2005 September 28 Wednesday
Financial Soundness And Disaster Preparedness

One of the underlooked aspects of the damage and loss of life from Hurricane Katrina is just how avoidable most of it was. Shortcomings in federal, state, and local agencies charged with disaster response have attracted the most attention from a press fixated upon the visual images of people on rooftops and bodies floating in waters. But in highly industrialized countries most extreme natural phenomena become disasters for human populations only because of decisions made well ahead of time by private individuals and businesses, and also by government agencies that are not in the disaster relief business.

Government policies have done much to reduce the incentives for prudent decision-making by individuals and businesses. Also, governments have made very imprudent decisions in siting and designing structures near flood zones and other areas at risk of damage from natural disasters. We need to look at how governments at all levels can change policies to reduce the amount of damage, disruption and loss of life from hurricanes and other extreme natural phenomena.

Federal Government Should Lead By Example

The federal government should start by looking at its own siting and building practices. Hurricane wind and flood damage are notable for their avoidability. Want to avoid serious damage and loss of life from hurricanes? Do not build structures near sea level in regions at risk from hurricane. When building near sea level use structure designs and fabrication techniques which can withstand high winds and even floods. Elevate structures and design the buildings for ease of covering up windows and entrances before storms. The federal government has post offices, FBI field offices, and many other structures all over the country. The federal government should design and site all new buildings to make them able to withstand natural disasters.

Only federal government functions essential to an area should get sited in higher risk zones. For example, the federal National Finance Center until recently employed over 1400 in New Orleans and processed paychecks for a half million federal workers all over the country. That center should get permanently relocated to an area which is at very low risk for national disasters. Post Offices, FBI field offices, and some other functions must go where the people live. But even many functions which must go near large populations could get sited at least a few miles inland and on lots raised by dirt fill.

Also, when responding to disasters the federal government rushes in and builds some replacement housing. Well, that housing should not go right on existing unmodified plots where houses were wiped out by storm flood surges. In some cases houses should be rebuilt on trucked in mounds of dirt (quite common in Florida) or on stilts. Better yet, where the storm surges were high and all housing was wiped out for miles inland the new housing should go further inland than the storm surge reached. If people want to rebuild near the ocean then the federal government should not pay for it.

Federal Government Aid Should Incentivize Prudent Behavior

Federal reconstruction aid to hard hit local governments should come in the form of loans rather than outright grants. Local taxpayers should shoulder the costs that come from living along ocean fronts where hurricane strike and in other riskier regions. People who live in dangerous areas should pay for that danger in the form of higher property tax levels, insurance prices, and other market signals.

FEMA should not make big promises of forms of aid to expect in emergencies. State and local governments took a much more lackadaisical approach to emergency preparedness in part because FEMA overpromised how much help it could deliver and how rapidly it could deliver that help.

State Governments Should Impose Tough Standards

Building codes for private homes and commercial buildings should get toughened to reduce building losses from disasters such as hurricanes, earthquakes, and tornadoes. The state of Mississippi should take note that it will lose casino tax revenue for a much longer period of time because casinos were not better built. Had the casinos been built to stay in place and suffer little damage the financial losses to the government coffers would have been far less.

Hurricane Katrina provides a general financial lesson to state and local governments: destruction of structures cuts off tax revenue flows. While governments should impose tough standards just for reasons of public safety governments should also reflect on their own insatiable desire for tax money. The threat of tax revenue interruptions when businesses get washed away should give them an even stronger motivation to require construction of more robust strucures.

State governments should enact legislation and regulations that impose even tougher building codes on all levels of government in each state. For example, the state of Mississippi should require that all state, county, and city government buildings sited along the Gulf coast be located and constructed to withstand the wind and flood waters of a category 5 hurricane. This will both reduce financial losses from disasters and also allow local government buildings to operate as shelters. Also the survival of government buildings will help speed relief and security operations after a hurricane or other disaster.

That means city halls, schools, fire department buildings, police stations, prisons, and other government buildings should be build on raised dirt mounds or sufficiently far inland that to avoid destruction from a flood surge. Also, building materials and construction methods should be chosen to enable the buildings to withstand high winds. For buidings absolutely needed in flood zones the building materials should be able to withstand flooding. So, for example, cinderblock should be used in place of wood.

Financial Soundness Requirements For Local Governments

Each state should require counties and cities in high risk areas to financially prepare for disasters as well. Local units of government should either buy high levels of disaster insurance coverage or build up large reserves of cash deposits. Requirements should be set based on potential losses of tax revenue when buildings get destroyed by hurricanes. The level of reserves required should depend on independent or perhaps state-level assessments of the vulnerability of structures in each jurisdiction to destruction.

Think of these fiscal soundness requirements on local governments against disasters as analogous to requirements on pension funds, insurance companies, and banks. Pension funds, for example, have fiduciary responsibilities to be able to handle expected liabilities and potential investment losses. States should require localities to audit and publish their financial risks from natural disasters and how they have arranged to meet financial demands resulting from disasters.

Share |      By Randall Parker at 2005 September 28 02:59 PM  Politics Money


Comments
Bob Badour said at September 29, 2005 5:36 AM:

Wow, Randall, that's a lot of "should"s. While I know "should" is a convenient short-hand when making lots of recommendations, I still get a visceral reaction to the verb. I prefer to think in terms of contingencies and consequences.

Thus, if the federal government locates the National Finance Center far away from any potential natural disaster, hundreds or thousands of civil servants and the businesses who serve them will likewise locate away from potential natural disaster thereby saving lives and reducing property damage.

With volcanism and earthquakes in the west, with flooding and tornados in the mid-west and with hurricanes and ice storms in the east, one wonders where the disaster-free areas are, though.

With respect to building codes, I don't know that the logic is so simple. One has to consider the expected lifetime of the structure, the cost of construction and maintenance, the average age of buildings destroyed by hurricanes etc.

Making up numbers for the sake of illustration only, let's say a hurricane-resistant post office has a useful life of 100 years and the average age of less well-constructed post offices at time of destruction is 50 years. If the present value of the cost of building and maintaining the hurricane-resistant structure is less than the present value of building and maintaining two lesser structures, then it makes sense to build stronger. If it is more, then it does not.

What if someone comes along and says: "Hey, I can build you a really cheap post office. Sure it will fall down on its own in 30 years, but I can build and maintain 5 of them over the next 100 years for the cost of either of the other two options." ? I think it then makes sense to go in the opposite direction of your recommendation and build for cheap. Doesn't it?


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