Many thanks to Greg Allison, Sharon Edmundson, and Lee Carter for their invaluable input on this post.

In the aftermath of a disaster, local governments often struggle with the financial burden of paying for the recovery and continuing normal operations. For a FEMA-declared disaster, the Public Assistance Program provides reimbursement for certain recovery costs. But the reimbursements take time to process—sometimes months or even years. Cashflow loans can help local units bridge this gap. 

Local governments affected by Helene have access to at least three cashflow loan programs—one administered by FEMA, one by the North Carolina Department of State Treasurer, and one by the North Carolina Department of Environmental Quality Division of Water Infrastructure. These loans function similarly to grant anticipation loans, as they are generally repaid using FEMA reimbursement funds. However, the legal obligations surrounding their repayment are more nuanced. The Local Government Budget and Fiscal Control Act does not include any special provisions or exceptions for these types of loans. As a result, local governments must adhere to the standard budgeting procedures outlined in the Act. This blog post explains how those provisions apply to cashflow loans and includes a sample annual budget ordinance and a grant project ordinance template. (Guidance on the accounting treatment of these loans is forthcoming.)

Cashflow Loan Programs for Helene-impacted Local Governments

Before turning to the budgeting treatment, the following is a summary of the three cashflow loan programs for Helene-impacted units.

FEMA CDL. The FEMA Community Disaster Loan (CDL) Program provides financial assistance to local governments experiencing significant revenue shortfalls due to federally declared disasters. These loans support the maintenance or expansion of essential government services addressing disaster-related needs. Funds may only be used for ongoing operations or critical services directly impacted by the disaster, such as emergency response, public safety, health services, education, and infrastructure maintenance. CDL funds cannot be used for new capital projects or government activities unrelated to the disaster.

To qualify, communities must document substantial disaster-related revenue losses (typically at least 5% of their annual budget) and demonstrate that funds are necessary to sustain essential services. Loans can amount to up to 25% of a community’s annual operating budget, generally capped at $5 million. Interest rates are based on the U.S. Treasury rate at approval time, with repayment terms typically spanning five years, extendable to ten years.

FEMA offers a loan forgiveness option for communities with continued financial hardship. After three fiscal years following the disaster, local governments may apply for partial or complete cancellation of both principal and interest. To qualify for forgiveness, communities must document that revenues remain insufficient to meet operating expenses despite reasonable efforts to enhance tax collection and reduce non-essential expenditures. The forgiveness application requires detailed financial statements and evidence of ongoing disaster impacts on the local economy.

NC DST Cashflow Loan. The North Carolina Department of State Treasurer Helene Cashflow Loan Program, authorized by Section 4E.5 of North Carolina Session Law 2024-53 (S.L.), as amended by Section 1F.1 of S.L. 2024-57, and initially funded with a $100 million appropriation from the state legislature, provides interest-free loans specifically to local governments located within areas impacted by Hurricane Helene. The Department of State Treasurer (DST) directly administers the loan program, with no requirement for approval from the Local Government Commission. Loan funds must be strictly utilized for disaster response activities related to Hurricane Helene. Loans carry no interest, repayment begins one year following initiation, and the full loan amount must be repaid within five years of initiation or by June 30, 2030, whichever occurs first.

A memorandum from the DST, dated February 13, 2025, provides guidance on the loan program. To be eligible for the first tranche of loan funds (comprising approximately 75% of the total available funds), local governments had to submit FEMA Public Assistance Project Worksheets to the North Carolina Division of Emergency Management (NCEM) by February 14, 2025. Required documentation included a resolution from the local governing board approving the loan agreement, signed copies of the Loan Agreement and Promissory Note, and a completed wire transfer form for fund disbursement. 

DST established a structured repayment schedule: a nominal $1 repayment is due by the first anniversary of the loan, followed by staggered repayments of 10% of the balance due June 30, 2027; 20% due June 30, 2028; 30% due June 30, 2029; and the remaining 40% (minus the initial $1) due by the earlier of the fifth anniversary of the loan date or June 30, 2030. If a local government receives federal reimbursement for activities funded through the loan it accelerates the repayment obligation; the corresponding amount must be repaid within five business days of receipt.

Here is a list of the local governments that received NC DST Cashflow loan allocations in the first tranche. 

NC DEQ Bridge Loans. The North Carolina Department of Environmental Quality’s Division of Water Infrastructure offers Emergency Bridge Loans of up to $3 million at 0% interest to local government units and nonprofit water corporations affected by Helene. Authorized under Section 4C.7 of S.L. 2024-53 and amended by Section 1D.10 of S.L. 2024-57, the program supports urgent recovery efforts for public water supply and wastewater systems. To qualify, applicants must show that immediate repairs—whether temporary or permanent—restore critical services and align with FEMA’s emergency protective measures.

Funding must be committed and fully disbursed by DWI no later than October 31, 2028. Repayment is due from recipients upon receiving federal or state disaster aid, or by June 30, 2030, whichever is earlier. The loans are not amortized; full repayment is required upon the triggering event. DWI evaluates submissions on a continuous basis.

Budgeting Options for Disaster Response and Recovery Expenditures

A local government has a few options to budget for disaster response and recovery related expenditures. It can use its annual budget ordinance, a capital project ordinance (for capital expenditures only), or a grant project ordinance (because the FEMA PA program is a grant program). Some units use a combination of budgeting vehicles. There are advantages and challenges with all the options. Some of the challenges stem from the fact that the budgeting requirements and Generally Accepted Accounting Principles (GAAP) reporting requirements do not neatly match up—local governments must comply with both. 

Budgeting Options for Cashflow Loans

And budgeting is even more complicated for the cashflow loans. As stated above, a cashflow loan for disaster response and recovery is short-term financing that functions similarly to a grant anticipation note, providing immediate funds to cover emergency response and recovery expenditures while awaiting FEMA reimbursement. These loans bridge the cash flow gap, enabling governments to maintain critical services, complete essential infrastructure repairs, and manage disaster-related costs. They are typically anticipated to be repaid primarily with FEMA funds. Because of this, it is tempting to want to treat the cashflow loans as just a balance-sheet activity. But NC budget laws do not allow that. G.S. 159-7 requires that all moneys received and expended by a local government or public authority be included in a budget ordinance. “Therefore, notwithstanding any other provision of law, no local government or public authority may expend any moneys, regardless of their source (including moneys derived from bond proceeds, federal, state, or private grants or loans, or special assessments), except in accordance with a budget ordinance or project ordinance . . . .” Id. (The only exceptions are for internal service funds, trust funds, and custodial funds, which are not applicable to the cashflow loans.) 

This means that the cashflow loan proceeds must first be budgeted as a revenue source, accompanied by matching appropriation(s) authorizing expenditures related to disaster response and recovery. Later, when the loans are repaid, the local government must budget FEMA reimbursements or other revenues as sources to fund the appropriation(s) for repayment. Therefore, cashflow loans are reflected twice in the budget: initially as revenue upon receiving the loan, and subsequently as appropriation(s) when authorizing repayment. The exact nature of the budget entries will be different depending on the budget vehicle the local government is using. 

Annual Budget Ordinance

Many local governments choose to budget all disaster response and recovery expenditures in their annual budget ordinance. 

Benefits and Challenges
This approach offers a clear benefit: it uses a single, familiar budgeting tool. Local officials and finance staff are already accustomed to the annual budget process, which can make planning and oversight more straightforward.

However, this method also presents several challenges. First, North Carolina law requires that all appropriations in the annual budget ordinance be organized by department, function, or project within each fund. This structure makes it difficult to match appropriations directly with FEMA expenditure categories. As a result, local governments must keep separate, detailed records of FEMA-eligible costs within each department or function to meet compliance requirements.

Second, the annual budget ordinance covers only one fiscal year at a time. If a disaster recovery project or FEMA reimbursement extends across multiple fiscal years, the local government must split the related revenues and appropriations accordingly. This can complicate both planning and tracking.

The most significant challenge arises when a local government accounts for a disaster recovery cash flow loan in a non-budgetary statement. This is where the budgetary and reporting treatment diverge. Under GAAP, and specifically GASB standards, the loan must be classified as a liability in the general fund (or other fund in which the loan is being allocated). The outstanding note will be reported as a note payable within the fund at the end of the fiscal year. The receipt of the loan affects only assets and liabilities. The loan itself does not provide any resources for appropriation since there is no effect on fund balance when it is received.

Budgeting Specifics
To include cashflow loans in the annual budget ordinance, a local government must first budget the loan proceeds as revenue within each appropriate fund. (If all or a portion of loan proceeds will be used for general government expenditures, they are recognized as revenue in the general fund. If loan proceeds will be used for water system expenditures, they are recognized as revenue in the water fund. And so forth…) The corresponding appropriation(s) for disaster-related expenditures are recorded in the appropriate department, function, or project in each fund. The government should only budget the portion of the loan it expects to spend during the fiscal year. 

A local government must also budget for loan repayment. The local unit will budget expected FEMA reimbursements as revenue and include an appropriation in the relevant department to cover the portion of the loan scheduled for repayment that year. (Keep in mind that this is for budgetary purposes only. The GAAP accounting treatment is quite different.)

Below is a sample annual budget ordinance for reference. 

Grant Project Ordinance

Local governments have the option to instead use a grant project ordinance to budget for disaster recovery expenditures, FEMA reimbursements, and cashflow loan proceeds. 

Advantages and Challenges
This approach can offer several advantages. First, it allows the local government to align its appropriations with FEMA’s expenditure categories, which can simplify compliance documentation. Second, because a grant project ordinance is a multi-year budget, it lasts for the full term of the FEMA grant. This provides flexibility to budget estimated revenues and make appropriations across multiple fiscal years, which is especially helpful for long-term recovery efforts.

Using a grant project ordinance can also improve how disaster recovery activities are reflected in financial statements. For example, if a local government includes its cashflow loans in a grant project ordinance, which must be accounted for in a special revenue fund pursuant to G.S. 159-26, it avoids recording a liability in the general fund or enterprise fund. This helps preserve the general fund and/or enterprise fund balance, which are often used as key indicators of fiscal health. While the loan will still be reported in the special revenue fund which may result in a fund deficit under GAAP, the fund balance there is not evaluated in the same way. And since the grant project ordinance is a multi-year budget, a reduction in fund balance won’t create a deficit on a budgetary basis. 

However, there is an important challenge to consider: budgeting rules and accounting rules do not fully align when it comes to FEMA Public Assistance (PA) grants. While a grant project ordinance may include both operating and capital costs for budgeting purposes, capital outlay should not be paid directly from it when it comes to financial reporting. To address this, the local government must either transfer the capital appropriations to one or more capital project ordinances, or the general fund, or make significant adjustments when preparing its financial reports.

Budgeting Specifics
When budgeting for a cashflow loan in a grant project ordinance, a local government will include the full amount of the loan as estimated revenue to offset disaster-related operating expenditures. It also must budget the full amount of the loan repayment, offset by estimated FEMA reimbursements. Note: If FEMA reimbursements are not sufficient in any fiscal year to cover the loan repayment due, the governing board is obligated to budget other revenues to cover the shortfall.

Below is a sample grant project ordinance. It includes transfers out to capital project ordinances for capital outlay to avoid the complicated accounting issue.

Hybrid Budgeting Approach

A local government may choose to use a combination of budgeting tools to manage disaster recovery funds effectively. For example, a unit could budget some disaster operating and capital costs in the annual budget ordinance, while using a grant project ordinance to account for the cashflow loan and an equivalent portion of disaster-related operating costs. Specific capital projects could be budgeted separately in one or more capital project ordinances.

This blended approach can offer greater flexibility and alignment with financial reporting requirements. However, it’s essential to ensure that all funds are properly budgeted before any obligations or expenditures occur. It’s equally important to handle the cashflow loan correctly on a budgetary basis—recording it both as revenue when received and as an appropriation to authorize its repayment. Careful coordination across ordinances helps maintain compliance and supports transparent financial management.