This Catch-22 Limits Disaster Funding for Hurricane Victims

Imagine this: You’ve finally returned to your home after evacuating for a storm, only to discover that months of recovery lie ahead. You may need to strip the placeto the studs, or demolish it altogether, before you can start rebuilding. You need money to move on with your life, and you know that your insurance company may take way too long to pay out –if you have insurance coverage at all– while federal grants may be far down the pipeline.

When you contact the Federal Emergency Management Agency for advice, they send you to the Small Business Administration, which acts quickly to offer loans in federal disasters. Months later, when federal grants become available, you’re told you aren’t eligible, because you already took out a loan.

Instead of receiving a grant provided to disaster victims, you get to pay back a loan, with interest — all because you wanted to be proactive about rebuilding.

If that sounds bananas to you, I have bad news, because that’s exactly how the system works now.

If you are approved for a low-interest emergency loan through the SBA — whether or not you take it — the amount of that loan is deducted from any federal disaster grants that you might be eligible for. If you were entitled to $100,000 to help rebuild but you took out a $70,000 loan, the government will only give you $30,000. Even if you only borrowed $20,000 — or nothing.

Given that many individualsseeking aid are low-income, this presentsa significant hardship. People may lose their homes altogether if saddled with loans they can’t realistically repay — especially when loans may not even cover the costs of construction and recovery. In some cases, the loan may effectively act like a second mortgage.

This situation arises because of a very real concern: double-dipping.

The federal government is worried that unscrupulous people, or organizations, might take out loans and then apply for grants, eating up recovery resources. However, critics say this creates a situation where people are effectively penalized for not waiting. Many people aren’t aware of the potential implications of accepting an SBA loan, though FEMA claimsit discloses this information.

In Texas, over $100 million worth of SBA loans are already being processed, and Hurricane Irma recovery in Florida will likely include many more. Advocates from regions that have been caught in this trap, like Sandy survivors, have been issuing warnings and urginglegislative reform to address the problem.

The most basic fix would require that when calculating grant eligibility, government agencies count the actual amount of an SBA loan, not how much someonecouldhave borrowed. In these instances, an SBA loan could act like a funding bridge to help someone get started with recovery, and a grant further down the line could help them stay on track.

Anothersolution would be to convert SBA loans to grants, allowing low-income people without adequate insurance coverage to quickly access grant money to assist with recovery. That would have the added benefit of boosting economic growth in the wake of a major storm by creating a cleanup and construction boom.

With climate change making similar storms more frequent — and potentially more severe — in the future, Congress mustaddress this issue in a timely manner. Helping communities recover and stay financially solvent is in everyone’s best interest.

Photo credit: United States Department of Defense

41 comments

Sarah Hill
Sarah Hill29 days ago

If you want to give your money to a good charity to help disaster victims, give to Operation Blessing. They are usually the first to respond and the last to leave after a disaster. Another good one is Samaritan's Purse. A lot of groups are very wasteful with your hard earned money. Red Cross is one of those.

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Philippa P
Philippa Powers2 months ago

Petition signed.

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David C
David C2 months ago

thanks, not surprised, petition signed

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Cruel Justice
Cruel J2 months ago

Unbelievable.

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Lisa M
Lisa M2 months ago

Noted.

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Lisa M
Lisa M2 months ago

Noted.

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Shirley S
Shirley S2 months ago

noted

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heather g
heather g2 months ago

Start a petition to get money from the Defence spending budget - there's billions of dollars floating around there and at the same time, it will reduce the fighting in our world.

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Paul C
Paul Carter2 months ago

Understand this - if you are poor your only value to a politician is a single vote and one vote is unlikely to make the difference between election or not. If you are rich you can be persuaded to part with some cash to help fund the next campaign. If you were someone who only cares about staying on the gravy train - who would you help?

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Debbi -
Debbi Wood2 months ago

I agree with Elsie. It is an outrageous abuse of power over people at their most vulnerable. Who were the gross incompetents who wrote and approved of that process???

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