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With global climate change increasing the intensity and frequency of natural disasters, the Federal Emergency Management Agency (FEMA) is looking for ways to decrease the amount of money the federal government is paying out annually in disaster relief aid.
While many people see global climate change costs as a looming future problem, the reality is that disaster relief costs have already been escalating for the federal government for more than a decade.
The rise in disaster declarations has been dramatic. Between 2001 and 2014, there were an average of 132 disaster declarations annually, compared to 40 per year from 1984 to 1994
In response, one of the things FEMA developing is a proposed “Disaster Deductible,” which would change how the federal government supports states following disasters. The goal is to “incentivize mitigation strategies and promote risk-informed decision-making to build resilience, including to catastrophic events; reduce the costs of future events for both states and the federal government; and facilitate state and local government planning and budgeting for enhanced disaster response and recovery capability through greater transparency.”
The deductible would establish a predetermined level of state disaster funding before FEMA begin to provide additional assistance through the Public Assistance program following a disaster declaration.
FEMA has been seeking public comments on all aspects of this concept, and a group known as SmarterSafer, which is a diverse coalition of environmental organizations, taxpayer advocates, insurance interests, and mitigation and housing groups, have crafted a set of recommendations.
Among their comments are:
Goals for deductible– SmarterSafer urges FEMA to ensure that the goal of the deductible is reduced long term impact of disasters, reduced risk of loss from disasters, and decreased future disaster costs. While shifting some costs from the federal government to localities can help ensure states and localities have ‘skin in the game,’ and that alone provides some incentives to take actions to reduce risk, cost-shifting alone should not be the goal. SmarterSafer believes that the disaster deductible should act to incentivize mitigation and incentivize non-federal spending on preparation or resiliency. This will reduce long-term costs and losses from disasters.
Where should FEMA focus incentives– Incentives should focus on better planning and preparedness as well as increased resiliency from natural disasters. This could include many activities; however, we believe FEMA should encourage actions that will help communities in the long-term—reducing risk, damage, and the cost of response. FEMA should ensure that any activities that get credit are proven to be effective in reducing risk in the long-term. This includes better building codes and enforcement of such codes, protecting environmental buffers to storms and preserving or creating green space in risky areas, policies and investments in mitigation activities (community and individual), as well as better planning for disasters. We also believe that states and localities should be encouraged to look at reducing the financial costs of disasters, including purchasing insurance for infrastructure and public buildings. FEMA has asked whether recipients should be encouraged to set aside funding for disaster response and recovery. While it is important that states and localities be prepared for disasters, SmarterSafer does not believe rainy day funds are an efficient use of funds. However, the uses of state and local funds on planning and mitigation activities are proven to be efficient and should be encouraged.
What activities should get credit– There will be many activities that should qualify for credit under a disaster deductible; however, we believe FEMA should give the most credit to those activities that reduce risk in the long-term. Nature based approaches to mitigation, including land use decisions that lessen risk, are critical. In addition, communities should get credit for adopting freeboard standards, enforcing better building codes, insurance of infrastructure, increasing the penetration of insurance, buyouts of risky properties, adopting and utilizing the most up to date mapping/risk identification. Further, credits should not be permanent. Annual or other periodic reviews should be undertaken to ensure that the credits being given continue to be appropriate and associated with continued long-term risk reduction. As an example, if credits were given for construction of a levee to protect an existing community, those credits should be reduced if the community’s catastrophic risk rises due to increased construction behind the levee.
Additional Credits for Low-Income Communities
SmarterSafer also notes that not all communities have the same resources to recover from natural disasters, and that this disparity should be accounted for in any planned deductible.
“As FEMA looks to adopt a disaster deductible, it is important that the agency keep in mind equity issues and the different abilities and resources that communities have to take actions to reduce risk. We urge FEMA to consider giving additional credit for activities taken in lower-income areas that face disproportionate risk due to socioeconomic factors and for activities that help protect low-income households from disasters.”
© 2016 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.