Economic Development:

Community Disaster Loans

RCED-96-148R, Jun 5, 1996

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Pursuant to a congressional request, GAO provided information on the history and status of Federal Emergency Management Agency (FEMA) loans under the Community Disaster Loan Program. GAO noted that: (1) the federal government disbursed nearly $100 million on 52 loans as of December 1995; (2) FEMA has been repaid nearly $3 million in principal and $2 million in interest and has cancelled about $7 million in principal and interest on 11 of the loans; (3) of the 52 loans, 13 have been fully repaid, 7 have been totally cancelled, 3 have been partially cancelled and the balance repaid, and 29 remain outstanding; (4) to obtain a loan cancellation, a community must demonstrate its inability to meet its operating budget for a 3-year period following a disaster; (5) while the $3.8 million in cancelled principal represents only 4 percent of the total amount of loans disbursed, many of the outstanding loans are becoming eligible for cancellation; (6) FEMA because it is legally prohibited from controlling how or when a community qualifies to have its loan forgiven; (7) FEMA has requested no additional funding for the loan program in its 1997 budget request and does not anticipate making any loans in 1997; (8) FEMA believes the loan program should be terminated or converted to a grant program, since a grant program requires less time, effort, and expense.