accreditation Program (EMAP[supreg]) is an
independent non-profit organization

[[Page 4079]]

that offers an emergency management program review and recognition
program.\66\ EMAP[supreg] is a completely voluntary program and
accreditation is not presently a factor in any FEMA program. However,
FEMA recognizes that EMAP[supreg] provides a valuable resource to
accredited programs by establishing best practices and offering a level
of independent accountability.
---------------------------------------------------------------------------

\66\ Additional information on EMAP can be found at https://www.emap.org/index.php.
---------------------------------------------------------------------------

This model includes a credit enhancement to States that voluntarily
seek and achieve provisional or full EMAP[supreg] accreditation. FEMA
could increase the credit amount by 5 percent for three credit types
for EMAP[supreg] accreditation, but specifically seeks comment on the
appropriate value of this credit amount. These three credits could be:
1. Dedicated funding for emergency response and recovery
activities;
2. expenditures for non-Stafford Act response and recovery
activities; and
3. expenditures on State emergency management programs.
Specifically, instead of offering $1.00 in deductible credit for
each $1.00 in qualifying State funding and expenditures, FEMA would
instead approve $1.05 for each $1.00 in qualifying State funding and
expenditures for States maintaining current EMAP[supreg] provisional or
full accreditation. The credit caps applicable to each credit category
would remain unchanged. FEMA believes that applying the credit
enhancement in this manner could encourage States to seek and/or
maintain EMAP[supreg] accreditation and that by doing so, could
demonstrate improved readiness to confront the consequences of
disasters.
9. Credit Summary
Table 8 provides an overview of the credits that FEMA is
envisioning, the amount of credit that could be approved, any cap that
FEMA envisions applying, and whether an enhancement is available to the
credit.

Table 8--Summary Credit Menu
----------------------------------------------------------------------------------------------------------------
EMAP[supreg]
Credit No. Credit name Credit amount Credit cap enhancement
----------------------------------------------------------------------------------------------------------------
1.............................. Dedicated Funding $1.00 in credit 20%................ Yes.
for Emergency for each $1.00 in
Response/Recovery qualifying
Activities. deposits.
2.............................. Expenditures for $1.00 in credit 20%................ Yes.
Non-Stafford Act for each $1.00 in
Response and qualifying
Recovery expenditures.
Activities.
3.............................. Expenditures for $3.00 in credit No Cap............. No.
Mitigation for each $1.00 in
Activities. qualifying
expenditures.
4.............................. Insurance Coverage % reduction based N/A................ No.
for Public on qualifying
Facilities, coverage above
Assets, and deductible amount.
Infrastructure.
5.............................. Building Code % reduction to the N/A................ No.
Effectiveness starting
Grade Schedule deductible based
(BCEGS[supreg]). on BCEGS[supreg].
6.............................. Tax Incentive $2.00 in credit No Cap............. No.
Programs. for every $1.00
in qualifying
costs.
7.............................. Expenditures on $1.00 in credit 20%................ Yes.
State Emergency for every $1.00
Management in qualifying
Programs. expenditures.
----------------------------------------------------------------------------------------------------------------

H. Estimates of Initial Credits

Based upon the preliminary research discussed above and interviews
with key stakeholders and subject matter experts, FEMA believes that
every State would receive deductible credit under the preceding credit
structure for activities and investments that each State is already
undertaking; however, there may be some States that have been able to
undertake more credit-qualifying activities than others.
As with the rest of the SANPRM, all numbers, figures, criteria and
processes detailed in this section are notional. They are intended to
aid the public in understanding how a potential deductible program
could operate and to spur discussion and feedback.
FEMA has used the information that it has available to estimate the
amount of credit that each State might qualify for initially. In many
cases, however, FEMA anticipates offering credit for activities for
which there is very little information readily available. Where
information is lacking, FEMA attempted to use assumptions as to current
State activities. For instance, FEMA was unable to identify annual
amounts of forgone revenue from a State tax incentive program and thus
assumed an amount equal to 1 percent of a State's starting
deductible.\67\ FEMA intentionally utilized what it believes are
conservative estimates where uncertainty exists and assumptions were
needed. FEMA has attempted to estimate the amount of credit that each
State might qualify for initially to provide context on the potential
impact of the deductible requirement. FEMA welcomes comments on its
assumptions with information more readily available to each State.
---------------------------------------------------------------------------

\67\ For example, given Alabama's starting deductible of $12.96
million, FEMA assumes forgone revenues from the State's tax
incentive program of $129,574.
---------------------------------------------------------------------------

Overall, based on this analysis, FEMA anticipates that the average
State would receive initial credits worth approximately 40 percent of
its first deductible without making any changes to its current spending
or activities. Across the States, FEMA expects that these initial
credits would range from a minimum of approximately 6 percent to a
maximum of approximately 85 percent. Table 9 depicts FEMA's estimates
for each State under this model. Specifically, Table 9 indicates each
State's applicable model starting deductible, the credit amount from
each of the seven categories of credits, the total estimated credits
(shown both as a dollar value and percentage of the starting deductible
amount), and the model final deductible amount that the State would
carry into the new year.
This potential final deductible amount represents what each State
would potentially need to satisfy if it experiences a disaster that
results in disaster damages that exceed the amount of credits that FEMA
has approved. It is the remaining amount that is not offset by the
credits that a State has earned.
BILLING CODE 9111-23-P

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[[Page 4081]]

[GRAPHIC] [TIFF OMITTED] TP12JA17.025

[[Page 4082]]

[GRAPHIC] [TIFF OMITTED] TP12JA17.026

[[Page 4083]]

I. Deductible Program Timeline and Procedures

FEMA is committed to developing a Public Assistance deductible
program that is effective, but that also minimizes the cost and
administrative burden required of our State partners. FEMA expects to
request the minimum amount of information and reporting necessary for
the program to be successful. To do this, FEMA's model concept could
follow a strict and consistent programmatic schedule throughout the
year so that States could have a clear understanding of current and
upcoming expectations. FEMA designed this potential model schedule to
operate on the calendar year to provide simplicity and standardization
across jurisdictions that operate on various iterations of the fiscal
year.
As with the rest of the SANPRM all numbers, figures, criteria,
timeframes, and processes detailed in this section are notional. They
are intended to aid the public in understanding how a potential
deductible program could operate and to spur discussion and feedback.
1. Model Timeline
On August 1 of each year, FEMA could issue an Annual Notice of
Public Assistance Deductible Amounts (Annual Notice). This notice could
be published in the Federal Register and would indicate each State's
pre-credit deductible amount. The Annual Notice could provide
sufficient detail regarding the calculation methodology to provide
transparency regarding the source of the deductible figures. If a State
believes that FEMA has made a technical error in calculating its
deductible, the State could be able to appeal the amount. In addition,
FEMA would not expect to otherwise change the calculation methodology
without advance notice to the States and an opportunity for each State
to offer feedback.
Contemporaneously with the issuance of the Annual Notice, FEMA
would publish in the Federal Register the Application and Submission
Information for Public Assistance Deductible credits to provide
guidance concerning the deductible credits that could be offered during
the next year and an application form for credits. FEMA does not
anticipate making significant changes to the credit structure year over
year, but could constantly and actively be monitoring credit types and
amounts and may adjust the structure as necessary to improve the
program's effectiveness over time. FEMA anticipates engaging
extensively with States in making any adjustments to the credit
structure.
Credit applications could be due to FEMA by September 1 of each
year. Because there might be a limited period of about one month to
complete the application for deductible credits, it would be important
that States assess and account for their past year's activities before
the Annual Notice is published or quickly thereafter.
The actual application could be minimal compared to other Federal
applications, grant applications in particular. FEMA envisions a simple
form in which a State could request the appropriate amount of credit
for each credit category, include a brief description of the activity
for which the credit is requested, provide the contact information for
a subject matter expert that can answer questions about the activity,
and affix the signatures of the appropriate State officials.
For example, a State may request $1.5 million in credit for
spending $500,000 moving a fire station out of a flood hazard area
(mitigation would be credited $3.00:$1.00). Likewise, a State may
request a 16 percent reduction for maintaining BCEGS[supreg] scores of
5 for both the commercial and residential building code categories.
Generally, the State would not need to submit any additional
information or supporting documentation to support its request.
FEMA would review the State's submission and make a determination
of the amount of deductible credit to be approved. FEMA could actively
reach out to the State-identified subject matter expert if any
additional information would be needed for purposes of determining
whether the activity would qualify for credit. If the activity appeared
to qualify, either from the face of the credit application or after
consulting with the State subject matter expert, FEMA would approve the
appropriate amount of credit up to the credit category cap (for the
categories to which a cap applies).
FEMA envisions notifying each State individually by October 1 of
the amount of credit approved and the remaining deductible, if any,
that would apply during the subsequent calendar year. If FEMA approved
any less credit than what the State requested, FEMA would include an
explanation of the rationale for the discrepancy. In the case that FEMA
did not fully approve the State's credit request, the State could be
able to appeal the determination to FEMA. For this model timeline, FEMA
envisions appeals of credit determinations would be due by December 1.
Once FEMA has adjudicated any appeals and all credit has been
approved, FEMA could issue a notice in the Federal Register no later
than January 1 of the subsequent year announcing each State's beginning
deductible amount, the amount of credit approved, and the final
remaining deductible, if any.
---------------------------------------------------------------------------

\68\ Activities undertaken after the cutoff date for applying
for credits would be applied to the next year's deductible. For
example, activities undertaken in October would not be applied to
the deductible in effect 3 months later, but instead to the one in
effect 15 months later.

Table 10--Notional Deductible Program Annual Milestones
----------------------------------------------------------------------------------------------------------------
Date Actor Activity
----------------------------------------------------------------------------------------------------------------
FEMA publishes Annual Notice of
Public Assistance Deductible Amounts in
the Federal Register.
August 1................................ FEMA....................... FEMA publishes Application and
Submission information for Public
Assistance Deductible Credits in the
Federal Register, which provides formal
credit guidance and the credit
application form.
September 1............................. States..................... Deadline for States to submit
the Application for Public Assistance
Deductible Credits.\68\
October 1............................... States..................... Deadline for States to appeal
FEMA's determination of the pre-credit
deductible amounts.
October 1............................... FEMA....................... FEMA completes review of the
credit applications and notifies each
State of the credit amounts approved and
FEMA's proposed final deductible amount.
November 1.............................. FEMA....................... FEMA notifies States of the
outcome of any pre-credit deductible
amount appeals.
December 1.............................. States..................... Deadline for States to appeal
FEMA's approved credit amounts and/or
proposed final deductible amount.
January 1............................... FEMA....................... FEMA notifies States of the
outcome of any pending appeals and
publishes each State's final deductible
and credit amounts in the Federal
Register.

[[Page 4084]]

Beginning January 1..................... FEMA....................... FEMA provides supplemental
Public Assistance for all of the credits
that a State has earned in every
disaster.
For any permanent work disaster
costs exceeding the State's earned
credits, FEMA applies the remaining
final deductible amount, if any.
----------------------------------------------------------------------------------------------------------------

2. Post Disaster Deductible Procedures
FEMA believes it is important that for every major disaster, the
States receive assistance for emergency protective measures and debris
removal. FEMA does not want to delay those essential activities in the
immediate aftermath of a disaster incident. Under FEMA's deductible
concept, FEMA assistance for debris removal and emergency protective
measure projects could follow the normal procedures and receive funding
at the applicable cost share for that disaster.
FEMA envisions applying the deductible amount (i.e., the portion of
a State's deductible not fully satisfied by the credits earned, if any)
on an annual basis and only to the provision of supplemental Federal
assistance for permanent repair and replacement activities. For repair
and replacement assistance, the State would receive supplemental
Federal assistance only after it has satisfied its deductible
requirement.
If in a given year the affected State has not fully satisfied its
annual Public Assistance deductible with the credits that it earned and
a major disaster is declared, after the declaration the State would be
asked to identify projects that have a preliminary cost estimate
(Federal and non-Federal share combined) equal to the unsatisfied
deductible amount. With agreement by FEMA as to the preliminary cost
estimate, those projects the State selects to satisfy the remaining
deductible would be deemed ineligible under Section 406 of the Stafford
Act.\69\ The State would assume responsibility for these projects.\70\
FEMA would require that the States identify these projects within the
first 60 calendar days after a disaster declaration so as not to impede
the provision of supplemental Federal assistance for other projects.
---------------------------------------------------------------------------

\69\ Stafford Act, supra FN4, Sec. 406(b) (providing the
``Federal share of assistance under this section shall be not less
than 75 percent of the eligible cost of repair, restoration,
reconstruction, or replacement carried out under this section'')
(emphasis added).
\70\ Costs of satisfying the deductible, like cost share costs,
would not qualify for credit towards the next year's deductible.
---------------------------------------------------------------------------

After the State satisfies its deductible in any major disaster
event, any remaining eligible repair and replacement projects resulting
from disasters declared in that year could receive supplemental Federal
assistance in accordance with the standard procedures of the Public
Assistance program. If there are insufficient projects to satisfy the
full remaining deductible requirement, the unsatisfied portion of the
deductible could be carried forward to any additional major disasters
declared within the State that year. Any deductible that is remaining
unsatisfied at the end of the year would expire. Each year could start
the deductible cycle anew with regards to the starting deductibles,
credits earned, and final deductibles.
If a State has an unsatisfied deductible requirement remaining
after a major disaster, and it receives a second major disaster
declaration that year, pursuant to this initial version of the
deductible concept, the State would be required to identify a project
or grouping of projects that have a preliminary cost estimate (Federal
and non-Federal share combined) equal to the unsatisfied deductible
requirement. With agreement by FEMA as to the preliminary cost
estimate, these projects would be deemed ineligible costs pursuant to
Section 406 of the Stafford Act. Once the State has satisfied its
annual deductible requirement, all eligible costs in subsequent
disaster declarations could be processed for reimbursement through
standard Public Assistance program procedures.
Consider a State that has a starting deductible of $25 million and
has earned credits of $15 million. The State's final deductible would
be $10 million. This is the amount that the State would need to satisfy
before it can receive permanent repair and replacement assistance.
Suppose the State experiences a major disaster that requires $3 million
in debris removal and causes $8 million in damage to public
infrastructure. FEMA would document the debris removal costs on Project
Worksheets and process all of those eligible costs for reimbursement
assistance at the applicable disaster cost share, typically 75 percent
Federal. The State could be responsible for paying for all of the
permanent work repairs because the $8 million in damage is less than
the State's $10 million final deductible for that calendar year.
If the State receives a second major disaster declaration in the
same calendar year, the State would need to identify $2 million in
permanent work to satisfy the deductible remaining after the first
disaster. After the deductible is fully met, all additional eligible
costs could be documented on Project Worksheets and processed for
reimbursement assistance pursuant to the applicable cost share and
standard rules and procedures of FEMA's Public Assistance program.
Any deductible amount remaining unsatisfied due to lack of eligible
disaster costs at the end of a year would be canceled. For example,
consider a State with a starting deductible of $30 million. The State
then requests and is granted credits worth $20 million. FEMA notifies
the State on January 1 that it has a final deductible amount of $10
million for the following calendar year. The State does not experience
any incidents during the calendar year for which the President declares
a major disaster. The $10 million final deductible could expire and be
cancelled at the end of the calendar year and the State could receive a
new final deductible amount for the next year.

J. Validation Procedures

FEMA desires for the deductible program to recognize, reward, and
incentivize mitigation and resilience building best practices.
As with the rest of the SANPRM all numbers, figures, criteria and
processes detailed in this section are notional. They are intended to
aid the public in understanding how a potential deductible program
could operate and to spur discussion and feedback.
In order to ensure that the program is both effective in truly
incentivizing risk reduction and is being continually improved, FEMA
would seek to validate a portion of the credits that States are
approved each year.
FEMA believes that its analysis will ultimately show that reviewing
a sample of credit approvals would be sufficient to ensure the fidelity
of the approvals and ultimately, confidence in the credibility of the
deductible program. FEMA solicits comment on this

[[Page 4085]]

assumption and the ideal portion of credit submissions that would be
subject to validation. Whatever the case, FEMA would notify the State
of its intent to validate credits and would specify precisely which
credits are to be validated.
During the validation process, FEMA would review the records and
documentation that States maintain to support their credit requests.
Every State would likely have different standards for documentation and
each credit may require a different type of documentation, none of
which FEMA plans to prescribe; however, each State would be responsible
for maintaining and providing, upon FEMA's notice of intent to validate
a credit, sufficient documentation to reasonably and objectively
substantiate the credit approval. FEMA anticipates that States would
have to maintain the relevant documentation for at least 5 years. FEMA
requests comment from States regarding the capital and startup costs
that may be involved in this recordkeeping requirement as well as
suggestions for how FEMA may minimize the burden on States to keep this
information.
In the event that FEMA is unable to validate a credit award, either
because the underlying State activity did not actually qualify for
deductible credit or because the State was unable to produce sufficient
documentation to objectively validate the credit approval, FEMA would
notify the State of its failure to validate the credit. FEMA would
detail the applicable requirements of the deductible credit that was
approved and specifically why FEMA was unable to validate it.
Once FEMA notifies the State that FEMA was unable to validate a
credit, FEMA could permit the State 60 days to appeal the
determination. If the State's appeal is denied, FEMA would add any
credit approval that could not be validated to the applicable State's
deductible amount in the next year. If FEMA was able to validate the
credit on appeal, the credit approval would stand and FEMA would make
no further inquiry or take any other adverse action. FEMA seeks comment
on whether and when further action could be appropriate in the case of
a State which has submitted consistently unverifiable credits.
For example, consider a State that has received a credit approval
of $3 million for a tax incentive program that allows consumers to
purchase hurricane preparedness supplies without paying sales tax
during the first weekend of hurricane season each year. In this case,
this particular credit has been included within the sample of credit
approvals selected for validation. FEMA notifies the State of its
intent to validate the credit and requests the necessary supporting
documentation. The State is able to produce documentation for $100,000
of qualifying advertising costs and $1.1 million worth of foregone
sales tax receipts. Because the credit concept offers a deductible
credit at a ratio of $2.00:$1.00 for this credit, FEMA would be able to
validate $2.4 million worth of credit. FEMA notifies the State of its
failure to validate $600,000 of credit and of FEMA's intent to increase
the State's next annual deductible by $600,000 to compensate for the
amount of the previous credit approval that FEMA was unable to
validate.
In this case, the State appeals the approval and is able to produce
documentation of an additional $600,000 in forgone tax receipts from
the sales tax holiday. FEMA is now able to validate the entire credit
approval and would not add any additional amount to the State's next
deductible.

K. Possible Implementation Strategy

FEMA will gather the suggestions and concerns that have been
expressed through the ANPRM and SANPRM and use them to determine
whether it can design a deductible concept that achieves FEMA's overall
guiding principles, but does so in a way that is both appreciative of
and responsive to the needs and concerns of its emergency management
partners, particularly the States to which it would apply. If FEMA
decides the deductible program has continued merit, FEMA would issue a
Notice of Proposed Rulemaking (NPRM) before possibly issuing a final
rule. No aspect of the deductible concept would be implemented prior to
publishing a final rule in the Federal Register.
Even if a final rule is published, FEMA also recognizes that
implementing such a fundamental change would require sufficient time to
enable all parties to thoughtfully and strategically adapt to the new
structure in the form best befitting each.
Consequently, FEMA would likely not apply any deductible for at
least one year following publication of a final rule. Thereafter,
FEMA's concept envisions a phased implementation strategy that would
make most States responsible for only a partial deductible amount in
the beginning of the program and delaying full application of the
deductible requirement for most States over a scheduled implementation
period.
Specifically, FEMA is considering capping the first year deductible
at each State's then-current per capita indicator as determined by FEMA
pursuant to 44 CFR 206.48(a)(1). FEMA could then increase each State's
deductible by a share of the unapplied deductible, which for the
purposes of this model is 50 percent, each year thereafter until the
State reaches the full deductible amount. FEMA could recalculate the
full deductible amount annually based on the fiscal capacity and risk
index methodology described above. Through this method and based on the
model FEMA provides in this SANPRM, half of the States could reach
their full deductible within 4 years and all of the States could reach
their full deductible within 9 years. Two States, Illinois and
Colorado, could potentially reach their full deductible in the first
year because the contemplated deductible methodology produces
deductibles below their current Public Assistance per capita
indicators. Figure 2 depicts the application of this implementation
strategy over the first 3 years of the deductible program. Figure 3
depicts the number of States that are forecast to reach their full
deductible, as calculated in this model, in each year. Table 11 depicts
the model starting deductibles for each State in each year based on
current calculations.
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FEMA believes that this approach would allow States the opportunity
to adapt to the deductible concept and to take steps that would earn
additional credits and begin to address their future disaster risk,
without applying deductibles at levels that would be punitive.
Similar to the phased implementation of the deductible amounts,
FEMA envisions a phased application of credits in lockstep to each
State's deductible amount. This would be done by applying the credits
earned each year in the same proportion of the State's capped
deductible to its full deductible. For example, if a State's starting
deductible is equal to its full deductible in a given year, FEMA would
apply all of the credits earned in that year. However, if because of
phased implementation the starting deductible is a lesser amount, for
example 25 percent of the full deductible, FEMA would apply the same
percentage as a cap to the credits earned, or in this case 25 percent.
Table 12 depicts each State's notional starting deductible for the
first 9 years of the deductible program. It also depicts the model
final deductibles that FEMA expects would be applied in each year. As
described above, these model final deductibles are the model starting
deductibles minus the amount of credits that each State earns in that
particular year. For the purposes of this model, FEMA has estimated the
amount of credit that each State might earn in the first year based on
activities that FEMA believes every State is already undertaking. These
amounts were depicted in Table 9. To extrapolate into the out years,
FEMA assumed that each State would increase the amount of credit earned
by 5 percent year-over-year. FEMA then deducted that amount, in
proportion of the starting deductible to full deductible as described
above, to calculate the model projected final deductible amounts for
each State in each of the first 9 years.
These amounts are only estimates, however, and will be affected by
many factors, including changes to the base deductible, changes to each
State's relative risk or fiscal capacity, the amount of credit each
State earns in the first year for activities already underway, and
changes to those activities that result in more or less than 5 percent
year-over-year credit increases. All shaded values are capped.

[[Page 4091]]

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[[Page 4092]]

VI. Alternatives Considered

Over the course of developing this deductible model, FEMA has
considered many alternatives, and selected the attributes that FEMA
believes could best achieve the intended outcomes of the program,
adhere to the program's guiding principles, and minimize administrative
burdens. The options that FEMA has considered included alternatives to
specific aspects of the program, such as which credits could be offered
or the value that FEMA could approve for those credits, but also
included alternatives to the entire deductible concept itself. FEMA
believes that the deductible program has the potential to improve the
nation's resilience and reduce disaster risk and costs on a broad
scale, but FEMA welcomes comment on alternative methodologies for
achieving these results.
The following subsections detail a few of the alternatives and
options that FEMA is considering in developing its potential deductible
program concept. FEMA did not use these alternatives in the model
described in this SANPRM, but believes that they demonstrated enough
promise that including a brief discussion of each could facilitate
improved engagement and transparency in this process.
FEMA has not made a final determination regarding the most
appropriate approach moving forward. In addition to the potential
deductible model described in this SANPRM, FEMA is still considering
the alternatives described below and may consider and pursue other
alternatives that may not necessarily be a logical outgrowth of this
SANPRM.

A. Increasing the Per Capita Indicator

FEMA originally began consideration of the deductible concept in
the context of repeated calls--by the GAO, DHS OIG, Congress, and
others--to change the Public Assistance per capita indicator.\71\
Instead, FEMA suggests that the Public Assistance deductible program
may be a better option for reducing the costs of future disasters
because it incentivizes State investments in risk reduction. FEMA
believes simply increasing the per capita indicator, to the levels
suggested by the GAO, would likely maintain the same level of disaster
risk that exists today and transfer the future costs of disaster to
impacted State and local governments. FEMA seeks comment on this
assumption.
---------------------------------------------------------------------------

\71\ See GAO, supra note 28; OIG supra note 29; see also 44 CFR
206.48.
---------------------------------------------------------------------------

However, recognizing that the status quo is unsustainable in the
long term, FEMA has seriously considered adjusting the per capita
indicator and may still do so in the future. Increasing the per capita
indicator, to include an additional consideration of State fiscal
capacity, is the only viable alternative to a deductible that FEMA has
identified at this time.
As was explained earlier in this SANPRM, the Public Assistance per
capita indicator was initially set in 1986 at $1.00 based upon PCPI. At
the time, that amount represented approximately one-hundredth of one
percent (0.01% or 0.0001) of PCPI. Had FEMA adjusted the per capita
indicator each year so that it maintained its ratio to rising PCPI,
more than 70 percent of major disasters between 2005 and 2014 would not
have been declared. Additionally, the per capita indicator would have
risen to $4.81 for 2016.\72\ For comparison, the current 2016 per
capita indicator is just $1.41. Switching to this alternative
methodology would result in a nearly a 250-percent increase to the
average per capita indicator, which could be phased in over a number of
years or decades through accelerated upward adjustment of the per
capita indicator at rates higher than inflation.
---------------------------------------------------------------------------

\72\ Per Capita Personal Income in 2015 was $48,112 x 0.0001 =
$4.81.
---------------------------------------------------------------------------

Under this alternative FEMA has explored also adjusting the PCPI-
adjusted per capita indicator value by the current TTR index for each
State.\73\ GAO recommended adjusting the per capita indicator values by
the current TTR index.\74\ Finally, for purposes of comparison, because
the Public Assistance per capita indicator is applied on a disaster-by-
disaster basis and FEMA envisions an annual deductible, under this
alternative FEMA has multiplied the PCPI-adjusted per capita indicator
by each State's 10-year average disaster frequency to provide a more
comparable comparison. Table 13 indicates the amount of cumulative
damage that a State would need to experience before FEMA would
recommend that the President issue a major disaster declaration in 2016
if the per capita indicator were raised to $4.81 and adjusted by the
TTR Index.
---------------------------------------------------------------------------

\73\ Per State PCPI Adjusted Total = $4.81 Per Capita Indicator
x (State's TTR Index/100).
\74\ See GAO, supra FN28, at 50.

Table 13--Current Per Capita Indicator Compared With National PCPI Growth Adjustments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Data by state Current per Indicator adjusted
------------------------------------------------------------------------------ capita indicator for national PCPI
2016 = $1.41 growth 2016 = $4.81
--------------------------------------- Annual average Annualized PCPI-
Current TTR National PCPI major disaster Adjusted per
State 2010 population index Current adjusted total declarations capita indicator
indicator total (with TTR
adjustment)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama.................................. 4,779,736 75.9 $6,739,428 $17,449,812 1.6 $27,919,700
Alaska................................... 710,231 126.8 1,001,426 4,331,756 1.6 6,930,809
Arizona.................................. 6,392,017 70.7 9,012,744 21,737,140 0.9 19,563,426
Arkansas................................. 2,915,918 75.9 4,111,444 10,645,404 1.9 20,226,268
California............................... 37,253,956 104.9 52,528,078 187,971,913 1.5 281,957,870
Colorado................................. 5,029,196 107.9 7,091,166 26,101,477 0.7 18,271,034
Connecticut.............................. 3,574,097 138.2 5,039,477 23,758,524 1.2 28,510,229
Delaware................................. 897,934 115.3 1,266,087 4,979,879 0.6 2,987,927
Florida.................................. 18,801,310 82.2 26,509,847 74,336,996 1.6 118,939,193
Georgia.................................. 9,687,653 90.7 13,659,591 42,264,033 0.8 33,811,226
Hawaii................................... 1,360,301 84.8 1,918,024 5,548,505 0.9 4,993,654
Idaho.................................... 1,567,582 70.9 2,210,291 5,345,909 0.6 3,207,546
Illinois................................. 12,830,632 107.1 18,091,191 66,097,129 1.5 99,145,694
Indiana.................................. 6,483,802 90.7 9,142,161 28,286,688 1.2 33,944,026
Iowa..................................... 3,046,355 98.8 4,295,361 14,477,132 2.3 33,297,403
Kansas................................... 2,853,118 93.3 4,022,896 12,804,023 2.3 29,449,253

[[Page 4093]]

Kentucky................................. 4,339,367 78.6 6,118,507 16,405,671 1.5 24,608,507
Louisiana................................ 4,533,372 97.6 6,392,055 21,282,187 1.2 25,538,624
Maine.................................... 1,328,361 77.6 1,872,989 4,958,187 2 9,916,374
Maryland................................. 5,773,552 120.3 8,140,708 33,408,254 1 33,408,254
Massachusetts............................ 6,547,629 133.3 9,232,157 41,981,629 1.7 71,368,770
Michigan................................. 9,883,640 85.3 13,935,932 40,551,883 0.4 16,220,753
Minnesota................................ 5,303,925 110.7 7,478,534 28,241,650 1.8 50,834,971
Mississippi.............................. 2,967,297 68.1 4,183,889 9,719,708 1.4 13,607,591
Missouri................................. 5,988,927 89.6 8,444,387 25,810,838 2.4 61,946,011
Montana.................................. 989,415 75.8 1,395,075 3,607,387 0.8 2,885,910
Nebraska................................. 1,826,341 105.5 2,575,141 9,267,859 2.3 21,316,075
Nevada................................... 2,700,551 82.3 3,807,777 10,690,482 0.7 7,483,338
New Hampshire............................ 1,316,470 106.9 1,856,223 6,769,144 2.2 14,892,117
New Jersey............................... 8,791,894 129 12,396,571 54,552,823 1.4 76,373,952
New Mexico............................... 2,059,179 75.8 2,903,442 7,507,725 1.3 9,760,043
New York................................. 19,378,102 133.7 27,323,124 124,619,993 2.5 311,549,982
North Carolina........................... 9,535,483 86.7 13,445,031 39,765,539 1.2 47,718,646
North Dakota............................. 672,591 122.2 948,353 3,953,369 2 7,906,738
Ohio..................................... 11,536,504 92.3 16,266,471 51,217,809 1 51,217,809
Oklahoma................................. 3,751,351 85.3 5,289,405 15,391,531 3 46,174,592
Oregon................................... 3,831,074 95.2 5,401,814 17,542,948 1 17,542,948
Pennsylvania............................. 12,702,379 98.1 17,910,354 59,937,573 1.1 65,931,330
Rhode Island............................. 1,052,567 102.3 1,484,119 5,179,293 0.7 3,625,505
South Carolina........................... 4,625,364 73.2 6,521,763 16,285,537 0.3 4,885,661
South Dakota............................. 814,180 97.9 1,147,994 3,833,965 2.2 8,434,724
Tennessee................................ 6,346,105 82.5 8,948,008 25,182,931 1.6 40,292,690
Texas.................................... 25,145,561 106.7 35,455,241 129,053,808 1.7 219,391,474
Utah..................................... 2,763,885 83.4 3,897,078 11,087,435 0.7 7,761,205
Vermont.................................. 625,741 87.1 882,295 2,621,548 1.6 4,194,477
Virginia................................. 8,001,024 114.6 11,281,444 44,103,725 1.2 52,924,469
Washington............................... 6,724,540 105.6 9,481,601 34,156,359 1.2 40,987,631
West Virginia............................ 1,852,994 73.4 2,612,722 6,542,069 1.6 10,467,311
Wisconsin................................ 5,686,986 95.1 8,018,650 26,014,037 0.9 23,412,633
Wyoming.................................. 563,626 128.9 794,713 3,494,532 0.2 698,906
--------------------------------------------------------------------------------------------------------------------------------------------------------

FEMA believes that the deductible concept has the potential to
result in a better outcome for the nation than increasing the per
capita indicator as it promotes State investment in risk reduction that
will ultimately reduce the financial impact of future disasters.
Compared with the alternative option of linking the Public
Assistance per capita indicator to PCPI, the deductible model could
deliver financial advantages to the States. These financial advantages
could be even greater in the preliminary years over which the full
deductible amount is phased in. Table 14 indicates the differences that
FEMA expects might occur with each option.

Table 14--Estimated Costs of the Notional Deductible Program Versus Adjusting the Per Capita Indicator for PCPI
----------------------------------------------------------------------------------------------------------------
Full estimated
credits National PCPI- Annualized
All amounts in $M Full starting (current Final Adjusted total PCPI-Adjusted
deductible activities deductible (with TTR per capita
only) adjustment) indicator
----------------------------------------------------------------------------------------------------------------
Average State................... $22.20 $9.74 $12.46 $29.37 $43.00
Median State.................... 12.26 4.43 7.61 17.35 23.81
Minimum State................... 6.23 1.17 1.58 2.59 0.69 \75\
Maximum State................... 141.53 120.55 64.46 186.40 308.95
----------------------------------------------------------------------------------------------------------------

FEMA recognizes that increasing the Public Assistance per capita
indictor will likely lower the amount the Federal government spends on
disasters. It is also simple to communicate and uses processes that
everyone is already familiar with. However, FEMA currently believes the
decrease in spending that the Federal government may see with the GAO's
suggested indicators would not result because future incidents are any
less devastating, but rather because the responsibility for that damage
would be transferred to State and local jurisdictions. It is true that
there is likely a level at which a high enough per capita indicator
would transfer enough risk to the States that they would be forced to
internalize sufficient disaster costs that may incentivize them to
increase mitigation. We do not

[[Page 4094]]

believe that level of per capita indicator is viable at this time.
Moreover, we believe that a deductible concept, which creates
incentives for States both through a transfer of risk and through
rewards provided by a credit system, will be more effective in driving
risk reduction and will lower all disaster spending over time. FEMA
will undertake more analysis over the course of this rulemaking and
will make the ultimate decision based on the outcomes of this analysis,
and not on the beliefs expressed in this section. Any direction
commenters could provide to support that analysis would be appreciated.
---------------------------------------------------------------------------

\75\ Although the application of the annualization calculation
suggests a per capita indicator below $1 million due to low major
disaster frequency in some States, 44 CFR 206.48(a)(1) would still
set the minimum per capita indicator at $1 million. See supra FN23.
---------------------------------------------------------------------------

B. Alternative Deductible Approaches

In developing this potential deductible concept, FEMA is
considering many variations, including simpler ways to calculate the
deductible amount, additional fiscal capacity indicators, alternative
methodologies to determine relative risk among the States, altering the
threshold, and additional possible activities that could be
incentivized through the credit structure.
1. Calculation Alternatives
There are many different methods by which FEMA could determine a
State's deductible amount, and FEMA has considered the advantages and
disadvantages of many options as it developed the potential deductible
program. One of the simplest approaches would be to tie each State's
Public Assistance deductible amount to its current per capita Public
Assistance indicator in some way. Many commenters to the ANPRM remarked
that they appreciated the simplicity, understandability, stability, and
predictability of the current per capita indicator.
While FEMA appreciates these values, the deductible concept, to be
successful, must incentivize greater State resilience to future
disasters. It is important, therefore, that the deductible amounts
truly represent the States' individual characteristics that are
relevant in the disaster context. Overall, FEMA believes that assessing
fiscal capacity and relative risk is a better strategy for calculating
deductibles than utilizing the current per capita indicator that lacks
relevance to either of those gauges.
2. Fiscal Capacity Index
FEMA considered two additional financial indicators before
selecting the four contained in the fiscal capacity index included in
this model. Those additional indicators included Total Actual Revenue
(TAR),\76\ which FEMA defined as the amount of revenue a particular
State actually raises in a typical year, and State Gross Domestic
Product (GDP),\77\ which FEMA defined as the total value of the goods
and services produced within the State in a particular year. Upon
closer inspection, however, FEMA found that both of these indicators
were closely correlated to TTR by factors of 0.981 and 0.998
respectively.
---------------------------------------------------------------------------

\76\ The United States Census Bureau produces an annual State
Government Finances report that details the amount and sources of
actual revenue captured by each State. Additional information can be
found at: https://www.census.gov/govs/state/.
\77\ The Bureau of Economic Analysis produces annual estimates
of each State's Gross Domestic Product. These estimates are
available at: https://www.bea.gov/iTable/iTable.cfm?reqid=
70&step=1&isuri= 1&acrdn=2#reqid= 70&step=1&isuri=1.
---------------------------------------------------------------------------

FEMA believes that TTR, with its broad consideration of potential
State revenue resources, was the best of these three indicators. FEMA
also appreciated that TTR, as a measure of potential, does not suffer
from complications of political choice in TAR or GDP that result from
differences between States in State tax obligations and the services
for which tax dollars are allocated. Since all three measures were so
highly correlated, FEMA selected to include TTR as the preferred metric
from this group. The other three fiscal capacity indicators used in the
model were less correlated with one another and, consequently,
represent a unique measure of State fiscal capacity that FEMA believes
should be considered to inform that portion of the deductible
calculation.
3. Risk Index
The model methodology for establishing the risk index utilizes AAL
values produced from Hazus to evaluate each State's relative risk
level. One feature of the AAL approach is that AAL reflects the total
amount of the loss caused by the hazard. This includes losses by
individuals, businesses, economic drivers, and insured losses. However,
because of limitations in the types of assistance that FEMA provides
through the Public Assistance program, there is inherent variability
between Hazus-based AAL estimates of overall disaster losses and any
impact that reducing these broader disaster losses would have on Public
Assistance costs.
FEMA is willing to accept this attribute, however, because the
intent of the deductible program is to reduce risk and build resilience
to disasters overall. FEMA considers the non-Public Assistance cost
reductions that would occur as a result of a deductible program to be
ancillary benefits of the program. This is no less true if the indirect
Public Assistance reduction benefits are just a fraction of the overall
deductible improvements through reduced AALs. FEMA seeks comment on
this approach.
One shortcoming of the AAL methodology, at least at present, is
that Hazus does not currently produce loss estimates of any kind for
severe storms or tornadoes. Overall, these types of incidents account
for the most frequently declared major disasters and count for
approximately 20 percent of Public Assistance obligations between 2005
and 2014. However, looking below the surface of the classification,
FEMA has found that a significant amount of the damage that occurs in a
major disaster declared for severe storms is actually caused by
flooding. Consequently, just a small percentage of major disasters are
actually issued for damage from storms that do not include some
flooding. These would include damage resulting from wind (tornado,
derecho, microburst, etc.), hail, or winter storms.
Nevertheless, it is likely that the AAL-based approach to
calculating the risk index will somewhat undervalue the risk to locals
that are particularly prone to these types of incidents, such as the
Midwest for tornadoes and the Northeast for snow and ice storms. FEMA
plans to continue seeking ways to improve the Hazus model and expand
the modeling capabilities through AAL estimates, but it also
acknowledges this particular limitation of the current approach. FEMA
is soliciting comment on ways to potentially overcome these limitations
in the Hazus model.
FEMA also considered a completely different approach to assessing a
State's relative risk that looks specifically at the likelihood that a
State will require Public Assistance and the amount of assistance that
will likely be needed. FEMA engaged CREATE to assist in the statistical
and economic aspects of designing the deductible concept. CREATE
produced an alternative approach for modeling risk using historical
Public Assistance obligations to estimate States' risk. Essentially,
CREATE has developed a methodology for modeling the likely amounts of
Public Assistance that every State will require by leveraging
historical Public Assistance levels to forecast potential future need.
Specifically, the CREATE model utilizes Public Assistance data from
1999 to 2015 (the broadest range for which reliable data is available).
CREATE's model assumes that both the magnitude and frequency of
disasters are random variables while

[[Page 4095]]

simultaneously taking a State's characteristics into account, such as
the amount of infrastructure. CREATE then developed statistical models,
adjusting the modeling parameters so that the outputs best matched the
frequency and magnitude of historical Public Assistance outlays. CREATE
was then able to use those models to look forward and determine the
likely frequency and amounts of Public Assistance that each State would
require in the future, converting those amounts to an index of relative
risk.
CREATE's approach advanced FEMA's ability to forecast Public
Assistance requirements. However, FEMA is considering using the Hazus-
based AAL methodology for establishing each State's score on the risk
index instead for a number of reasons.
First, FEMA was concerned with the small quantity of data that it
was able to offer to CREATE and upon which CREATE relied to build its
model. FEMA could only provide reliable data for 17 years' worth of
Public Assistance. FEMA was concerned that this dataset was of
insufficient length to form the basis for establishing long-term
forecast trends for the Public Assistance program. Some types of
disasters, in some areas occur on 100-year, 500-year, 1,000-year, or
even longer cycles. It is likely that FEMA's 17-year dataset is
insufficient to capture these types of events. This is particularly
true of rare but devastating hazards, such as major earthquakes.
Conversely, States that have happened to experience a major disaster in
the past 17 years may have their relative risk overstated by this
dataset compared to what may be expected from a longer-term trend.
Likewise, it is also likely that the Public Assistance dataset will
include incidents that are unlikely to occur again in the near future
and that may be skewing the data. The costs associated with Hurricane
Katrina is an example of this possibility. While the chances of the
Gulf Coast being struck by a moderate to major hurricane in the coming
years are reasonable, the likelihood that it will cause the level of
destruction as Hurricane Katrina is much lower. This is because a
significant portion of the costs from Katrina stemmed from the flooding
that resulted from failure of the water management and levee systems in
New Orleans, Louisiana. Following extensive improvements to those
systems over the past decade, a hurricane of similar intensity to
Katrina might not cause the same level of damage to public facilities
and infrastructure today.
FEMA was also concerned that because the CREATE approach is novel,
it might not engender the same level of public confidence as the AAL-
based methodology. AAL estimates are used by many organizations within
the risk management and insurance industries and are generally accepted
and defensible approaches to modeling future hazard costs.
Additionally, FEMA expects that many within the emergency management
community will be familiar with Hazus and the capabilities of that
platform. Hazus data is openly available and FEMA values the
transparency and reproducibility that use of the existing Hazus
platform offers to the deductible methodology.
Finally, FEMA believes that utilizing Hazus-based AALs will offer
benefits to other programs as well by creating a significant use of the
Hazus platform. FEMA will enjoy an efficiency by leveraging an existing
platform instead of designing and constructing a new one. Additionally,
because the deductible program has the potential to become a major
consumer of Hazus outputs, it increases the value of the Hazus platform
to FEMA and to the nation. This likely would lead to future updates and
improvements to Hazus capabilities that would benefit not only the
deductible program, but also all other users of Hazus products.
However, FEMA certainly welcomes comment on the use of Hazus data, and
AALs generally, and their application to formulating a risk-informed
deductible calculation.
In deciding between the Hazus-based AAL approach and the CREATE
historical Public Assistance approach, FEMA decided that the former was
the better option to incorporate as the risk index into the broader
potential deductible formula. FEMA believes that the advantages of
using the Hazus-based AAL approach described above outweigh the
disadvantages of slightly lessening the risk assessment portion of the
deductible methodology's strict nexus to the Public Assistance program.
In other words, FEMA believes that taking a more expansive view of risk
through use of Hazus-based AALs, which include costs not typically
associated with the Public Assistance program, is acceptable given the
intent of the deductible concept is to reduce risk nationally.
4. Additional Credits
FEMA carefully considered the credits included in the model
described in this SANPRM. FEMA attempted to offer a menu of credits
that cover a range of activities and that would support a diversified
approach to risk reduction and improved preparedness. FEMA intended
each model credit to independently contribute to those outcomes, but
also to work within the broader system to create a cohesive structure
of achievable progress for all States.
When developing the model credit offerings, FEMA considered other
credits as well. These credits were not ultimately selected for the
model for a variety of reasons. In some cases, the credit was too
complicated or could create an unreasonable burden upon the State or
FEMA to administer. In other cases, the ability of the credit to
actually reduce risk or improve resilience was dubious. Ultimately,
FEMA believes it included in the model the best mix of credits
available from what it considered.
One credit in particular that FEMA considered at length would have
been tied to FEMA's Community Rating System (CRS). Many of the comments
that FEMA received from stakeholders when it published the ANPRM
suggested that FEMA should offer deductible credit for CRS
participation. CRS is a program administered by FEMA's National Flood
Insurance Program (NFIP). The NFIP provides federally-backed flood
insurance within communities that enact and enforce floodplain
regulations. FEMA recognizes that CRS is an important program that
incentivizes important floodplain management activities, many of which
mirror or support activities that FEMA is looking to incentivize
through deductible credits, and that inclusion as a separate credit
could further incentivize those activities. At this point, however, as
discussed below, FEMA does not believe that inclusion of CRS as a
credit is appropriate at this time.
A structure must be located within an NFIP community to be eligible
for federally-backed NFIP coverage. NFIP communities may also elect to
participate in the CRS program to receive a percentile reduction to the
premiums for every NFIP policy within the community. As of October
2015, 1,368 of the 21,600 NFIP communities have chosen to participate
in the CRS program. This provides discounted flood insurance premiums
to nearly 3.8 million policyholders.
The CRS classifies each participating community on a scale from 10
to 1 based on multiple scoring criteria relating to floodplain
management, investments, and enforcement. Each CRS class receives a
corresponding percentile reduction to the premiums of all of the NFIP
flood insurance policies covering property within those communities.
The lower the community's CRS class, the larger the

[[Page 4096]]

percentile premium reduction will be. For example, a CRS class 7
community would receive a 15 percent premium reduction on all policies
covering property within the community's Special Flood Hazard Area,
whereas a CRS class 1 community would receive a 45 percent reduction.
As of October 2015, more than 50 percent of CRS communities were
assigned to either class 8 or 9. Less than 1 percent of CRS communities
have reached beyond class 5. Figure 4 depicts the number of communities
in each CRS class (as of October 2015).
[GRAPHIC] [TIFF OMITTED] TP12JA17.032

FEMA examined multiple ways by which it could potentially include
such a credit in the deductible model. The major problem with creating
a deductible credit in this instance is that the CRS program is
administered exclusively at the community level, and FEMA has never
produced statewide CRS scores. FEMA would need to be able to translate
participating community classes into statewide scores for purposes of
the deductible. In considering the credit, FEMA developed a basic
framework for how this process might work.
FEMA has considered calculating statewide CRS scores by utilizing
population-weighted averages of the participating communities' CRS
classes compared to the statewide population. FEMA would multiply the
population of each CRS community by its assigned CRS class. FEMA would
then add all of those values together and divide by the population of
the State. The resulting number would then be subtracted from 9, the
lowest class for which credit would be offered, to derive the statewide
CRS score.
Consider for example the State of Iowa. As of October 2015, Iowa
had seven CRS communities. Those communities are as follows:

Table 15--Example Statewide CRS Credit Score--Iowa
----------------------------------------------------------------------------------------------------------------
Pop. x CRS
CRS community Population CRS class class
----------------------------------------------------------------------------------------------------------------
City of Cedar Falls............................................. 39,260 5 196,300
City of Cedar Rapids............................................ 126,326 6 757,956
City of Coralville.............................................. 18,907 7 132,349
City of Davenport............................................... 99,685 8 797,480
City of Des Moines.............................................. 203,433 7 1,424,031
City of Iowa City............................................... 67,862 7 475,034
Linn County \78\................................................ 84,900 8 679,200
-----------------------------------------------

[[Page 4097]]

Sum......................................................... .............. .............. 4,462,350
-----------------------------------------------
State of Iowa........................................... 3,046,355 7.5 ..............
----------------------------------------------------------------------------------------------------------------

FEMA has also considered multiplying the population of each
community by the community's CRS class. For example, the City of Cedar
Falls would contribute 196,300 to the calculation (population of 39,260
multiplied by CRS Class 5). FEMA would then add up all of those values
from each CRS community. In this case, that would equal 4,462,350. This
total would then be divided by the population of the entire State
(4,462,350/3,046,355 = 1.5). The result is then subtracted from 9 to
yield the statewide CRS score for purposes of the deductible. In this
case, Iowa's CRS score would be 7.5 (9.00 - 1.5 = 7.5). This value
could then be recognized with some level of credit based upon a
standardized conversion schedule. At this time, FEMA has not developed
a potential deductible credit schedule for the CRS.
---------------------------------------------------------------------------

\78\ The population of Linn County included in this example
excludes the population of the City of Cedar Rapids because it is
accounted for separately as an independent CRS community.
---------------------------------------------------------------------------

Ultimately, FEMA decided not to include a model CRS deductible
credit in this SANPRM for three reasons. First, FEMA believes that the
flood insurance premium reductions should sufficiently incentivize NFIP
communities to participate or better their standing within the CRS
program. Second, FEMA would need to develop a new methodology for
creating statewide CRS classes. This would be a novel undertaking for
FEMA and the agency seeks comment from its State partners and the
public regarding this endeavor. Furthermore, creating such a
methodology is complicated because CRS communities are not necessarily
the same as census-based communities, meaning that population numbers
will need to be validated on a community-by-community basis for the
calculation. Finally, even if FEMA does create a methodology for
statewide CRS scores, FEMA is concerned that doing so would be
confusing to stakeholders because FEMA would not be offering any NFIP
insurance premium discounts for those scores. In other words, if a
statewide score is better than a particular NFIP community's CRS class,
there may be an expectation that FEMA would use the statewide score in
place of the community's CRS Class. In fact, FEMA would not be willing
to use the statewide score in lieu of the community score for purposes
of granting NFIP premium discounts and FEMA believes that the creation
of statewide CRS scores solely for the purposes of the deductible
program would be confusing, and ultimately disappointing, to some CRS
communities and NFIP policyholders.

VII. Legal Authority

FEMA administers the Public Assistance program pursuant to the
President's statutory authority conferred in Section 406 of the
Stafford Act to ``make contributions--(A) to a State or local
government for the repair, restoration, reconstruction, or replacement
of a public facility damaged or destroyed by a major disaster and for
associated expenses incurred by the government.'' \79\ These
contributions are limited to ``. . . not less than 75 percent of the
eligible costs of repair, restoration, reconstruction, or replacement
carried out under this section''--known as the Federal share.\80\ The
President has delegated this authority to the Administrator of FEMA to
authorize the Public Assistance program, inter alia.\81\
---------------------------------------------------------------------------

\79\ 42 U.S.C. 5172(a)(1)(A).
\80\ 42 U.S.C. 5172(b)(1).
\81\ Executive Order 12148, 44 FR 43239 (July 24, 1979).
---------------------------------------------------------------------------

``Eligible'' is a term of qualification indicating that not all
resultant costs are automatically reimbursable. Because the Stafford
Act does not define ``eligible costs'' within the text of the law
itself, it is within FEMA's discretion to define the term for purposes
of its programs authorized pursuant to that provision. FEMA has,
through regulation and policy, leveraged its discretion to determine
which disaster costs are ``eligible.'' For purposes of the deductible
program, FEMA is considering revising its regulations and policies to
reflect a determination that disaster costs that cumulatively fall
below the amount of the State's annual deductible, as adjusted by its
earned credits, are not ``eligible costs'' as defined by the Stafford
Act.

VIII. Conclusion

The concept for a deductible program responds to calls for FEMA to
address the increasing frequency of disaster declarations, particularly
smaller events that should be within the capacity of State and local
governments, and to decrease Federal disaster costs. While increasing
the per capita indicator is one way to accomplish this, solely through
the transfer of costs from the Federal government to State and local
jurisdictions, FEMA believes that doing so would miss a valuable
opportunity to increase the nation's overall disaster resilience,
thereby reducing costs for all stakeholders.
While FEMA seeks comment on all aspects of the deductible concept,
in particular FEMA seeks detailed comment and supporting data on the
methodology for calculating each State's deductible amount, including
how FEMA should consider each State's individual risk and fiscal
capacity; and on whether FEMA's estimates of projected credits for each
State are accurate. Detailed stakeholder comment and supporting data
are crucial to FEMA's development of a fair and transparent means to
calculate deductible amounts and creation of an effective and efficient
deductible program.

Dated: January 6, 2017.
W. Craig Fugate,
Administrator, Federal Emergency Management Agency.
[FR Doc. 2017-00467 Filed 1-11-17; 8:45 am]
BILLING CODE 9111-23-P

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