MuniLand

This summer, as part of the Federal Transportation Act, Congress made legislative changes to the Federal Emergency Management Agency’s (FEMA) National Flood Insurance Program because it had borrowed $17 billion from the U.S. Treasury to pay off claims for flood damage from the 2005 Hurricane Katrina, and it was deeply insolvent. The editorial board of the Washington Post wrote:

In July, Congress reauthorized the program for five years and included reforms such as the gradual set-aside of a reserve fund, the phase-out of subsidized insurance for second homes and repeatedly flooded properties, a phased-in premium increase and $400 million in annual budget authority for flood-map modernization.

The program was also authorized for the first time to buy reinsurance from private companies. This is progress; whether the NFIP is sustainable post-Sandy is another question.

There are no estimates of insured flood losses from Sandy, but a wide geographic swath was impacted. Some have suggested that the damage from Sandy could consume all the current borrowing capacity that FEMA has from the U.S. Treasury. This could expose the agency to more Congressional scrutiny at a time when legislators are looking for government functions to move to the private sector. The requirement that FEMA buy reinsurance for it’s $1.25 trillion of insured coverage is a small start, but maybe there are ways that flood insurance could be pushed back to the private insurers.

There is a tiny market for private flood insurance, but the bulk is provided through the FEMA program:

Estimates for the economic damage resulting from Superstorm Sandy are circulating from $15 to $50 billion in damage. No formal assessments have been completed yet, and it’s likely that these are “repair” estimates that reflect the cost of cleaning up and repairing infrastructure back to its former state. A repair bill is likely to be much lower than the cost of hardening and improving vital transport, energy and communication systems to withstand more storms like Sandy or worse. After Hurricane Katrina, architect Frederic Schwartz wrote:

The planning of cities in the face of disaster (natural and political) must reach beyond the band-aid of short-term recovery. Disaster offers a unique opportunity to rethink the planning and politics of our metro-regional areas…

I’m not advocating centralized economic planning, but instead the concept of having a clean slate to rethink a region’s needs and weaknesses. Much of New York’s infrastructure is over 50 years old and some parts of the subway system are over 100 years old. On top of these old and heavily worn systems have been laid new systems that support the regions modern economy.

Hurricane Sandy blasted through New York City and left a swath of wreckage. The cost of repairing the region’s infrastructure hasn’t been totaled yet, but Joe Lhota, head of the Metropolitan Transportation Authority (MTA), said this:

As of last night, seven subway tunnels under the East River flooded. Metro-North Railroad lost power from 59th Street to Croton-Harmon on the Hudson Line and to New Haven on the New Haven Line. The Long Island Rail Road evacuated its West Side Yards and suffered flooding in one East River tunnel. The Hugh L. Carey Tunnel is flooded from end to end and the Queens Midtown Tunnel also took on water and was closed. Six bus garages were disabled by high water. We are assessing the extent of the damage and beginning the process of recovery.

The MTA currently has a fully committed 2010-2014 capital budget of $24 billion, which does not take into account any spending needs that arise from Sandy. Here is where the current funding comes from (page 15):

With Hurricane Sandy descending on the mid-Atlantic coastline, I looked back at what I wrote when Hurricane Irene was making landfall last August:

Hurricane Irene, an enormous storm of unimaginable power, is bearing down on the East Coast. Although there could be loss of life and substantial property devastation, America has more than enough resources to meet her and survive mostly intact. Unlike third-world countries we have the people, equipment and money in reserve to clean up…

… Cities, counties, states and utility companies are on standby. Funds have been reserved to respond to emergencies and the federal government has a large department, the Federal Emergency Management Agency, ready to provide local assistance. The public sector is ready to go.