Do Coastal Policies Guarantee Greater Disasters?

November 10, 2018

Huge impact of increasing coastal flooding will be the societal costs as thousands, then millions of residents are eventually forced to move as their homes and businesses become untenable due to repeated inundation.
Taxpayers will be on the hook for much of this.

Bloomberg:

A measure approved by Virginia voters this week to cut taxes on homes in flood-prone areas of the flood-prone commonwealth has climate experts warning that it might encourage people to remain in vulnerable areas — and could spread to other states.

The constitutional amendment passed Tuesday with more than 70 percent of the vote allows cities and other local governments to cut taxes on homes that repeatedly flood, providing the property owners take protective steps. Supporters say the change will keep residents from abandoning coastal communities that are increasingly deluged.

That’s what worries some climate policy advocates.

“It will be an incentive to stay in a risky area,” said Chad Berginnis, executive director of the Association of State Floodplain Managers, adding that other states could follow. “This is potentially a big deal.”

Virginia, with its low-lying coastal areas along the Chesapeake Bay, has some of the worst flooding in the country. As of 2015, almost 700 homes in the state qualified as what the Federal Emergency Management Agency describes as severe repetitive loss properties. Those homes cost the federal flood insurance program more than $111 million in flood claims between 1978 and 2015, according to data obtained by the Natural Resources Defense Council.

Climate change is making the problem more acute. By 2030, as many as four communities in coastal Virginia, including Chesapeake and Poquoson, will experience what the Union of Concerned Scientists characterizes as “chronic inundation,” meaning that at least 10 percent of their land area will be underwater an average of twice a month. That number is expected to grow to as many as seven communities by 2045, and as many as 38 by 2100.

Still, Berginnis said that until Washington does more to help people in coastal areas over the long run — for example, buying and demolishing more homes that keep flooding — the benefits of Virginia’s approach outweigh the risks, by making it cheaper to protect homes while they’re still standing.

“You need short-term solutions, and you need long-term solutions,” Berginnis said.

Congress so far hasn’t agreed on a long-term approach. The House last year passed a flood insurance bill that would prevent homes that keep flooding from getting federally subsidized coverage. The Senate didn’t take up the bill.

The Virginia measure passed Tuesday would let cities, towns and counties exempt their most vulnerable homeowners from part of their property tax burden. In return, those homeowners would have to take steps such as elevating their houses, which may slow the rate at which those properties decline in value.

Bloomberg again:

Last fall, after a trio of deadly hurricanes, ratings companies warned vulnerable coastal cities to get ready for climate change — or face higher borrowing costs on the $3.9 trillion municipal bond market. Climate advocates cheered, hoping the prospect of downgrades would push local officials to better protect their residents from the effects of global warming.

Twelve months, two catastrophic storms and thousands of credit ratings later, those companies have yet to downgrade a single city because of climate change. The companies, which include Moody’s Corp. and Fitch Ratings Ltd., say that’s because cities are taking steps to protect themselves.

Last fall, after a trio of deadly hurricanes, ratings companies warned vulnerable coastal cities to get ready for climate change — or face higher borrowing costs on the $3.9 trillion municipal bond market. Climate advocates cheered, hoping the prospect of downgrades would push local officials to better protect their residents from the effects of global warming.

Twelve months, two catastrophic storms and thousands of credit ratings later, those companies have yet to downgrade a single city because of climate change. The companies, which include Moody’s Corp. and Fitch Ratings Ltd., say that’s because cities are taking steps to protect themselves.

Some investors and policy experts dispute the idea that the municipalities have done enough to protect themselves from the storms, flooding and other risks of a warming planet to warrant the high ratings. They argue that bond downgrades are the real test of whether ratings companies account for climate risks.

“Words are cheap,” said Roy Wright, who ran risk mitigation for the Federal Emergency Management Agency until April, and now heads the Insurance Institute for Business & Home Safety. “I don’t know how anyone can look at the last two years of catastrophic damage from severe weather in communities all across America and suggest with a straight face that we have our risks under control.”

Big storms can do measurable damage to a city’s tax base and therefore its ability to pay back bonds. By contrast, gauging the effects of chronic problems such as sea-level rise, flooding and more severe storms is more challenging; vulnerable areas could see property values fall, residents and businesses leave and infrastructure costs rise. But the pace and scope of those shifts are hard to predict.

Even so, over the past year ratings companies have increasingly argued that those challenges are real, and have pledged to account for them in their analyses.

“It is important to consider the current long-term credit implications of the physical impact of climate change,” S&P Global Inc. wrote last October. Those impacts went beyond extreme weather events, to include “more gradual changes to the environment affecting land use, employment, and economic activity that support credit quality.”

For cities vulnerable to those risks, S&P cautioned, failing to address them “would be a credit negative.”

The next month, Moody’s released a similar paper, followed by Fitch this May. Each report carried a version of the same message: Ignoring the future risks of climate change, and failing to become more resilient to those risks, would imperil a city’s creditworthiness.

“What we want people to realize is: If you’re exposed, we know that,” Jones, with Moody’s, told Bloomberg News last fall. “That’s taken into your credit ratings.”

A year later, no cities or counties have been penalized for failing to heed those calls. That’s despite warnings from disaster experts about the widespread failure of local governments to meaningfully prepare for the growing risks of global warming. Meanwhile, many of the cities and counties most exposed to the effects of climate change have received perfect ratings over the past year.

Kurt Forsgren, a managing director at S&P, said the company incorporates climate change into its evaluations. “For those communities that are exposed, we are asking the kind of questions that you’d expect us to ask about long-term risk and mitigating it,” he said.

Executives at Fitch said that among the 1,000 or so local governments they rate across the country, officials are preparing for climate risks.

“We have not seen this sort of demonstrated management weakness or lack of attentiveness to this issue where it matters most,” said Michael Rinaldi, a senior director at Fitch. “If there were a situation where the risks were quantifiable and obvious, we would certainly not sit back and avoid taking rating action.”

Last month, however, FEMA Administrator Brock Long berated local officials around the country for failing to prepare for extreme weather.

“Until we get building codes passed at local and state levels that are meaningful, then we’re going to continue to see a lot of damage and destruction,” Long said during a press conference in October. “If you want to live in these areas, you’ve got to do it in a more resilient fashion.”

 

 

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5 Responses to “Do Coastal Policies Guarantee Greater Disasters?”

    • rhymeswithgoalie Says:

      Any economist will tell you that’s not how incentives work. If you want to help a homeowner do X and Y, you directly tie X and Y to the financial incentive. Hoping that Z will encourage people to do X and Y is the Mother of All Untintended Consequences.

      In a truly sane real estate market, their tax assessments should already be lowered as a result of their houses being worth less.

  1. dumboldguy Says:

    I live in VA, voted NO on the tax cut for homes in flood prone areas, and was shocked to see that it passed by a statewide vote of 70-30. It’s just kicking the can down the road with “short term help” for the self-deluded that will be a long term disaster, especially when combined with the flood “insurance” programs that only ensure that people will do the wrong thing.

    • Keith McClary Says:

      I’m curious how this was sold. All things being equal, giving one group a tax break means higher taxes for everyone else. Are the beneficiaries likely to be more affluent?

  2. Jean Swan Says:

    About 5 years ago my when my sister talked about moving to Virginia to be closer to her daughter and grand kids,I emphasized to her not to go to the coastline bec of rising sea levels.She moved almost next to her daughter,inland,King George.Anyhow she voted for Trump and we are not communicating as much as we used to..I am so sorry to hear about the Virginia vote,I think I will have to postpone calling her again bec I do not want to hear that she voted for that crazy plan!


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