Budgeting for Emergencies

Congress has shown an interest in recent years in changing the way that emergencies are funded. Federal emergency appropriations totaled more than $114 billion from 1991 through 1998. Many states experiencing budget surpluses have set aside money in reserve or contingency funds to help prepare for economic downturns or other unforeseen events. This report examines state practices and experiences with reserve funds to see if they might inform the federal debate on the emergency funding process. GAO provides information on state experiences with reserve funds for emergencies or other unpredictable funding needs and state practices that could be instructive in the emergency spending debate, particularly regarding how the federal government might budget for emergencies with surplus funds.

GAO noted that: (1) most states prepare for future budget uncertainty by establishing reserves; (2) these reserves include budget stabilization funds, emergency funds, and contingency accounts, many of which have specific criteria for their use; (3) GAO's analysis of federal emergency funding from 1991 to the present showed that many different types of programs were funded through emergency supplemental appropriations--a more "after-the-fact" approach; (4) when the federal government provides funding in advance for programs that play a role in emergency activities, such as for the Federal Emergency Management Agency's Disaster Relief Fund, it is usually only a portion of the total eventually appropriated in a given year; (5) as the federal government considers proposals to change the emergency funding process, state practices may offer some insights for establishing criteria for emergencies and setting aside budgetary resources for potential emergencies; (6) state experience indicates that criteria for using emergency reserve funds may be useful in helping to control emergency spending; (7) these criteria include both conditions and events for spending to qualify as emergencies; (8) enforceable criteria established for federal emergency spending, either for the process for funding emergencies or when creating new emergency reserves, might constrain use of the emergency designation; (9) state reserves are designed to provide a cushion for budget uncertainty; (10) in addition to carrying over any end-of-year general fund balances to the next fiscal year, GAO found that the five states in GAO's study also established three different types of more formal reserves to deal with budget uncertainty; (11) although state practices concerning reserve funds reflect the difference between state and federal budgeting, they may provide a conceptual model when considering whether to create emergency reserves at the federal level; (12) should Congress decide to move to a reserve-funding model for emergencies, state practices provide some insight on issues to consider in designing such a process; (13) federal funds could be governmentwide or agency specific; (14) federal emergency reserves might also be established specifically for those agencies that regularly respond to federal emergencies; and (15) criteria for use of these reserves might be more narrowly defined and linked to specific circumstances related to an agency's mission.