The Federal Emergency Management Agency (FEMA) has a novel proposal to reduce the nation’s vulnerability to future natural disasters, like coastal storms, floods, and wildfires.
The proposal, known as the ‘Public Assistance deductible,’ would encourage States to enact measures that would help build resilience and lower the costs of future disasters, such as increasing funding of emergency management programs or requiring homes to be built safer in flood zones. The deductible works just like your automobile insurance deductibles. Before your insurance company picks up the bill, you are personally responsible for some portion of the cost. In this instance, States would have to incur disaster costs above a certain threshold to receive Public Assistance money for the repair of public infrastructure. State governments could lower their deductible and even fully cover it by adopting stronger building codes, better floodplain management policies, and taking steps to reduce their vulnerability to natural disasters.
NRDC and American Rivers filed comments in support of FEMA’s deductible concept, which if implemented, will help better protect people and property, reduce future disaster costs, and save taxpayer dollars long-term. Right now, the proposal is just a concept—not an official rule. However, FEMA should move forward with converting this proposal from an idea to a full-fledged program. Extreme weather is becoming more extreme, increasing disaster recovery costs at all levels of government. The deductible concept would encourage States to invest in measures to reduce their vulnerability, and thus the costs of future disasters.
Public Assistance Deductible Concept Incentivizes Change
The best way to reduce the potential impacts of climate change and natural disasters is to enhance preparedness and resilience. By establishing the proposed deductible concept for the Public Assistance program, FEMA creates an incentive for States to do more to increase their resiliency and that of their communities and thus, reduce the rising post-disaster recovery costs to the federal government.
Per the concept, States must satisfy an annual deductible before receiving Public Assistance grants once a major disaster has been declared. States can earn credit toward the cost of the deductible by undertaking disaster preparedness and resilience activities, like passing a State-wide building code that requires homes to be elevated in a flood zone. A state could potentially fully cover the cost of the annual deductible by undertaking mitigation activities.
The main purpose of the deductible should be to stimulate risk reduction mitigation efforts by state governments, which spur additional actions at the local level. FEMA should give the most credit to those activities that reduce risk. The long-term benefits of enhancing resiliency are protection of people and property and the reduction of future losses.
Bigger Storms and Bigger Costs
Proposals that seek to foster resiliency on a national scale must be pursued. Extreme weather events are increasing in frequency and severity, causing billions of dollars in disaster-related damages. In 2016, the US suffered 15 extreme weather and climate disaster events that each exceeded $1 billion in losses.
Paralleling this trend has been a rise in the number of federal disaster declarations. Between 2004 and 2013, 32% more presidentially declared disasters occurred than during the preceding 10 fiscal years. In the first three months of 2017 alone, there have been over 20 federal declarations related to natural disasters. This is a costly burden for the Federal, state, and local governments to bear.
This uptick in federal disaster declarations reflects the growing share of disaster recovery costs borne by the federal government. According to a study conducted by the National Academy of Sciences, the federal share of disaster aid following major tropical cyclones has climbed from 6 percent (Hurricane Diane, 1955) to more than 75 percent (Hurricane Sandy, 2012), a 46% jump. This is an unsustainable practice, particularly in light of the impacts of climate change.
A recent analysis by the Congressional Budget Office found that damage from hurricanes is expected to increase from 0.16 percent of GDP (or about $28 billion to 0.22 percent (equivalent to about $39 billion in today’s economy) by 2075. As it now stands, the federal government spending for relief and recovery will rise from 0.10 percent of GDP under current conditions (equal to $18 billion) to 0.13 percent of GDP in 2075 (about $24 billion in today’s economy). But is that fair, if state and local governments are continued to allow or encourage coastal development, despite knowing the risks associated with hurricanes, sea level rise, and the potential for damage and loss of life?
The federal government’s increased coverage of disaster costs promotes a moral hazard at the State and local levels of government. “A moral hazard describes the possibility that individuals and organizations will take more risks when they believe that they will be protected from the consequences of their decisions.” According to a recent report by the Government Accountability Office, natural disasters did not have a significant effect on state finances because States relied on the federal government to provide most of the funding for disaster recovery.
The financial implications of future natural disasters are clear—disaster recovery costs are increasing. FEMA should move forward with implementing the deductible for the Public Assistance Program.