November 30, 2012

Coastal Reconstruction Scenario Planning: Superstorm Sandy and the Retreat Option

Peter Kennedy
Partner

As a firm of scenario planning practitioners, FSG is agnostic when it comes to climate change.  Whatever our personal views may be, we feel professionally bound to represent the full range of plausible, defensible climate-change outcomes when constructing scenarios for our clients.  It’s the best way of making sure clients’ strategies are sound and encompassing of future events and conditions that few may appreciate or understand completely today.

But sometimes leaders and policymakers do not have the luxury of taking the long view; sometimes high-impact events compel hard decisions to be made now, based on the best possible information on hand.  That is the kind of situation facing leaders charged with reconstruction plans in the wake of Superstorm Sandy.

This past weekend’s New York Times surveyed the known damage: massive losses in terms of both human life and property; severely compromised infrastructure; population dislocation; and as yet unknown health and environmental consequences.  As of this writing, some wastewater treatment facilities in the region have yet to be fully restored.

Thankfully, even in these bitterly partisan days, there has been an impressive political consensus around basic recovery tasks: providing food, shelter and basic services to the displaced, and getting essential infrastructure back up and running.  But what comes next is going to be much more challenging:  Developing prudent policies around future coastline development and re-thinking the role of the government in effectively subsidizing (or not) insurance for homes and businesses located in flood-prone regions.

Superstorm Sandy is expected to reach $7 billion in claims on the National Flood Insurance Program.  Writing in yesterday’s Times, researchers from the National Ocean Economics Program at the Monterrey Institute of International Studies estimate that U.S. taxpayers are “on the hook for at least $527 billion of vulnerable assets in the nation’s coastal flood plains.”

Maintaining the status quo is getting harder to justify from a public policy perspective.  The National Flood Insurance Program is already $18 billion in debt and there is no way future premiums are ever going to wipe this out – especially with nasty, damaging weather events rising in strength and frequency.  Moreover, with all matters of government spending under intense scrutiny it will be increasingly hard to make a national benefit case for continuing to support at current levels a program that is perceived as favoring a privileged few. 

What’s ahead?  First, higher premiums for property owners – as much as 20-25 percent increases, based on legislation enacted actually before Sandy.  Existing discounts for primary homes will be pared back based on claim histories.  In addition, new flood hazard maps are being re-drawn that will restrict – to an as yet unknown extent – future coastline development.

These measures will help fix some of the biggest flaws in current policy, but many critics say they amount to band-aids.  If current weather trends continue new claims on federal flood insurance policies will quickly outstrip revenue gains from incipient rate hikes.   And opponents of the federal flood insurance program – including an odd mix of fiscal hawks and environmentalists – come back to the question of why taxpayers should subsidize at-risk property that private insurance companies want no part of.  What is that saying?

Whatever the merits of the hard-line libertarian argument, federal flood insurance is not going to disappear soon.  Too many middle- and lower-income homeowners and merchants have come to depend on it; defenders of the program insist it’s not merely a subsidy for beach homes of the wealthy.  As it is, homeowners of modest means are worried that higher insurance rates will make it difficult for them to keep and/or eventually sell their homes.  And beyond the needs of individual homeowners there is the larger issue of federal flood insurance’s contribution to the stability of regional economies, many of which depend heavily on tourism-related income to remain viable.  Looked at this way, and factoring in the political realities of the current debate, it’s hard to see anything but incremental change taking place.

Or, as we scenario planners are keen to add, maybe not.

Nature marches on.  Another few years of shoreline pounding may force much harder decisions than policymakers and politicians are prepared to make today.  

Comments  | 

Tim Cary
I guess a couple more "Wild Card" events will need to take place forcing policymakers against a hard surface of decision-making.
Peter Kennedy
I think you may be right, Tim, unfortunately. As a society we seem to suffer from some form of collective ADD. Amazing how we ever got the interstate highways built...or a man on the moon. Alas, those were different times, as you know from your "Long View" experience. Nice to hear from you, Tim.
Further on coastal reconstruction...Eleanor Randolph of the NYT reports on NY Governor Cuomo's plan to discourage risky rebuilding along flood-prone shoreline. The state will help homeowners rebuild homes on stilts or buy them out completely, depending. But a lot of Hurricane Sandy victims are already busy rebuilding. Details on "Recreate NY-Smart Home" here: http://takingnote.blogs.nytimes.com/2013/01/24/cuomo-bows-to-mother-nature/?hp

Thoughts?