An article in Brisbane’s Courier Mail (Matthew Killoran, ‘Lord Mayor defends lack of funds set aside to pay for storm clean-up’ Courier Mail (online), 11 December 2014) begins:

BRISBANE City Council is expected to apply for Federal and State Government disaster funding to cover part of the $30 million cost of supercell storm recovery efforts.

It comes as Lord Mayor Graham Quirk fends off questions as to why the council did not have funds in reserve to deal with disaster recovery in a city regularly hit by floods and storms

The Commonwealth funds disaster recovery through the Natural Disaster Relief and Recovery Arrangements (the NDRRA).  Under this scheme the Commonwealth repays the states for expenditure on ‘eligible’ measures.  Each jurisdiction has two thresholds, once expenditure on eligible expenditure meets the first threshold, the Commonwealth meets 50% of any further expenditure.  When expenditure reaches the second threshold, the Commonwealth’s contribution increases to 75%.  In 2014-15 the thresholds for Queensland are $94million and $164million respectively (Productivity Commission, Natural Disaster Funding Arrangements; Draft Report (2014), p 25).

Eligible expenditure must be made under one of four categories.  The categories are:

  • Category A — emergency assistance to individuals.
  • Category B — restoration of essential public assets; financial assistance to small businesses, primary producers, voluntary nonprofit bodies and individuals; and ‘counter disaster operations’ for public health and safety.
  • Category C — community recovery packages and recovery grants to small businesses and primary producers.
  • Category D — acts of relief or recovery carried out in circumstances deemed to be exceptional.

The Commonwealth also makes assistance available to individuals via the Australian Government Disaster Recovery Payment (Social Security Act 1991 (Cth) Part 2.24).  This scheme pays “$1,000 per eligible adult and $400 per eligible child” but the criteria for eligibility has to be set for each event so there may be inconsistencies over who is eligible.  There does not appear to have been a declaration to make this allowance available to those affected by the recent Queensland storm (see http://www.disasterassist.gov.au/Currentdisasters/Pages/default.aspx#QLD).

The Commonwealth recently called on the Productivity Commission to conduct a review into the way the Commonwealth contributes to disaster recovery expenditure.  The Commission has released a draft report and is now considering responses to that report.  A final report is expected sometime this month (see http://www.pc.gov.au/inquiries/current/disaster-funding).

The Productivity Commission report is looking at State/Federal arrangements rather than local government or individual arrangements. As the Commission says (at p. 80):

The Natural Disaster Relief and Recovery Arrangements (NDRRA) set out the framework for the Australian Government to share the costs of natural disaster recovery with state governments (and ultimately, through the states to local governments).

The reference to local governments being funded ‘through the states’, rather than directly by the Commonwealth, reflects the fact that local governments are created by State governments rather than having an independent existence in the Constitution.  As a result ‘local governments are essentially an extension of state governments’ (p. 78).  It follows that Brisbane City Council cannot apply to the Commonwealth for NDRRA funding, it can apply to the Queensland government and if the Queensland Government makes eligible relieve and recovery expenditure, it can turn to the Commonwealth for assistance under the NDRRA.

One problem with the NDRRA is that it is open ended.  The Commonwealth can’t know what disasters will strike and they are committed to reimbursing expenditure made by the states.  Accordingly it is the States (and Territories) that determine whether an event is a natural disaster for the purposes of the NDRRA (NDRRA Determination 2012, [4.2]) and how much they will spend on relieve and recovery, and the Commonwealth is committed to repaying up to 75% of that expenditure.

Not setting aside money for disaster relief is consistent across the country, it is not just a Brisbane City Council practice.  The Productivity Commission says (at p. 92)

Currently Australian governments do not make explicit provision for future natural disaster recovery costs in budgets. Budget estimates include anticipated expenditure on recovery from past natural disaster events. However, future natural disaster costs are treated as ‘contingent liabilities’ — potential future obligations that are dependent on events that may or may not occur and are not under the control of the government. Under the system of Government Finance Statistics contingent liabilities are not included directly in government financial statements.

There is no doubt an incentive for States and Territories not to spend on mitigation.  If they want to spend money to increase resilience, or even set aside money for future disasters, that must come out of current budgets and means there is less money for other demands on government; as the Brisbane Mayor is reported to have said ‘there was a balancing act between cost of living, delivering projects and setting aside funds for natural disasters.’   Setting money aside comes from current State or local budgets; spending money on recovery comes from the Commonwealth.

The Commission goes on to say (p 94):

The systematic bias against mitigation and insurance in current budget frameworks exacerbates the political bias against mitigation. Researchers have found that governments gain more ‘political capital’ from spending on disaster relief, which is immediate, observable and provides private benefits to households.

The question raised, but not asked in the article, is why would anyone expect Queensland or Brisbane City Council do anything but rely on the NDRRA?  That was a question asked of Queensland during the Senate Inquiry into the 2011 Brisbane Floods.  There the Committee was asking why Queensland did not have sufficient insurance and, if I can paraphrase their answer, it was that they did, it was the NDRRA.  As a result the NDRRA determination was changed so that states and territories must demonstrate that they have ‘reasonably adequate capital or access to capital to fund liabilities or infrastructure losses before being granted access to funds under this Determination’ (NDRRA Determination 2012, [4.5.1]).  The Productivity Commission has reported that this requirement has ‘led to little change in state insurance arrangements to date’ (p 108); ‘Instead of being an ‘insurer of last resort’, for some government assets the Australian Government has become the ‘insurer of first resort’ (p. 30).

The emotional pull of the story in the Courier Mail is enhanced with pictures of a homeowner who ‘is still waiting for the roof on her Herston home to be repaired’ and who tells us ‘they may have to wait until February for repairs. The storm left them with a damaged roof and risk of exposure to asbestos after a neighbouring roof slammed into their home.’

The NDRRA is not intended to pay for the repairs to private homes and the Productivity Commission wants to see personal relief reduced even further, they say (at p 39, emphasis added):

There is merit in providing an emergency relief payment to individuals who have been seriously affected by natural disasters in order to avoid immediate economic and social hardship. These payments should be modest and distributed quickly after the event.

it is not intended, or recommended, that governments should pick up the tab for home repairs (though such expenditure could fall under Category A of NDRRA eligible expenditure; (NDRRA Determination 2012, [3.2]); see also ‘Disaster Relief – What does the Federal Government pay for?’ (October 19, 2013)).  As the reference to the Commonwealth being ‘the insurer of first resort’ (above) makes clear, the discussion in this report and the NDRRA generally, is about rebuilding government and community, not private assets.    It is a myth that if a person’s home is lost to bushfire or flood, the state or Commonwealth government will rebuild it.  There will be some, even generous, assistance but it does not extend that far.  Where there are large grants, such as after the 2009 Victorian Bushfires where grants of up to $90 000 were available for people whose sole home was destroedy, these come from public donations rather than government funding (see Australian Government Disaster Assist: Victorian bushfires (January-February 2009) and Victorian Bushfire Appeal Fund: Rebuilding & Recovery Payments)

As the Courier Mail has noted, the Productivity Commission has, in its draft report,

… recommended the criteria for eligibility of NDRRA funding raised, such as increasing the damage threshold from $240,000 to $2 million, as well as decreasing the Federal Government’s contribution to recovery funds to 50 per cent.

There are other recommendations too; to increase pressure on governments to obtain insurance; to reduce assistance to individuals and businesses to encourage self-reliance and resilience rather than an expectation of government assistance; to encourage local governments to release hazard information (and I’m pleased to report here that they cite, in support of their recommendations, Eburn, M and Handmer, J ‘Legal Issues and Information on Natural Hazards’ (2012) 17 Local Government Law Journal, 19-26); and to change government accounting standards so that governments do allocate funds for future disaster to reduce the incentive in favour of response rather than mitigation.

As noted above, the Commission’s final report is due this month and then it will be up the Commonwealth and the states and territories to negotiate a response to its final report and recommendations.