Disaster Assistance:

Opportunities to Improve Cost-Effectiveness Determinations for Mitigation Grants

RCED-99-236: Published: Aug 4, 1999. Publicly Released: Aug 4, 1999.

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Pursuant to a legislative requirement, GAO reviewed how the Federal Emergency Management Agency (FEMA), in conjunction with the states, ensures the cost-effectiveness of projects funded under the Hazard Mitigation Grant Program, focusing on: (1) the approaches FEMA and the states use to ensure that program grants are targeted to cost-effective mitigation projects; and (2) whether the approaches ensure that the mitigation measures are cost-effective.

GAO noted that: (1) the states and FEMA work together to help ensure that Hazard Mitigation Grant Program grants are awarded for cost-effective projects; (2) the states in GAO's review establish procedures and priorities for identifying and selecting mitigation projects; however, not all of them conduct a formal analysis of a project's cost-effectiveness before submitting an application for the project to FEMA; (3) FEMA uses benefit-cost analysis as its primary approach for ensuring that mitigation projects submitted by the states are cost-effective; (4) however, FEMA also excludes certain types of hazard mitigation projects from benefit-cost analysis, including projects that fund the removal of certain properties from floodways and floodplains, hazard identification or mapping initiatives, and mitigation planning efforts; (5) FEMA officials stress a need for flexibility in assessing these projects, suggesting that benefit-cost analysis does not always apply to all mitigation projects because of difficulties in quantifying the benefits of some projects and the time needed to gather data for conducting analyses; (6) for these projects, the states are instructed to include a narrative that identifies the benefits of mitigation and establishes a reasonable expectation that the projects will reduce or prevent future property damage, injury, or loss of life; (7) GAO's review of 55 hazard mitigation projects in four states found that 41 projects were judged as cost-effective on the basis of the benefit-cost analyses conducted; (8) these 41 projects account for $11.7 million, or 58 percent of the $20.1 million in project funding GAO reviewed; (9) however, the officials conducting benefit-cost analyses for some of the projects designed to mitigate future damage from flooding did not always use the best available information, such as flood damage information available from past insurance claims and updated information on flood hazards, in conducting their analyses; (10) GAO's review also found that 14 projects, accounting for $8.4 million, or 42 percent, of the funding reviewed, were exempt from benefit-cost analysis; (11) these projects included property acquisitions, emergency alert systems, and a public awareness campaign; and (12) while FEMA has explained its rationale for exempting these types of mitigation projects from benefit-cost analysis, factors such as the lack of an established analytical basis supporting the exemption limit the agency's ability to demonstrate that some of these mitigation measures are cost-effective.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Federal Emergency Management Agency (FEMA) now requires that mitigation grant applicants use FEMA-approved methodologies and software to demonstrate the cost-effectiveness of their projects to ensure that the calculations and methods are standardized, facilitating the project evaluation process. FEMA has developed a suite of Benefit-Cost Analysis (BCA) software for a range of major natural hazards: earthquake, fire (wildland/urban interface fires), flood (riverine, coastal A-Zone, Coastal V-Zone), Hurricane Wind (and Typhoon), and Tornado. Version 3.0 of the Mitigation Benefit-Cost Analysis (BCA) Toolkit Compact Disk (CD) was released in July 2006 and the BCA Toolkit is available through FEMA's Benefit-Cost Analysis Technical Assistance Helpline. In addition, on November 26, 2008, FEMA issued a memorandum establishing "Guidance for 2009 Alternative Determination of Cost Effectiveness for Eligible Insured Repetitive Loss Properties" that described how to use alternative methodologies to determine the cost-effectiveness of applicable mitigation projects.

    Recommendation: To ensure that only cost-effective projects are funded through the Hazard Mitigation Grant program, the Director, FEMA, should establish an analytical basis supporting the cost-effectiveness of acquiring substantially damaged properties in floodplains.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response

  2. Status: Closed - Implemented

    Comments: The Federal Emergency Management Agency (FEMA) requested that the Multihazard Mitigation Council of the National Institute of Building Sciences conduct a study that applied cost-benefit analysis methodologies to a national statistical sample of FEMA mitigation activities over a ten-year period for earthquake, flood, and wind hazards. On January 24, 2006, council members issued a report, Benefit-Cost Analysis of FEMA Hazard Mitigation Grants, that summarized the results of their study and indicated that the overall benefit-cost ratio for FEMA mitigation grants for the period examined was about 4 to 1, though the ratio varied according to hazard and mitigation type.

    Recommendation: To better ensure the cost-effectiveness of other types of projects exempted from benefit-cost analysis, the Director, FEMA, should conduct periodic reviews of the FEMA projects after they have been implemented to determine whether they were cost-effective.

    Agency Affected: Department of Homeland Security: Directorate of Emergency Preparedness and Response

  3. Status: Closed - Implemented

    Comments: In its November 10, 1999, letter to the Chairman, Subcommittee on Oversight, Investigations, and Emergency Management, FEMA stated that it concurred with this recommendation. The specific steps it was taking to address the recommendation included two initiatives to improve the quality of the Flood Insurance Rate Maps (the Map Modernization Program and Cooperating Technical Communities). In addition, since 1999, FEMA has conducted 16 disaster flood verification projects that have helped assess flood mapping needs in these areas.

    Recommendation: To provide the best available data for analyzing the cost-effectiveness of proposed flood hazard mitigation projects, the Director, FEMA, should conduct postdisaster verifications of flood hazards for use in evaluating and possibly revising flood hazard map information.

    Agency Affected: Federal Emergency Management Agency

  4. Status: Closed - Implemented

    Comments: On February 9, 2000, FEMA issued a Memorandum to all Regional Office Mitigation Directors notifying them of the availability, via FEMA's internal network, of historical National Flood Insurance Program claims data for individual properties. As a result, staff conducting benefit-cost analyses now have information more readily available on past insurance claims.

    Recommendation: To provide the best available data for analyzing the cost-effectiveness of proposed flood hazard mitigation projects, the Director, FEMA, should make the agency's information on past insurance claims more readily available for FEMA staff conducting benefit-cost analyses.

    Agency Affected: Federal Emergency Management Agency

 

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