Sunday, December 11, 2005

Subsidizing Disasters ...

Estimates of the cost of rebuilding the Gulf Coast after Hurricane Katrina are in the neighborhood of $200 billion. Government is cited by many as an "enabling" contributor to the increasing cost of natural disasters.

Kristy Black (2005) suggests that "Federal flood insurance and U.S. Army Corps of Engineers’ flood control and beach replenishment projects subsidize construction in flood-prone areas, encourage high-risk development and harm environmentally sensitive areas. These programs should be reconsidered."

Black adds that "The National Flood Insurance Program (NFIP), administered by the Federal Emergency Management Agency (FEMA), encourages people to build homes where they otherwise would not. It also encourages lenders to finance mortgages they otherwise would not."

Then, when NFIP pays claims for homes damaged or destroyed by floods, mudslides and other natural disasters, it does not require homeowners to relocate. They can use the money to rebuild in the same location, and their new home can also be covered by NFIP! FEMA admits that repetitive claims are the most significant factor in increasing flood insurance costs.

NFIP covers more than 4.5 million homes in more than 20,000 communities. It pays claims averaging $200 million per year for about 40,000 repetitively flooded properties.

Since 1984, NFIP has paid out nearly $1 billion for at least 10,000 properties that have experienced two or more losses, with cumulative claims often exceeding the value of the property.

Black also points out that "The U.S. Army Corps of Engineers approves and regulates the construction of levees and other flood control structures. From 1928 through 2001, the Corps spent $123 billion (adjusted for inflation) on flood control projects nationwide. By picking up 65 percent of the costs of these projects, the Corps encourages continued development in flood-prone areas.

Flood control structures do not guarantee protection. For example, the 1993 Great Midwest Flood caused $20 billion in damages when more than 1,000 levees failed and 100,000 homes were damaged. But instead of responding with better policies and nonstructural solutions, the Corps continues to subsidize 100 percent of repair costs for all damaged levees it constructs and 80 percent of repair costs for nonfederal projects."

The Government Accountability Office reports that 90 percent of all natural disasters involve flooding. Although they are called "natural," many would not be nearly as destructive had people and property not been placed in harm’s way.

In 2004 alone, FEMA received 1.3 million applications for federal disaster assistance due to hurricanes and tropical storms — far exceeding the number for any comparable period.

The National Climactic Data Center says that increased population and development of coastal areas is responsible for the higher losses from hurricanes. According to the 2000 U.S. Census, more than half of Americans live within 50 miles of a coast and by 2025, 75 percent will.

More than 70 percent of the coastline in the lower 48 states is privately owned, while state and local governments own most of the rest. Homes with beach access or an ocean view are highly valued. Thus flood insurance, beach-erosion control and disaster loans often subsidize higher income homeowners.

Nationwide, erosion causes property losses of approximately $500 million per year.

Over the next 60 years, coastal erosion may claim 25 percent of buildings within 500 feet of the U.S. shoreline, including 87,000 homes.

Floodplain and coastal development harm the environment by displacing environmentally important wetland areas. According to the U.S. Fish and Wildlife Service, up to 43 percent of threatened and endangered species rely on wetlands for survival. Wetlands also improve water quality through filtration and often provide the same level of flood control as expensive dredge operations and levees.

Black concludes that "Government programs should neither subsidize those who choose to live in harm’s way, nor encourage environmental destruction — but those are the results of NFIP, FEMA rebuilding loans and Corps beach restoration projects. Any development in high-risk areas should reflect its actual cost to the public and the environment and should be borne solely by the states, localities and individuals benefiting from them. Ending the subsidies would reduce the economic, human and environmental toll of natural disasters."

Black, Christy G. “Subsidizing Disaster” National Center For Policy Analysis. September 7, 2005


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