Irene smacks states amid tighter disaster budgets

Reuters News
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Posted: Aug 30, 2011 12:15 PM
Irene smacks states amid tighter disaster budgets

WASHINGTON (Reuters) - U.S. state and local governments may have to pay for some of the billions of dollars in costs from Hurricane Irene after slashing disaster spending in recent years to shore up bleeding budgets.

That bill will arrive as state and local government revenue remains largely below pre-recession levels, leaving them with tough choices on spending for the recovery from the storm.

The International Association of Emergency Managers, which represents emergency professionals, estimates the total impact of Hurricane Irene as between $2.2 billion and $2.6 billion.

And that doesn't include longer term damage. Standard & Poor's senior economist estimated on Reuters Insider that the economic costs from loss of business and property damage will total $20 billion. While less than expected, it means lower tax revenues and looming reconstruction costs down the road.

"It's a hit, but not a fatal hit," said Joseph Seneca, a professor at Rutgers University's Edward J. Bloustein School of Planning and Public Policy, on Monday.

"The ability of states to respond (to the hurricane) is more constrained," Seneca said.

In North Carolina, which faces about $550 million in economic losses, according to the managers' group, the state cut its disaster-relief fund by $500,000 in the latest round of budget negotiations.

But the state, which expects significant help from the U.S. government, has been able to provide planned assistance in the wake of Hurricane Irene largely through grants, according to Chris Mackey, press secretary to Governor Bev Perdue.

"We are doing the same with fewer people," Mackey said. "We will rely more on our federal partners than ever."

The 2007-2009 recession hit state budgets hard and in fiscal 2010, the latest year data is available, the median budget for crisis response fell to $3.3 million from $3.41 million the year before, according to the National Emergency Management Association.

Now, as they wrestle with the end of the extraordinary assistance from the 2009 federal economic stimulus plan, states are slashing the money they send to local governments.

"It's a ripple effect," said John Miller, who is chairman of the emergency management committee at the National Association of Counties, noting recent steps in Congress to slash federal spending. "What transfers from D.C. to the states transfers from states to the locals. We're the ones that pick up the tab.

Counties are especially hard pressed to prevent damage from disasters, he said, as political and economic pressure mounts to pull back on spending.

Karl Jacob, a S&P analyst, said local governments in Virginia and North Carolina tend to have high cash reserve levels of as much as 20 percent of their operating budgets that could be tapped for emergencies. Other governments may have to resort to short-term borrowing, he added.

But some local governments may not have strong so-called rainy day funds, according to Linda Lanston, county supervisor for Linn County, which sustained $60 million in damage to county buildings during recent Iowa floods.

"Many counties or communities may keep a reserve fund, and that is often what people end up using. But because of the financial situation, communities have spent down reserve funds or can't keep them up," she said.

Ahead of the storm, residents rushed to by generators, batteries and food staples. Afterward, spending may spike as insurance payments and federal disaster dollars arrive, as well, according to Rutgers' Seneca. But there will also be losses in tax revenue from tourism in shuttered shore towns.

Amy Laskey, a Fitch Ratings analyst, said the hurricane was not likely to lead to long-term credit deterioration.

"There might be cash-flow issues," she said, pointing to money governments might have to spend up front before they receive reimbursement from the U.S. government or insurance.

(Reporting by Lisa Lambert, additional reporting by Karen Pierog in Chicago and Michael Connor in Miami; Editing by Andrew Hay)