FEMA's Community Disaster Loan Program: Action in the 110th Congress [Updated June 27, 2007] [open pdf - 170KB]
"The Community Disaster Loan (CDL) program, administered by the Federal Emergency Management Agency (FEMA), is a program of federal aid available to local governments specifically to replace revenues lost as the result of a natural or man-made disaster. These are the revenues needed to pay for normal operating expenses, such as fire and police services, public schools, and debt servicing. This aid is available in addition to the federal disaster aid provided to replace damaged public infrastructure and to address special storm-related expenses such as debris removal. The Community Disaster Loan program is unique in permitting local governments struck by disasters to borrow directly from the federal government. It has also been unique in giving the federal administrators of the loan program the authority to cancel the borrower's obligation to repay the loan under specified local budget conditions. State and local governments are generally prohibited by state constitutions or laws from issuing municipal debt to finance deficits in their operating budgets. Indeed, the regulations governing traditional CDLs prohibit loan cancellation to finance a budget deficit that was anticipated before the disaster. The CDL program is intended specifically to permit a community to borrow to pay for operating expenses after its revenue base has been damaged by a disaster."
CRS Report for Congress, RL34065