Home – Higher Cost Of Disasters Could Portend Cost Shift To States

Higher Cost Of Disasters Could Portend Cost Shift To States

 This past week, as firefighters continued to battle deadly wildfires in Northern California, officials there said this could become one of the Golden State’s worst ever fire seasons, coming on the heels of a historically wet winter and the hottest summer ever recorded in the state.


But you could excuse people on the Atlantic side of the country for barely noticing. In Puerto Rico more than 80 percent of the island remained without power nearly a month after the devastating landfall of Hurricane Maria, and the territory’s governor has said power may not be restored until December. In Florida, state and local officials have gotten the power back on after Hurricane Irma, but were still cleaning up debris weeks later.


Meanwhile, the people of Houston weren’t remotely finished cleaning up from nearly 30 trillion gallons of rain poured down in just a couple days by Hurricane Harvey. A private industry estimate projected it could take nearly two years to clean up and rebuild from that storm.


Add the economic costs from industrial shut downs to the damage to infrastructure and the cost of Harvey is expected to top $180 billion. If it beats Hurricane Katrina’s $175 billion tab, Harvey would become the country’s most expensive disaster.


Hurricane Irma is expected to cost $100 million. The tab for Hurricane Maria may also end up being about $100 billion, a bigger problem for Puerto Rico’s already ailing economy. The cost of fighting the California fires is in the millions and estimates for rebuilding have topped $60 billion, while the total hit to the economy from the fires’ devastation could hit $100 billion, according to some estimates.


As population and development has grown, particularly in disaster-prone areas, so have response and recovery costs – not even accounting for the possibility that climate change will increase disasters and their intensity. According to government figures, major floods and hurricanes have cost the United States $499.5 billion since 2000. That’s more than double the cost of disasters from the previous 20 years and doesn’t even include the damage from Harvey, Irma or Maria. Dollar losses from tropical storms alone have tripled in the last 50 years. The number of billion-dollar disasters last year, after adjusting for inflation, was the second-highest on record.


Fortunately for the states and local communities, the federal government has picked up much of the uninsured cost of disaster recovery and clean-up. But some in Washington think the hit to the federal budget will be unsustainable if the cost growth of the last decade continues, and especially if disasters get more severe. That concern sends shivers down the spines of state budget writers, who fear a cost shift back in their direction.


President Donald Trump has already set his sights on disaster spending, proposing a budget earlier this year that would cut the Federal Emergency Management Agency (FEMA) budget by 11 percent, slashing emergency preparedness grants to states and local agencies. His proposed budget would cut disaster-relief programs across all agencies by just under 10 percent, including cuts to the National Weather Service and National Oceanic and Atmospheric Administration.


Brock Long, who was confirmed this summer as FEMA’s new chief, has also hinted he’s concerned about the federal cost of responding to disasters. He and others argue the formula for determining when to declare a federal disaster – thus making federal money available for the states - should be higher. Currently, states can become eligible for the federal assistance that comes with a disaster declaration when the cost of that event reaches $1.43 per state resident. When a presidential disaster declaration is made, the federal government reimburses states for 75 percent of the cost.


“Some would argue [the $1.43 per capita damage indicator] is too low” for federal disaster help, Long said in an interview this summer with Bloomberg News.


There’s no question that in Washington – even with an unofficial current of climate change denial in the top ranks of the Trump administration – there are worries costs will only go higher. The GAO has more than once cited a 2014 United States Global Change Research Program report saying the costs of floods, droughts, and other disasters will increase as rare events become more common and intense because of climate change.  


Another proposal that has many state disaster officials – and state budget-writing lawmakers – worried actually emerged from the Obama Administration’s FEMA. That plan would require states to pay more for disaster readiness and infrastructure hardening up front or pay more for storm recovery before they could get federal public assistance payments. FEMA, which floated the proposal in 2016 under previous administrator Craig Fugate, likens the idea to a car or homeowners’ insurance policy with a deductible, dubbing the idea the “Public Assistance Deductible” plan.


States would essentially have to meet their deductible for disaster recovery spending before any federal help would kick in. But the amount of the “deductible” could be lower if states had done a lot of work in advance to reduce the potential cost of disasters, such as strengthening building codes or undertaking flood protection projects. If states do that, they’d get a smaller deductible, and federal help would kick in quicker.


Long has said he thinks the deductible premise is good. In the states, however, the view is predictably different.


“I get the principle of the whole thing, but it ends up passing costs back to the states,” Kim Stenson, the director of the South Carolina Emergency Management Division, told State Net Capitol Journal.


Stenson is one of several state emergency directors and local officials who have raised concerns about the idea. Most small states, like Stenson’s South Carolina, would have a problem not only coming up with additional money to respond to disasters, but also trying to buy down their deductible with infrastructure spending that may not immediately have a payoff if they weren’t hit with a costly disaster for several years.


“There are a lot of states out there that cannot afford these programs,” said Michael Sprayberry, emergency management director in the neighboring state of North Carolina.


Sprayberry, who is also the president of the National Emergency Management Association, says some big states might be able to afford such a plan.


“It might be OK for a state like Florida...they’re sitting in a pretty good spot fiscally,” Sprayberry said in an interview. “But many states are more rural.”


And while he thinks most probably aren’t on board, he said NEMA doesn’t have an official position because he doesn’t think there’s a consensus among the states. But he also said he doesn’t currently support the deductible idea because he doesn’t have enough information about what would have to be done to lower the deductible. That part of the plan, he said, is still conceptual.


“I said you sure don’t have my support until I get the details,” he said. “But I don’t think the PA deductible is the way to do it…. It’s not what we support in North Carolina.”


As for raising the threshold for getting federal disaster help, that would even be a problem for big states, Sprayberry said. He pointed to a 2012 GAO study that looked at the per capita damage indicator that showed if it were just adjusted for inflation, about 25 percent fewer disasters would get presidential declarations. And such an adjustment would mean a state with just 5 million people would have seen its threshold in 2012 go from under $7 million in damage to over $10 million.


“So big states like California, Texas and Florida, they’d have a nine-digit threshold to get a disaster declaration,” said Sprayberry.


In comments on the deductible idea sent to FEMA, California’s emergency management office didn’t directly oppose it but said it lacked details and remained “notional and vague.” If it were implemented, it said states should be given four years instead of one to satisfy the deductible.


“A longer time period to calculate the deductible would allow states to plan and implement projects with legislative approval,” it said.


There are plenty of supporters of the deductible idea outside of FEMA. Several insurance organizations, for example, have expressed support because pre-disaster hardening benefits insurers by lessening loss. Some conservative-leaning think tanks also back the idea, arguing that incentivizing disaster preparation that lowers costs makes economic sense.


“Meanwhile, according to at least one assessment, states such as California and Texas – which are among the most at-risk of natural disasters – currently are also among those to invest the least in mitigation and disaster planning,” wrote the non-partisan R Street Institute in support of the plan. The organization, which advocates for market-oriented approaches to public policy, says the current system gives those states no incentive to better prepare for disasters.


“We believe the moral hazard created by the existing federal program helps explain why this is so; risk is transferred from property owners and state and local governments onto the backs of federal taxpayers,” the organization wrote in comments to FEMA.


But opponents of the idea argue the federal Stafford Act, which created the system for federal reimbursement for disasters, is supposed to do exactly that – have the broader pool of states cover each other for losses that no one state can easily afford. It’s like insurance, aimed at spreading risk, says South Carolina’s Stenson.


“That’s basically how insurance works,” he says.


“Disasters cost too much money and they don’t want to pay it anymore and I get that,” he adds. “But that was the intent of the Stafford act – states and local authorities cannot handle large-scale events.”


North Carolina’s Sprayberry also argues that many states that see lots of disasters do try to reduce their risks.


“We do have a disaster reserve fund...and we have a strong mitigation program,” he said of North Carolina. “We try to do these things to make a more disaster resilient state, which we think helps cut down on the cost for the federal government. We are shouldering our share of the load.”


Sprayberry also doesn’t like the notion of unfair shifting of the burden from state taxpayers to federal taxpayers. He notes North Carolinians are federal taxpayers, too.


“I hear people saying, ‘Why do you want the feds to pay 75 percent? Well, the money they have – that’s our tax dollars,” he said. “North Carolinians pay their taxes, so we’re paying into that 75 percent.”