Reducing Disaster Costs by Building Better

Over the last seven decades, the federal government has made it a practice to open its purse ever wider to aid communities after disaster strikes. Its willingness to cover disaster costs has resulted in a “no limit, no premium insurance policy for infrastructure” for state and local governments, according to recent testimony by an administrator for the Federal Emergency Management Administration (FEMA). As a consequence, the fiscal burden on the federal government has soared. From 2005 to 2014, the federal government obligated almost $280 billion for disaster assistance. In 2018, in a period of six months, Congress shelled out $140 billion in aid—an amount that was nearly triple the annual budget for the Department of Homeland Security and that contributed almost 20 percent to the total federal deficit for that year. The price tag for disasters will only grow as climate change inflicts ever more natural disasters on the nation through more intense storms, longer droughts, bigger wildfires, and greater temperature and precipitation extremes—as well as sea-level rise. Indeed, the Government Accountability Office (GAO) has flagged the fiscal exposure from climate change as a “high risk” for the government.

Alice C. Hill

David M. Rubenstein Senior Fellow for Energy and the Environment

Reducing this fiscal risk will require making sure that state and local governments have “skin in the game” when making decisions that can affect disaster risk. Knowing that federal assistance is all but certain, state and local officials frequently ignore the disaster risks they create with their decisions on land-use and building standards. Congress can curb this moral hazard by providing the beneficiaries of federal disaster assistance with incentives to jump-start resilient development and reduce risk before disaster strikes. Elimination of federal financial support for both development in high-risk areas and development that fails to comply with climate-resilient building practices would encourage those deciding how and where to build to consider future threat of damage.

Realigning Incentives to Reduce Federal Disaster Payouts

The practice of providing federal disaster aid started innocuously enough. For its first 160 years, Congress largely left it up to state and local governments, private organizations, and individuals to shoulder the burden of disaster relief. But severe flooding in 1948 prompted a change in course. In the Disaster Relief Act of 1950, Congress declared it would provide continuing assistance to state and local governments dealing with major disasters. In the seventy years since, the federal government’s fiscal footprint in disaster recovery has grown exponentially. From 2007 to 2013, according to the GAO, federal appropriations for natural disasters increased 46 percent as compared to the previous six years.

Members of Congress have periodically voiced concerns about the untenable burden placed on the federal government by ballooning disaster payouts. The high political costs of reducing federal aid, however, have ensured that the spigots remain open. For example, after Hurricane Sandy struck the Northeast in 2012, Congress debated for months whether to approve supplemental appropriations to aid recovery. Despite Republican opposition on the grounds of fiscal irresponsibility, Congress eventually approved $60 billion in aid. And when Hurricane Harvey struck Houston five years later, Republicans championed requests for supplemental disaster assistance. It would seem, as former Treasury Secretary Hank Paulson has observed, that politicians will find it near impossible to ignore aid requests when disaster strikes in their own backyard.

Focus on Reducing Risk

Since politics constricts Congress’s willingness to stop the flow of federal aid after a disaster, the legislative body should instead turn its attention to cutting damage caused by disasters in the first place. A recently updated 2018 study [PDF] conducted by the National Institute of Building Sciences (NIBS) concluded that investment in risk mitigation can save an average of $6 in damage for every $1 spent. Improved local land-use practices and stricter building codes would unquestionably reduce damage and disaster recovery costs [PDF]. Take building standards, for example. A 2018 study by the NIBS found that designing buildings to meet the latest model building codes yields a national benefit of $11 for every $1 invested. Yet, FEMA estimates that only 32 percent of disaster-prone jurisdictions have adopted disaster-resistant building codes. That means that nearly 70 percent of disaster-prone jurisdictions are at greater risk of damage, for which the federal government will likely be called upon to pay. 

The challenge for Washington is that under the Constitution the responsibility for land-use choices and building standards rests with state and local officials—not with the federal government. Many of those officials, however, depend on donations from developers and property owners to support their election campaigns, diminishing their incentive to require safer land-use choices and stronger building practices. Given the political debate that rages around climate change, they also may discount the future threats it poses. As a result, many communities continue to approve new development in areas at high risk for flooding and wildfires. Since 2009, for example, Connecticut has permitted more than three times as much housing to be built in coastal flood areas as in less risky areas. On the other side of the nation, just days after the deadly 2018 Paradise fire, which killed eighty-eight people, California approved a new 19,000-home development in an area designated as carrying high or very high fire risk. When those areas burn or flood, or both, the federal government will likely pay recovery costs, in addition to the subsidies—such as federally backed mortgages and flood insurance—that it already provides to support development in the first place.

Skin in the Game: A New Paradigm in the Face of Climate Change

The federal government has two powerful levers to encourage state and local officials to make better decisions when exercising their authority to establish land-use and building standards: restricting federal financial support for development in high-risk areas and conditioning receipt of federal financial support on state and local implementation of climate-resilient building standards. By encouraging state and local officials, as well as individuals, to account for risk, including from climate change, the federal government can shift the current paradigm to force those making hazardous choices to invest in risk reduction.

Follow Sound Land-Use Practices

To discourage state and local governments from permitting new development in high-risk areas, the federal government should withdraw financial support for that development. Congress has already shown that restricting such support saves federal taxpayer money in the long run. Recognizing that the federal government’s financial support of new development in at-risk coastal areas made little sense, Congress in 1982 passed the Coastal Barrier Resources Act (CBRA), which prohibits federal investments and financial assistance that would encourage development in designated areas. The act shifts the full cost of development and rebuilding to those who want to live and invest in those areas. According to one Department of the Interior study from 2002, the estimated savings to the federal government was almost $1.3 billion from 1983 to 2010. Researchers have recently forecasted future savings over the next fifty years as high as $108 billion.

Restricting federal taxpayer support for new development in other at-risk areas in the United States could also yield substantial savings for the U.S. Treasury. For example, the country has experienced explosive growth in development in what is known as the wildland-urban interface (WUI), comprising developed areas within or adjacent to wildlands. These areas often carry a much higher fire risk, yet they are the fastest growing land-use type in the United States. In those areas deemed at high risk of fire or flood, the federal government should follow the principles behind the CBRA and withhold federal financial support for new development.

One argument against federal insistence on the need for sound land-use practice will be the countervailing pressure for affordable housing. Los Angeles County made this argument to justify development in areas facing a high-fire threat. Houston argued the same when it approved a plan to build hundreds of homes in the floodplain after Hurricane Harvey. But building in at-risk areas does not solve the affordable housing problem. When those homes are damaged and destroyed, someone will lose a home, perhaps still owe money on a mortgage, and have to find a new place to live. It is not a lasting solution to housing shortages.

Promote Climate-Resilient Building Standards

The federal government should also require state and local jurisdictions to implement building codes that address the future risk of climate change when federal money supports construction, either pre- or post-disaster. Enforcing requirements to adopt and comply with climate-resilient codes would save the Treasury substantial funds and spare local communities unnecessary damage. Unfortunately, the United States does not yet have model building codes that reflect future risk. In the absence of such codes, it must create federal risk management standards that better protect federal taxpayer funds used to fund building.

FEMA already requires recipients of assistance to rebuild or replace infrastructure [PDF] in hazard-prone areas using the latest model building codes, and covers the added cost in doing so. These model codes, however, do not yet consider the future extremes that climate change will bring. Rather, they focus on historical risk to determine the extremes that structures should withstand. It could take the building code organizations as long as a decade to produce model building codes that address the future risks from climate change. The nation cannot afford to wait that long. As those model codes are being developed, the federal government should promote its own climate-resilient standards for two of the most damaging impacts of climate change—wildfire and flood—and insist that those who receive disaster aid, as well as federal support for development, use them.

The federal government already has experience with creating climate-resilient standards. Because no model code for climate-exacerbated flooding existed in the United States, the Barack Obama administration, in the wake of Hurricane Sandy and based on the recommendation of the Hurricane Sandy Rebuilding Task Force, developed the first national flood standard to account for climate risk, the Federal Flood Risk Management Standard (FFRMS). The FFRMS required that where federal taxpayer money was used to build structures in or near floodplains, those structures had to be elevated to avoid future climate-exacerbated flooding. Ten days before Hurricane Harvey poured approximately four feet of rain on the Houston area causing record flooding, President Donald J. Trump rescinded the order creating the FFRMS. Although, shortly after the White House killed the FFRMS, the homeland security advisor in the White House indicated that the Trump administration would reinstate the protective measure in some form, the nation is still waiting.

With the FFRMS, the federal government proved it was capable of producing climate-resilient building standards quickly and efficiently. The federal government needs not only to bring back the FFRMS, but also to take advantage of its capacity to create a climate-resilient building standard for wildfire as it waits for the building code organizations to develop climate-resilient codes. It must lead the country in demanding climate-resilient building practices.

Conclusion

Rolling back federal disaster aid will not prove easy. It is natural to want someone else to pay for one’s risky choices. Ever since the federal government assumed the burden of disaster recovery, aid recipients and their elected representatives have fought mightily to keep it that way. Conditioning federal assistance on stricter building practices will meet fierce resistance as they typically increase the cost of construction. The withdrawal of federal support for new development in risky areas will, in all likelihood, attract the strongest opposition. For local government, land-use decisions remain core to local governance. Community leaders will object to federal choices that cause the local tax base—and in turn their power base—to contract.

However, with climate impacts destined to worsen in coming decades, the federal government cannot afford to underwrite development and then pay for it again when it collapses in the next flood or burns in the next wildfire. Instead, the federal government should jump-start resilient development by incentivizing risk reduction before disaster strikes. Restricting federal support for new development in at-risk areas would help drive better decision-making now, and, over the longer term, minimize fiscal exposure. Insistence on climate-resilient building practices increases the likelihood that the new bridge or house will withstand the ferocity of climate-fueled storms. The federal government should have as its goal to spend taxpayer dollars resiliently. A good place to start is to stop enabling risky decisions in the first place.