Affordable Housing Institute : US

How do you proceed in a decision vacuum?  Who decides when no one wants to decide?

 

 

A few weeks back, I posted a two-part prescription for building the New New Orleans, one key element of which was this:

 

So let’s say what seems abundantly obvious: everything below sea level is economically unsalvageable.  Nothing below sea level should be rebuilt with Federal funding.

 

It isn’t that the homes are physically uninhabitable (although many of them are), but rather than they are economically untouchable (mold).

 

Let’s be clear: we’re not abandoning that property.  Condemnation means compensation: pay the property owners the pre-Katrina value of the property, and allow them to resettle wherever they like.

 

Yes, this means the Federal government will be paying many who are uninsured, but as I said a few days back:

 

There are some risks it is not cost-effective to insure.  Hurricane Katrina was one of them.

 

So what happens after one of those uninsurable risks happens?

 

What happens?  The federal government covers the unfortunate.  Because that is what a wise government does.

 

Shortly thereafter, I observed that the Federal government continues to punt on its responsibility:

 

Should one adhere to a sound philosophy when there won’t be a second chance?  When the funds wasted may run into the billions, and the city’s future irretrievably compromised?

 

Now comes a New York Times article demonstrating, all too tangibly, how the Federal government’s failure to assume a certain financial burden is leading to a decision vacuum that will impel bad half-measure decisions that in the end will cost everyone involved (except, perhaps the Feds) much more money:

 

LONG BEACH, Miss., Dec. 11 - Standing on the slab that was once her Gulf Coast retirement home, Jocelyn Turnbough has a clear vision of her own Hurricane Katrina counterpunch: a new seaside estate, with a wraparound veranda, a sunroom and a small wading pool out front.

 

Jocelyn Turnbough of Long Beach, Miss., says she does not want to rebuild her home on stilts.

 

Central to this rebuilding plan is Ms. Turnbough’s intention to ignore a plea from the Federal Emergency Management Agency that her new home be elevated on stilts.

 

“At my age, I don’t want to have to go up steps,” said Ms. Turnbough, 69, a retired middle school teacher. “I want to be able to walk in at ground level.”

 

So does the hurricane.

 

The conflict between FEMA’s request and Ms. Turnbough’s desires demonstrates a broad clash here along the Gulf Coast over whether to cede large swaths of land to nature, to rebuild much as it was, or to rebuild homes, at a higher price, with more robust foundations and on structures that raise them above the ground.

 

The debate is playing out on the Mississippi Gulf Coast, with a cast that includes storm victims, coastal engineers, mortgage lenders, the insurance industry, and local, state and federal government officials.

 

FEMA ignited the discussion by issuing late last month a jigsaw puzzle of 228 new maps that, when pieced together, make up the entire 80 miles of Mississippi coast and reach as much as 22 miles inland. These maps represent the biggest simultaneous proposed expansion of federally defined flood zones in the history of the 37-year-old National Flood Insurance Program. The maps for the Louisiana coast will be published early next year.

 

 

Judging by the map, the FEMA boundaries make a lot of sense.

 

Obviously, when you’re talking about people’s homes, or more properly what were people’s homes, people become emotional.  But emotion doesn’t fund rebuilding; emotion doesn’t repay a loan; and emotion doesn’t create new insurance to make capital willing to put itself at risk.  The absence of a reinsurance or backstop capacity means that Ms. Turnbough and her local officials are playing a zero-sum game in which they are collectively at a deficit — the resources available to them are too few to solve the problems they confront.  Meanwhile, delay means inaction, and inaction means slow chaos:

 

The maps for the two states, based on damage caused by Katrina and other hurricanes in the past 20 years, are advisory for now because it will take FEMA at least a year to confirm their accuracy. During this critical rebuilding period, it is up to the local governments to decide if they will honor the agency’s request to adopt the more conservative and more costly standards.

But when the maps become final, the federal agency will have the power to force the hands of local governments, since it can ban cities and their residents from the flood insurance program if they do not respect the official maps.

 

“These are very hard decisions,” said Todd Davison, FEMA’s regional director of mitigation. “There is no denying that. The local officials have to balance the need to allow people to fix up houses that can be repaired and to take some hardship off of the crisis they are in, and at the same time not knowingly put people in harm’s way.”

 

There’s a third option, as my previous posts made clear: condemn and compensate, so that Ms. Turnbough can be told, in the plainest and coldest terms, we will not fund your rebuilding here, but you can relocate elsewhere using this Federally funded cash settlement.

 

The biggest cities on Mississippi’s coast, Biloxi, Gulfport and Pascagoula, have not yet taken a formal position,

 

For the entirely logical reason that they have no idea whether the Federal government will provide them with any reinsurance or credit enhancement!

 

but at least some elected leaders in these communities have made it clear they have objections.

 

Only unincorporated Harrison County and Moss Point, a small city, have voted to adopt entirely the new FEMA standards.

 

In communities that have resisted, elected officials say they fear now is the worst time to radically increase land-use standards, forcing residents who have already lost almost everything to dig deeper into their pockets to rebuild.

 

The unnamed elected officials are confusing topographic sense with economic reality, and the missing federal government.  Just as he who pays the pipe calls the tune,

 

 

It’s not nice to stiff the Pied Piper …

 

if you write the flood insurance, then you can write the boundaries — which, in essence, is what FEMA is proposing.  Flood insurance is national and FEMA is charged with protecting that fund by making prudent decisions about what requires flood insurance and what is illogical to insure. 

 

But if people are knocked out by a tragedy that was never economic to insure, what do you do?

 

“For us to hit them with an additional burden after what they have been through - to me, that is ludicrous,” said Richard Notter, a Long Beach alderman and electrical engineer, who voted to reject the FEMA maps. “No one who has a heart and soul would ever vote to do that.”

 

Concur.

 

Many of the homes wiped out by Hurricane Katrina were built on lots that were swept clear in 1969 when Hurricane Camille hit.

 

One might think people would learn ….

 

For years, geologists and flood plain engineers said that the rush to build along the fragile coasts of the Atlantic and the Gulf of Mexico was the brick-and-mortar version of irrational exuberance.

 

Nope, just hurricane roulette.

 

And with the recent surge in the frequency and violence of hurricanes, the stakes have never been so devastatingly laid bare.

 

More than 1,075 people have been confirmed dead in Louisiana and 230 in Mississippi, with dozens of others still missing. More than $23 billion in flood insurance claims are expected from along the Gulf Coast, from more than 200,000 property owners. The single biggest previous payout was Hurricane Ivan last year, which cost the federally backed program $1.45 billion in claims. A federal bailout of the insurance program, which is supposed to be supported by premiums, will most likely be required.

 

So the same people who are objecting at FEMA’s new ‘too conservative’ coastlines are those who will also be clamoring to have the Federal government fund the previous round of over-optimism.  This is a textbook case of the economist’s ‘moral hazard.’  And unless FEMA acts now, we will be buying ourselves another enormous bailout twenty, ten, or five years hence?

 

Some engineers say the only rational solution, in some sections of the Gulf Coast, is to cede these fragile areas, and not rebuild.

 

“It is time to cut our ties with the most vulnerable of our nation’s coastal areas,” said Robert S. Young, an associate professor of geology at Western Carolina University, in testimony last month before Congress.

 

More than $1 billion in federal disaster aid will be available in Mississippi to help buy out homeowners who live in extremely flood-prone spots, elevate whole neighborhoods in some cases or rebuild schools or community centers more robustly or in safer locations.

 

So there is a solution, at least for some folks, consistent with our proposal.

 

 People like Ms. Turnbough who choose to rebuild soon in areas that do not comply with the new proposals will still be eligible for flood insurance if construction predates the adoption of the FEMA mandates by their local governments.

 

Another example of moral hazard — if you act before we impose a rational decision, we will exempt you from the consequence of your rash act.

 

Some local officials say that the new FEMA advisory maps call for unreasonable standards that will drive up housing prices and threaten whole neighborhoods.

 

“This is not realistic. It’s not practical. It is overkill, and we can start a push back,” Mayor Brent Warr of Gulfport told the City Council at a workshop last week at City Hall, in Gulfport’s devastated downtown.

 

Mr. Warr says he recognizes that the maps will need to change to expand the flood zone. The question, he said, is by how much. FEMA’s redrawn maps would put 6,233 houses and other structures in Gulfport in the flood zone, more than twice the current number. That, he said, is just too many.

 

With all due respect, Mayor Barr, you are allowing your legitimate concern about the cost of a program to rationalize you out of doing the right thing.  You need to sharpen your focus to accept the reality provided the Federal government extends relief.

 

“We are going to be more conservative,” Mr. Warr said in an interview. “But we have to come up with a plan that still offers an opportunity for neighborhoods to exist.”

 

Come hell or high water?

 

It’s terrible that people have lost their homes.  But even as we empathize with their loss, we should not allow emotion or make our choices foolish, or anxiety to prevent us from choosing anything. 

 

Yet that, in the decision vacuum that is our current Federal policy, is currently playing out all along the ravaged Gulf coast.

 

 

“I’m from the Federal government and I’m here to help you.”

 

[Previous posts on New Orleans here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, here, and here.]

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