If the highest goal of fiscal reform is to reduce spending and better the lives of Americans, here’s an idea that fits the bill: Improve the way the federal government responds to the growing number of natural disasters.
Natural disasters have become increasingly costly to the United States, in terms of the toll they take on American communities and in the direct costs of mounting a federal response. The federal government spent about $150 billion on relief efforts after Hurricane Katrina, and has so far committed about $60 billion for superstorm Sandy. The best estimate going forward is that the federal government will spend in the neighborhood of $50 billion a year (in constant dollars) on natural disasters, up from less than $10 billion a decade ago.
What accounts for this increase? In the words of environmental geographer Gilbert White, “Floods are acts of God, but flood losses are largely acts of man.” Although climate change may be making the occurrence of major storms and floods more frequent, poor planning and bad development decisions are making disasters more expensive.
The government does not, and should not, dictate where people can live, own property or operate businesses. But policymakers could reduce the cost of disasters by investing more in natural-hazard mitigation and by implementing measures to discourage development of at-risk areas. Our research estimates that if the government pursued these policies, it could save some $40 billion over the next decade.
Part of the problem with current disaster relief policy is that because taxpayers often foot much of the bill, homeowners, developers and local governments have little incentive to avoid building or rebuilding in areas that are at risk. Although the government can — and should — continue to offer services for disaster victims, it must also change its approach to aid, offering it with an aim of reducing future disaster losses.
This would be a major policy departure. After Hurricane Katrina, for instance, very little of the assistance the government provided came with incentives to rebuild in smarter ways that would avert losses in another hurricane.
With Sandy, the government still has a chance to do things better. We strongly urge that all federal funds apportioned for Sandy recovery going forward be dedicated to ensuring a safer, more resilient future for the afflicted area, instead of going toward rebuilding in ways likely to ensure more waste and misery for disaster victims, taxpayers and the environment.
Because the government makes extensive investment in infrastructure and other development before disasters, and because it also has the deepest pockets when disaster strikes, it has the ability to give communities incentives to help themselves through better zoning regulations, building codes and hazard management programs.
One policy that achieves this goal is the Community Rating System utilized by the National Flood Insurance Program. The program, run by the government, makes flood insurance available to residents of communities that adopt and enforce minimum federally established flood-plain management standards.
Under the rating system, communities are evaluated on measures they have taken that go beyond the minimum standards for flood preparedness and risk reduction. These include incorporating flood-plain open space in planning, and requiring that buildings be placed above a certain elevation. Communities that meet higher standards are eligible for discounted insurance through the insurance program.
A similar system could be implemented for other types of natural hazards, such as earthquake and wildfire, linking incentives to insurance rates, as well as federal assistance. The government also could encourage natural-hazard mitigation by eliminating tax deductions for disaster-related losses of those not in compliance with federal standards, and by tying all forms of federal assistance to a community’s willingness to embrace safe development efforts.
The goal should be to use federal money to prevent disasters, not merely to clean up afterward. Of course the government should continue to support Americans who are the victims of natural disasters, but we also need to help keep them safe from the next one. An effective way to reduce the cost of such events is to take active steps before a disaster has even occurred.
At a time when the government is looking for ways to trim its budget, this is a common-sense solution that will save money and, more important, lives.