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Four Ways the Government Subsidizes Risky Coastal Rebuilding

Certain federal programs encourage developers to build and rebuild in areas that are increasingly vulnerable to flooding and hurricanes.

A resident jogs along a new stretch of boardwalk and restored beach more than six months after Superstorm Sandy in May 2013 in New Jersey. We look at four federal programs that encourage developers to build and rebuild in areas that are increasingly vulnerable to flooding and hurricanes. (John Moore/Getty Images)

Contractors with the Army Corps of Engineers last month finished pumping more than 1.8 million cubic yards of sand onto the beach in Ocean City, N.J., which had been damaged by Hurricane Sandy.

Using a combination of Sandy aid and funds already earmarked for adding sand to beaches, the federal government picked up $14 million of the roughly $18 million tab. And it’s not the first time Washington has paid to dredge up sand and pump it onto Ocean City’s beaches.

The federal government also helped pay to restore Ocean City’s beaches in 2010, according to data compiled by Western Carolina University’s Program for the Study of Developed Shorelines. And in 2004. And in 2000.

In total, Washington has spent at least $40 million on nine separate efforts to help restore the city’s beaches over the last two decades, according to the data, adding more than 12 million cubic yards of sand.

Beaches are essential to the economies of places like Ocean City. But critics say paying to restore beaches year after year is one of a number of ways the government subsidizes less-than-smart development and rebuilding along coasts that are increasingly vulnerable to flooding and hurricane damage, even as it has discouraged coastal development in other ways.

We’ve taken a closer look at four of these subsidies.

 

The Stafford Act:

When it comes to coastal subsidies, “the Stafford Act — which allows the president to declare a disaster and pour federal aid into individual states and individual counties — is maybe the biggest problem,” said Robert S. Young, a geology professor at Western Carolina University who directs the Program for the Study of Developed Shorelines.

The law, passed in 1988, commits the federal government to paying 75 percent of the cost of rebuilding roads, bridges and other infrastructure damaged in a disaster.

But the infrastructure is typically rebuilt in the same way it existed before a storm, Young said. There’s no requirement that the bridges or anything else be rebuilt to withstand the rising seas.  

The money often goes to well-off beachfront communities. The classic example, Young said, is Dauphin Island, Ala., a town popular with vacation homeowners from Atlanta and New Orleans. As the New York Times reported last year, the federal government has spent at least $80 million rebuilding the island’s infrastructure since 1979. That’s more than $60,000 on each of the community’s 1,300 residents, adjusted for inflation.

 

National Flood Insurance Program:

The federal government’s flood insurance program, created in 1968, offers premiums below market rates for many homeowners. The Property Casualty Insurers Association of America estimated in 2011 the average policyholder paid just half of the “true market-risk rate.”

“The result of that is that there is more development near water than there would be under a totally private market,” said Eli Lehrer, the president of the R Street Institute, a conservative Washington think tank. (The institute is part of a coalition of environmental groups and budget hawks called SmarterSafer.org, which opposes such subsidies.)

The premiums the flood insurance program took in covered what it paid out in claims for a number of years, but the program fell $18 billion into debt after Hurricane Katrina hit in 2005. Congress voted in January to let it borrow an additional $9.7 billion to help pay claims from Hurricane Sandy, but the program has no way to pay off its debt.

Congress passed legislation last year raising premiums on vacation homes and properties that have flooded repeatedly, but it may be years before the premiums those homeowners pay reflect the risk.

Many of the flood maps drawn by the Federal Emergency Management Agency, which runs the program, are decades out of date, and that may also subsidize the cost of living in flood-prone areas. When FEMA released new preliminary maps for New York City on Monday, replacing ones from 1983, the number of structures in flood zones doubled.

 

Beach Nourishment:

The federal government has been paying to pump sand onto eroding beaches — commonly known as beach nourishment — for decades.

Keeping beaches from washing away can sustain tourism and the local economy in beachfront towns, said Kate Gooderham, an executive director of the American Shore and Beach Preservation Association, a nonprofit group. (The association spent $80,000 lobbying Congress last year, according to the Center for Responsive Politics.) Nourishing a beach, she said, is no different than maintaining “airports, train stations, anything else.”

But the only beaches that erode and need to be nourished are ones with homes and other buildings behind them, Young said. Beaches in Delaware and Virginia that have dodged development haven’t vanished despite rapid erosion — they just move back with the shoreline.

“The beaches are disappearing in front of these oceanfront homes because the oceanfront homes are too close to the ocean, essentially,” Young said. “If the homes weren’t there, there would still be beaches in New Jersey.”

Young and other scientists say that beach nourishment can end up encouraging development in areas vulnerable to flooding and hurricanes. In the 1960s, for instance, the Army Corps of Engineers pumped sand onto Carolina Beach, N.C.

“After they nourished the beach, all of a sudden high-rises appeared and the density of development increased tremendously in just a few years,” said Orrin H. Pilkey, an emeritus professor of geology at Duke University and a longtime critic of beach nourishment.

Over the last decade, the Army Corps of Engineers has spent between $125 million and $150 million a year on beach nourishment, said Andrew S. Coburn, associate director of the Program of the Study of Developed Shorelines. (The program’s website has an interactive map showing decades’ worth of nourishment projects in 20 states.)  

Communities such as Ocean City have signed agreements with Washington that commit the federal government to help pay to restore their beaches every few years. Coburn estimated that FEMA has spent an additional $25 million to $30 million on beach nourishment a year. (The Army Corps of Engineers did not respond to our requests for comment. FEMA was unable to immediately confirm Coburn's estimate.)   

But the money for beach nourishment included in the Sandy relief bill passed in January will blow those numbers away.

Coburn estimated that the $50.7 billion bill contains $3.5 billion for pumping sand onto beaches. “That is more money than has been spent on nourishment from every source that we can identify from the history of nourishing in the United States,” he said.

Of course, there’s no question that communities like Ocean City would be hurt if the federal government cut back on beach nourishment, unless state governments pick up the tab. “We’re a resort, seashore town,” said Michael Allegretto, Ocean City’s City Council president. “If we didn’t have our beach, the town would be in trouble.”

 

Casualty Loss Deduction:

Many beachfront homes are investment properties owned by individuals or companies that rent them out. The Internal Revenue Service allows owners to deduct losses that aren’t covered by FEMA or their insurance. While the deduction can ease the burden on taxpayers who have suffered storm damage, it can also function as subsidy for building or rebuilding homes that have been repeatedly damaged.

“When a storm destroys that house, if the folks don’t get all the money back in insurance, they can write those losses off on their taxes,” Young said. “And they can amortize those losses over a number of years.”

Here’s the question, though:  How much tax revenue does this preserve?  I mean, at least in the New York metropolitan area, flood zones are where you find the businesses (presumably a holdover from ports) and rich people.

I’m not saying it’s right or wrong to figure things this way, but if saving money wipes out many more millions in revenue for the governments in upcoming years, it’s penny-wise, pound-foolish.  I don’t know specifics, but I feel like any coastal town I’ve seen in Jersey would be worth eighteen million, easy.

Not that the governments, today, seem capable of making a calculation like that.  I’m more curious as to how the numbers would work out.

Basically, this is another example of the taxpayer subsidizing the richer who are able to afford to live in coastal situations nowadays.

It did not used to be this way before the federal guvmint got involved in these subsidies.

Before FEMA, one could buy a nice little cottage on or near the Gulf of Mexico where i came from for two or three thousand dollars.  Now the same place is usually around a million or so.

ANY house destroyed by coastal storms should not be permitted to be rebuilt until all such are gone,  and similarly for any other type of construction.  Then stop all this nonsense on what are essentially sand bars that have temporarily arisen from the sea.

But John, here’s the thing, if those coastal towns in New Jersey are generating so much money and tax revenue, shouldn’t they be able to pay their own freight?  That’s what the free market is supposed to determine.  If that economy is so vibrant, than they should be able to sequester a couple percent of that value to pay for the beach nourishment and rebuilding.  As long as federal taxpayers are subsidizing all of the risk, we don’t know what the “real” value of those properties are in a competitive economy.

One more thing about a lot of the beaches in N.J. is that they charge you a beach fee just to get on the beach.  So, not only are you paying to fix the beaches every couple of years, you are also paying just to enjoy what you have paid to rebuild.

Stephanie Palmer

June 19, 2013, 3:42 p.m.

I understand the replenishment of the beaches because that’s the basis for the economy of the area. I don’t understand why these states don’t have plans ready in the case of horrible storms. I don’t understand why they can’t come up with a better idea for development at the shore.  I understand why people want to live at the beach. What I can’t understand is why zoning codes permit building so close to the shore. If people want to live there, let them pay for whatever weather comes down the pike. There should be a wide buffer zone where there are no buildings, just dunes.  Constantly rebuilding in the same area is just a waste of taxpayer money.

Allison Prendergast

June 19, 2013, 4:18 p.m.

The Biggert Waters Act revision of the NFIP is an economic crisis ready in the making.  It impacts ALL 50 states, not just coastal ones. It doesn’t just impact the rich with vacation homes on the beach.  Middle class families who have NEVER flooded before have been told their rates will be 5, 10, 20, yes even $30, THOUSAND dollars a year.  Who can afford that? They will leave the NFIP and then have to rely on govt for assistance after a disaster, and the spiral continues. Homes will be foreclosed leading to a real estate, banking, and economic disaster. This will impact the entire country. See this for details:  http://gnoinc.org/uploads/NFIP_Presentation.pdf

In this country it doesn’t seem we’ve ever looked at the successful beach nourishment projects implemented in the Netherlands. The Dutch have reclaimed land from the ocean for many decades and have perfected it. I take issue with individuals like professor Pilkey at Duke who hold firmly to a seemingly outdated philosophy that the oceans will naturally take over our coastal beachfronts and barrier islands.  This simply is not the case in the Netherlands.  I live on a coastal barrier island in North Carolina and I’m not a millionaire but, our community has public access crossovers all the 23 mile length of the island which is free to the general public. We need to examine new approaches to beach nourishment projects that will let future generations continue to enjoy what we now have.

Same old political economics game. People want to live and lay near the beach or a waterfront. Hence, human valuation drives up the property values and people flocking about spend money. Therefore we should build and rebuild in flood prone areas, and the taxpayers should subsidize it if locals can bamboozle them into.

Nature does not care about human valuation. For many reasons, some man-made, floods have been rising. Sooner or later, another storm surge will be even higher.

Count this inland taxpayer out. If people want to enjoy beaches and waterfront, go there and enjoy it. In fact, keep the access open so everyone can enjoy it. But stop trying to cajole me into helping pay for your foolishness building expensive buildings in the path of destruction.

I truly respect your comments Mr. Hall but, the point I was trying to make with regards to protecting our oceanfront beaches is that the Netherlands has done such an incredible job of this.  We have failed to go or even attempt to implement their success at reclaiming land from the sea. Our beaches are for all of us to experience and enjoy long after we have left this earth.  It has nothing to do with building in the path of destruction but, quite the opposite.  We must prevent and preserve our precious oceanfront to insure its protection for all of us.  That was my point…

Peggy L. Trivilino

June 19, 2013, 11:05 p.m.

Coastal flood plains and barrier islands and peninsulae serve a specific geological purpose—they absorb excess water from flood tides and coastal storms.  It doesn’t matter how much money, from whatever sources, is poured into keeping these areas developed—regardless of the purpose—Mother Nature will win eventually.  Period.  Anyone ignorant/arrogant enough to keep building and rebuilding in these environmentally sensitive areas should do it on their own dime.  Period.

The Netherlands has sent a huge portion of their GDP providing for flood protection and coastal storm defense because they are a very small country, most of which sits at extremely low elevation.  It is not about protecting coastal resorts communities for them, it is about protecting a nation.  The US is obviously different.  Here, we add sand to beaches in order to hold those beaches in place in front of properties that are largely second homes and rental properties.  In North Carolina 98% of oceanfront homes are not primary residences. I am not saying that we should abandon those homes.  I am saying that the local communities should be financing their own protection.  If the homes weren’t there, we would still have a beach to go to.

Peggy, I understand that but, please understand my specific point regarding beach nourishment in the Netherlands. I do believe they have the same respect for the environment as we but the question is why can’t we follow their proven example in protecting our shoreline as well?

Peggy L. Trivilino

June 20, 2013, 2:09 a.m.

I hear what you are saying Jerome, but comparing the need of the Netherlands, as a nation, to protect itself from being inundated to the utter lack of real necessity with respect to rebuilding along the coastal plains of the US is comparing apples and kumquats—forget the oranges.  Our country’s biggest problem is that we want what we want where we want it and we’re not about to let a little thing like the functions of geological features to get in our way—especially when giving Mother Nature the finger one more time rakes in the bucks for the short term.  Unlike the Netherlands, the US as a whole is not at risk of drowning if the tide is especially high or if a big storm hits.  The bottom line is this—either we hubristic humans learn our lesson on our own or—sooner or later—Mother Nature will make very sure that we get the message.

Rob, I get where you’re coming from, and that’s why I’m interested in the numbers.  The numbers are especially important, considering that the busy season for these areas started a couple of weeks ago, and ever week of delay is substantial money lost.  Money lost by the small businesses decreases the probability of recovery.

Given the number of people who cry that government should be run like a business (which I don’t believe, since companies limit economic growth via oversight, whereas countries and cities grow exponentially), it’s surprising that so few are interested in something as simple as Return on Investment.

If you can get an ice cream shop running today instead of in September, you’ve probably at least tripled their income and therefore tripled the tax revenue you’ll get back.  If you let them wait until September, they might not have the income to ever recover.  And when one shop closes, it drags down the neighbors.

At that point, the government ends up spending more money (and giving tax incentives) to attract new businesses.  A lot of people probably also end up on welfare, since it’s not like running a bookstore or music shop has a huge margin, these days.

(Think about a place like Disney World, but decouple it from the mothership that can afford anything they want.  They make a huge amount of money in the summer, as you can guess.  If they had to close and told you they’d be able to open in August, you should see that you’re losing about half their year in tax revenue, plus the carry-over effects of all the people who won’t visit Orlando without it, and so won’t hit the restaurants, Sea World, or anyplace else.  That’s all lost money.

(Sure, darwinistic markets could take their courses, but how long does that take and how much money do the governments lose waiting for the next-generation business?  And how free is a market with no money in it?)

Again, this could cut either way.  The right course depends exclusively on the numbers.  I think the last few years have proven that dogma works far better in religion than economics.

John:  I agree that if you are going to get a place back on its feet, that faster is better for everyone.  But it seems to me that the big question you are overlooking is why it should be the governments role to assist in the rebuilding of private businesses, homes, or infrastructure support in areas of known and identifiable hazard.  Where we know this will all happen again.  When you start to ad up the costs of Katrina, Sandy, and the hundreds of other coastal storms, and the costs of all the subsidies, it is a losing venture for the government. If it is such a good “return on investment” then these communities or localities should be able to make that investment themselves.  The fact is that it isn’t for most (and probably would be for some).  But with the massive subsidies of coastal risk outlined in this article, it is hard for us to assess which communities could stand on their own and which can’t.

Rob, I don’t disagree, but the communities were hit at the worst times, I think, at the end of the business season.  Some spots have been able to re-bootstrap themselves.  Others have been paying off bills and can’t afford both.  More importantly, whereas they might be able to afford to fix things in a year, fixing them in a couple of months is a lot more expensive, more with demand spiking.

Remember, a return on investment means nothing to someone who isn’t liquid.  Most small business owners aren’t, from what I can gather.

It’s also not just helping one business.  Each one relies on the rest to drive traffic, so the shuttered sandwich shop is money lost for the bookstore that maybe could and did rebuild immediately.  Their lost customers are dragging the pharmacy down.  I don’t live in (or even visit) the worst-affected communities (my town had almost no damage, and downtown had power restored in a day or two), but I see those same effects in my own local downtown, every time someone unexpectedly closes down.

Unless we know the finances (I definitely don’t), making the judgement of whether they “should” be able to do it without help is a lot like saying they should be forced to accept help.

Peggy L. Trivilino

June 21, 2013, 2:17 p.m.

John, Rob, you’re not getting the point.  You can go back and forth about numbers and business interests and economic consequences until the proverbial cows come home.  Sooner or later—and it will probably be sooner—Mother Nature will render all such discussions moot, once and for all.  We humans may think that preserving our residential and commercial utilization of the North American continent’s Atlantic coastal plain and barrier islands is of unquestionable importance, but, rest assured, in the grand scheme of planetary evolution, it isn’t.  The sooner that we humans, planet-wide, learn that co-operating with Nature is more productive than our ultimately futile quests to conquer her, the better off our stubborn, shot-sighted species will be.

Peggy L. Trivilino

June 21, 2013, 2:21 p.m.

Correction-typo:  That should read, “short-sighted”.

This article is part of an ongoing investigation:
After the Flood

After the Flood: The Challenge of Rebuilding as the Climate Changes

In the aftermath of Hurricane Sandy, ProPublica is investigating the response to disasters as the climate changes.

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