GALVESTON — The Federal Emergency Management Agency has informed the city that it will forgive a $5 million loan made to Galveston after Hurricane Ike.

The cancellation means that the city will not have to pay back the principal or accrued interest from the Community Disaster Loan it received in 2009.

The loan was given in the city to help ease a cash flow crisis caused by the hurricane.

Payments were scheduled to begin five years after the loan was awarded on Feb. 13, 2009, and came with a 1.75 percent interest rate.

‘Quite a relief’

Most federal money is given in the form of reimbursements after a city has already spent money out of its own budget.

“It is quite a relief not to have pay this loan back,” city Finance Director Beth Free said.

The finance office anticipated FEMA’s decision, which will have no effect on next year’s proposed budget, Free said.

If the loan had not been forgiven, the city would have to pay back the $5 million, plus another $356,952 in interest, she said.

Asking for forgiveness

The city applied to FEMA’s loan forgiveness program in November 2012 and reported that the city had operated at a $19.3 million deficit in the three years immediately following the storm.

By running deficits higher than the total amount given in the loan, the city qualified for the forgiveness program.

The decision comes six months after Congress approved a change in FEMA’s loan forgiveness formula, making it easier for cities hit by a major disaster to be forgiven.

The loan provision was part of a $982 billion spending bill signed by President Barack Obama in March.

Park board still waiting

The Galveston Island Park Board of Trustees, which received about $4.6 million in Community Disaster Loans, also has applied to FEMA’s loan forgiveness program.

The park board applied to the program in June 2012 but has not received word about whether its loans will be forgiven.

Contact reporter John Wayne Ferguson at 409-683-5226 or

(5) comments

Gary Miller

FEMA has no money. It loaned taxpayer money to COG.
COG is obligated to repay the loan to taxpayers who provided the money. It isn't FEMA's to give away.

Gary Miller

What do you call someone who borrows with a promise to repay then refuses to repay?
What do you you call someone spending money that doesn't belong to them?
COG asked for a loan, got the loan, promised to repay the loan and now will not repay the loan.
Or Criminal FEMA?

Ron Shelby

IHOG, you are not aware of the provisions of these Disaster loans.

In general, they are usually rescinded. The case in which they pay back is if the entitiy's revenues from the following years exceed the revenues of the year in which the disaster hits. In nearly all cases they don't since so many properties are destroyed, yet services must still be maintained so that they can rebuild. As a result, these loans are really "Grants" but titled Loans just in case the revenues exceed revenues earned in the year of the event. If they weren't titled that, they absolutely couldn't be recovered.

They are trying to prevent local governments from having to raise taxes even higher in order to rebuild. They want to help. Galveston County borrowed money. Do you want them to raise your taxes to cover their losses, or is it better if its spread out over the entire population of the US in a more manageable way.

That's the TRUE fundamental issue here. E.G. flood insurance spread over texas or just charge the gulf coast its values.

George Croix

I'm surprised COG didn't sue BP to make them pay the FEMA loan back, because SURELY they could have met their own obligations, if the oil spill that never got to Texas hadn't made them lose all that revenue that can't be proved, just guessed at, but might have been.
Good news, Galveston taxpayers.
In the spirit of good for us then good for you, any outstanding tax payments or fines you owe are going to be forgiven by the City.

George Croix

Is that net or gross revenues? Is it the 5 following years?
From a strictly cash gift in hand standpoint, a city getting this 'federal money'
would be better off post disaster NOT having their tax base recover sufficiently such that revenues exceed the amount that might be had in forgiveness, until they either get the gift, or it's denied.
How can the city lose with a deal like that?
It's not a lot different from lending people money to buy houses they couldn't afford otherwise, then later when they can't pay, lower the interest rate and monthly payments until they can anyway.
These are somebody wins, somebody loses propositions.

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