The Local Government Financial Response to Natural Disasters in Kentucky

This study seeks to estimate the effect of disasters on the total receipts and total spending of county governments in Kentucky. In addition to estimating the effects of disasters on total receipts and total spending, this study also seeks to estimate the effects of disasters on specific categories of revenue (taxes, intergovernmental, etc.) and spending (transportation, recreation, general government, etc.). These effects are estimated using data on county budgets for 2007 through 2017 from the Kentucky Department for Local Government (DLG) and data on disaster declarations and public assistance grants from FEMA. The principle findings of this study suggest that: Disaster damage in the previous fiscal year is associated with an increase in total receipts per capita in the current fiscal year. There is no statistically significant relationship between disaster damage and total spending per capita. Disaster damage is associated with a decrease in tax revenues in the current fiscal year and an increase in intergovernmental revenues in the following fiscal year. Disaster damage is associated with a decrease in recreation and culture spending per capita in the current fiscal year and an increase in transportation spending per capita in the following fiscal year. Overall, the results of this study suggest that the effects of disasters on local government budgets are not large. The small changes induced by average levels of disaster damage should be reasonably manageable by local governments given the amount of assistance available from the state and federal government, however, damage well above average amounts does have the capacity to create large responses and strain the budgets of local governments