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The Cost of Catastrophe: State Budgeting for Natural Disasters

By Leo Garcia  |  December 21, 2022

When Nicole recently battered Florida, it became only the third time a hurricane has made landfall in the state in November in nearly 170 years of recordkeeping. Natural disasters are increasing in frequency and severity, posing a threat not only to human life but also to state pocketbooks. Fifteen natural disasters, each causing at least $1 billion in economic loss, swept the United States in 2022.

billion dollar weather disasters map
National Centers for Environmental Information

On average, the frequency of these billion-dollar weather events in the last five years has increased by 130% compared with previous decades. Economic costs include damage to buildings, businesses, homes, infrastructure, agriculture and more. However, calculating the true cost is difficult because these measurements are simply economic. The loss of life and the lingering emotional trauma are significant and immeasurable.

Natural disasters are managed by all levels of government, with responsibility often beginning at the local level. If a catastrophic event surpasses the capabilities of local authorities, state governments intervene. And if the disaster exceeds the state’s capacity, the federal government steps in. While local governments and federal entities are indispensable to emergency management, states play a pivotal role in dealing with natural disasters. Through sound budgeting practices, state policymakers can take steps to effectively mitigate, prepare for, respond to and recover from extreme climate events.

natural disaster spending chart
The Pew Charitable Trusts

Common Budgetary Mechanisms

Although, budgetary processes for addressing natural disasters vary by state, there are five common funding mechanisms, according to The Pew Charitable Trusts.

  • Statewide disaster accounts.
  • Rainy day funds.
  • State agency budgets.
  • Transfer authority.
  • Supplemental appropriations.

Statewide Disaster Accounts

States preemptively store funds to cover costs associated with weather events and emergencies in statewide disaster accounts (Table 14). Amounts states place in their disaster relief funds depend on how vulnerable the state is to extreme weather events.

Rainy Day Funds

States store surplus revenue in rainy day funds, or budget stabilization funds, to use during unexpected periods of deficits or, as the name suggests, when weather emergencies arise.

State Agency Budgets

All states have emergency management agencies to address disaster-related issues. Legislatures appropriate funds to these agencies in regular and special budget cycles for these purposes.

Transfer Authority

States can transfer funds within and between agencies to respond to weather events outside of regular budget cycles. The power to transfer funds during an emergency usually rests with the governor, the budget director, a state agency or a special committee.

Supplemental Appropriations

Supplemental appropriations allow states to allocate funds for climate events outside of their regular legislative or budget cycles. State legislatures can make such appropriations by calling a special session or establishing a committee if existing disaster response funds are insufficient.

Extreme weather events seldom respect budget timelines or legislative cycles. Using several funding mechanisms gives states flexibility when budgeting for natural disasters and helps to maintain fiscal order in times of distress.

Phases of Emergency Management

Budgeting for natural disasters takes place during and after emergencies, as outlined above, but also occurs preemptively to reduce the costs of future events. The Federal Emergency Management Agency delineates four phases of emergency management: mitigation, preparedness, response and recovery.

The phases form a continuous cycle, and all communities are in at least one emergency management phase at any given time. The budget mechanisms noted above—disaster accounts, rainy day funds, agency budgets, transfer authority and supplemental appropriations—can be found in each of these phases.


Mitigation refers to measures taken to decrease the impact and costs of future disasters. Mitigation consists of efforts such as digging channels to redirect floodwater or using fire-resistant building materials. Depending on the magnitude of the threat, mitigation measures can save up to $13 per dollar invested.

  • North Carolina moved $945.2 million from its general fund to a disaster relief reserve account for flood mitigation, resiliency projects and other activities.
  • Illinois allocated $45 million to its emergency management agency for pre-disaster mitigation and flood mitigation assistance.

Emergency Preparedness

Preparedness includes planning for future situations that cannot be mitigated and are beyond anyone’s control. Distributing a list of essential supplies and emergency steps to citizens or conducting emergency drills are examples of emergency preparedness.

  • Louisiana allows the state to tap into 33% of rainy day funds for costs associated with preparedness and response during federally declared disasters.
  • California set aside $2.7 million for an Earthquake Early Warning System and for the University of California Pacific Earthquake Engineering Research Center.

Disaster Response

The duration of the response phase after a weather event will depend on the level of preparation and the extent of damages. State response activities include conducting search and rescue operations, delivering food and providing medical services.

  • Kentucky approved a supplemental appropriation of $75 million to its emergency management agency to aid those impacted by storms and flooding in the eastern part of the state.
  • Texas Gov. Greg Abbott issued a proclamation in October authorizing him to allocate state resources to respond to severe drought conditions. Pursuant to Section 418.017 of the Texas Government Code, authority to allocate resources to respond to disasters is transferred to the governor.


Recovery begins when impacted citizens have their basic needs met and are not in immediate danger. Short-term recovery includes removing debris and providing interim housing solutions. Long-term recovery often overlaps with the mitigation phase. Communities are advised to reflect on their experiences and integrate their findings into future mitigation and preparedness efforts. This includes rebuilding weather-resilient infrastructure and supporting the reestablishment of businesses.

  • Arizona approved a supplemental appropriation of $2.25 million to its forestry department for the removal of hazardous vegetation.
  • Oregon set aside $105 million for distribution to local governments and nonprofit organizations for sewer, septic and other water infrastructure needs in communities affected by wildfire.

State responses to extreme weather events manifest through various funding mechanisms, and in different phases of emergency management. Preparing for inevitable budgetary pressures through strategic funding mechanisms can help protect states from severe fiscal losses. With the increased frequency and severity of climate events, states will continue to play a fundamental role in budgeting for natural disasters.

Leo Garcia is a policy associate in NCSL’s Fiscal Affairs Program.

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