The Ground Floor

Natural Catastrophe Policy in Question Again

This post was written for The Ground Floor by Robert Krueger, communications associate at the Urban Land Institute.

As we have reached the mid point of the Republican and Democratic Conventions and attention is given to what our next president will shoulder, we are also reminded of what the next President must prevent. The conventions fall on the third anniversary of Hurricane Katrina hitting New Orleans. The newest storm, Tropical Storm Gustav, made land fall on Sunday and threatens the city's residents while raising questions of the importance of Washington in natural disaster preparedness and recovery.

Trying to solve part of this dilemma, Robert J. Shapiro, who served as under secretary of Commerce for Economic Affairs in the Clinton Administration, and Aparna Mathur, a research fellow at the American Enterprise Institute, released a study entitled The Economic Effects of Proposals for Federal Natural Catastrophe Reinsurance and New Loan Programs: Who Pays the Benefits?  The report says that many states, far away from hurricane zones, will bear the risk from areas such as the East Coast and the Gulf of Mexico. In other words, all U.S. taxpayers will shoulder the costs of a federal reinsurance backstop bill if there was another catastrophic hurricane season like we saw in 2005. 

The report claims that individual states will be responsible for helping pay the financial weight from:

• State reinsurance loans created by Congress;
• The creation of a federal reinsurance backstop (aimed for those states that experience losses); and
• Expansion of the National Flood Insurance Program (NFIP) to include wind damage.

The report authors estimate that if the U.S. experienced another hurricane season, comparable to the one of 2005, the losses covered by the federal government would reach $140 – 160 billion in 2009, $197 – 230 billion in 2013, and $278 – 332 billion in 2017.  As the result of such another season, there would be 20 states that would face multi-billion dollar burdens.  States such as California would be responsible for $19 billion by 2009 estimates.

So should the government provide insurance for catastrophes?  It is true that insurance markets have been heavily stressed by natural disasters, such as with Hurricane Katrina.  Even though this report provides a good case for those advocates of privatized insurance, critical thinkers must remember that it is written with this same bias. It is being advocated by Americans for Smart Natural Catastrophe Policy, a coaliton of organization for free market policies. We must remember that privatization alone, without any government intervention leaves people to negotiate alone with insurance companies. This can result in the nonpayment of policyholder claims, such as what happened after Katrina.

The bills proposed would allow states to pool their resources to maintain catastrophe funds.  When states expand their catastrophe fund alone, without the help of other states, private insurers do not lower their rates. By dividing up the financial costs among particular states, allows the privatized industry to offer rates that are more affordable to our workforce.

Government needs to be involved to facilitate private market solutions and ingenuity that works within a government of regulations. We need a set of policies that allows citizens to achieve the American dream, not a government that turns its eye on the American workforce who lose their homes since they were told that the insurance they signed up for does not cover what they thought. Free market is great, but only if the proper oversight is in place.

We need to evaluate what we learned from major events. Katrina taught us that some threats are just too big for insurance company or industry to handle alone.  Another natural disaster will again prove too great for an individual state.  Both a new Congress and Administration need to look at the lessons learned when deciding to pass or kill these particular bills.

Thinking Outside the Land Use Box

This post was written by The Ground Floor contributor and ULI senior resident fellow, Bill Hudnut.

How about some thinking outside the box...about how to solve some of our serious land use problems? Here are a few suggestions:

• To create more funds for affordable housing, and enable millions of Americans to claim a tax benefit for home mortgage interest for the first time, which would make owning a home more affordable, follow the advice of President Bush's Advisory Panel on Tax Reform, reporting in the fall of 2005, and replace the mortgage interest deductibility on first homes with a "home credit" in the amount of 15 percent of the interest paid on mortgage debt for that home (no credit or interest deductions would be allowed for second homes or home equity loans);
• To fund infrastructure improvements and new construction at the local and state levels, employ more user fees on the assumption that those who use should pay; and at the national level, establish an infrastructure improvement bank backed by a stable revenue source, i.e., an excise tax on automobiles, a national lottery, or government bonds;
• To do a better job with planning for land use and transportation in a metropolitan area, either sunset Metropolitan Planning Organizations and let the states develop new regional authorities, such as Georgia’s Regional Transportation Authority (GRTA) for the 14 counties around Atlanta, or give the states more responsibility for land use planning and more teeth to enforce their plans, even though "all zoning is local;
• To re-use dead retail space, convert obsolete malls into urban villages;
• To curtail sprawl and address escalating energy costs, create higher density development, especially around transit
• To promote sustainable development, find a market for rehabbing and retrofitting buildings with higher energy efficiency, and create "green" infrastructure, particularly on the fringe; and
• To move beyond outmoded Euclidian (single use) zoning toward more flexible regulations, utilize performance based zoning.

Just some ideas. Some may fly, others may not, but we need to begin thinking creatively about the impact of the changing metropolitan form on the way we develop the land and respond to challenges surfacing today.