Alex Wroblewski/Bloomberg

US - Why local governments don't pay for costly disaster insurance

Experts worry that some federal disaster aid is creating perverse incentives for cities and states.

(Bloomberg) — What makes a disaster? When we think of calamity, most of us think of floodwaters that submerge towns or hurricane winds that shred buildings. The U.S. federal government uses another kind of measure to decide whether an act of nature becomes an official disaster: its cost.

In deciding when to dole out federal assistance, the Federal Emergency Management Agency looks to see if per capita damage to uninsured assets exceeds a certain threshold; for 2021, that would be $1.55 per person in a state. The agency has a proposed rule to update that number to $2.33 per person and then index it to the consumer price index going forward.

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