The role of a deductible/credit system for post-disaster public assistance in meeting alternative policy goals

We analyze a major potential reform of the current FEMA Public Assistance Program that would establish a deductible against the coverage of losses and would offer credits for expenditure on risk reduction by states as an incentive to offset the deductible. While the current FEMA Program is targeted primarily towards repairing damaged property, there is a potential to formulate a Deductible/Credit System (DCS), so as to achieve a reduction in other worthy goals as well, such as reducing fatalities and accelerating recovery. We analyze the effect of the DCS on the achievement of these alternative goals and on state and federal expenditure under various assumptions about which types of disaster losses are eligible for credits. Although the effect of the DCS depends on how states respond to the credit incentive, it is unlikely to reduce total state expenditure on the combination of risk reduction and disaster losses in the short term.