Bill Clinton photo

Press Briefing by OMB Director Leon Panetta

January 25, 1994

The Briefing Room

12:05 P.M. EST

DIRECTOR PANETTA: As a result of the devastating earthquake that struck Los Angeles a little over a week ago, the President will be requesting an immediate emergency supplemental relief bill for California. We will be submitting that to the Congress tomorrow, and our hope is that it will be introduced tomorrow and that we can begin the legislative process as soon as possible.

The important point that I want to state at this point is that this is a preliminary request and it's based on the best estimates of the damages that we have at this point. This is, according to the Federal Emergency Management Agency, the largest disaster that they've had to deal with. And what we've had to do is, obviously, go to our key agencies and get their best estimates of what they anticipate the cost to be. But as we get new data on these costs we will then make appropriate requests to the appropriations committees on both the House and Senate side to make whatever adjustments are necessary.

That's a similar approach that we took on the Midwest flood relief bill in which we continued to have to update the cost numbers there.

It's important, however, that we begin the legislative process as quickly as possible. And that's why we're sending the bill up tomorrow and that we begin that process now. Our hope is that we can complete action on this emergency relief bill before the recess in February.

Let me also make this point; that right now in terms of the numbers that we're looking at, they include a total federal commitment of about $7.5 billion. That is a combination of the supplemental requests which we are sending up -- the supplemental request will be $6.609 billion, plus $897 million that we have released in contingency funds. The total of that is $7.506 billion.

The supplement request itself -- let me describe the elements of that and we will provide additional material for you. We are asking education funding for assistance to school districts that have been impacted by the earthquake. FEMA obviously provides funding for reconstruction of the schools, but the damage has gone beyond that. We're looking at almost 100 severely damaged schools in that area. So what we're also providing as a result of the damage that's been done out there is additional relief on transportation costs, on food service costs, operating costs, as well as some of the extended day programs that they have to go into because of the damage to the schools.

The total amount there will be $165 million request plus $80 million for Pell grants to assist, again, those students that have been impacted as a consequence of the earthquake. The combination of that is $240 million for the education part.

On HUD, Housing and Urban Development, again, at least at this point, we're looking at about 11,000 homes and apartments that have been declared uninhabitable and that in most instances will probably have to be destroyed. We are providing Section 8 rental assistance vouchers. HUD has provided 5,000; we want to move that up to 10,000 in terms of housing vouchers that would cover individuals up to 18 months. That's $150 million request for those additional vouchers. In addition, we are providing flexible subsidy relief for repair and reconstruction -- that would be $100 million.

CDBG, as you may recall the discussion last week in Los Angeles was that they would be allowed to use CDBG and HOME funds for infrastructure housing and immediate service needs. To replace what we're going to be using immediately for the earthquake would involve about $250 million for both CDBG as well as the HOME program. That totals for Housing and Urban Development about $500 million for that area.

Transportation -- obviously, the impact on infrastructure and highways -- CalTrans has given us the best numbers we have at least at this point. And, again, this is an area where we expect continuing reassessments and new estimates with regards to damage. We've got about $950 million for federal highways, plus we're asking for $400 million for contingencies because we do expect that additional damage numbers will come in, particularly on the highway area. So we're looking at about $1.391 billion with regards to transportation.

The point on transportation, let me just indicate that one of the reasons we've got to move the supplemental quickly is because there is what is known as the emergency relief program which basically puts a cap on emergency relief to states at $100 million per state per disaster. We are now approaching that cap in California. We expect within a week to 10 days that we may reach that cap. So it's important that we try to lift that cap as part of the supplemental requests. That's similar to what had to be done in the Loma Prieta earthquake disaster request as well. That will be part of this transportation section.

The VA -- the veterans area -- we have a hospital that has had a major impact there in the area, the Sepulveda Hospital -- Veteran's Hospital. We still do not have a full estimate from the Veteran's Administration with regards to what needs to be done with that hospital. So we are building in about $21 million plus $7 million that the President has already provided for a total of $28 million to assist in the veterans' care as a result of the damage to that particular hospital.

FEMA is the biggest request -- the Federal Emergency Management Agency -- because, as I said, this is the largest disaster that they are dealing with. They've now reached a point where they're dealing with 99,000 applications that they've received and are trying to process. We're looking at a request of about $3.484 billion for the Federal Emergency Management Agency. That also includes about -- well, in addition to that is $408 million that we have release in contingencies. And so it's a total of about $3,892 million for FEMA alone.

Let me just stress what that's for. That's for, obviously, the reconstruction on public buildings -- and there are a number that have been damaged in that area -- for water system and utility system reconstruction; for mass transit repair and reconstruction; for local roads. We've been asked the question about whether or not assistance is provided for other than federal highways and the answer is, yes, FEMA does provide assistance for reconstruction of local roads. In addition to that, for law enforcement, we do provide a subsidy for the additional law

enforcement needs that have had to be provided as a result of the earthquake. So FEMA covers all of these costs in addition to others. And that's why this huge request, as I said, for the supplemental of $3.4 billion.

The Small Business Administration is targeting $1 billion in loans to be provided for that area. We are asking -- as you know, we request funds that then support a certain loan level. The request in the supplemental will be for about $128 million to support about $559 million of additional loans. That combined with what we released on contingencies brings us very close to the $1 billion target for the Small Business Administration.

The last thing we are asking for is a presidential contingency fund of about $400 million. The reason for that is we have a number of agencies that are still evaluating what they need to provide. We've had the Labor Department, Health and Human Services, as well as other departments have indicated that they very well need additional funds but we don't really have the backup at this point to lock in on a specific number. And so we are, as we did in the flood, asking for a contingency fund to be available for that purpose. That will be $400 million.

Let me mention something else. We have been asked a lot about the match requirement. As you know, under current law, in disaster assistance there is a requirement for a 75-25 match, 75 percent provided by the federal government, 25 percent by state and local government. We have applied, in the past, two tests in order to revise that match. One is a per capita cost. In other words, if the per capita cost exceeds $64 per individual, that has been an element or a formula to be considered in whether or not the match ought to be revised. Clearly, this disaster meets and exceeds that particular per capita test.

There's a second test that we developed with the Midwest floods, which is that if it exceeds a tenth of a percent of the GDP hit, in other words, if the damage exceeds a tenth of a percent, it's our view that that has, then, an adverse economic impact, obviously, on that area, and puts an undue burden on both the states as well as the local governments to try to deal with their match requirement.

That number generally is somewhere between $6 billion to $7 billion, something like $6.7 billion. We clearly expect that the California quake in Los Angeles will exceed that number. And so we are looking at applying a 90-10 match with regards to federal assistance for the earthquake areas in Los Angeles.

Let me just conclude by saying we view this as an emergency situation by any definition of an emergency. The number of victims that have been impacted, the amount of damage that has impacted on that area clearly fits anyone's definition of what an emergency is. And what we would ask is that the Congress and the American people approach the situation with the same sense of compassion and concern for our fellow human beings that we've applied in other disasters. It was in that same spirit that this nation approached the disasters of Loma Prieta, which I was personally familiar with, having had to deal with that problem in my own district in California. But it was the same spirit that applied in the hurricane damage in south Florida as well as Hawaii and with regards to the Midwest floods. So we would ask that the Congress approach this issue, and the American people, with the same spirit of compassion and concern, and that the Congress act expeditiously to move this emergency relief for California.

Q: How are you going to pay for it? Are you bumping up against the caps? You've already exceeded the caps in other areas. What will you cut in order to pay --

DIRECTOR PANETTA: Of course, this is, under the Budget Act -- one of the exceptions under the Budget Act is to allow for an emergency designation. And that's what we're doing here. We're basically declaring this an emergency and allowing it to be defined as an emergency, and therefore, it is not covered by the caps.

Q: So it's all --

DIRECTOR PANETTA: The same treatment we applied to the disasters, again, in the Midwest, in south Florida, as well as Loma Prieta, we are applying here by declaring it an emergency, and therefore, it is outside the caps.

Q: Can you compare this to the amount of the flood? Is this substantially more? Do you have those figures in front of you?

DIRECTOR PANETTA: The number that we were dealing with in the Midwest floods, at least up to this point -- one of the supplementals we included in the budget was some additional request coming out of that situation. But the damage, or at least the costs from the federal level are approaching about $4.6 billion for the Midwest floods. As I said, this is about $7.5 billion. And when you look at both what we're requesting here, plus the contingencies, in the situation with regards to the hurricanes in South Florida, that was a large number as well -- that, when you combine Florida and Hawaii, that number was in excess of $8.5 billion. So this one is coming out somewhere in between, but we don't have the full assessment, obviously, of all of the costs yet.

Q: Because it's not a full assessment, I mean, this is essentially an additional step?

DIRECTOR PANETTA: That's right. This is really kind of a placeholder to begin the legislation. It's the best estimates we have at this point. Generally, these have been pretty good estimates from the people in the different agencies. But, again, because this is a situation where right now you have inspectors going home by home by home and building by building, and it isn't damage that necessarily can be seen from outside. You've got to go into the buildings and inspect it. We just anticipate that we're going to probably see growing costs as a result of that happening.

This is, obviously, an epicenter that took place in a very populated area, one of the most populated areas in the country. And so we're continuing to have to evaluate both the victims that are applying, as well as the amount of damages.

Q: As of yesterday, Pete Wilson was saying that he's holding out for 100 percent federal funding. You've promised him 90- 10. Where are you going to go on that? He's claiming that because of defense cutbacks and other federally-related effects on California, they want a higher percent.

DIRECTOR PANETTA: Well, again, I think everyone understands that initially our requirement is the 75-25 match, and we're now applying a 90-10 match. We think that when you approach disasters, although we are sympathetic with the situation in California in terms of the economy there, that nevertheless, we have to approach this as a partnership and that the states and the local governments have some responsibility to meet these costs as well. And particularly when we're picking up 90 percent of the costs, I don't think it's too much to ask that the state and local government pick up 10 percent.

Q: Do you oppose any effort in Congress to find offsets for this?

DIRECTOR PANETTA: I think what we would oppose is anything that would delay this emergency legislation from getting through. That's the key. And I think obviously we've treated past disasters as emergencies. Members, I think, in a unified way, generally have approached emergencies differently, because it is important to get this relief to victims and to the communities as soon as possible. And we need to pass this legislation before that recess, in particular because of this cap problem that we're facing with regards to transportation.

So I guess my answer to your question is, we want to move this as expeditiously as possible, and we want to do it as an emergency.

Q: There's going to be a move up there to offset some, if not all of this. Are you saying you would fight that actively, or would you work with people to try and find --

DIRECTOR PANETTA: Our approach is that we do not think that victims of this kind of tragedy ought to be held hostage at this point in time, that the important thing is to provide emergency relief to the victims that have been impacted by this disaster, period.

Q: What enforcements do you have against price-gauging in the reconstruction, and how do you see this folding into the overall economy's growth picture and inflation outlook?

DIRECTOR PANETTA: Well, we are -- as with all of the programs involved here in this disaster, we are overseeing the administration of these programs to ensure that, A, we are limiting any kind of price gouging going on, and secondly, that people who qualify for the assistance are the people who receive it. This means that we have an ongoing enforcement effort with regards to administering these programs and we're continuing that.

With regards to the economic impact, I'm going to leave that to the economists. But my view is that, initially, this is going to have an impact in that area. I mean, eventually, I think, as what happened in the central coast of California, people pulled together and eventually have made it and they've come back. And I think the same thing will happen in Los Angeles. But they've been impacted and I don't think we ought to kid ourselves that this is not an emergency situation.

Q: Just to clarify an earlier question, the administration is going to resist efforts by members of Congress to try to offset this aid with other spending cuts in this package, is that correct?

DIRECTOR PANETTA: We will work with the leadership to get this emergency bill passed. And I understand that people will have all kinds of amendments that they may want to offer here, but our approach is we want to expedite this bill as soon as possible. And the fastest way to do that is to recognize that this is an emergency and has to be passed as quickly as possible.

When the flood relief bill, I would remind you, when the flood relief bill went up and was delayed on the House floor, it created tremendous concern about our ability to respond quickly. We don't want to have the same situation occur here.

Q: In a layman's term can you explain exactly where the money is coming from, how it's being handled? Where is the cash coming from?

DIRECTOR PANETTA: Essentially, when you provide an emergency designation and it's outside the caps, then it goes to the deficit.

Q: On a related subject, the President tonight is going to talk about welfare reform among his other proposals. How can the administration pay for the education and the job training that's required to make welfare reform work?

DIRECTOR PANETTA: Obviously, with regards to welfare reform just as regards to health care, we're required to pay for whatever costs are part of the reform effort. And we will. It isn't going to be easy. It's obviously going to take a lot of work. But we are now in the process of working on the welfare reform legislation, and part of what we have to deal with is to pay for both the training --


DIRECTOR PANETTA: We do not have -- we have not had agreement on how we'd pay for it at this point. We're still working at that.

Q: Have you tried to enlist the support of Governor Wilson for this package as you're submitting it to try and get as much bipartisan backing on the Hill?

DIRECTOR PANETTA: We feel it's particularly important that this be a bipartisan effort. And what I did this morning on Capitol Hill was to brief a bipartisan group of the delegation that are obviously very interested in this issue that represent the area there. In addition to that, we had the Governor's representative as well as the Mayor's representative for that briefing. And they are, in particular, getting a direct briefing with regards to the numbers here. And it's our understanding that we have strong bipartisan support to move this package through the Congress.

Q: What is the deficit impact going to be? Is it strictly FY '94 or do you see it rolling into '95 as well?

DIRECTOR PANETTA: No, as always, particularly with regards to transportation and infrastructure, the consequence would not just be in '94, it would be in addition in '95, although they're expediting, obviously, the infrastructure repair. But our experience is that the initial impact would be in '94, but it would also stretch into '95 and perhaps '96 as well.

Q: To pass this bill within the next month are you stuck with the place-holding number?

DIRECTOR PANETTA: If we pass it, I think what our hope is that the numbers that we've built into it plus the contingencies will be able to meet our requirements. That happened in the flood, by the way. I mean, we had a lot of concern in the Midwest floods that we would not have accurate numbers to reflect the damage there. But what we did was we built in specific numbers plus contingencies funds, and the combination of that actually served us pretty well.

Q: Director Panetta, there have been some estimates from California that the total cost could eventually come to $20 billion or $30 billion. In your opinion are those estimates realistic? If this is a preliminary payment for what it might cost, do you think the number could go that high?

DIRECTOR PANETTA: Well, first of all, again, I would remind you that we're dealing with the federal costs here. We're not dealing with what is the total cost of the damage out there.

Secondly, on the estimates themselves, I think again, we're in a very preliminary stage. My understanding is that the estimates have ranged anywhere from $15 billion to $30 billion and it may well be somewhere between those two numbers. But at this point I think it's too early to even make an estimate as to what the total damages are. The most important thing is that we try to get the most accurate numbers we can and that we update those numbers as we get the estimates. And I think within the next few days we'll have better estimates as what the damages are.

Q: This is a technical question. What else is in the supplemental? What does it cost and how are you going to pay for it?

DIRECTOR PANETTA: This supplemental specifically focuses on earthquake relief, period.

Q: This is not tied to the Somalia and the --

DIRECTOR PANETTA: We do have -- as part of the budget that the President will present, there is an additional supplemental request for Somalia and the DOD requirements plus some other needs that are generally contained in our supplemental request. But that is not what we're going to be sending up tomorrow.

Q: Director Panetta, have you had any direct personal conversations with Governor Wilson on what you've proposed? And what has been his reaction to what you have proposed?

DIRECTOR PANETTA: The Governor understands that these numbers are preliminary. We had a conversation over the weekend in which he indicated concern about where the cost numbers might go, and I again sympathized with him in terms of trying to get the best numbers we could. But I also -- and I think he agrees with this -- is we've got to begin the legislative process as soon as possible to move this package through, so that the numbers we have here reflect our best estimates and we will update these numbers as we get new costs estimates. And I think the Governor agrees with that approach.

Q: In that regard, how vehement was he in your conversations with him about the 100-percent funding?

DIRECTOR PANETTA: You know, basically that was -- we never really discussed that element of it. We basically discussed the cost element.

Q: Between the flood and the quake it sounds like FEMA is broke. What happens if there's another disaster this fiscal year?

DIRECTOR PANETTA: Well, I've been disappointed in the number of disasters over the last few years, frankly. Every time we look like we've got a pretty good track going, we're impacted by a major disaster, whether it was Loma Prieta or the hurricanes in south Florida, or the Midwest floods last year. And so almost the last few years have been a series of major disasters that have cost a great deal.

But again, I think it's important for this country to face up to those responsibilities. We've always done that in the past. We know how victims can be impacted in these disasters. This country has always responded and I'm sure that the Congress and country will respond as well to the Los Angeles quake situation. So I'm confident that this will happen, although, as I said, I'd much more prefer a situation where we don't have to deal with disasters.

Q: Is there an upper end to what the federal government would provide in terms of money? If the estimate, the $30 billion is the ultimate cost of this, and 90 percent of that is $27 million, that would be a lot more than what you're proposing today. Is there some upper end of that range that you would balk at?

DIRECTOR PANETTA: I think right now what we need is to try to get the best estimates we can. As always, in these disasters -- and it was my experience in the Loma Prieta disaster -- that there are all kinds of numbers that float out there, from lows to highs, and I think the best thing to do is to wait until we get the most accurate assessments before we decide what steps need to be taken. But here, I think we've got at least some pretty good preliminary numbers, and we just have to update them as we get new numbers.

MS. MYERS: We'll take one more question.

Q: On the highway money, could I clarify the billion or so that you're asking for? Will that go just for the highways that failed during the earthquake, or will some of that carry over into that seismic retrofit program that the state has been implementing? Is this just for the quake damage?

DIRECTOR PANETTA: The answer was, according to my assistant here, that we basically are providing the funds for the repair of the highways. But you have to repair those highways and bring them up to current code. So that may, in fact, upgrade them just by virtue of doing that. But the costs here are basically for that purpose.

Q: Can you tell us the -- what will the President say basically about the economy tonight? Is it a rosy view or -- you were supposed to brief us earlier about that. (Laughter.) What is the general view? I'm not trying to pin you down.

DIRECTOR PANETTA: I'm going to leave that for the President to say in the State of the Union. But as Director of OMB, I can tell you that right now we're all feeling pretty good about the direction of the economy, and we think that what the President has done and what the -- and implementing the President's plan has had a lot to do with that.

THE PRESS: Thank you.

END 12:34 P.M. EST

William J. Clinton, Press Briefing by OMB Director Leon Panetta Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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