While their magnitude and the backlash may have been a surprise, the cost increases are what was intended. But why should it have been a surprise? Removing subsidies is never popular:
A major flood insurance bill was a rarity when it passed what is widely derided as a do-nothing Congress in 2012, but a year and a half later, there is now an enthusiastic bipartisan effort to gut it. ...
It appears to be another Washington story of unintended consequences, and a warning, environmentalists say, of the rising costs of climate change. Most important, the bill may be a preview of the fights to come over who will pay those costs.
The Biggert-Waters measure sought to reform the nation’s nearly bankrupt flood insurance program, ending federal subsidies for insuring buildings in flood-prone coastal areas. Over the past decade, the cost to taxpayers of insuring those properties has soared, as payouts for damage from Hurricanes Katrina, Irene, Isaac and Sandy sent the program $24 billion into debt.
The aim of the measure was to shift the financial risk of insuring flood-prone properties from taxpayers to the private market. Homeowners, rather than taxpayers, would shoulder the true cost of building in flood zones.
Deficit hawks liked the idea because it would curb a rapidly rising source of government spending. Environmentalists liked the bill because they said it would reflect the true cost of climate change, which scientists say is ushering in an era of rising sea levels and more damaging extreme weather, including more flooding.
But a year after the law passed, coastal homeowners received new flood insurance bills that were two, three, even 10 times higher than before.
The flood insurance problem will never be addressed until the true cost of coastal living is faced by coastal homeowners. One expensive way of jumpstarting the process is to buy out coastal homeowners who can't afford the new insurance premiums at the pre-policy market price. The government could then sell it at a market price that reflects the new insurance premiums. The goverment budget deficit would take a one-time hit but that would be better than taking a long term hit by having taxpayers subsidize coastal living through the National Flood Insurance Program.
So, I see three unattractive options:
Ignore the problem and let taxpayers continue to subsidize coastal homeowners
Leave Biggert-Waters in place and make coastal homeowners pay the true cost of coastal living
Ease Biggert-Waters into place with buyouts of homeowners who cannot afford coastal living
In the long run, options 2 and 3 are strongly preferred in terms of economic efficiency.
Wasn't flood insurance reform intended to raise rates?
With the National Flood Insurance Program running a $24 billion deficit after huge payouts from Hurricanes Katrina in 2005 and Sandy in 2012, Congress in 2012 ordered radical changes to make premiums more closely reflect the true risk of damage for Americans who own insured property in floodplains near rivers and along the coast.
The changes began taking effect in 2013 and prompted protest from coastal residents and real estate interests across the country. Rep. Maxine Waters of California, one of the law’s co-sponsors, criticized FEMA’s implementation of the new law and supported legislation aimed at postponing the insurance premium increases. North Carolinians including Sen. Kay Hagan and Reps. Walter Jones and Mike McIntyre also are pushing for the delay, which could receive a Senate vote as soon as this week.
The loudest support for action to stall the insurance changes has come from New Jersey, Louisiana and other states where the impacts are showing up more quickly than in North Carolina. In states where flood insurance rate maps were updated last year, homeowners quickly learned what their new rates would be. The picture for most policyholders in North Carolina will become clearer as new flood maps start rolling out this spring.
The Wests [NC beach homeowners] pay just $850 a year for their flood coverage now, thanks to generous taxpayer subsidies that are being phased out under the new law. The new rate will be determined partly by the upcoming flood map for New Hanover County and by a surveyor’s elevation certificate required under the new law. One coastal policy expert reckons that the new premium for the Wests’ cottage could reach as high as $21,000.
“We had two contracts, and both of them crashed because of this uncertainty,” Sybil West said. “I’m alarmed because I think this law is going to cause problems all across the coastal United States. It puts us in a bind, and it puts buyers in a bind.
“I’m not opposed to paying more” for flood insurance, West said. “If people live on the beach, they need to pay for that. But I think nobody realizes what these subsidies have been. This is an education.”
The new flood insurance rules, which went into effect on Oct. 1, are intended to make the deeply indebted NFIP solvent by no longer charging government-subsidized rates on homes in flood-prone areas. The hikes will affect about 20 percent of the 5.5 million people who have NFIP policies around the country, as well as thousands more who live in areas that didn’t used to be considered flood-prone but who now must buy insurance under the new FEMA map.
The NFIP subsidized rates have allowed people for years to build in flood-prone areas that, in some cases, probably never should have been built on in the first place. But the feds’ solution to this — hiking up rates over four years until they reach market price — could leave millions of homeowners unable to afford the steep new prices. If these homeowners try to sell their houses, they’ll most likely find it tough to find a buyer, who would inherit the new insurance rates. (People with mortgages are required to purchase the insurance — those who’ve paid off their homes can skip it.)
For years, the federal government has subsidized flood insurance premiums for people whose homes are built in flood-prone areas. One can speculate as to the motivation (real or otherwise) for the subsidization--those with low income can't afford to build elsewhere, private insurance markets overprice insurance in flood prone areas,...--but one thing is certain: flood insurance priced below the efficient market price will lead to too much construction in flood prone areas. Perhaps worse, if the insurance rates are too low--as was the case with the National Flood Insurance Program--there is an incentive to rebuild in areas likely to flood again.
It seems the federal government learned some lessons after Hurricane Katrina and has decided to raise the price of flood insurance by removing subsidies for rebuilt homes in the wake of Super-duper Storm Sandy. While well-intended, and the right move from an economic efficiency point of view, the removal of an inefficient policy is going to create short-term hardships for a significant number of people.
Don't get me wrong. I applaud the move toward actuarily efficient pricing of flood insurance.
I just feel bad for those who made decisions based on bad policy only to see it changed midstream.
With the anniversary of superstorm Sandy just a month away and the
still-battered remains of homes visible on the beachfront, Gov. Chris
Christie ordered the state to start legal action against holdout
homeowners to get the dunes built.
on the way for oceanfront municipalities in their ongoing battle with
easement holdouts for the federally funded beach replenishment project.
Wednesday, Christie signed an executive order that, among other things,
directs the attorney general’s office to “coordinate legal action to
acquire the necessary easements to build dunes” and creates a flood risk
office to take steps toward acquiring property to build dunes along the
addition to the order, the protracted legal battle between a Harvey
Cedars couple and the borough over the rights to build a 22-foot dune on
their beachfront property has been settled for less than a cup of
coffee. The couple, Harvey and Phyllis Karan, will be compensated $1 in a
property rights dispute that lasted over three years, two storms and
one public rebuke by the governor. At one point, they had been awarded
$375,000 for losing their ocean view to new protective dunes.
we rebuild from superstorm Sandy, we need to make sure we are stronger,
more resilient and prepared for future storms, and dunes are a major
component of this process,” Christie said in a statement. “We can no
longer be held back from completing these critical projects by a small
number of owners who are selfishly concerned about their view while
putting large swaths of homes and businesses around them at risk.”
*I have no idea what the title has to do with this post other than anytime I see a story about Sandy and New Jersey I think of 4th of July, Asbury Park. One of my favorites.
So I was reading this CNN story this morning about the recent increase in bottlenose dolphin deaths on the east coast.
The carcasses of dozens
of the marine mammals, seven times more than normal, have been washing
up on beaches this summer, and scientists are struggling for answers to
In Virginia alone, at
least 164 dead dolphins have been found this year, said Joan M. Barns,
public relations manager for the Virginia Aquarium in Virginia Beach.
Almost half of those, 78, have washed ashore in August, she said.
As of Tuesday, federal
authorities say, they have recorded 228 dolphin deaths this year from
New York to Virginia. In all of 2012, 111 deaths were recorded.
'Why,' you ask, 'would I bother reading about dolphins?' Well, I'm glad you asked. First, dolphins are cute. And B), I seem to have spent a significant portion of my adult life studying ways to use economics to inform decision makers on environmental and natural resource disasters. So, upon reading of an anomolous (that's odd) increase in dolphin deaths, I naturally wonder, what are the costs of dolphin deaths, and what are the benefits of preventing dolphin deaths?
So how do I find teh value of a dolphin. Naturally I turn to the only reliable source for finding such information...Google. So I Googled 'value of a dolhin.' No, reallym, that's what I Googled. because my typing skills suck. Fortunately, Google planned for my sucky typing skills and gave me results for 'value of a dolphin.'*
At its most basic, the process now consuming teams of BP and
government scientists and lawyers revolves around this: How much is a
dolphin worth, and how exactly did it die?
extraordinarily difficult to monetise environmental harm. What dollar
value do we place on a destroyed marsh or the loss of a spawning ground?
What is the price associated with killing birds and marine mammals?
Even if we were capable of meaningfully establishing a price for
ecological harm, there is so much that we do not know about the harm to
the Gulf of Mexico – and will not know for years – that it may never be
possible to come up with an accurate natural resource damage
assessment," said David Uhlmann, a law professor at the University of
Michigan and a former head of the justice department's environmental
Warning: Snark ahead. Well, gee, if only the lawyers could figure out a way to value environmental harm? Or a way to place a dollar value on dead birds or marine mammals. Maybe, just maybe, a bunch of people should get together and think about how lessons learned from how people place values on things like blenders and hamburgers can be translated into ways to place values on things like oil spills, or fish kills, or fish species, or natural hazard mitigation. And, maybe, with some pie-in-the-sky thinking, these new methods for valuing the impossible might develop to the point where someone could write a book explaining the methods with an obtuse title like "Valuing Environmental and Natural Resources."
Maybe. Oh, Maybe. Someday. One can hope.
*Have I ever mentioned that I am convinced that Google is the greatest invention ever?
The Dallas Morning News ran an op-ed I wrote about where to
spend tornado safety funds. The
most tragic element of last week’s tornado in Moore was that an EF-5 tornado,
an extremely rare event, hit two elementary schools with full force. Few structures are designed for that type of
stress but engineered buildings would be about the best choice you could
have. Most residential structures would
be leveled. ...
If you consider that Oklahoma has 1,780 campuses and estimates to provide a safe room run from $500,000 to $1,000,000 per campus, the outlay to protect all schools would be immense, $1 to $2 billion dollars. ...
In general, my research suggests that using public money to save lives from tornado fatalities fails the benchmark that spending is considered reasonable if the cost per avoided fatality is less than $10 million. In our book Economic and Societal Impacts of Tornadoes and the follow up to that book DeadlySeason: An Analysis of the 2011 TornadoOutbreak, Dan Sutter and I show that these programs are well outside that benchmark for most uses of the program. Using the funds to reduce fatalities in mobile homes is the one exception for some states.
Should that be "greater than $10 million"? And, $10 million is much higher than the value of a statistical life used in other areas of public policy (e.g., traffic, air quality) making safe rooms in schools even more difficult to justify with benefit-cost analysis.
I was interviewed on Bloomberg Friday. The video link is here. One of the questions was about saferooms and given the
horrible tornado in Moore last week it is an important topic. I live in North Texas and have seen my share
of tornadoes. Surviving one depends on
many factors but the most important are the size of the storm, the amount of
time you have to prepare and the type of structure you are in when the storm
hits. A well-built engineered structure
is the safest. The worst is a mobile
Permanent homes provide reasonable shelter from small
tornadoes and with modest enhancements in construction can also provide
reasonable shelter from many strong storms.
That would account for almost 98% of all tornadoes (EF0-EF2). The Insurance Institute for Business and Home
Safety suggests building homes to meet their Fortified Home Program. Some communities are adopting aspects of
the program in their building codes.
Moore OK, is one of those. But
that would not apply to homes built prior to the enactment of enhanced codes.
For residents of permanent homes to get protection from violent
tornadoes some type of shelter is required, in residence or underground, and
the options for those are growing every year.
We recently converted our hall closet to a shelter. ...
The public policy question is whether or not we should require the installation of shelters by homeowners. They do add a significant cost to the price of a home. Some homeowners, myself included, are willing to pay the added cost but I’m not sure that most people would, even those that live in tornado alley. A second policy option is to offer a subsidy to homeowners for a shelter. Dan Sutter and I have written extensively about this. This is a very expensive program and will reduce fatalities but at a higher cost than programs to reduce casualties from other risks we face.
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Don't believe what they're saying
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