Los Angeles continues to struggle to recover from devastating wildfires, a challenge exacerbated by both slow federal aid and the looming threat of proposed Federal Emergency Management Agency reforms.
Mayor Karen Bass said at a recent press briefing on her
The delays are substantial, with FEMA reimbursements having slowed even before the planned reforms took effect. For many Palisades residents who lost their homes, "delays, underpayments, and denials from insurers and ongoing mortgage payments are making it impossible to rebuild," Bass said.
To address the crisis, Bass and Los Angeles County Supervisor Kathryn Barger met with President Trump in Washington, D.C., and Bass made two trips to Sacramento to lobby for aid.
In California's capital, she spoke with Gov. Gavin Newsom and pushed for mortgage relief for fire victims, legislation to crack down on insurers, funding to cover the gap between insurance proceeds and rebuilding costs, and enhanced regulations on testing and remediation after wildfires.
"Mayor Bass was just up here a few days ago," Newsom said. "They are getting Palisades, Eaton and Los Angeles County and the city back on their feet, in order to put the best face forward ahead of the Olympics."
In terms of permitting related to state regulations for rebulding, Newsom said, "if there was something to waive, we waived it."
"The fires occurred last January and what Trump has done is nothing," Newsom asserted.
Costs to rebuild have gone up, because of Trump and his policies, Newsom said, adding the state is doing its best to provide financial relief for homeowners.
But, because of needed federal support, Newsom said he planned to travel to Washington D.C., to plead for the federal government to speed up aid to Los Angeles.
FEMA reforms could deepen the financial burden for state and local governments that suffer from natural disasters, analysts said.
Muni bond credit and rating analysts' reactions to President Trump's proposed overhaul of FEMA has been mostly negative, with Moody's Ratings calling it a "credit negative for U.S. state and local governments".
The proposed overhaul would reduce the federal government's role in underwriting disaster costs by tightening eligibility, lowering the federal cost share, replacing reimbursements with capped payments and shifting flood insurance to the private market.
If enacted, the reforms would place a "larger share of disaster response and recovery costs on state and local governments at a time when natural hazard risks continue to rise," Moody's analysts wrote in a May 7 report.
Issuers in hazard-prone regions, particularly smaller ones, face greater challenges under a more constrained FEMA program, and analysts predict states could lose tens of billions of dollars that would have been reimbursed above the standard 75%. On the upside, the proposal reinforces a financial role for the federal government in the aftermath of a natural disaster, as well as for ongoing mitigation investment.
The reforms are generally framed as introducing more conditions and less money for disaster response, requiring additional costs to be borne by local governments, said Lisa Washburn, managing director and the chief credit officer at Municipal Market Analytics.
This shift in responsibility for emergency planning and preparedness would particularly affect issuers in hazard-prone regions like Los Angeles, who already face significant challenges absorbing unreimbursed costs due to limited fiscal capacity, she added.
The waiting game hasn't ended, because while details of the potential FEMA reforms are being fleshed out; Washburn said, it remains to be seen how much of the proposal will be enacted.
Some of the changes could be adopted through executive order, but others would need to be enacted by Congress, Washburn said.
If states are held to the Stafford Act, which limits federal government natural disaster reimbursement to 75%, that could be handled through executive order, Washburn said. But if the parametric recommendations, which could lower that to 50%, are to be implemented, it would have to be handled through legislation, she said.
"The minimum reimbursement under the Stafford Act is 75%, but the governors have routinely requested more, sometimes 80% to 90%," Washburn said.
Under the proposal to get reimbursed for more than 75%, states would need to have disaster insurance as a backstop or a detailed disaster plan, she said.
If enacted, the FEMA reform "proposal reinforces a financial role for the federal government in the aftermath of a natural disaster, as well as for ongoing mitigation investment," Moody's analysts wrote. "But, in addition to reducing disaster aid reimbursement rates, the proposal would shift greater responsibility to states and local governments in emergency planning and preparedness."
An Urban Institute report Washburn linked to in her analysis showed tens of billions of dollars that would have made their way to the states under reimbursements above 75%, which has been standard, would be lost.
The FEMA reforms are framed "as there would be less money going downstream for disasters and there would be more conditions tied to getting that money," Washburn said, which means additional costs for state and local governments.
It's not just the credit outlook on states and local governments that could be affected, it could also hit other agencies, like a small utility in a disaster-prone region, Washburn said.
"Issuers in hazard-prone regions, particularly smaller issuers and those in areas where insurance is constrained, face greater challenges under a more constrained FEMA program," Washburn said.
"For revenue bond issuers, such as utilities, lower reimbursement for physical damage to revenue-producing assets could lead to longer revenue disruptions that may affect reserve levels, require rate increases that may be difficult, and/or increase leverage, which could meaningfully compromise credit quality and willingness to pay debt serve," she said.
Smaller tax-backed issuers face heightened challenges, because fiscal capacity to absorb unreimbursed costs is limited by thin reserves and constrained tax bases, she added.
The layoffs of frontline workers through DOGE has slowed reimbursement during this administration even before the planned reforms.
