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date: 24 June 2017

Public Finance of Natural Hazards Risk Reduction and Community Resilience Promotion in Developed Countries

This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Natural Hazard Science. Please check back later for the full article.

As more and more of the population moves to areas prone to natural hazards, the costs of disasters are on the rise. Given that these events are an eventuality, governments must aid their communities in promoting disaster resilience, enabling their communities to reduce their susceptibility to natural hazards, and adapting to and recovering from disasters when they occur.

The federal system in the United States divides these responsibilities among national, state, and local governments. Local and state governments are largely responsible for the direct provision of services to their communities, and the Stafford Act of 1988 provides that the federal government will pay at least seventy-five percent of all eligible expenses once a Presidential Major Disaster Declaration has been made. As a result, state and local governments have become largely reliant on transfers from the federal government to pay for disaster relief and recovery efforts. This system encourages state and local governments to ignore the risks they face and turn to the federal government for aid after a disaster.

This system also seems to underemphasize an important mechanism that can bolster disaster resilience: financing the costs of disasters through ex ante budgeting by using contingency funds specific to disasters, otherwise known as disaster stabilization funds. While some states have these funds, their practical effect or theoretical purpose is currently unknown. States may be using their disaster stabilization funds as a means to build resilience by putting the state in a better position to provide a quicker response to individuals and communities, rather than waiting for federal relief. Alternatively, state disaster stabilization funds may simply be a placeholder for states to appropriate the 25% matching funds they must provide to receive the federal funds. These issues are explored through examination of a state’s use of disaster contingency funds and are compared to the efforts of other developed countries to build resilience through ex ante budgeting practices.