FEMA’s Community Disaster Loan (CDL) Program: A Primer
July 13, 2020
FEMA’s Community Disaster Loan (CDL) Program: A Primer
Following a major disaster, local governments may face
Be permitted to take federal loans under its respective
fiscal and economic distress as well as physical damage. As
state law.
a result, revenue shortfalls could impact both service
delivery and the long-term fiscal health in the affected
A local government meeting these criteria may be eligible
locality. To address these issues, the Federal Emergency
to apply for a CDL, and may apply from the end of the
Management Agency (FEMA) offers the Community
disaster, as determined by FEMA, through the end of the
Disaster Loan (CDL) program, which provides forgivable
following fiscal year. FEMA calculates loan amounts by
loans capped at $5 million to units of local government
estimating cumulative revenue loss for the fiscal year of the
based on real revenue shortfalls.
disaster and the subsequent three fiscal years, up to 25% of
the local government’s total budget for the fiscal year when
This In Focus examines the basic structure of the CDL
the disaster occurred (or the subsequent fiscal year).
program and also briefly considers two CDL variants
developed in response to distinct disaster situations.
If the estimated revenue loss equals 75% of the locality’s
budget for the fiscal year of the disaster, the CDL may
Overview of the CDL Program
exceed the 25% threshold up to 50% of the operating
budget. Loans may not exceed a $5 million statutory cap.
CDL Program Purpose and Characteristics
CDLs were first authorized in the Disaster Relief Act of
To initiate the application process, FEMA assists local
1974 (P.L. 93-288) but were defined and established by the
governments with eligibility screening, loan qualification
Stafford Act (P.L. 100-707), which amended and renamed
estimates, and application development in advance of a
the preceding Disaster Relief Act. CDLs were developed to
formal application. Localities then formally apply for the
help local governments (as defined by the Stafford Act)
CDL through their state (or territory) Governor’s
manage acute tax and other revenue loss after a major
Authorized Representative, who requests activation of the
disaster, which could inhibit their ability to adequately
CDL Program from FEMA. Federally recognized tribal
serve their communities during recovery. CDLs are funded
governments may also be eligible for CDLs directly
through the Direct Assistance Disaster Loan Program
following a major tribal disaster declaration.
(DADLP), to which Congress may appropriate funds
directly for CDL program purposes. More commonly,
CDL Forgiveness
however, funds are transferred to the DADLP from the
FEMA may forgive all or part of the CDL if a local
Disaster Relief Fund—the fund which supports most
government can demonstrate that it has a three-year
federal disaster relief operations.
operating deficit following and associated with the disaster.
This may include increases in operating expenditures as a
The CDL program offers forgivable loans to units of local
result of unreimbursed disaster-related expenses.
government equal to the amount of the revenue shortfall
caused by the disaster up to 25% of the locality’s operating
To adjudicate forgiveness eligibility, FEMA reviews
budget, with a maximum of $5 million. Under the
audited financial statements of the local government
conventional program, those funds may be utilized to
borrower for the three years following the disaster. The
provide any normal governmental service or for services
review has two parts: (1) a deficit analysis; and (2) a
necessary to respond to the disaster. CDLs are five-year
revenue analysis. The deficit analysis compares revenues
loans, extendable to 10 years at FEMA’s discretion, with
and expenditures for the full three calendar years following
interest rates determined by the Treasury Secretary.
the disaster. If the analysis shows a deficit, FEMA conducts
the revenue analysis, which compares pre-disaster revenues
CDL Qualifying and Applying
against operating revenues to determine the existence of a
To qualify for a conventional CDL, an applicant local
three-year cumulative revenue loss.
government must:
If the analysis shows a deficit and a loss, the lesser of the
Be located in a presidentially declared disaster area;
two is used to provide either partial or full forgiveness. If a
surplus is found, the local government is ineligible for
Show substantial loss (greater than 5%) of tax and other
cancelation, and the loan must be repaid according to the
(such as administrative) revenues;
terms of the promissory note issued with the disbursement.
Not be in arrears on any other previous CDL loans; and
Recent CDL Program Variants
In extraordinary circumstances, Congress has authorized
FEMA to administer non-traditional CDLs and CDL-type
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FEMA’s Community Disaster Loan (CDL) Program: A Primer
programs with different eligibility and technical
the Puerto Rican government chose not to avail itself of the
requirements. Unlike traditional CDLs, these loans are not
CDL-type instrument.
subject to the $5 million cap, and eligible areas are more
geographically concentrated. While these programs have at
Policy Issues for Congress
times operated in parallel to the conventional CDL
Should the rate and severity of disaster-related damages
program, they were temporary programs and not separately
continue or accelerate, traditional CDLs or their non-
authorized.
traditional analogues may be increasingly utilized.
However, due to their relatively low funding cap and
The “Special” CDL Program
specialized nature, conventional CDLs may be inadequate
As part of the federal response to extensive economic
for widespread and severe disaster events. During the
damage caused by Hurricanes Katrina and Rita, Congress
COVID-19 pandemic, for example, uptake of the CDL
passed legislation in 2005 (P.L. 109-88) and 2006 (P.L.
program does not appear to be widespread, perhaps due to
109-234) to make approximately $1 billion available to
the severity of the crisis, and because it is still ongoing
support nearly $1.4 billion of special CDLs. These
(compared to more time-bound disasters in the past)—
temporary CDLs were made available in October 2005, or
though a governor may still be able to initiate a request.
approximately two months following the Hurricane Katrina
disaster that August.
Instead, states and localities have turned to alternative
mechanisms to address the fiscal challenges posed by the
The special CDL program was focused on areas affected by
pandemic. In the current economic environment,
Hurricanes Katrina and Rita in the Gulf Coast region, and
conventional CDLs may be an insufficient countermeasure
provided funds beyond the $5 million cap, albeit still at the
due to the scale of potential revenue loss, and the
25% budget limit. Funds were limited to “essential
indeterminate nature of the crisis. No special CDLs have
services,” as opposed to any eligible municipal service
been authorized by Congress in response to the pandemic.
under conventional CDLs, and localities were eligible for
However, Congress may consider a special pandemic CDL
more than one CDL. While the temporary special CDLs
that allows for higher budget thresholds (beyond the $5
initially prohibited forgiveness, 2007 legislation (P.L. 110-
million cap), disbursement prior to the end of the pandemic,
28) mandated that forgiveness be allowed. Additional
and well-defined forgiveness criteria.
legislation expanded forgiveness criteria that effectively
forgave the majority of outstanding CDLs (P.L. 113-6).
Congress may also consider structuring traditional CDLs
more expansively to account for a wider universe of
CDL-Type Instrument for Puerto Rico and USVI
disaster and emergency scenarios, such as state- or
Following Hurricanes Harvey, Irma, and Maria, Congress
executive agency-based disaster declarations, expanding or
passed legislation (P.L. 115-72) providing funding for
lifting the $5 million cap, or simplifying the forgiveness
temporary CDL-type loan instruments for Puerto Rico and
process. In addition, the CDL program’s loan forgiveness
the U.S. Virgin Islands (USVI). Although based on the
facility could be expanded to account for situations where
conventional CDL program, the resulting program was
the recipient would be especially harmed if it were made to
functionally different due to significant exceptions and
repay all or part of the CDL loan. Another option could be
modifications, including the following:
to change it from a forgivable loan to a grant program.
Territorial governments were considered municipalities
Another potential alternative would be to restructure CDLs
for the purposes of the program;
with automatic forgiveness thresholds based on
predetermined triggering criteria. For example, tranches of
The $5 million cap was lifted;
the CDL loan could be automatically forgiven based on
alternative factors such as the severity of the disaster, the
Loan recipients (i.e., territorial governments) were
fiscal position of the local government, and/or the potential
allowed to receive more than one loan;
impact that repayment may have on the locality’s future
provision of governmental services. This could “automate”
Loans could only be forgiven at the discretion of the
the program and provide greater surety to localities
Secretary of Homeland Security in consultation with the
regarding issues of forgiveness and repayment.
Secretary of the Treasury; and
More broadly, Congress could also develop other disaster
The Secretary of Homeland Security, in consultation
assistance instruments that separately address immediate
with the Secretary of the Treasury, solely determined the
governmental liquidity, disaster response, and long-term
“terms, conditions, eligible uses, and timing and
recovery needs. Following a disaster, one locality may
amount” of such loans.
require immediate financial liquidity but may be otherwise
positioned to weather the crisis in the longer-term, while
The CDL-type instrument’s statutory provisions related to
another locality may need more extensive assistance with
loan forgiveness and terms were further complicated by
long term recovery.
Puerto Rico’s broader fiscal crisis and the existence of a
federal oversight board, as established by the Puerto Rico
Michael H. Cecire, Analyst in Intergovernmental Relations
Oversight, Management, and Economic Stability Act of
and Economic Development Policy
2016 (PROMESA; P.L. 114-187). Without greater surety
over forgiveness, and already constrained by PROMESA,
IF11600
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FEMA’s Community Disaster Loan (CDL) Program: A Primer
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