FEMA wants states to pay for more disasters. Do they have the money?

What FEMA pays for

The Federal Emergency Management Agency, known as FEMA, is the US agency that helps pay for recovery after hurricanes, floods and wildfires. Its Disaster Relief Fund is the largest source of federal money after a disaster, according to the Congressional Budget Office (CBO). The fund repairs roads and public buildings, clears debris and covers home repairs for some households.

On October 20th, 2026, FEMA Administrator Cameron Hamilton told state emergency officials that every state needs its own financial reserves. POLITICO obtained a recording of his speech at a conference in Little Rock, Arkansas. Hamilton said changes could begin "in the next six months."

POLITICO also reported that the administration has not publicly announced any changes. It has continued to approve disaster aid for weather events. So far the plan exists as one official's remarks.

How large the bill can get

Federal spending from the fund swings widely from year to year. Figure 1 shows the range CBO found for 1992 to 2021, in 2022 dollars. The smallest year was $2 billion in 1992. The average was roughly $12 billion. The largest was $47 billion in 2020.

A few very large disasters drive most of that variation, CBO found. Congress has paid for the worst years with extra appropriations. Nearly three-quarters of the $381 billion appropriated to the fund from 1992 to 2021 came as supplemental appropriations. A state reserve has to be sized for the bad year.

Can states cover it?

A FEMA report released on October 16th, 2026 found that state disaster agencies "are typically understaffed and underfunded." It also found that many of them depend heavily on federal funding, POLITICO reported.

Eric Holdeman, a former emergency management director in King County, Washington, wrote on LinkedIn that some states have slim rainy-day funds. In his view they could not replace federal disaster money without raising taxes.

Hamilton made the case for the change. He said states that avoid federal aid might begin recovery more quickly. They could start cleanup and repairs "much faster" if they did not have to apply to FEMA and wait for a decision, which can take weeks or months.

Where private money could come in

States have a few ways to raise money before a disaster. They can hold bigger reserve funds, buy reinsurance, sell catastrophe bonds or borrow. Reinsurance is insurance that insurers themselves buy. A catastrophe bond pays investors a return and lets the issuer keep their money if a named disaster strikes.

Private capital is plentiful at the moment. Gallagher Re, a reinsurance broker, counts no natural catastrophe above $10 billion in insured losses since the first quarter of 2025. It puts dedicated reinsurance capital at a record of about $688 billion. Insurance Business reported on October 22nd, 2026 that this gives reinsurers a strong appetite for business at the January 1st renewals.

That ease may not last. Gallagher Re's data show US insured catastrophe losses averaged about $58.8 billion a year in La Niña conditions, against about $27.7 billion in El Niño conditions. Gallagher Re says these are historical averages, not forecasts. Insurance Business reported that forecasts point to a possible move toward La Niña later in 2027.

Insurance also covers only part of the cost. Gallagher Re put economic losses for the first nine months of 2026 at about $242 billion, and about 62% of that was uninsured.

California shows how thin the private market can be in a fire-prone state. After the Los Angeles wildfires of January 2025, many insurers limited new business in high-risk areas. That pushed more homeowners to the California FAIR Plan, the state's insurer of last resort, Insurance Business reported.

What Vektora's scenario brief shows

Vektora's scenario brief asks whether states, reinsurers and bond investors can build a replacement safety net before the shift takes hold. It maps the possible outcomes from smooth to rough. In them, replacement money arrives unevenly, in some states before others.

If nothing unusual happens, coverage is partial. States with earlier reinsurance ties, mainly Florida and Louisiana, get real cover. Most other states rely on strained reserves or on insurers of last resort. The brief rests on the same POLITICO report, which it cites as its source for Hamilton's six-month remark.

Figure 2 lists the dates the brief says to watch. Each one has a public source, named in the brief.