FEMA's Community Disaster Loan Program: Action in the 110th Congress

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

The emergency supplemental appropriations act for FY2007 (P.L. 110-28), enacted on May 25,
2007, included provisions permitting the cancellation of the $1.3 billion in special community
disaster loans (CDLs) approved by the Federal Emergency Management Agency (FEMA) under ^th
two laws enacted during the 109 Congress in the aftermath of Hurricanes Katrina and Rita.
Areas struck by disaster often experience a destruction of property and decline in economic
activity. Local revenue collections may fall substantially as a consequence. The federal
Community Disaster Loan program, administered by FEMA, is intended to assist local
governments that experience revenue losses as the result of a presidentially declared major
disaster. The traditional CDL program provides for loan forgiveness (cancellation) when it is
determined for three fiscal years following a disaster that the affected government will not be able
to repay the loan. From the initiation of the program in August 1976 through September 30, 2005,
of the total of $233.5 million in principal advanced, $225.7 million, or 97%, was for loan
amounts that were cancelled. Five loans in excess of $5 million accounted for 90% of the
cancelled principal. To restrain program costs, in 2000 a $5 million limit was placed on a loan
that any one jurisdiction can receive through the traditional CDL program for a single disaster.
On October 7, 2005, both houses of Congress approved and President Bush signed the
Community Disaster Loan Act of 2005 (CDLA), P.L. 109-88. The CDLA provided for “special”
community disaster loans, up to an aggregate of $1 billion in principal amount, to local
governments so they could continue to provide essential services in the aftermath of Hurricanes
Katrina and Rita. For these special loans, the new law removed the $5 million per loan limit but
prohibited their cancellation. Within two weeks of enactment, companion bills were introduced to
remove the prohibition on cancellation, but they were not voted upon.
The Emergency Supplemental Appropriations Act of 2006 (P.L. 109-234), enacted on June 15,
2006, included an appropriation to support an additional $371.733 million in CDLs. These loans
were available only to communities that had lost 25% or more of their tax revenues as the result
of Hurricane Katrina or Rita. Again, the $5 million limit was removed but cancellation of the
loans was prohibited.
Efforts to permit the cancellation of both groups of special CDLs authorized by the 109^th ^th
Congress resumed early in the 110 Congress. Such provisions were included in H.R. 1591, the
emergency supplemental appropriations bill for FY2007, vetoed by President Bush on May 2,

2007, and again in H.R. 2206, the emergency supplemental that was finally enacted as P.L. 110-

28. The original appropriations for the loans had assumed a 75% default rate. The Congressional
Budget Office (CBO) estimated the cost of permitting cancellation of the $1.27 billion in loans to
be an additional $321 million. This report is the follow-up to CRS Report RL33174, FEMA’s ^th
Community Disaster Loan Program: Action in the 109 Congress, by Nonna A. Noto and Steven
Maguire. It will be updated if events warrant.

Overvi ew ....................................................................................................................... .................. 1
Traditional Community Disaster Loans: Section 417 of the Stafford Act.......................................2
Legislation Enacted in the 109^th Congress......................................................................................5
Special Community Disaster Loans Enacted in October 2005.................................................5
Emergency Supplemental Appropriations Enacted in June 2006..............................................7
Number of Loans Approved by State and Size of Loan............................................................7
SAFE Port Act Enacted in October 2006..................................................................................8
Bills and Legislation in the 110^th Congress.....................................................................................9
House Bills..............................................................................................................................10
H.R. 680 (Jefferson)..........................................................................................................10
H.R. 1144 (Clyburn).........................................................................................................10
H.R. 1591 (Obey)..............................................................................................................10
H.R. 2187 (Alexander).......................................................................................................11
H.R. 2206 (Obey)...............................................................................................................11
Senate Bills..............................................................................................................................11
S. 87 (Vitter)......................................................................................................................11
S. 253 (Landrieu)...............................................................................................................11
S. 965 (Byrd).....................................................................................................................12
Budget Treatment of the CDL Program.........................................................................................12
Governing Budget Rules.........................................................................................................12
Subsidy Rate............................................................................................................................13
Cost of Permitting Cancellation of the Post-Katrina CDLs....................................................15
History of the CDL Program.........................................................................................................16
Loan or Grant Program?..........................................................................................................16
Experience with Traditional Loans and Their Cancellation....................................................17
Eliminating the $5 Million Per Loan Cap...............................................................................18
Raising the Percentage-of-Budget Limit.................................................................................19
Lowering the Interest Rate......................................................................................................19
Legislative History........................................................................................................................20
Disaster Relief Act of 1970.....................................................................................................20
Alternative Senate Proposal for a Loan Program Not Adopted........................................21
Disaster Relief Act of 1974: The Robert T. Stafford Disaster Relief and Emergency
Assistance Act......................................................................................................................21
Disaster Mitigation Act of 2000..............................................................................................22
Table 1. Total Number and Dollar Amount of Combined 2005 Special and 2006
Supplemental CDLs Approved by FEMA, by State.....................................................................8
Table 2. Size Distribution of Combined Special and Supplemental CDLs Approved by
FEMA, by State............................................................................................................................8
Table 3. Community Disaster Loan Program from the First Loans in August 1976 through
September 30, 2005....................................................................................................................17

Table 4. Community Disaster Loan Program from the First Loans in August 1976 through
September 30, 2005....................................................................................................................18
Table 5. CDLs Greater than $5 Million and Amount Cancelled...................................................19
Author Contact Information..........................................................................................................23

In addition to the heavy loss of lives and the dislocation of hundreds of thousands of families,
Hurricane Katrina on August 29, 2005, and Hurricane Rita on September 24, 2005, caused
devastating damage to property and seriously disrupted the economic activity that normally
provided the tax and revenue base of the affected areas, especially in Louisiana and Mississippi.
There was concern in Congress and elsewhere, but particularly in the tax-exempt bond
community, that the destruction of the underlying tax base would impair the ability of Gulf Coast
communities to make the payments on their outstanding debt, let alone their ability to issue new ¹
debt. These communities also faced the loss of revenues needed to finance normal operating
expenses (beyond debt servicing) and possibly additional operating expenses engendered by the
hurricane disasters. This point was brought home when New Orleans Mayor C. Ray Nagin
announced on October 4, 2005, that he would have to lay off 3,000 municipal employees—50% ²
of the city’s work force—due to lack of revenue.
The Community Disaster Loan (CDL) program, administered by the Federal Emergency
Management Agency (FEMA), is a program of federal aid available to local governments
specifically to replace revenues lost as the result of a natural or man-made disaster. These are the
revenues needed to pay for normal operating expenses, such as fire and police services, public
schools, and debt servicing. This aid is available in addition to the federal disaster aid provided to
replace damaged public infrastructure and to address special storm-related expenses such as
debris removal.
The Community Disaster Loan program is unique in permitting local governments struck by
disasters to borrow directly from the federal government. It has also been unique in giving the
federal administrators of the loan program the authority to cancel the borrower’s obligation to
repay the loan under specified local budget conditions.
State and local governments are generally prohibited by state constitutions or laws from issuing
municipal debt to finance deficits in their operating budgets. Indeed, the regulations governing
traditional CDLs prohibit loan cancellation to finance a budget deficit that was anticipated before ³
the disaster. The CDL program is intended specifically to permit a community to borrow to pay
for operating expenses after its revenue base has been damaged by a disaster.
In the 109^th Congress, on a single day—October 7, 2005—both the Senate and the House of
Representatives approved, and President Bush signed into law, the Community Disaster Loan Act
of 2005 (CDLA), P.L. 109-88. The act provided for up to $750 million—of the $50 billion
previously appropriated for disaster assistance following Hurricane Katrina—to be available to
support up to $1 billion in special CDLs to local governments affected by the hurricanes. In
addition, it made two important changes in the conditions governing these loans compared with
traditional CDLs: it removed the $5 million per loan limit and prohibited the cancellation
(forgiveness) of these loans. Nonetheless, the ratio of appropriations to loan limit was based on

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^C4^.^F^r^an^k^S^h^af^ro^t^h^,^“M^et^e^o^ro^l^o^gi^cal^T^a^xes—^T^a^xiⁿ^g^Issu^{es i}ⁿ^Kat^rⁱⁿ^{a’s W}^a^ke,^”^State^Tax^N^o^te^s^by^T^a^x^Aⁿ^a^l^y^s^ts^,
^Se^pte^m^be^r^{26, 2}⁰⁰⁵^,^pp^{. 9}^55-⁹⁶^0.^Fr^aⁿ^k^Sha^f^r^o^th,^“^T^he^Bⁱ^g^Ea^sy^—^T^he^T^a^xⁱ^ng^A^f^te^r^m^a^t^{h of}^K^a^trⁱⁿ^a^,^”^St^ate^Tax
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³^{44 C}^.^F.R^.²^06.³⁶^{6 (}^a⁾⁽⁵⁾^.

the assumption of a 75% default rate on the loans. Subsequently, FEMA approved loans totaling
the full $1 billion permitted by the CDLA.
Efforts soon began to remove the prohibition on the cancellation of the special CDLs. Companion ^th
bills to that effect were introduced in late October 2005, but were never voted upon by the 109
Congress.
The Emergency Supplemental Appropriations Act of 2006 (P.L. 109-234), enacted on June 15,
2006, included an appropriation of $279.8 million to support an additional $371.733 million in
direct loans to communities affected by hurricanes during the 2005 season. Once again, the ratio
of appropriations to loan limit was based on the assumption of a 75% default rate on the loans.
These supplemental loans were available to communities that lost 25% or more of their tax
revenues as the result of Hurricanes Katrina or Rita. This law again removed the $5 million per
loan limit and prohibited cancellation of these loans. It also raised the size limit for a loan from
25% to 50% of a community’s operating budget. FEMA approved loans totaling $271 million to
all eligible applicants; $101 million of the loan authorization was not used.
The SAFE Port Act (P.L. 109-347), enacted on October 13, 2006, raised the size limit for a
traditional CDL from 25% to 50% of a local government’s annual operating budget if that
government lost 75% or more of its tax and other revenue as the result of a major disaster. The $5
million per loan limit and the cancellation option still apply to traditional CDLs.
Efforts began early in the 110^th Congress to permit the cancellation of the two groups of ^th
community disaster loans specifically authorized by the 109 Congress. Several bills were
introduced in the first three months of 2007. Provisions enabling cancellation of those loans were
included in H.R. 1591, the initial emergency supplemental appropriations bill for FY2007 that
was approved by Congress but vetoed by President George W. Bush on May 1, 2007, for reasons
related to the war in Iraq. The same CDL provisions were included in H.R. 2206, the emergency
supplemental for FY2007 that was enacted as P.L. 110-28 on May 25, 2007.
The original appropriations for the loans in 2005 and 2006 had already covered 75% of the
principal amount. The Congressional Budget Office (CBO) estimated the cost of permitting
cancellation of the principal and interest due on the $1.27 billion in loans to be an additional $321 ⁴
million, measured in FY2007 dollars.

This section describes the law and regulations which governed all community disaster loans
before October 2005. These rules will continue to govern traditional community disaster loans
made outside of the provisions for special CDLs. The rules not amended by the laws enacted in

2005 and 2006 will continue to apply to the special community disaster loans as well.

⁴^U^.^{S. C}^ong^r^e^s^sⁱ^ona^{l B}^udg^e^t^O^f^fⁱ^ce^,^{H.R. 1}¹⁴⁴^{, H}^u^rric^ane^{s K}^a^trin^a^,^Rita^{, a}ⁿ^d^W^{ilma Fe}^de^{ral M}^a^tc^h^Re^lie^{f Ac}^{t of}
²⁰⁰⁷^{, CBO}^Cos^t^Es^tⁱ^m^a^te^{, Ma}^rc^h^13,²⁰⁰⁷^.

The Robert T. Stafford Disaster Relief and Emergency Assistance Act⁵ is popularly known as the
Stafford Act. The Stafford Act
^au^th^orizes^t^h^{e P}^r^es^iden^{t to is}^s^u^{e m}^a^j^o^{r dis}^a^s^t^{er decla}^r^a^tⁱ^oⁿ^s^t^h^a^t^a^u^t^h^o^rⁱ^z^e^f^e^d^e^r^a^l^a^g^en^cⁱ^e^s^t^o
^prov^{ide as}^sⁱ^s^t^aⁿ^{ce to s}^t^a^t^es^ov^er^w^h^el^m^e^{d b}^y^dis^a^s^t^ers^.^T^h^rou^g^h^e^x^ecutiv^{e orders}^{, th}^e
^P^r^esid^en^{t h}^a^{s d}^e^leg^a^ted^to^th^{e Fed}^e^r^a^{l Em}^er^g^eⁿ^c^y^Man^a^g^e^m^eⁿ^t^A^g^en^cy⁽^F^E^M^A⁾^,^wⁱ^thⁱⁿ^t^h^e
^Dep^a^r^t^m^eⁿ^t^o^f^Ho^m^e^lan^d^Se^cu^rⁱ^t^y⁽^DHS)^,^r^e^sp^oⁿ^sib^ilit^y^f^o^r^ad^mⁱⁿⁱ^sterⁱⁿ^g^th^e^m^a^j^o^r
^prov^is^ion^s^of^t^h^{e Sta}^f^f^o^{rd A}^c^t.^A^s^sⁱ^s^t^an^ce^auth^{orized by}^t^h^{e s}^t^at^u^t^{e is}^av^a^{ilable to}⁶
ⁱⁿ^dⁱ^vⁱ^d^u^als,^f^a^m^ilie^{s, state an}^d^lo^{cal g}^o^v^e^rⁿ^m^eⁿ^t^{s, an}^d^cer^taiⁿⁿ^oⁿ^p^r^o^f^{it o}^r^g^aⁿⁱ^za^tioⁿ^s^.
Of particular relevance to local governments is Section 417 of the Stafford Act.⁷ Section 417
authorizes the President
^to^m^a^k^e^lo^an^{s to}^an^y^lo^cal^g^o^v^e^rⁿ^m^eⁿ^t^w^h^ic^h^m^a^y^s^u^f^f^e^r^a^su^b^s^tan^tial^lo^{ss o}^f^ta^x^aⁿ^d^o^t^h^e^r
^rev^e^nu^es^a^s^{a res}^u^{lt of}^a^m^a^j^o^r^dis^a^s^t^{er, an}^{d h}^a^s^de^m^oⁿ^s^trated^{a n}^{eed f}^o^{r f}ⁱⁿ^aⁿ^c^{ial as}^sⁱ^s^t^an^ce
ⁱⁿ^{order t}^o^pe^rf^ormⁱ^t^s^g^o^v^e^rnm^e^nt^al^fun^c^tⁱ^ons^.
A loan may be approved in either the fiscal year in which the disaster occurs or the fiscal year
immediately following. Only one CDL may be approved for any one local government as the ⁸
result of a single disaster.
The amount of a loan is based on need and is not to exceed 25% of the annual operating budget of
the local government for the (local government’s) fiscal year in which the major disaster occurs.
The SAFE Port Act (P.L. 109-347), enacted on October 13, 2006, raised the size limit for a
traditional CDL from 25% to 50% of a local government’s annual operating budget if that
government lost 75% or more of its tax and other revenue as the result of a major disaster. In
addition, as a result of an amendment made in 2000, the dollar amount of any loan is limited to $5 ⁹
million. The obligation to repay the loan is to be cancelled if the locality’s revenues in the three
fiscal years following the disaster are deemed insufficient by FEMA or its outside auditors.
The normal term of a CDL is five years. The loan typically takes the form of a five-year balloon.
That is, the full principal and accumulated interest are due all together at the end of the five-year
term. The Associate Director of FEMA may consider requests for an extension, based on the local
government’s financial condition. However, the total term of a loan normally may not exceed 10 ¹⁰
years, except under extenuating circumstances.
The interest rate on CDLs is based on the average rate, on the date of the loan approval, for U.S.
Treasury obligations with maturities of five years. The interest rate on CDLs is higher than the
average rate on municipal (state and local) bonds of similar maturity. This is because the federal
tax exemption of interest on state and local government bonds enables those governments to sell
bonds at lower interest rates than comparable federal bonds. The relatively higher CDL rate
implies that localities with strong credit ratings would be better off borrowing from the private

⁵^P^.^L^.^93-²⁸^{8, a}^s^a^m^e^nde^{d; 4}²^U^.^S^.^C^.⁵¹²¹^e^t^s^e^q.
⁶^C^R^S^R^e^por^{t R}^L³³⁰⁵³^,^Fe^de^ra^{l S}^t^affor^d^Ac^{t Dis}^a^ste^r^Assistanc^e^:^P^r^e^s^ideⁿ^{tial De}^c^l^ar^atio^{ns, E}^ligi^b^le^Ac^tiv^itie^{s, a}^nd
^Fun^dⁱⁿ^g^,^by^K^e^{ith Be}^a^.
⁷^{42 U}^.^S.C.⁵¹⁸⁴^{, C}^o^m^m^unity^Dⁱ^s^a^s^t^e^r^L^o^aⁿ^s^.
⁸^{44 C}^.^F.R^.²^06.³⁶¹⁽^d)^.
⁹^Se^c^tion²⁰⁷⁽^{5) of}^P^.^L^.¹^06-³⁹^{0, t}^h^e^Disa^ste^r^Mitig^a^{tion A}^c^{t of}²⁰⁰⁰^.
¹⁰^{44 C}^.^F.R^.²^06.³⁶¹⁽^e⁾^aⁿ^{d 2}⁰⁶^.³⁶⁷⁽^c⁾^.

credit market, if they were permitted to borrow to cover operating expenses. Only communities
with a weak credit rating—or those hoping for or anticipating a loan cancellation—would be
attracted to traditional CDLs.
A locality that is in arrears on its repayment of a CDL is not eligible to receive any additional
loans under Section 417. Receiving loans under Section 417 does not reduce or otherwise affect
any grants or other assistance available to a locality under other parts of the Stafford Act.
A local government may use the borrowed funds to carry on existing local government functions ¹¹
of a municipal operation character or to expand such functions to meet disaster-related needs.
The funds are not to be used to finance capital improvements or the repair or restoration of
damaged public facilities. Neither the loans nor any cancelled portion of the loans may be used as ¹²
the non-federal share of any federal program, including those under the Stafford Act.
For loan cancellation purposes, unreimbursed expenses of a municipal operating character are
those incurred for general government purposes, such as police and fire protection, trash
collection, revenue collection, maintenance of public facilities, and other expenses normally ¹³
budgeted for the general fund.
Disaster-related expenses that are eligible for reimbursement under project applications or other ¹⁴
federal programs are not eligible for loan cancellation. In addition, expenditures associated with
debt service; any major repairs, rebuilding, replacement, or reconstruction of public facilities or
other capital projects; intragovernmental services; special assessments; or trust and agency fund
operations are not eligible for loan cancellation.
The state must co-sign the promissory note or else the local government must pledge collateral
security to cover the principal amount of the note. In the event of default, FEMA may request
administrative offset against other federal funds due the borrower and/or referral to the
Department of Justice for judicial enforcement and collection.
CDLs are not available to states or non-profit organizations.
A community must submit an application to FEMA either to receive a CDL or to have a loan
cancelled. Typically, FEMA hires an outside auditing firm to perform the required analysis of the
community’s operating budget. This outside analysis is combined with data and information that
the jurisdiction provides to FEMA in support of its loan application or cancellation application.
The Code of Federal Regulations (CFR) assigns the primary responsibility for both making and
canceling CDLs to the Associate Director of FEMA for State and Local Programs and Support.
However, according to FEMA’s Office of General Counsel, these functions are currently
performed by the Director of the Recovery Division. The regulations provide that FEMA shall
^can^{cel repa}^y^m^en^{t o}^f^{all or part of}^{a C}^o^m^m^uⁿⁱ^t^y^Di^s^a^s^t^er^L^o^an^{to th}^{e e}^x^teⁿ^t^t^h^{at t}^h^e
^As^s^o^{ciate D}ⁱ^{rector deter}^mⁱⁿ^e^s^th^{at re}^v^eⁿ^u^e^s^{of th}^e^{local g}^o^vernm^eⁿ^t^d^u^ring^t^h^e^fu^{ll t}^h^ree

¹¹^T^h^e^C^ode^of^Fe^de^r^a^{l R}^e^g^u^la^tio^ns^s^e^ts^f^o^r^t^{h the}^polic^ie^s^aⁿ^{d pr}^oc^e^d^ur^e^s^c^onc^e^rⁿⁱ^ng^the^C^o^m^m^unity^Dⁱ^s^a^s^t^e^r^L^o^aⁿ
^prog^ra^m^{in 44 C}^.^F.R.^Ch.^1,^Su^bp^a^r^{t K, Se}^c^s^{. 20}^6.³⁶^1-2^06.³⁶^{7 (}^10-^1-0⁴^Ed^itio^n).
¹²^{44 C}^.^F.R^.²^06.³⁶^{1 (}^f⁾^.
¹³^G^e^ne^r^a^l^f^{und a}^s^de^fⁱ^ne^d^by^the^Municⁱ^pa^{l Fi}^na^nc^e^O^f^fⁱ^ce^r^s^A^s^s^o^cⁱ^a^tion.^Se^e⁴⁴^C^.^F.R^.²⁰⁶^.³^{66 (}^b⁾⁽¹⁾^.
¹⁴^{44 C}^.^F.R^.²^06.³⁶^{6 (}^b⁾⁽²⁾^.

^fⁱ^s^cal^y^{ear period f}^o^llo^wⁱ^ng^t^h^{e dis}^a^s^t^{er are ins}^u^ff^icieⁿ^t^{, as}^a^res^u^{lt o}^f^t^h^{e dis}^a^s^t^{er, to}^m^eet
^th^{e o}^p^e^r^a^tin^g^b^u^d^g^et^f^o^r^th^{e lo}^{cal g}^o^v^e^rⁿ^m^eⁿ^t^{, i}ⁿ^clu^dⁱⁿ^g^ad^d^itioⁿ^a^{l u}ⁿ^r^eⁱ^m^b^u^r^s^ed^dⁱ^sa^ster^-¹⁵
^{related ex}^pen^s^es^o^f^a^m^u^{nicipal operatin}^g^ch^aracter.
Accordingly, a community cannot seek to, and FEMA cannot, cancel the obligation to repay a
loan until at least three years following a disaster.

To address the immediate needs of the local governments affected by Hurricanes Katrina and ^th
Rita, the 109 Congress modified the CDL program and allocated funding for $1 billion in
special loans through the Community Disaster Loan Act of 2005 (P.L. 109-88), enacted on
October 7, 2005. The Emergency Supplemental Appropriations Act for FY2006 (P.L. 109-234),
enacted on June 15, 2006, provided funding for an additional $372 million in special loans to
communities that lost tax revenues as a result of the 2005 hurricanes; this law included another
change in the rules governing the size of these disaster loans. The SAFE Port Act (P.L. 109-347)
raised the percent-of-budget limit on the size of a traditional CDL that will now be available to a
local government that suffers a severe loss of tax and other revenue from a major disaster.
The Community Disaster Loan Act of 2005 (CDLA), S. 1858 (Vitter), was passed by Congress
and signed by President Bush as P.L. 109-88, on Friday, October 7, 2005, the eve of the week-¹⁶
long Columbus Day recess. The motivation for the expedited treatment was reportedly to have ¹⁷
the money available to affected communities by Monday, October 10.
P.L. 109-62, the second emergency supplemental appropriations act adopted following Hurricane ¹⁸
Katrina, provided for $50 billion in “disaster relief.” The Community Disaster Loan Act of 2005
provided for up to $750 million of those funds to be transferred to FEMA’s Disaster Assistance
Direct Loan (DADL) Program. These funds, in turn, were to be used to make direct loans to local
governments to assist them in providing “essential services,” as authorized under Section 417 of ¹⁹
the Stafford Act. The transfer of $750 million could subsidize gross obligations for the principal ²⁰
amount of direct loans not to exceed $1 billion.

¹⁵^{44 C}^.^F.R^.²^06.³⁶^6.^Se^e^a^l^s^o^Se^c^t^ion²⁰^6.³⁶¹⁽^g⁾^.
¹⁶^S.¹⁸^{58 w}^a^{s intro}^duc^e^d^by^Se^n.^V^itte^r,^pa^sse^{d w}^ithou^{t a}^m^e^ndm^eⁿ^{t by}^una^nim^{ous c}^onseⁿ^{t i}ⁿ^the^Se^na^te^{, the}ⁿ^a^g^re^e^d
^{to i}ⁿ^the^H^ous^e^aⁿ^{d pa}^s^s^e^{d w}^itho^u^{t o}^b^je^c^tio^{n, a}ⁿ^{d s}ⁱ^gⁿ^e^d^by^P^r^e^s^id^eⁿ^{t B}^u^s^h^{, a}^ll^{on O}^c^t^obe^r^7,²⁰^05.
¹⁷^S^t^at^em^en^t^b^y^R^e^p^.^Baker,^C^ongr^e^s^sⁱ^{onal Re}^c^o^r^d^,^da^ily^e^d^ition,^v^o^l^{. 1}^51,ⁿ^o^.¹³^{0, O}^c^to^be^r⁷^,²⁰⁰⁵^,^{p. H}⁸⁷⁹^7.
¹⁸^P^.^L^.¹⁰^9-⁶²⁽^H^.R^{. 3}⁶⁷³⁾^Se^c^o^nd^Em^e^r^g^e^ncy^Supple^m^eⁿ^ta^l^A^ppr^op^rⁱ^a^tions^A^c^{t to Me}^e^t^I^m^m^e^dia^t^e^N^e^e^d^s^A^r^is^ing
^f^r^o^m^the^C^ons^e^q^ue^nc^e^s^of^H^u^r^rⁱ^c^aⁿ^e^K^a^tr^ina^.^P^a^s^s^e^{d by}^bot^{h t}^h^e^H^ous^e^aⁿ^d^Se^na^te^aⁿ^{d e}ⁿ^a^c^t^e^d^on^S^e^pte^m^be^r^{8, 20}^05.
^For^m^o^r^e^inf^o^r^m^a^{tion on}^the^tw^o^em^e^r^ge^ncy^s^upple^m^eⁿ^ta^{l law}^s^eⁿ^a^c^t^e^d^{, s}^e^e^C^R^S^R^e^por^{t R}^S²²²^39,^E^m^erg^eⁿ^cy
^Sup^ple^m^eⁿ^t^a^{l A}^ppr^o^p^rⁱ^a^tio^ns^for^H^u^r^rⁱ^c^ane^K^a^trⁱⁿ^a^Re^lie^f^,^by^K^e^it^{h B}^e^a^,^o^u^t^of^pr^{int a}^{nd a}^v^a^ila^ble^f^r^om^the^a^u^thor^.
¹⁹^T^h^e^C^D^LA^doe^s^not^de^fⁱ^ne^the^te^r^m^“e^s^s^e^ntia^{l s}^e^r^v^ice^s^.”^T^h^e^Sta^{fford A}^c^{t doe}^{s i}ⁿ^c^l^u^d^e^the^te^rm^wⁱ^t^hⁱⁿ^{its de}^fⁱ^niti^on
^of^“^p^riv^a^te^nonpr^of^{it f}^a^c^ilit^y^.^”⁴²^U^.^S.C.⁵¹²²⁽^9).
²⁰^T^h^e^$1^billi^on^a^m^{ount is}^ba^s^e^d^oⁿ^the^a^s^s^u^m^p^tio^{n by}^the^O^f^fⁱ^ce^of^Ma^na^g^e^m^e^{nt a}^{nd Bu}^dg^e^t^tha^t^t^h^e^ne^w^loaⁿ
^prog^ra^m^w^{ill ha}^v^e^a^c^r^e^d^{it subsid}^y^r^a^te^of^75%^{. T}^h^{is is e}^x^plaⁱ^ne^{d i}ⁿ^g^r^e^a^t^e^r^de^ta^{il in}^the^se^c^tio^{n o}ⁿ^Budg^e^t^a^r^y
^T^r^e^a^t^m^e^{nt la}^te^{r in t}^h^{is re}^p^o^rt.

The CDLA also allowed for an additional $1 million of the disaster relief funds provided by P.L.

109-62 to be transferred to the Disaster Assistance Direct Loan Program for administrative ²¹

expenses to carry out the direct loan program.
The new law made three changes to the CDL program law with respect to the special community
disaster loans (SCDLs) to be made under this section. First, an SCDL may exceed the $5 million
limit placed on traditional loans made under Section 417. (The limit of 25% of the locality’s
operating budget still applied.) Second, the cancellation (forgiveness) of such loans was
prohibited. Third, the law directed that the loans be used to assist local governments in providing
essential services.
The provision eliminating the possibility of loan cancellation was reportedly insisted upon by the
Bush Administration (Office of Management and Budget) and the Republican leadership in the ²²
House as a condition for providing the loan assistance. Several Members made statements on ²³
the House and Senate floors objecting to the requirement that the loans be repaid.
Representative David Obey requested that a requirement be included to report to Congress about ²⁴
the size and use of the loans made. There were assurances from Representative Richard Baker ²⁵
that Mr. Obey’s concern would be addressed after the Columbus Day recess, but it was not.
The interim rules implementing the Special Community Disaster Loans Program were published ²⁶
on October 18, 2005. The standard interest rate on SCDLs is, again, the average rate on
Treasury issues with five-year maturities. However, the rules provide that FEMA would have the
discretion to allow localities facing unique economic hardships to receive discounted interest
rates, at levels consistent with the lowest rate offered by the Small Business Administration’s ²⁷
disaster loan program. A formula was provided for determining the discounted interest rate. The
subsidized rate would be the U.S. Treasury’s five-year maturity rate plus one percentum, adjusted
to the nearest 1/8 %, and reduced by one-half. For example, assume that the yield on five-year
Treasury bonds were 4.32%, as it was on October 21, 2005. Adding one percentum would give
5.32%. Rounding that to the nearest 1/8% would give 5-3/8%. Reducing that by one-half would
give 2-11/16% (2.69%) as the subsidized interest rate on SCDLs. The federal budget for FY2007 ²⁸
assumed that the borrower interest rate for the CDL program would be 2.70% during FY2006.

²¹^For^c^o^m^p^a^r^is^{on, FE}^MA^’^s^budg^e^t^r^e^que^s^t^f^o^r^FY²⁰⁰⁶^w^a^s^f^o^r^$567^,00⁰^t^o^a^d^mⁱ^nis^t^e^r^the^eⁿ^tir^e^Dⁱ^s^a^s^t^e^r^A^s^sⁱ^s^t^aⁿ^c^e
^Di^rect^L^o^an^P^r^o^g^ram^w^hⁱ^c^hⁱⁿ^cl^ud^{es “st}^a^t^e^sh^{are” l}^o^an^{s i}ⁿ^a^d^dⁱ^tⁱ^oⁿ^t^o^CDL^s^.^Un^d^e^{r t}^h^{e st}^at^{e sh}^{are pro}^g^ra^m^,^F^E^M^A
^m^a^y^le^{nd to a}^s^t^a^t^e^or^ot^he^r^e^lig^ib^le^a^pplic^aⁿ^t^the^a^m^ount^{it is}^r^e^s^p^oⁿ^sⁱ^ble^f^o^r^u^nde^r^c^o^s^t^-^s^ha^rⁱ^ng^p^r^ov^is^ions^of^the
^Sta^f^f^o^r^d^A^c^{t. U}^.^{S. D}^e^pa^r^t^m^e^{nt of}^H^o^m^e^la^{nd Se}^c^u^r^ity^{, E}^m^e^r^g^e^ncy^P^r^e^p^a^r^e^dne^s^s^a^{nd R}^e^s^p^ons^e^Dⁱ^r^e^c^t^or^a^t^e^,^Fe^de^r^a^l
^Em^e^r^g^e^ncy^Ma^nag^e^m^e^nt^A^g^eⁿ^cy^,^Fisc^{al Ye}^{ar 2}⁰⁰⁶^Co^ngre^ssio^nal^J^u^stific^ati^oⁿ^{, 20}⁰⁵^,^p^p^.^F^E^M^A¹⁵⁶^-¹⁵⁷^.
²²^Sta^t^e^m^eⁿ^{ts b}^y^Se^{n. Clin}^to^{n o}ⁿ^R^e^lie^f^f^o^{r the}^G^u^lf^Coa^s^{t a}^{nd by}^Se^{n. Frist}^,^C^o^ngr^e^s^sⁱ^o^nal^Re^c^o^r^d^,^d^a^ily^e^d^ition^,^v^o^l.
¹⁵¹^{, n}^o^.¹³^{0, O}^c^t^obe^r^7,²⁰^05,^oⁿ^p.^S1¹²^{80 a}ⁿ^d^{p. S}¹¹²⁸²^{, r}^e^s^p^e^c^tiv^e^l^y^.
²³^Sta^t^e^m^eⁿ^ts^r^e^ga^r^d^ing^the^C^o^m^m^unity^Dⁱ^s^a^s^t^e^r^L^o^aⁿ^A^c^{t of}²⁰⁰⁵^,^C^ongr^e^s^sⁱ^o^nal^Re^c^o^r^d^,^da^ily^e^d^iti^{on, v}^o^l^.¹⁵^1,^no.
¹³⁰^{, O}^c^to^be^r^7,²⁰⁰⁵^,^pp.^S1¹²⁷⁹^-^S¹¹²⁸^{5 a}ⁿ^{d H}⁸⁷⁹^4-^H⁸⁷⁹^6.
²⁴^Co^ng^ressioⁿ^a^l^Reco^rd^{, da}^ily^e^d^it^ion,^v^o^l.¹⁵^1,^no^{. 1}³⁰^,^O^c^tobe^r^7,²⁰⁰^5,^pp^{. H}⁸⁷⁹^7-^H⁸⁷⁹^8.
²⁵^Co^ng^ressioⁿ^a^l^Reco^rd^{, da}^ily^e^d^it^ion,^v^o^l.¹⁵^1,^no^{. 1}³⁰^,^O^c^tobe^r^7,²⁰⁰^5,^{p. H}⁸⁷⁹⁸^.
²⁶^D^e^pa^r^t^m^e^{nt of}^H^o^m^e^la^{nd Se}^c^u^rⁱ^t^y^{, E}^m^e^r^g^e^ncy^P^r^e^p^a^r^e^dne^s^s^a^nd^R^e^s^pons^e^Dⁱ^r^e^c^t^or^a^t^e^,^Fe^de^r^a^{l E}^m^e^r^g^e^ncy
^M^aⁿ^a^ge^m^eⁿ^t^Agen^c^y^,^“S^p^eci^al^C^o^mm^uⁿⁱ^t^y^Di^s^a^st^{er L}^o^an^{s P}^r^o^g^ram^,^{” 7}⁰^Fe^de^{ral Re}^giste^r⁶⁰⁴⁴^{3, O}^c^tobe^r¹⁸^{, 20}^05;
^{44 C}^.^F.R^.²⁰^6.³⁷^0-²^06.³⁷^7.
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^phy^sic^a^l^disa^ste^r^loaⁿ^{s to sm}^a^{ll busine}^sse^{s. Ex}^pl^aⁱ^ne^d^on^the^SBA^w^e^bsite^a^t^http://w^ww^.sba^.g^ov^.
²⁸^U.^S^.^E^x^ecu^tⁱ^v^{e Off}ⁱ^{ce o}^f^t^h^{e P}^r^esi^d^en^t^,^Offⁱ^{ce o}^f^M^aⁿ^a^g^e^m^eⁿ^t^an^d^Bu^d^g^et^,^B^u^dg^et^o^f^t^h^{e Uni}^t^e^d^S^t^at^{es Go}^vern^m^en^t
^Fis^c^{al Ye}^ar²⁰⁰⁷^{, Fe}^de^r^a^l^C^r^e^d^it^Sup^ple^m^eⁿ^t⁽^W^a^s^hing^to^{n: Fe}^br^ua^r^y²⁰⁰⁶⁾^{, p. 10}^.

The term of the SCDLs is to remain, as for traditional CDLs, at five years, with the option for the
Associate Director of FEMA to extend the term to up to 10 years. Only under extenuating
circumstances may the repayment period exceed 10 years. Also as with traditional CDLs, the state
must co-sign the promissory note or else the local government must pledge collateral security to
cover the principal amount of the note. In the event of default, FEMA may request administrative
offset against other federal funds due the borrower and/or referral to the Department of Justice for
judicial enforcement and collection.
The Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and ²⁹
Hurricane Recovery, 2006 (H.R. 4939 as amended, P.L. 109-234) was enacted on June 15, 2006.
Among its many provisions, it appropriated an additional $279.8 million for the Disaster
Assistance Direct Loan Program Account, of which $1 million was for administrative expenses.
The remaining $278.8 million was to subsidize gross obligations for the principal amount of
direct loans up to $371.733 million. As with the Special Community Disaster Loan (SCDL)
program authorized under the CDLA of 2005, this numerical relationship was based on the
assumption of a 75% credit subsidy rate for the loans.
The funds were to be used to assist local governments affected by Hurricane Katrina and other
hurricanes of the 2005 season in providing essential services. As with the SCDLs, the loans made
under this law may not be cancelled. Loans were available only to local governments that
suffered a loss of 25% or more in tax revenues due to Hurricane Katrina or Hurricane Rita. This is
in contrast to the reference in Section 417 of the Stafford Act to “a substantial loss of tax and
other revenues.” As was provided for the special CDLs, a loan could exceed the $5 million limit
placed on traditional CDLs. In addition, the loan could equal not more than 50% of the annual
operating budget of the local government. This is in contrast to the 25%-of-budget limit that
applies to both traditional and special CDLs.
Because no specific language was included to indicate that the funds would be available until
expended, it was interpreted by FEMA that the loans must be made by September 30, 2006, the
end of FY2006, to take advantage of the supplemental appropriation. (The same time limit
applied to the original SCDLs.) This placed time pressure on the loan application, approval, and
dispersal process. Because the percent-of-budget limit was raised to 50%, communities that
applied in the first round for SCDLs of up to 25% of their operating budget could apply for an
additional 25% under the emergency supplemental loans. A variety of special districts that rely on
revenues other than taxes (such as charges and fees) were not eligible to apply for the
supplemental appropriations loans. This included, for example, hospital, port, airport, water,
regional transit, and communications authorities.
Tables 1 and 2 summarize the experience under the two special CDL programs combined, with
separate tabulations for Louisiana and Mississippi. FEMA approved 96 loans for Louisiana
communities, totaling $1 billion in principal amount. Fifty-six loans totaling $271 million were

²⁹^For^de^ta^ile^{d i}ⁿ^f^o^r^m^a^{tion a}^bou^{t t}^h^a^t^a^c^t^{, s}^e^e^C^R^S^R^e^por^{t R}^L³³²⁹^8,^FY20⁰⁶^S^u^p^p^le^m^e^ntal^Ap^pr^o^p^rⁱ^at^ions^:^I^r^aq^an^d
^Othe^{r Inte}^rna^tio^nal^Ac^tiv^itie^{s; A}^d^ditio^na^{l Hurric}^a^ne^Katri^na^Re^lie^f^{, c}^oor^dina^te^d^by^P^a^u^l^M.^I^r^w^{in a}ⁿ^{d L}^a^r^r^y^N^o^w^e^ls^.

approved for communities in Mississippi (Table 1). All together, FEMA approved 152 loans
totaling $1,271 million. The full $1 billion of loan authority under the CDLA of 2005 was used.
Of the $372 million in loans authorized by the 2007 emergency supplemental, $271 million was
used, but $101 million was not.
Table 1. Total Number and Dollar Amount of Combined 2005 Special and 2006
Supplemental CDLs Approved by FEMA, by State
^State^{Number of L}^oans^Amou^nt^{($ millions)}
^{Louisiana 96}^1,00⁰
^{Mississippi 56}²⁷¹
^{Total 152}^1,27¹
^Source:^{Data su}^{pplied by FE}^{MA, June}¹^{8, 20}^07.
Approximately two-thirds of the 152 loans approved were for amounts under $5 million, the
previous cap on the size of a community disaster loan. Fifty-three loans were for more than $5
million. Of those, 18 loans were for between $5 million and $10 million, 21 between $10 million
and $20 million, and 14 over $20 million. Louisiana dominated in both the smallest and largest
loan size categories. Louisiana communities received 33 loans for under $1 million, compared
with 10 for Mississippi communities. All of the 14 loans for over $20 million went to Louisiana
entities (Table 2).
Table 2. Size Distribution of Combined Special and Supplemental CDLs Approved by
FEMA, by State
^{(number of loans)}
^{Size of Loan}^{Louisiana Mississippi}^Total
^{( $ in millions)}
^{over 20}¹⁴⁰¹⁴
^10-2^{0 10}¹¹²¹
^{5-10 12}⁶¹⁸
^{1-5 27}²⁹⁵⁶
^{under 1}³³¹⁰⁴³
^{Total 96}⁵⁶¹⁵²
^Source:^{Tabulated b}^y^{CRS from}^{information on individual loans supplied by FE}^{MA, Ju}^{ne 1}^{8, 2}⁰⁰^7.
The Security and Accountability For Every Port Act of 2006, or SAFE Port Act (H.R. 4954, P.L.

109-347), was enacted on October 13, 2006. Section 608 of the act, added in the conference on ³⁰

the bill, addresses community disaster loans. The act increased the size limit on a traditional

³⁰^SAFE^Port^Ac^t^,^con^f^eren^{ce rep}^o^r^t^t^o^acco^m^p^an^y^H.^R.⁴⁹⁵⁴^,¹⁰⁹^th^Cong^.,²^nd^s^e^s^s^{., H}^.^R^e^{pt. 1}^09-⁷¹^1,^prⁱⁿ^te^{d i}ⁿ
^C^ongr^e^s^sⁱ^o^nal^Re^c^o^r^d^,^da^ily^e^d^iti^{on, v}^o^l^.¹⁵^{2, N}^o^{. 1}^25—^B^ook^I^I^,^S^e^pte^m^be^r^{29, 2}⁰⁰⁶^,^p.H⁸⁵⁴^0.

CDL from 25% to 50% of the annual operating budget of the local government for the fiscal year
in which the major disaster occurs, under the following condition: the local government’s loss of
tax and other revenues as a result of the major disaster must equal at least 75% of the annual
operating budget of that local government for the fiscal year in which the major disaster occurs.
The $5 million cap on the size of an individual loan and the option for FEMA to cancel the loan
still apply. The conference report stated that this provision would primarily help small local
governments with annual budgets of under $10 million.

Soon after the bill creating the special CDLs was enacted on October 7, 2005, companion bills
were introduced to remove the clause in the Community Disaster Loan Act of 2005 (P.L. 109-88)
that prohibits the cancellation of those loans. Those bills—S. 1872 (Landrieu), introduced
October 17, 2005, and H.R. 4117 (Melancon), introduced October 20, 2005—were never voted ^th
upon in the 109 Congress.
The effort to permit cancellation of the CDLs authorized by the 109^th Congress resumed early in ^th
the 110 Congress. Some bills addressed permitting cancellation of only the special CDLs
authorized in October 2005. These included S. 87 (Vitter) introduced on January 4, H.R. 680
(Jefferson) introduced on January 24, and H.R. 1144 (Clyburn) introduced on February 16, 2007.
S. 253 (Landrieu), introduced on January 10, 2007, was the first bill to permit cancellation of both
the special CDLs provided under P.L. 109-88 and the emergency supplemental CDLs provided
under P.L. 109-234.
Provisions permitting cancellation for both groups of loans were included in H.R. 1591, the
massive emergency supplemental appropriations bill for FY2007, which was approved by both
the House and the Senate, but vetoed by President Bush on May 1, 2007. The provisions were
present in both H.R. 1591 as initially reported by the House Appropriations Committee and in the
final conference report. The dual provisions were also included in S. 965, the Senate
Appropriations Committee version of the emergency supplemental for FY2007, which was
reported on March 22, 2007, but not voted upon. Subsequent to the veto of H.R. 1591, the chapter ³¹
pertaining to Disaster Relief was included in H.R. 2187 (Alexander). Identical language
permitting cancellation of the CDLs was again included in H.R. 2206 (Obey), the second version
of the emergency supplemental appropriations bill for FY2007, which was enacted as P.L. 110-28
on May 25, 2007.
The relevant language of the new law amends both Section 2(a) of the Community Disaster Loan
Act of 2005 (P.L. 109-88) and Chapter 4 of Title II of the Emergency Supplemental
Appropriations Act 2006 (P.L. 109-234) under FEMA’s Disaster Assistance Direct Loan Program
Account by striking “Provided further, That notwithstanding section 417(c)(1) of [the Stafford ³²
Act], such loans may not be canceled:” from both acts. This change was made effective
retroactively, as of the date of enactment of the respective law that authorized the particular group
of loans.

³¹^Iⁿ^bot^{h H}^.^R^.¹⁵⁹¹^aⁿ^d^H^.^R^.²¹⁸⁷^{, C}^h^a^p^te^r^{5 a}^d^dr^e^s^s^e^s^D^e^pa^r^t^m^e^{nt of}^H^o^m^e^la^{nd Se}^c^u^r^ity^{, Fe}^de^r^a^{l Em}^e^r^g^e^ncy
^Ma^na^g^e^m^e^{nt A}^g^eⁿ^cy^{, D}ⁱ^sa^s^t^e^r^R^e^lie^f^.
³²^“S^t^a^ff^o^r^d^A^c^t^”^w^a^{s u}^s^edⁱⁿ^t^h^{e case o}^f^t^h^{e sp}^eci^al^CDL^s^,^P^.^L^.¹⁰⁹^-⁸⁸^.^In^t^h^{e case o}^f^t^h^{e em}^er^gen^c^y^s^u^p^p^l^e^m^eⁿ^t^al
^C^D^L^s^{, P}^.^L^.¹^09-²³^{4, t}^h^e^r^e^f^e^r^e^nce^w^a^s^{to “}^s^uc^{h A}^c^t.”

Introduced January 24, 2007; referred to the Committee on Transportation and Infrastructure.
H.R. 680 would have permitted the cancellation of the special community disaster loans made
under the auspices of the Community Disaster Loan Act of 2005 (P.L. 109-88). Nearly identical to
S. 87 (Vitter). Essentially the same language was subsequently included as Section 3 of H.R. 1144
(Clyburn) and as Section 2502(a) of H.R. 1591 as agreed to by both the House and the Senate in
April 2007.
Hurricanes Katrina and Rita Federal Match Relief Act of 2007. Introduced February 16, 2007;
referred to the Committee on Transportation and Infrastructure. Section 3 of this short bill would
have removed the prohibition on the cancellation of the special CDLs made under the Community
Disaster Loan Act of 2005 (P.L. 109-88). Section 3, the last section of H.R. 1144, was identical to
H.R. 680 and very similar to S. 87. It was also included as Section 2502(a) of H.R. 1591. Section
2 of H.R. 1144 was amplified in Section 2501(a) of H.R. 1591 and subsequently included as
Section 4501 of H.R. 2206, enacted as P.L. 110-28. It makes the federal share of assistance 100%
for states affected by specific recent hurricanes. CBO issued a cost estimate of the bill. Their
estimated cost of permitting cancellation of the special and emergency supplemental CDLs was ³³
$321 million.
U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations
Act, 2007. An original measure from the House Appropriations Committee. Reported by
Representative Obey on March 20, 2007, H.Rept. 110-60. Approved by the House on March 23.
Approved by the Senate with an amendment on March 29. Conference Report 110-107 was filed
on April 26. The conference report was agreed to in the House on April 25 and in the Senate on
April 26. H.R. 1591 was vetoed by President Bush on May 1. The House failed to override the
veto on May 2. This was the House version of the first attempt at an emergency supplemental
appropriations bill for FY2007. It was the House counterpart to S. 965.
The relevant provisions of this massive bill are found in Title II (Katrina Recovery, Veterans’
Care and Other Purposes), Chapter 5 (Department of Homeland Security, Federal Emergency
Management Agency, Disaster Relief), General Provisions. Section 2502(a) would remove the
prohibition on cancellation for the special community disaster loans provided by P.L. 109-88.
This provision had previously appeared in H.R. 680, S. 87, and H.R. 1144. Section 2502(b) would
remove the prohibition on cancellation for the CDLs provided by the FY2006 Emergency
Supplemental Appropriations Act, P.L. 109-234. This provision was first included in S. 253 and
was later included in S. 965. H.R. 1591 was the first bill to included a separate effective date for
the provision addressing the emergency supplemental CDLs, in Section 2502(b)(2). The same
provisions were subsequently included in H.R. 2187 and H.R. 2206, enacted as P.L. 110-28.

³³^U^.^{S. C}^ong^r^e^s^sⁱ^ona^{l B}^udg^e^t^O^f^fⁱ^ce^,^{H.R. 1}¹⁴⁴^{, H}^u^rric^ane^{s K}^a^trin^a^,^Rita^{, a}ⁿ^d^W^{ilma Fe}^de^{ral M}^a^tc^h^Re^lie^{f Ac}^{t of}
²⁰⁰⁷^{, CBO}^Cos^t^Es^tⁱ^m^a^te^{, Ma}^rc^h^13,²⁰⁰⁷^.

To make emergency supplemental appropriations for Katrina recovery for the fiscal year ending
September 30, 2007, and for other purposes. Introduced May 7, 2007; referred to the
Appropriations Committee and the Budget Committee. The language of Chapter 5, which
addresses disaster relief, is identical to Chapter 5 of Title II of H.R. 1591, the bill vetoed by
President Bush on May 1. Section 2502 of H.R. 2187 would have removed the prohibition on
cancellation of both the special (Section 2502(a)) and emergency supplemental (Section 2502(b))
community disaster loans.
U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations
Act, 2007. Introduced May 8, 2007; referred to the Appropriations Committee and the Budget
Committee. Enacted as P.L. 110-28 on May 25, 2007. 121 Stat. 112. This is the second version of
the emergency supplemental appropriations bill for FY2007. It was introduced by Representative
Obey, Chairman of the House Appropriations Committee, following President Bush’s veto of
H.R. 1591. Chapter 5 (Department of Homeland Security, Federal Emergency Management
Agency, Disaster Relief) of Title IV (Additional Hurricane Relief and Recovery) of H.R. 2206 as
enacted is identical to Chapter 5 of Title II of H.R. 1591 and chapter 5 of H.R. 2187, with the
exception that the section numbers are 4501-4503, instead of 2501-2503. Section 4502(a)
removes the prohibition on the cancellation of the special CDLs, and Section 4502(b) does the
same for the emergency supplemental CDLs .
Introduced January 4, 2007; referred to the Committee on Homeland Security and Governmental
Affairs. S. 87 is a short, single-purpose bill would have permitted the cancellation of the special
community disaster loans authorized by the Community Disaster Loan Act of 2005 (P.L. 109-88).
Nearly identical to H.R. 680 (Jefferson). Similar language was subsequently included as Section
2502(a) of H.R. 1591 as agreed to by both the House and the Senate in late April 2007 and
Section 4502(a) of H.R. 2206, enacted as P.L. 110-28.
Disaster Loan Fairness Act of 2007. Introduced January 10, 2007; referred to the Committee on
Homeland Security and Governmental Affairs. This short bill was the first to remove the
prohibition on cancellation from the community disaster loans made under the FY2006
Emergency Supplemental Appropriations Act (P.L. 109-234), in addition to the special CDLs
made under the CDLA of 2005 (P.L. 109-88). This language was included in both S. 965 and
H.R. 1591, the first versions of the emergency supplemental appropriations bills for FY2007, and
later in H.R. 2206, enacted as P.L. 110-28. S. 253 did not include a separate effective date for the
provision addressing the emergency supplemental loans.

U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations
Act, 2007. An original measure from the Senate Appropriations Committee. Reported by Senator
Byrd, March 22, 2007, S.Rept. 110-37. This was the Senate version of the first attempt at an
emergency supplemental appropriations bill for FY2007. It was the Senate counterpart to H.R.
1591. The relevant sections of this massive bill are contained in Chapter 5, Department of
Homeland Security, Federal Emergency Management Agency, Disaster Relief, General
Provisions—This Chapter, Sections 2502 (a) and (b). Section 2502(a) would have removed the
prohibition on cancellation for special community disaster loans authorized by P.L. 109-88.
Section 2502(a) would have removed the prohibition on cancellation for the FY2006 emergency
supplemental CDLs authorized under P.L. 109-234. S. 965 did not include effective dates
particular to these two sections. S. 965 was never voted upon. Instead, H.R. 1591 became the first
legislative vehicle for emergency supplemental appropriations for FY2007.

Financing for the activities authorized by the Stafford Act is provided through funds appropriated
to the Disaster Relief Fund (DRF), which is administered by the Department of Homeland
Security (DHS) through the Federal Emergency Management Agency (FEMA). Typically there is
supplemental appropriations legislation to meet the needs of catastrophic disasters, as occurred ³⁴
with Hurricane Katrina. Funds appropriated to the DRF usually remain available until expended
(termed a “no-year” account). But in the case of the two special CDL programs, FEMA
understood that the appropriated funds would be available to make loans only through the end of
FY2006.
The CDL program is a direct loan program of the federal government (in contrast to a loan
guarantee program). The CDL program is classified as a discretionary program (in contrast to a ³⁵
mandatory program) under the Budget Enforcement Act of 1990.
The CDL program is subject to the Federal Credit Reform Act of 1990 (FCRA).³⁶ The FCRA
changed the accounting method for measuring the cost of federal direct loans and loan guarantees
from cash flow to accrual accounting, starting in FY1992. Under the FCRA, discretionary
programs providing new direct loan obligations or new loan guarantee commitments require
appropriations of budget authority equal to their estimated subsidy costs. Furthermore, the
appropriations bill must include an estimate of the dollar amount of the new direct loan

³⁴^For^m^o^r^e^inf^o^r^m^a^{tion o}ⁿ^the^FY²⁰⁰^{5 e}^m^e^r^g^e^ncy^le^gⁱ^s^l^a^{tion, s}^e^e^C^R^S^R^e^por^t^R^S²²²³⁹^,^Em^e^r^ge^nc^y^Sup^ple^m^eⁿ^t^a^l
^Appr^o^p^rⁱ^a^tio^ns^for^H^u^r^rⁱ^c^ane^K^a^t^r^{ina Re}^lie^f^{, by}^K^e^{ith B}^e^a^.^For^aⁿ^his^t^or^ic^a^l^ov^e^r^vⁱ^ew^{, s}^e^e^C^R^S^R^e^por^{t R}^L³³²²^6,
^Em^e^r^ge^nc^y^Sup^ple^m^eⁿ^ta^{l A}^ppr^o^p^r^iatio^ns^Le^gis^l^ati^oⁿ^for^Dⁱ^s^a^s^t^e^r^As^sⁱ^s^t^anc^e^:^S^u^m^m^a^r^y^D^a^t^a^{, F}^Y¹⁹^{89 t}^o^F^Y²⁰⁰⁷^,^{, by}
^Ju^stⁱⁿ^Mu^rray^an^d^Kei^t^h^Bea,^ou^t^o^f^p^rⁱⁿ^t^aⁿ^d^avai^l^a^b^l^{e f}^r^o^m^t^h^{e au}^t^h^o^r^.^F^o^rⁱⁿ^f^o^rm^atⁱ^oⁿ^on^t^h^{e m}^o^st^recen^t^e^m^erg^eⁿ^c^y
^s^upple^m^eⁿ^ta^{l, s}^e^e^C^R^S^R^e^por^t^R^L³³⁹⁰^0,^F^Y²⁰⁰⁷^S^u^p^p^le^m^e^nta^l^A^ppr^o^p^rⁱ^at^io^ns^for^D^e^fe^ns^e^,^F^o^r^e^ig^{n Aff}^a^ir^s^,^an^d
^Oth^e^{r Pu}^rpo^s^es^{, by}^Ste^phe^{n D}^a^g^g^e^{tt e}^t^a^l^.
³⁵^T^itle^X^III^of^T^h^e^O^m^nibus^Bu^dg^e^t^Re^c^onc^ilia^tio^{n A}^c^{t of}¹⁹⁹^0,^P.^L^.^101-⁵⁰^8.
³⁶^T^h^e^O^m^nibus^B^udg^e^t^Re^c^onc^ilia^tion^A^c^{t of}¹⁹⁹⁰^,^P^.^L^.¹^01-⁵⁰^{8, a}^dde^{d T}^itle^V^t^o^t^h^e^Co^ng^re^s^sⁱ^ona^l^Budg^e^t^A^c^t.
^T^itle^V^is^a^l^s^o^kⁿ^o^wⁿ^a^s^the^Fe^de^ra^{l Cre}^d^{it Re}^f^o^rm^A^c^{t of}^1990.

obligations that are supportable by the subsidy budget authority appropriated to the agency for its ³⁷
credit program. These requirements of the FCRA explain the language used in the laws that
provided for the special and emergency supplemental CDLs, detailed in the last two paragraphs
of this section.
Historically, traditional CDLs have been made on an “as-needed” basis, without a pre-specified
aggregate limit. Furthermore, from 1974 until 2000 there was no dollar limit on the size of a loan
that could be made to an individual local government through the traditional CDL program. The
2000 amendment limited the loan to any individual local government to $5 million and provided
that no additional loan would be made to a community that is in arrears on payments under a ³⁸
previous loan. Congress made these changes to help control CDL program costs.
Both the CDLA of 2005 and the Emergency Supplemental of 2006 took two other approaches to
controlling the cost of the particular CDL programs that they created. While they lifted the $5 ³⁹
million cap on an individual loan, both laws prohibited the cancellation of any loan made under
their auspices. Both laws also specified an upper limit on the aggregate principal amount of loans
that could be made, based upon the dollars of subsidy appropriated.
The Community Disaster Loan Act of 2005 (P.L. 109-88) provided that up to $750 million of
amounts previously appropriated by P.L. 109-62 for disaster relief could be transferred to the
Disaster Assistance Direct Loan Program for the cost of direct loans as authorized under Section
417 of the Stafford Act. The transfer was permitted to subsidize gross obligations for the principal
amount of direct loans not to exceed $1 billion. An additional $1 million was allocated for
administering the loans.
The Emergency Supplemental Appropriations Act of 2006 (P.L. 109-234) appropriated an
additional $279.8 million for the Disaster Assistance Direct Loan Program Account, of which $1
million was for administrative expenses. The remaining $278.8 million was permitted to
subsidize gross obligations for the principal amount of direct loans not to exceed $371.733
million.
The aggregate loan amounts authorized under the two acts were based on the assumption of a

75% subsidy rate. Seventy-five percent was the number used to determine that $750 million in ⁴⁰

budget authority could support total loans of $1 billion, as provided in the language of the ⁴¹
CDLA. The 75% figure was again used to determine that $278.8 million in appropriations could

³⁷^For^f^u^r^t^he^r^e^x^plaⁿ^a^tio^{n, s}^e^e^C^R^S^R^e^por^{t R}^L³⁰³⁴^6,^Fe^de^r^a^{l C}^r^e^dⁱ^t^Re^for^m^:^I^m^ple^m^eⁿ^t^a^tio^{n O}^f^the^C^han^ge^d
^Bud^g^e^t^ar^y^Tr^e^a^tm^eⁿ^t^of^Dⁱ^r^e^c^t^L^oans^a^nd^Lo^{an G}^uar^aⁿ^te^e^s^,^b^y^{James M}^.^Bi^ckl^e^y^,^esp^eci^al^l^y^A^p^p^eⁿ^dⁱ^{x B,}^B^u^d^g^et^ary
^T^r^eat^men^t^o^f^{a H}^y^p^o^t^h^e^tⁱ^cal^Di^rect^L^o^an^.
³⁸^Disa^ste^r^Mitig^a^{tion A}^c^{t of}²⁰⁰^0,^P.L^.¹⁰^6-3^90,¹¹⁴^Sta^t^.¹⁵⁷¹^.
³⁹^T^h^e^FY²⁰⁰⁷^bu^dg^e^t^a^s^s^u^m^e^{d tha}^t^the^a^v^e^r^a^g^e^loaⁿ^sⁱ^z^e^unde^r^the^s^p^e^cⁱ^a^l^C^D^L^pr^og^r^a^m^{in FY}²⁰⁰⁶^w^{ould be}^$5.⁷¹⁴
^m^{illion. OMB,}^F^Y²⁰⁰⁷^B^u^dg^et^,^F^e^d^e^ra^l^Credⁱ^t^S^u^p^p^l^emen^t^,^p.^2.
⁴⁰^$7^50,⁰⁰^0,⁰⁰^{0 d}ⁱ^vⁱ^de^d^by^{.75 e}^q^u^a^{ls $1,}⁰⁰^0,0⁰⁰^,⁰^00.^Eq^uiv^a^le^ntly^{, $1}^bill^io^{n tim}^e^s^{.75 e}^q^ua^{ls $}⁷⁵⁰^m^illion.
⁴¹^T^h^e^A^d^mⁱ^nis^t^r^a^tion’^s^FY²⁰⁰⁷^bu^dg^e^t^r^e^por^te^{d a}^s^ubsⁱ^d^y^r^a^te^of^75%^a^{nd o}^b^lig^a^tio^ns^of^$1^bil^lio^{n f}^o^r^FY²⁰⁰⁶^{, a}^s
^eⁿ^a^c^t^e^d^by^the^C^D^LA^{in O}^c^tobe^r²⁰⁰^{5. T}^h^e^e^m^e^r^ge^ncy^s^upple^m^eⁿ^ta^{l C}^D^L^s^w^e^r^e^{not e}ⁿ^a^c^t^e^d^unt^{il J}^u^ne²⁰⁰⁶^{, w}^e^ll
^a^f^te^r^the^public^a^tⁱ^on^da^te^f^o^r^the^FY²⁰⁰⁷^bu^dg^e^t^doc^um^eⁿ^ts^{in Fe}^b^r^ua^r^y^{2006. U}^.^S.^Ex^e^c^u^tiv^e^O^f^fⁱ^ce^of^the^P^r^e^s^ideⁿ^t,
^O^f^fⁱ^ce^of^Ma^na^g^e^m^e^{nt a}^{nd B}^udg^e^t^,^Bu^dge^t^{of t}^h^e^Uⁿ^ite^{d St}^ate^s^G^o^v^e^r^nm^eⁿ^{t Fis}^c^{al Ye}^ar²⁰⁰⁷^{, Fe}^de^r^a^{l C}^r^e^d^it
^Sup^ple^m^eⁿ^t⁽^W^a^s^hing^to^n:^Fe^br^ua^r^y²⁰⁰⁶⁾^{, T}^a^ble¹^,^p^.²^a^nd^no^te³^on^p.^3.

support direct loans of up to $371.733 million, as set forth in the 2006 Emergency ⁴²
Supplemental.
The 75% subsidy rate assumed for the special CDLs was lower than the subsidy rate ascribed to
traditional CDLs. FEMA has estimated the credit subsidy rate of the traditional CDL program at
just over 93% for each fiscal year from 2005 through 2008. This subsidy is made up of two
components, an interest rate subsidy and “all other.” The interest rate subsidy accounts for the
borrower’s interest rate being below the federal government’s cost of borrowing funds. The all
other category includes cancellation of principal and interest payments. No part of the subsidy for
traditional CDLs is attributed to the other two explanatory categories of defaults net of recoveries
or fees.
For FY2005, for example, the traditional CDL program had an estimated credit subsidy rate of
93.43%. Of this, 3.72% was attributed to the interest rate and 89.72% to “all other.” From
FY2005 to FY2008, the interest component was projected to rise slightly, to 5.01%, as interest ⁴³
rates rose. Essentially offsetting this, the “all other” component fell slightly, to 88.29%. Net, in
each of the four years, the total estimated subsidy rate remained in the very narrow band from

93.30% to 93.43%.

Roughly speaking, this means that for every $100 million of traditional community disaster loans
made, the federal government is assumed to provide a subsidy of $93 million. Of that, $5 million
subsidizes an interest rate for borrowers that is lower than the federal borrowing rate and $88 ⁴⁴
million covers principal and interest payments that are cancelled (forgiven) by FEMA. This was
by far the highest estimated subsidy rate among all of the federal government’s direct loan and ⁴⁵
loan guarantee programs listed in the FY2006 Budget. Even at 75% the special and emergency
supplemental CDL programs had the second highest subsidy rate estimated for FY2006 among all ⁴⁶
of the federal direct loan and loan guarantee programs listed in the FY2007 Budget.
All of the 75% subsidy rate for special CDLs for FY2006 was attributed to defaults net of ⁴⁷
recoveries and none to interest. This was despite an explicit interest subsidy for the program. All

⁴²^$2^78,⁷⁹^9,⁷⁵^{0 /}^.7^{5 =}^$³⁷¹^,⁷³³^,0^00.^Eq^uiv^a^le^ntly^{, $37}^1,7³³^,⁰^{00 x}^{.75 =}^$2⁷⁸^,7^99,⁷⁵^0.
⁴³^T^h^{e avera}^g^{e b}^o^rro^w^e^{r i}ⁿ^t^e^rest^rat^e^assu^m^e^d^f^o^{r t}^h^{e p}^u^r^p^o^s^e^o^f^cal^c^u^l^a^tⁱⁿ^{g t}^h^{e su}^b^sⁱ^d^y^rat^e^f^o^{r t}^h^{e C}^D^L^p^r^o^g^ra^m
^duriⁿ^g^FY2⁰⁰⁵^w^a^{s 4.30%}^{. T}^h^is^w^a^{s low}^e^{r tha}ⁿ^the^b^o^rrow^e^{r in}^te^r^e^{st ra}^te^{s tha}^t^a^pplie^{d t}^o^m^o^{st of}^th^e^othe^{r f}^e^de^ra^l
^dir^e^c^t^loaⁿ^aⁿ^d^loaⁿ^g^u^a^r^aⁿ^te^e^pr^o^g^r^am^s^.^Iⁿ^e^a^r^l^y²⁰⁰⁵^{, the}^s^ubsⁱ^d^y^r^a^te^of^the^tr^a^d^iti^ona^{l C}^D^L^pr^og^r^a^m^f^o^r^FY²⁰⁰⁶
^w^a^{s e}^s^ti^m^a^te^{d just slig}^htly^low^e^r^a^t^93.^30%^{, a}^ssumⁱ^ng^a^borr^o^w^e^{r inte}^re^{st ra}^te^of^4.6⁶^%^,^aⁿ^d^a^ttrib^ut^ing^3.^75%^of^the
^subsidy^{to t}^h^e^inte^re^{st ra}^te^{, a}ⁿ^d⁸⁹^.5^5%^{to “}^a^ll^ot^he^r.”^U.^S^.^E^x^ecu^tⁱ^v^{e O}^f^fⁱ^{ce o}^f^t^h^{e P}^r^esi^d^en^t^,^Of^fⁱ^c^e^o^f^M^aⁿ^a^ge^m^eⁿ^t
^a^{nd B}^u^dg^e^t^,^Bu^dge^t^of^the^Uⁿ^ite^d^State^s^G^o^v^e^r^nm^eⁿ^t^,^Fis^c^al^Ye^ar²⁰⁰⁶^{, Fe}^de^r^a^{l C}^r^e^d^it^Su^pp^le^m^e^nt⁽^W^a^s^hing^ton:
^G^P^O^,²⁰⁰⁵⁾^{, p}^p^.^2,¹⁰^{, 1}⁶^.
⁴⁴^M^o^re^p^r^eci^sel^y^,^t^h^{e cred}ⁱ^t^sub^sⁱ^d^y^r^a^t^eⁱ^s^eq^u^a^l^t^o¹^.⁰⁰^mⁱⁿ^u^s^t^h^{e r}^a^tⁱ^o^o^f^t^h^e^p^r^esen^t^val^u^{e o}^f^exp^ect^ed^cashⁱⁿ^f^l^o^w^s
^{to t}^h^e^g^o^v^e^rⁿ^m^e^{nt, r}^e^la^tiv^e^{to the}^pr^e^s^eⁿ^{t v}^a^lue^of^c^a^s^{h outf}^l^ow^s^.^Iⁿ^e^s^s^e^nc^e^,^{it r}^e^f^l^e^c^t^s^the^e^x^te^{nt of}^nonpa^y^m^eⁿ^{t by}^the
^bor^r^o^w^e^r^s^{. T}^h^e^e^s^ti^m^a^te^is^ba^s^e^{d on}^bot^{h a}^c^t^ua^{l a}^nd^pr^oje^c^t^e^d^r^e^pa^y^m^eⁿ^ts^by^bor^r^o^w^e^r^s^{. U}^.^{S. G}^e^ne^r^a^{l A}^c^c^ountiⁿ^g
^O^f^fⁱ^ce^(now^na^m^e^{d the}^G^o^v^e^rn^m^e^{nt A}^c^c^ounta^b^ility^O^f^fⁱ^c^e⁾^,^L^e^tte^r^{to T}^h^e^H^o^nora^b^le^Chris^t^op^he^{r S.}^Bond^{, Cha}ⁱ^rm^aⁿ^,
^Su^b^c^o^m^m^{ittee o}ⁿ^V^A^{, HUD an}^d^In^d^e^p^eⁿ^d^en^t^A^g^en^cie^s^{, Co}^mm^itte^{e o}ⁿ^A^p^p^r^o^p^r^iati^oⁿ^s^,^U.S.^Sen^a^te,^Juⁿ^e⁵^,¹⁹⁹⁶^,
^GAO/RCED-9⁶^-¹⁴⁸^R^C^o^mm^uⁿ^ity^Dis^a^ster^L^o^an^s,^p^.⁵^.
⁴⁵^OM^B,^FY²⁰⁰⁶^Bu^dge^t,^Fe^de^r^a^l^C^r^e^d^{it S}^u^p^p^le^m^e^nt^{, T}^a^ble^{1 (Dire}^c^{t L}^o^aⁿ^{s: Su}^bsidy^Ra^te^{s, Oblig}^a^{tions, a}^{nd A}^v^e^r^a^g^e
^L^o^an^Sⁱ^ze),^pp^.¹^-³^and^T^a^b^l^{e 2}⁽^L^o^aⁿ^G^u^aran^t^ees:^S^u^b^sⁱ^d^y^Rat^e^s,^Co^mmⁱ^t^men^t^s,^an^d^A^v^erag^{e L}^o^an^Sⁱ^ze),^pp^.⁵^-⁸^.
⁴⁶^On^l^y^t^h^{e T}^r^an^si^tⁱ^oⁿ^a^l^Hou^sⁱⁿ^g^P^r^o^g^ra^m^f^o^{r Ho}^m^e^l^e^{ss V}^e^t^e^ran^s^,^al^s^o^{a d}ⁱ^rect^l^o^an^p^r^o^g^ram^,^h^a^d^{a h}ⁱ^g^h^{er est}ⁱ^m^at^ed
^s^ubs^idy^r^a^te^f^o^r^FY²⁰⁰^6,⁷⁹^.8^9%^{. O}^M^B^,^FY²⁰⁰⁷^Fe^de^r^a^{l C}^r^e^d^{it S}^upp^le^m^e^nt^{, T}^a^ble^1,^p.^{2 f}^o^r^s^p^e^cⁱ^a^l^C^D^L^s⁽^s^ee^note
³⁾^,^p.^{3 f}^o^r^v^e^te^r^a^ns^’^pr^og^r^a^m^s^.
⁴⁷^OM^B,^FY²⁰⁰⁷^Bu^dge^t,^Fe^de^r^a^l^C^r^e^d^{it S}^u^p^p^le^m^e^nt^{, T}^a^ble^{3 (}^D^ir^e^c^{t L}^o^aⁿ^s^:^A^s^s^u^m^p^tions^Uⁿ^de^r^l^yⁱ^ng^the^FY²⁰⁰⁶
^S^u^b^s^id^y^E^s^tⁱ^m^a^t^e^s)^,^p^.¹⁰^an^{d no}^{te 5}^on^p.¹¹^.

of the Gulf-area jurisdictions received the discounted interest rate permitted under the interim
rules implementing the Special Community Disaster Loans Program (explained below in the
section on “History of the CDL Program,” Lowering the Interest Rate). The FY2007 Budget ⁴⁸
assumed a borrower interest rate of 2.70% for the special CDL program in FY2006. This was ⁴⁹
half or less of the borrower rate reported for other federal direct loan programs. Consequently, it
seems that the interest component of the subsidy should be even higher under the special and
emergency supplemental CDL programs than it is under the traditional CDL program.
The laws that authorized the special and emergency supplemental CDLs prohibited their
cancellation by FEMA. (This was in direct contrast to the rules governing traditional CDLs.) At
the same time, a 75% default rate was assumed for both groups of special CDLs. The subsidy
appropriated was intended to cover potential defaults on both the principal amounts loaned and
the interest due.
In response to the modification of the rules governing the special CDLs to permit their
cancellation, the estimated subsidy rate may be raised from 75% to 92% (comparable to
traditional CDLs) or even to 100%. Permitting the cancellation of the loans does not necessarily
mean that all of the loans will be cancelled. There remains the possibility that some loans may be
repaid.
The initial assumption of a 75% default rate for the special CDLs made the additional cost of
subsequently permitting the cancellation of these loans relatively low.
Seventy-five percent of the loan amounts disbursed under the two special CDL programs was
already covered by the appropriations made for FY2006 in the same two laws that authorized the
loans. The remaining 25% was borrowed from the U.S. Treasury by the Disaster Assistance ⁵⁰
Direct Loan Financing Account.
The subsequent action by Congress in 2007 to modify the original rules governing the loans to
permit their cancellation also required that Congress appropriate the funds needed to cover the
remaining 25% of the loan principal amount and the interest payments likely to be forgiven. P.L.

110-28, the emergency supplemental for FY2007, appropriated $710 million for “Disaster ⁵¹

Relief,” encompassing several programs. Presently, OMB is attempting to determine the
specific amount needed to cover the cancellation provision. In its official cost estimate for H.R.
1144, an earlier bill, the Congressional Budget Office estimated the cost of permitting the
cancellation of the $1.27 billion in 2005 special and 2006 emergency supplemental community ⁵²
disaster loans to be an additional $321 million, measured in FY2007 dollars.

⁴⁸^OM^B,^FY²⁰⁰⁷^Bu^dge^t,^Fe^de^r^a^l^C^r^e^d^{it S}^u^p^p^le^m^e^nt^{, T}^a^ble^3,^p.¹⁰^.
⁴⁹^OM^B,^FY²⁰⁰⁷^Bu^dge^t,^Fe^de^r^a^l^C^r^e^d^{it S}^u^p^p^le^m^e^nt^{, T}^a^ble^3,^p.^9-^11.
⁵⁰^T^h^r^oug^{h t}^h^e^Dⁱ^s^a^s^t^e^r^A^s^sⁱ^s^t^aⁿ^ce^Dⁱ^r^e^c^t^L^o^aⁿ^Fina^nc^ing^A^c^c^ount,ⁱⁿ^te^r^e^s^t^is^pa^id^to^the^T^r^e^a^s^ur^y^{on the}^a^m^ounts
^bor^r^o^w^e^d.
⁵¹^P^.^L^.¹¹^0-2⁸^{, T}^itle^I^V^—A^dditi^on^a^l^Hurric^aⁿ^e^Disa^ste^r^Re^lie^f^a^{nd Re}^c^o^v^e^r^y^{), Cha}^p^te^{r 5: De}^pa^rtm^e^{nt of}^Hom^e^la^nd
^S^ecu^ri^t^y^,^F^e^d^e^ral^E^m^ergen^c^y^M^aⁿ^a^ge^m^eⁿ^t^Agen^c^y^,^Di^s^a^st^{er Rel}ⁱ^e^f^.
⁵²^U^.^{S. C}^ong^r^e^s^sⁱ^ona^{l B}^udg^e^t^O^f^fⁱ^ce^,^{H.R. 1}¹⁴⁴^{, H}^u^rric^ane^{s K}^a^trin^a^,^Rita^{, a}ⁿ^d^W^{ilma Fe}^de^{ral M}^a^tc^h^Re^lie^{f Ac}^{t of}
²⁰⁰⁷^{, CBO}^Cos^t^Es^tⁱ^m^a^te^{, Ma}^rc^h^13,²⁰⁰⁷^.

In the 109^th Congress there was considerable controversy over whether the CDL monies to be
advanced to the local governments affected by Hurricanes Katrina and Rita should be treated as
loans that must be repaid or as loans that could be cancelled (forgiven). The effect of cancelling
the loan repayment obligation is to convert the loan into a grant for the community.
Indeed, the community disaster program for local governments began in 1970 as a program of
community disaster grants. In 1974, Congress replaced the grant program with a program of ⁵³
community disaster loans. However, the loan program was accompanied by a provision
requiring mandatory cancellation of the obligation to repay all or part of the loan under specified
local budget conditions. In contrast, the funds advanced under the 2005 CDLA or the 2006
Emergency Supplemental were to be treated strictly as repayable loans.
A 1995 report by FEMA’s Office of Inspector General recommended considering the conversion
of the community disaster loan program into a grant program because so few of the loans were
expected to be repaid and because it requires much less time, effort, and expense to administer a ⁵⁴
grant program than a loan program. In 1996, FEMA’s Director of the Office of Policy and
Regional Operations noted that the subsidy rate for the CDL program was close to 90% for
FY1996 and close to 100% for FY1997. He said that FEMA’s goal was to terminate the loan ⁵⁵
program or, if not terminate, to administer it as a grant program.
In 1997 congressional testimony, then FEMA director James Lee Witt asked rhetorically,
^th^en^{let it b}^e^{a g}^r^aⁿ^{t p}^r^o^g^r^a^m^if^th^e^y^can^’^t^p^a^y^th^e^m^oⁿ^e^y^b^ack^.^W^h^y^sp^eⁿ^d^{all t}^h^e^m^oⁿ^e^y^w^e
^{are h}^a^vⁱ^ng^to^s^p^en^{d ad}^mⁱⁿⁱ^s^t^ra^tiv^el^y^to^s^u^{pport th}^e^s^{e loans}^a^{nd to h}^a^v^e^accoun^tiⁿ^g^fⁱ^r^m^{s g}^o
ⁱⁿ^aⁿ^d^d^o^au^d^{its o}^f^th^{e c}^{ities o}^r^g^o^v^e^rⁿ^m^eⁿ^t^s^th^at^ar^{e g}^e^ttⁱⁿ^g^th^{e lo}^an^{s i}^f^t^h^e^y^ar^{e n}^o^{t b}^eⁱⁿ^g⁵⁶
^repai^d^?
With a grant program, immediate revenue relief could be provided to local jurisdictions in a
disaster area without saddling them with additional debt. On the other hand, with no possibility of
interest or principal repayments, a grant program would cost the federal government more per
dollar of aid delivered than a loan program. In addition, a grant program would likely be used by
more jurisdictions than a loan program and could thus be considerably more expensive for federal
taxpayers. A larger program would redistribute more resources from non-affected areas to areas
affected by disaster.

⁵³^T^h^e^e^v^olutio^{n of}^the^C^D^L^pr^og^r^a^m^is^ex^plaⁱ^ne^{d in}^m^o^r^e^de^ta^{il a}^t^th^e^e^{nd of}^this^r^e^por^t^,ⁱⁿ^t^h^e^“^L^e^g^is^l^a^tiv^e^Hⁱ^s^t^or^y^”
^s^e^c^tion.
⁵⁴^Fe^de^r^a^{l Em}^e^r^ge^ncy^Ma^na^g^e^m^e^{nt A}^g^eⁿ^cy⁽^F^EMA⁾^{, Of}^fⁱ^c^e^of^Iⁿ^s^p^ec^tor^G^e^ne^r^a^l,^Audit^of^FEM^{A’s Di}^saste^r^Re^lie^f
^Fun^d^{, H}^-^16-^{95 (J}^uly^27,¹⁹^95).^Cite^{d in}^U^.^S.^G^e^ne^ra^l^A^c^c^oun^ting^O^f^fⁱ^ce^(now^na^m^e^{d the}^G^o^v^e^rn^m^e^{nt A}^c^c^ounta^b^ility
^Offⁱ^c^e^{), L}^e^tte^{r to T}^h^e^Honora^b^le^Christo^phe^{r S}^.^Bo^nd^{, Cha}ⁱ^rm^aⁿ^,^Subc^om^m^itte^e^{on V}^A^{, HUD}^a^{nd Inde}^peⁿ^d^eⁿ^t
^A^g^eⁿ^cⁱ^e^s^{, C}^o^m^m^itte^e^{on A}^ppr^opr^ia^tions^{, U}^.^S.^Se^na^te^{, J}^u^ne^5,¹⁹⁹⁶^,^G^A^O^/^R^C^E^D^-^96-¹⁴^8R^C^o^m^m^unity^Dⁱ^s^a^s^t^e^r^L^o^aⁿ^s^,
^{p. 5}^.
⁵⁵^O^p^{. c}^it.
⁵⁶^{U.S. C}^oⁿ^g^{ress, Ho}^u^s^{e Co}^m^m^itte^{e o}ⁿ^A^p^p^r^o^p^r^iati^oⁿ^s^,^Su^b^c^o^m^m^{ittee o}ⁿ^V^A^{, HUD, an}^d^Iⁿ^d^e^p^eⁿ^d^en^t^A^g^en^cies,
^he^a^r^ing^s^,^pa^r^t^{4, 10}⁵^th^Cong^.,¹^st^s^e^s^s^{., 19}^{97 (}^W^a^s^hing^to^{n: G}^P^O^,¹⁹⁹⁷⁾^,^p^p^.^64-^65.

Further, even though administrative accounting costs may be lower with grants than loans, grants
may require more federal control and oversight of the use of funds. Monitoring compliance could
increase the cost of administering a grant program.
The traditional CDL program has been used infrequently relative to the number of declared
disasters. From the first loans made in August 1976 through September 30, 2005, a period of 29
years, FEMA received 64 loan applications related to 21 separate disasters. Of those 64
applications, four were withdrawn by the community and five were suspended because another
federal aid program was then available to school districts through the Department of Education.
FEMA approved the remaining 55 loan requests and disbursed funds. In contrast, over the same
period there were 1,104 declared major disasters, many of which affected more than one local
jurisdiction. No community disaster loans were made from FY1999 through FY2005, even
though this period included the multiple Florida hurricanes of 2004.
The FEMA data summarized in Table 3 (in millions of dollars) and Table 4 (as a percentage of
total for loans disbursed) suggest that the traditional CDL program is more accurately described
as a grant program with a small loan component. This is because the CDL program has
experienced a high rate of loan cancellation, measured in dollar terms. Of the $233.5 million in
total loan principal disbursed, $168.7 million, or 72.2%, went to 16 loans that were fully
cancelled. Another $57.0 million, or 24.4%, was the amount of principal cancelled for the six
loans that were partially cancelled. Adding these two categories together indicates that $225.7
million, or 96.6%, of the total loan principal disbursed was cancelled.
The repayment experience looks better when measured simply by the number of loans. Thirty-six,
or two-thirds, of the 55 individual loans were paid back in part or in full. However, many of these
loans were for amounts as small as $500 or $1,000. Altogether, these loans repaid only $5.5
million, or 2.3%, of the total principal amount loaned by the CDL program.
When the loan principal was cancelled, generally so was the interest due. In addition to the
$225.7 million in loan principal that was cancelled, so was $95.3 million in interest owed. In
contrast, loans that were paid back in part or in full paid only $10.1 million in interest.
Table 3. Community Disaster Loan Program from the First Loans in August 1976
through September 30, 2005
^Amou^{nts in $ millions}
^Number^{of Loa}^ns^Principal
^Principal^Interest^and
^Interest
^{Loans ap}^{plied for}⁶⁴^—^—^—
^{Applications withdrawn or s}^usp^e^nded^-9^—^—^—
^{Loans ap}^proved⁵⁵^$27^9.7^—^—
^{Loans disbur}^sed⁵⁵^233.⁵^$10^6.8^$34^0.3
^{Loans cancelled in f}^ull¹⁶^168.⁷^74.4^243.¹
^{Loans cancelled in pa}^rt⁶^a^57.0^20.9^77.9

^Amou^{nts in $ millions}
^Number^{of Loa}^ns^Principal
^Principal^Interest^and
^Interest
^{Loans paid back i}ⁿ^part⁶^a^2.2^8.3^10.5
^{Loans paid back i}ⁿ^full³⁰^3.3^1.8^5.1
^{Loans outstanding}⁴^a^2.3^1.4^3.7
^Source:^{Tabulated b}^y^{CRS from}^{data on individual l}^{oans, as of Sept. 30, 20}^05,^{provided by Ge}^rry^M^iederhoff,
^{FEMA p}^{rogram s}^pecialist.
^a.^{Five loans were counted as}^both^{cancelled in part a}^{nd paid back in}^{part. On}^{e outstanding loan was}^partially
^{cancelled. Another outstanding lo}^{an was pa}^{rtially repaid. The dolla}^{r amounts}^{are assigned to t}^heir
^{respective categories.}
Table 4. Community Disaster Loan Program from the First Loans in August 1976
through September 30, 2005
^{(as a per}^{centage of total}^{for l}^o^{ans disbursed)}
^Number^{of Loa}^ns^{Principal Interest}^Principal^{and Interest}
^{Loans disbur}^sed^100.^0%^100.^0%^100.^0%^100.^0%
^{Loans cancelled in f}^ull^29.1^72.2^69.9^71.4
^{Loans cancelled in pa}^rt^10.9^24.4^19.6^22.9
^{Loans paid back i}ⁿ^part^10.9^0.9^7.8^3.0
^{Loans paid back i}ⁿ^full^54.5^1.4^1.7^1.5
^{Loans outstanding}^7.3^1.0^1.3^1.1
^Source:^{Tabulated b}^y^{CRS from}^{data on individual l}^{oans, as of Sept. 30, 20}^05,^{provided by Ge}^rry^M^iederhoff,
^{FEMA p}^{rogram s}^pecialist.
^Note:^{Percentages may not s}^um^{to 100.0}^{due to rou}^{nding and, for}^num^{ber of loans, some double c}^{ounting. See}
^{note a to}^{Table 1}^.
Many large local governments in the Gulf region, including New Orleans, could not benefit
significantly from the traditional CDL program because of the loan limit of $5 million per
jurisdiction, per disaster. Removing the $5 million limit is likely to deliver more federal aid to
large jurisdictions than would be allowed under traditional program rules.
The primary argument against eliminating the $5 million cap is the greater potential cost to the
federal government. A total of five of the 55 CDLs approved through September 2005 under the
traditional CDL program exceeded the $5 million cap. Together they accounted for 90% of the
cancelled principal and 93% of the cancelled principal and interest (see Table 5). This suggests
that removal of the $5 million cap is likely to increase the federal cost of the program if there are
defaults on large loans.

Table 5. CDLs Greater than $5 Million and Amount Cancelled
^{(in $ mill}^ions)
^Principal^Principal
^{Disaster Event}^{Date of}^Event^Amou^nt^Disbursed^Amou^nt^{and Interest}
^Cancelled^Cancelled
^Hurrica^{ne H}^{ugo, U.S.}^V.I.^9/20/⁸⁹^$50.1^$48.2^$65.7
^Hurrica^{ne Val, American Samoa}^12/1^3/9¹^$10.2^$8.6^$12.0
^Hurrica^{ne Andrew,}^{Homestead, FL}^8/24/⁹²^$10.3^$10.3^$13.5
^Hurrica^{ne I}^{niki, Kauai, HI}^9/12/⁹²^$15.0^$15.0^$19.1
^Hurrica^{ne Ma}^{rilyn, U.S.}^V.I.^9/16/⁹⁵^$12^7.2^$12^7.2^$18^9.0
^{Total for CDLs over $5 million}^{__ $21}^2.8^$20^9.3^$29^9.3
^{(5 loan app}^rovals)
^{Total for al}^{l CDLs}^{__ $23}^3.5^$23^3.5^$32^1.0
^{(55 loan ap}^provals)
^Source:^{Data as of Sept. 3}^{0, 2}⁰⁰^{5, from Ge}^rry^{Miederhoff, FEMA}^{program s}^pecialist.
Some argue that the other cap—25% of the borrowing government’s operating budget in the
fiscal year of the disaster event—achieved the objective of capping the federal exposure, albeit at
a higher level. That cap was raised to 50% for the loans made under the 2006 Emergency
Supplemental Appropriations Act (P.L. 109-234), which also removed the $5 million per loan cap.
Section 608 of the SAFE Port Act (P.L. 109-347) raised the size limit for a traditional community
disaster loan from 25% to 50% of the annual operating budget of the local government for the
fiscal year in which the major disaster occurs—under a particular condition. The local
government’s loss of tax and other revenues as a result of the major disaster must equal at least
75% of the annual operating budget of that local government for the fiscal year in which the
major disaster occurs. The $5 million per loan cap and the cancellation option still apply to
traditional CDLs. This combination of rules would appear to offer substantial aid to small local
governments in a geographic area devastated by a major disaster.
A consolation offered to those concerned about the non-cancellation provision for the special and
emergency supplemental CDLs was that the administrators of the loan program would have
considerable latitude in setting the terms of repayment for the loans, which include both the ⁵⁷
interest rate and the time period of the loan. However, according to the interim regulations
accompanying CDLA of 2005, the time period for repayment is the same for the special program
as it is for the traditional program. This is typically five years, and not to exceed 10 years except ⁵⁸
in cases of exceptional financial hardship.

⁵⁷^S^t^at^em^en^t^o^f^Rep^.^Baker,^C^ongr^e^s^sⁱ^onal^Re^c^o^r^d^,^da^ily^e^d^itio^{n, v}^o^l.¹⁵^1,^no.¹^30,^Oc^tobe^r^7,²⁰⁰⁵^{, p}^.^H87^96.
⁵⁸^D^e^pa^r^t^m^e^{nt of}^H^o^m^e^la^{nd Se}^c^u^rⁱ^t^y^{, E}^m^e^r^g^e^ncy^P^r^e^p^a^r^e^dne^s^s^a^nd^R^e^s^pons^e^Dⁱ^r^e^c^t^or^a^t^e^,^Fe^de^r^a^{l E}^m^e^r^g^e^ncy
^M^aⁿ^a^ge^m^eⁿ^t^Agen^c^y^,^“S^p^eci^al^C^o^mm^uⁿⁱ^t^y^Di^s^a^st^{er L}^o^an^{s P}^r^o^g^ram^,^{” 7}⁰^Fe^de^{ral Re}^giste^r⁶⁰⁴⁴^{3, O}^c^tobe^r¹⁸^{, 20}^05.

The special CDL program provides FEMA administrators the option of offering a lower interest
rate to communities judged to be in more serious financial distress. According to FEMA, all Gulf
jurisdictions were eligible for the subsidized interest rate on the special and emergency
supplemental CDLs. Lowering the interest rate is intended to reduce the burden of repaying the
loan. This is counter to the usual practice in credit markets, where borrowers judged more
financially risky typically face a higher interest rate than those judged more likely to repay.
However, it does parallel the treatment of physical disaster business loans offered by the Small ⁵⁹
Business Administration (SBA) to businesses that have not been able to obtain credit elsewhere.
A lower interest rate would, by design, increase the attractiveness of the CDL program to more
governments. The likely increased demand for the loans would increase the federal cost of the
program. The larger interest subsidy alone would add to the cost of the program even if the loans
were repaid. Attracting less creditworthy borrowers is likely to raise the risk of default on the
loans, further increasing the cost of the program.
In contrast, a policy of linking the CDL interest rate to the underlying credit rating of the
borrowing government could reduce the adverse selection that may exist under both the ⁶⁰
traditional and special CDL programs. For example, setting the interest rate at a fixed amount
(number of basis points) or percentage below the local government’s current five-year bond rate
is a method that could be easily implemented by FEMA yet would still reduce the burden on the
borrowing government.

Over its history, the community disaster program has taken the form of both a grant program and
a loan program. Several approaches have been used to limit the cost of the program. In addition,
changes were made in the definitions of revenues to be replaced and expenses to be supported by
the program.
The CDL program originated as a grant program. Section 261 of the Disaster Relief Act of 1970
(P.L. 91-606) provided for community disaster grants. The grant provisions originated in a House
amendment to S. 3619. The President was authorized to make grants to any local government
which, as the result of a major disaster, had suffered a substantial loss of property tax revenue
(both real and personal). A grant could be made for the year of the disaster and the following two
tax years.
The grants were intended to replace lost property tax revenue. The locality was expected to
maintain its tax rate and assessed value factors at their pre-disaster levels. Specifically, the grant

⁵⁹^T^h^e^SB^A^s^e^ts^a^m^a^xⁱ^m^u^m^inte^r^e^s^t^r^a^te^of^4%^pe^r^y^e^a^r^a^{nd a}^m^a^xⁱ^m^u^m^m^a^tur^ity^of^{30 y}^e^a^r^s^{on loa}ⁿ^s^{to b}^o^r^r^ow^e^r^s
^j^u^d^g^ed^uⁿ^a^b^l^e^t^o^o^b^t^aiⁿ^credⁱ^t^el^sew^h^er^e.^F^o^r^b^u^sⁱⁿ^{esses t}^h^at^S^B^A^d^e^t^e^rmⁱⁿ^{es can}^o^b^t^aiⁿ^credⁱ^t^el^sew^h^ere,^t^h^{e i}ⁿ^t^e^rest
^r^a^te^c^h^a^r^g^e^{d by}^SB^A^c^a^{nnot e}^x^c^e^e^d^w^h^a^t^is^be^ing^c^h^a^r^g^e^{d in}^the^pr^iv^a^t^e^m^a^r^k^e^t^a^t^the^tim^e^of^the^dis^a^s^t^e^r^{, or}^8%^,
^w^h^ic^he^v^e^r^is^le^s^s^,^a^{nd the}^m^a^tur^ity^pe^rⁱ^{od c}^a^nnot^e^x^ceed^th^{ree y}^ear^{s. h}^t^t^p^://w^ww^.sb^a^.g^o^v
⁶⁰^T^h^e^te^r^m^“^a^d^v^e^rs^e^se^le^c^tion”^re^fe^{rs to the}^c^onc^e^p^tⁱⁿⁱⁿ^sura^nc^e^m^a^rk^e^t^s^w^h^e^r^e^b^y^only^those^w^{ho w}^{ill lik}^e^l^y^ne^e^d
ⁱⁿ^su^ran^{ce are m}^o^st^lⁱ^k^el^y^t^o^p^u^r^{chase p}^o^lⁱ^cⁱ^e^s.^In^t^h^{e con}^t^ext^o^f^CDL^s^,^{it su}^{ggests th}^{at ju}^risd^ic^ti^{ons w}^{ith se}^rio^u^{s b}^udg^e^t
^trou^ble^s^w^{ill be}^m^o^re^lik^e^l^y^{to use}^the^f^e^de^ra^{l loa}ⁿ^pr^og^ra^m^.

for any tax year could not exceed the difference between the annual average of property tax
revenues received by the local government during the three tax years preceding the disaster and
the actual property tax revenue received by the local government for the tax year of the disaster,
and similarly for the next two tax years. However, if the government had reduced its tax rates or
tax assessment valuation factors subsequent to the disaster, an adjustment would be made to
remove the effect when measuring the shortfall in revenues.
The conference committee on S. 3619 did not adopt the provisions of the bill passed by the
Senate which proposed a loan program instead of the grant program. The Senate-passed bill
would have authorized $100 million to establish a Community Disaster Loan Fund in the
Treasury. The fund would have provided loans to local governments for three purposes: (1)
meeting interest and principal payments on outstanding bonded indebtedness; (2) paying the local
share of federal grant-in-aid programs necessary to restore the disaster area; and (3) providing and
maintaining essential public services, such as fire and police protection.
To qualify for a loan, a local government would have to have suffered a loss of more than 25% of
its tax base or such a substantial amount that it could not otherwise meet payments on its debt
obligations, its matching shares, or its essential public services. The size of the loan was linked to
the loss of property tax revenues, in the same way as the grant program that was adopted. The
loans would be interest-free for the first two years. The term of the loan could not exceed 20
years. The interest rate on the loans would be determined by the Secretary of the Treasury, based
on the current average market yield on 10- to 12-year U.S. Treasury obligations less an
adjustment not to exceed 2% per year. The President would be authorized to defer the initial
payments on the loans for five years or half the term of the loan, whichever was less. Such sums
as the President might determine necessary could be transferred to the fund from disaster relief
appropriations. In turn, the President could transfer excess monies in the fund to the general fund ⁶¹
of the Treasury or to disaster relief appropriations.

The Disaster Relief Act of 1974 (P.L. 93-288, 42 U.S.C. 5121 et seq.) replaced the program of
community disaster grants with a program of community disaster loans. However, the loan
program was given a mandatory cancellation provision. This eliminated the locality’s obligation
to repay the loan, under specified budgetary conditions (Section 414(a)). The 1974 amendments
broadened the consideration of revenues to be replaced from property taxes to “tax and other
revenues.” The amount of, and limit on, the loan was linked, not to lost revenues, but to the size
of the operating budget. The budget could include additional disaster-related expenses if they
were of a municipal operation nature.

⁶¹^L^e^gⁱ^s^l^a^tiv^e^Hⁱ^s^t^or^y^of^P^.^L^.^91-⁶⁰^{6, D}ⁱ^s^a^s^t^e^r^R^e^lie^f^A^c^{t of}^1970,^Uⁿ^ite^d^Sta^t^e^s^C^ode^,^C^oⁿ^g^r^e^s^sⁱ^on^al^and
^Ad^minⁱ^str^a^{tive News}^{, 9}¹^st^C^ong^.,²^nd^s^e^s^s^{., 197}^{0, v}^o^l^.³⁽^S^t.^P^a^ul,^Mⁱ^nn.^{: W}^e^s^t^Publ^is^hi^ng^C^o^.,¹⁹⁷¹⁾^,^pp.⁵⁵¹³^-⁵⁵¹⁴^.
⁶²^T^h^e¹⁹⁷^{4 A}^c^{t w}^a^s^r^e^nam^e^{d the}^S^t^a^f^f^o^r^d^A^c^{t b}^y^the^Dⁱ^s^a^s^t^e^r^R^e^lief^a^{nd Em}^e^r^g^e^ncy^A^s^sⁱ^s^t^aⁿ^c^e^A^m^e^ndm^eⁿ^ts^of¹⁹⁸⁸^,
^P.L^.¹⁰^0-⁷^07,^Se^c^tio^{n 1}⁰²^.

Specifically, the 1974 Act authorized the President to make loans to any local government which
suffers a substantial loss of tax and other revenues (which the conferees intended to include utility
revenues) as a result of a major disaster, and has demonstrated a need for financial assistance in
order to perform its governmental functions. (The legislative history of the act gives as examples
of municipal services the protection of public health and safety and the operation of the public
school system.) The amount of the loan is to be based on need but may not exceed 25% of the
annual operating budget of the local government for the fiscal year in which the major disaster
occurs.
Repayment of all or any part of the loan is to be cancelled to the extent that revenues of the local
government during the three full fiscal years following the major disaster are insufficient to meet
the operating budget of the local government. This budget may include additional disaster-related
expenses of a municipal operation character. The 1974 act also provided that any loans made
under this section would not reduce or otherwise affect any grants or other assistance under the
Stafford Act.
The enacted provisions regarding CDLs originated in S. 3062, the Disaster Relief Act
Amendments of 1974, as approved by the Senate. There was no counterpart in the House
amendment to S. 3062. The conference substitute amendment made the cancellation of
community disaster loans mandatory under the specified conditions. The Senate-passed bill had ⁶³
authorized the President to cancel all or part of the CDLs under the specified conditions. The
Senate Report to accompany S. 3062 stated that the loan or any cancelled portion could not be ⁶⁴
used as the non-federal share of any federal program, including those programs under the act.
Before 2000, there was no dollar limit on the amount of the loan that could be made to a local
government under Section 417 of the Stafford Act. Section 207(5) of the Disaster Mitigation Act
of 2000 (P.L. 106-390) placed a limit of $5 million on the size of the loan that could be made to a
local government. (This dollar limit was in addition to the limit of 25% of the operating budget.)
The 2000 amendments also provided that a local government cannot receive additional assistance ⁶⁵
under Section 417 if it is in arrears on payments for a previous loan.
In placing these limits, Congress was reportedly reacting to two very large loans that had been
made to the Virgin Islands in the aftermath of Hurricane Hugo in 1989 and Hurricane Marilyn in

1995, for which repayment was cancelled. See Table 3 earlier in this report.

Section 204(a) of H.R. 707 as passed by the House would have repealed Section 417 of the
Stafford Act and thereby eliminated the disaster loan program. It was Section 207 of H.R. 707 as
passed by the Senate which contained the amendments to Section 417 that were adopted in the
enacted bill.

⁶³^L^e^gⁱ^s^l^a^tiv^e^Hⁱ^s^t^or^y^of^P^.^L^.^93-²⁸^{8, D}ⁱ^s^a^s^t^e^r^R^e^lie^f^A^c^{t of}^1974,^Uⁿ^ite^d^Sta^t^e^s^C^ode^,^C^oⁿ^g^r^e^s^sⁱ^on^al^and
^Ad^minⁱ^str^a^{tive News}^{, 9}³^rd^C^ong^.,²^nd^s^e^s^s^{., 197}^{4, v}^o^l^.²⁽^S^t.^P^a^ul,^Mⁱ^nn.^{: W}^e^s^t^Publ^is^hi^ng^C^o^.,¹⁹⁷⁵⁾^,^pp.³⁰⁷⁷^{, 3}⁰⁸⁶^,
^an^d³¹¹⁰^.
⁶⁴^O^p^{. c}^it.^{, p}^.³⁰⁷⁷^.^Se^na^te^Re^por^{t (}^P^ubl^ic^W^o^rk^s^Com^m^itte^e⁾^N^o^{. 93}^-77⁸^{, A}^p^{ril 9}^,¹⁹⁷⁴^,¹²^{. Com}^m^unity^Dⁱ^s^a^s^t^e^r
^G^r^aⁿ^ts⁽^S^e^c^{tion 4}¹⁴⁾^.
⁶⁵^C^R^S⁽^a^r^c^hiv^e^d)^R^e^po^r^t^R^S²⁰⁷³⁶^,^Disaste^r^M^itig^atio^{n Ac}^t^of²⁰⁰⁰⁽^P^{.L. 10}^6-3^90):^S^u^mmary^{of Ne}^w^and^Ame^nde^d
^Pr^ov^is^ions^{of t}^h^e^S^t^aff^o^r^d^Dⁱ^s^a^s^t^e^r^Re^lie^{f Ac}^t^,^b^y^Kei^t^h^Bea,^avai^l^a^b^l^{e f}^r^o^m^au^t^h^o^r^up^on^requ^est^.

^Noⁿⁿ^a^A^.^No^to
^Sp^{ecialist i}ⁿ^P^u^b^{lic Fi}ⁿ^aⁿ^ce
ⁿⁿ^o^t^o^@^c^rs^.l^oc.g^ov^{, 7-}⁷⁸²⁶