TCS Director of Research & Policy Josh Sewell joins Steve Ellis to help answer the multi-billion dollar question: Who Pays When Disaster Strikes?

Transcript

Announcer:

Welcome to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget spending and tax issues facing the nation. Cut through the partisan rhetoric and talking points for the facts about what’s being talked about, bandied about and pushed to Washington, brought to you by taxpayers for common sense. And now the host of Budget Watchdog AF TCS President Steve Ellis.

Steve Ellis:

Welcome to All American Taxpayers Seeking Common Sense. You’ve made it to the right place for nearly 30 years. TCS that’s taxpayers for common sense, has served as an independent nonpartisan budget watchdog group based in Washington dc We believe in fiscal policy for America that is based on facts. We believe in transparency and accountability because no matter where you are in the political spectrum, no one wants to see their tax dollars wasted. It’s the 3rd of October, 2024 and a devastating storm. Hurricane Helene has inflicted widespread destruction and deaths across the south. The Associated Press reports that Helene Roared shore in northern Florida, late on Thursday, September 26th as a category four hurricane and quickly moved through Georgia, the Carolinas, and Tennessee finally unleashing the worst flooding in a century in North Carolina. Rainfall estimates in some areas top more than two feet, and that was on top of earlier rainstorms with more than 150 deaths reported and more than 1 million residents in the affected areas. Still, without electricity, there can be no question about the horribly high human cost of this disaster. But quantifying the economic and recovery costs is something we do have deep experience in at taxpayers for common sense. And so I’ve asked TCS Director of Research and policy, Josh Sewell, to join me today to help us answer the multi-billion dollar question, who pays when disaster strikes. Josh, thanks for being here.

Josh Sewell:

Hey, Steve, it’s time to have a good conversation.

Steve Ellis:

So is there a straightforward answer to that question, Josh? Who pays when disaster strikes?

Josh Sewell:

Well, I know there was an earlier budget, watchdog AF podcast aptly titled, who Pays When a Disaster Strike. That was with, I think it was with Mike Sarco and Chris How Smith. But that was a little different in that it was about the ship hitting the bridge in Baltimore Harbor, if you remember, and that’s a lot different than the situation here, but one of the initial funds tapped by FEMA after that disaster is called the Disaster Relief Fund, and that fund is the Go-to in each situation, and that is fully funded by US taxpayers.

Steve Ellis:

We’ve talked about the DRF before Josh, and over the summer, the FEMA administrator was telling lawmakers that funding was running out. Is there going to be enough resources to respond? The recently enacted continuing resolution keeping government open, didn’t have extra cash for the DRF, right?

Josh Sewell:

Right. It did not. But adopting the CR, it did unlock cash for fiscal year 2025, which started October 1st.

Steve Ellis:

And I guess that even though they were predicting a very active hurricane season in North Atlantic, we didn’t get the number of storms that they were predicting. Of course, then it only takes one, and Hurricane Helene certainly had an impact in areas where you wouldn’t have expected. So from what you’re saying, FEMA won’t run out of funds, at least not yet, but it is drawing on cash budgeted for 2025. So that doesn’t really solve the problem. Insufficient funds that she brought up in August. Right,

Josh Sewell:

Right. FEMA received 20.1, or maybe it’s 20.5 billion. I keep forgetting the exact amount, but it’s 2024 spending level extended as part of the cr. And it’s been reported that 6 billion of that will go to cover that shortfall for disasters that happened earlier this year or from previous years.

Steve Ellis:

So poof, 30% of the funds are gone the moment they hit the account on October 1st,

Josh Sewell:

And that’s not accounting for whatever Helene is going to cost Helene. And let’s be honest, whatever else happens between today and September 30th of next year.

Steve Ellis:

Well, let’s get talking about Helene then. I mean, Helene looks to have a high price tag. I saw estimates of 145 to 160 billion in total costs. That’s counting property damage, economic losses, some of which is insured, some of which, much of which is not. How much of that translates to federal taxpayer costs?

Josh Sewell:

I hate to say, but it’s too early to tell, but it’s clearly going to be a lot of money. This is probably the second, third most costly disaster. It depends on exactly what we figure out, but we should be clear that there’s a big difference between response and recovery costs.

Steve Ellis:

Okay. Let’s unpack that a bit. Talk to me more about the response recovery.

Josh Sewell:

So I think this is really important when talking about disasters and the cost of disaster and who’s going to pay, let’s be clear. It’s a week out. We’re still in the response A week out means the clock is ticking, people are still vulnerable. So there are people who are still potentially trapped or at the very least are in not good situations. You don’t really know the true recovery costs until probably 30 days out. There’s not really even estimates are people who do this for a living can figure it out, but you don’t really know the scope of this until at least 30 days out and maybe longer because the remoteness of much of the area that’s been affected is intense.

Steve Ellis:

And even the estimate I was giving was head of a 15 billion range. And certainly they’re going to recalculate the costs and as they go forward, and obviously we don’t know the economic impacts as well, but one thing that we know is that from our preliminary analysis, very, very few people had federal flood insurance.

Josh Sewell:

Yeah, yeah. Sadly, you are absolutely correct. This example is just illustrative across the board for these interior areas in our country that are flooded by rivers and streams, small ones, big ones, it doesn’t really matter. But in Asheville, it has been in the news a lot. There are plenty of other places affected, and we’re going to find out exactly how affected. But Asheville, we looked at since there has been so much discussion of it, and according to the National Flood Insurance Program, which is the main way people do flood insurance, there were only 447 policies in the city of Asheville, and that’s covering about $152 million in property value. And according to the Census Bureau, there were 39,811 households in Asheville. That’s a big difference. So while every one of those housing units or households certainly did not get flooded, it’s pretty clear there’s going to be a lot, and I mean a lot of people who needed flood insurance, and it turns out it didn’t have it.

Steve Ellis:

It’s devastating to hear that. I know that the county that Asheville is located in was in the 500 year floodplain, the so-called 500 year floodplain where you have a 0.2% chance of flooding in any given year. But that’s a real chance when you start figuring about it and also recognizing that a lot of times the maps are outdated and in other cases, precipitation such a massive precipitation event of two feet is not really contemplated. And so in some cases, people don’t know that their homeowner’s insurance doesn’t include flood insurance or in other cases they just don’t think they need it because it hasn’t flooded in a while and they’re only hearing about a 0.2% chance.

Josh Sewell:

Well, and I think you’re right, Steve, when you call it a 500 year floodplain, it really makes you think that it’ll only happen once every 500 years. And I’m from Missouri, we had a 500 year flood event back in 1993

Steve Ellis:

And in 1997

Josh Sewell:

And two years later in 1995, there was in many of those places, had another 500 year flood event. So the 0.2% chance, it turns out sometimes that can hit pretty close to two years in a row. And also chances change over time, like you said, maps aren’t always accurate. And it turns out the weather might be changing a little bit in some of these places.

Steve Ellis:

And we know that if you don’t have flood insurance, all you can get is individual assistance, and that’s capped at a little bit more than $40,000. And in most cases, people are going to get somewhere in the vicinity of $10,000. You can’t rebuild your life on $10,000.

Josh Sewell:

No, you can’t. It’s a tragedy on top of a tragedy for many folks.

Steve Ellis:

So sticking with North Carolina, the state’s transportation department has said immediately after the storm, 400 roads were impassable, including several federally funded highways, including I 40 and I 26, that will not only help hamper recovery efforts, but it’s going to be very costly to rebuild. Right?

Josh Sewell:

Yeah, I mean very costly. I mean, I hate to just keep repeating myself, but we don’t know exactly how much, but it’ll be a very high price tag. And you can’t really make an estimate because again, all there’s 400 roads. You don’t know how many miles of roads need repair and to what extent, mostly because of the topography out there, you’re talking in the mountains. But another thing is there’s a lot of bridges, small ones, big ones, and they’re compromised or destroyed. And so the Department of Transportation, there’s a program called the Emergency Relief Program, and that is the fund that you use to most quickly and immediately tap to cover much of the costs. And the thing about that fund is that it’s an after the fact thing. So the states can spend the money, do the things they have to do, and 90% of the costs for interstate repair will be covered by that. And generally 80% of the costs for state highways. So it’s a significant support, but it’ll come down the pike.

Steve Ellis:

And we talked about the emergency relief program on that previous podcast, who pays when disaster strikes about the bridge in Baltimore, and we’re talking about bridges again, and that from the case of the bridge in Baltimore, it’ll take a long time to actually rebuild all of these bridges. And there were several of them on I 26 that the bridges were washed away. And then on I 40, which is a major east west transcontinental highway, miles of its eastbound lanes collapsed into the Pigeon River Gorge in Tennessee. And there are others that are impassable because of mudslides. So this is just going to be a huge, not only costly in rebuilding, but then also economic impacts of disrupted travel and disrupted commerce.

Josh Sewell:

And it’s something with the ERP or the Emergency Relief Program, it’s generally appropriated a hundred million dollars at the beginning of a year. And clearly that’s not enough. I don’t think there’s ever been a year been that that’s been sufficient. It’s more of a placeholder. And so the additional appropriations to that fund will occur possibly as early as when they get back, I think in November. But then over the next few years, you’ll see more funding going into that just for this disaster alone.

Steve Ellis:

So we know it’s going to be a long slow road back, but we’ve talked a bit about response. We’ve kind of moved into recovery, but it is in recovery where you have to be, especially fiscally vigilant, right?

Josh Sewell:

And this is where things get weird or uncomfortable. I think there will be interests that come out of the woodwork and attempt to exploit a disaster. That’s the unfortunate thing. We’ve seen myself having worked on these supplemental disaster bills back to certainly, I think the first one I really worked on was Superstorm Sandy, which was, I don’t know, it was 12 years ago. That was a long time ago,

Steve Ellis:

2012.

Josh Sewell:

But we’ve seen Hurricane Harvey and Irma and numerous events since then. Disaster, supplementals, I can’t repeat this enough, that they can get messy. And I think part of the issue is that we still need to make choices because ultimately debt matters. Whatever we spend responding to these disasters and then recovering from them, it still gets put together with all of the other spending we have. And so it will be deficit finance spending, and we really need to make sure we’re making the right choices about things that are truly an emergency and not just something that doesn’t rise to the level of actual emergency need.

Steve Ellis:

So how do we accomplish that, Josh? I mean, how do we create those priorities? How do we make those choices? Where are some of the choices that need to be made?

Josh Sewell:

Part of it is looking at what money’s already out there, to be frank. And so we’ve seen in past debates around these issues where you may have an example, say there are military facilities that have been affected. And so another federal facilities, well, the Department of Defense has a very large operations and maintenance budget. And so if you had some damage to a facility and you need a few million dollars to repair that facility, take it out of your multi-billion dollar maintenance budget you already have and put off maintenance somewhere else. And so some of it is fairly simple shifting of priorities. If you have a house and your roof is leaking after a storm, you need to immediately repair that roof. You don’t necessarily then get to upgrade your stove, go another year with that bad stove that you just really need to replace, that your top burner isn’t working anymore because you have to repair your roof first. It’s those kinds of common sense decisions that we can make with an agencies.

Steve Ellis:

And we also see sometimes where people want to get while they’re getting is good, and I’m not just talking about people out in the country, but I’m actually talking about government agencies, right?

Josh Sewell:

And this is where it gets me into the angry level at times. Sometimes it’s just a matter of, Hey, submit your request for anything that was damaged in this storm. Okay, you can do that. But it also stretches credibility at times. I forget exactly the numbers, but you might remember when we did our Sandy supplemental stuff, there was originally a request from one of the agencies to replace a vehicle. I think they were replacing one or two vehicles. It’s like you’re part of the Department of Homeland Security. You have 30,000 vehicles in your fleet. You guys can wait a year to replace one or two vehicles. Come on. Just rideshare with each other. I mean, granted, we didn’t have Uber back then, but still just carpool someone else. It is ridiculous to say, oh, well, this is such an emergency. We have to do it right now.

No, it’s not. So it is that kind of stuff. But also for me, it gets into when you have these large packages, you’re going to have a lot of requests that have been sitting out there that didn’t rise to the level of being funded on the cr we just did, or on the supplemental we did back in August 95 billion supplemental for security and domestic stuff. So if it didn’t rise to the level of an emergency in August, why would something that was requested back in say, June by the president or back in October of last year by the president or other people in Congress, why is it all of a sudden an emergency spending item that needs to be paid for now? Well, it probably doesn’t. It’s just that these packages don’t get as much scrutiny when you have a clear and present obvious need to do some disaster response and recovery spending.

Steve Ellis:

So money’s appropriated, but it’s also what is it going to and what are we doing with that money? And we have to be smart. And I say we, uncle Sam, the government has to be smart about how we rebuild and where we rebuild and in what manner.

Josh Sewell:

Absolutely. And this is a real common sense thing. People are living in these areas that are affected by these disasters, and obviously the infrastructure has failed. And so we do need to rebuild. So when you’re going back and you do need to rebuild in these areas, but rebuilding the roads exactly like they were before in places where you had levees fail, rebuilding, levees exactly like they were before, that doesn’t necessarily make sense. If you’re going to rebuild something that failed to exactly how it was, you’re not going to provide protection for the next time this occurs.

Steve Ellis:

That’s the sad thing, is that we know that there’s going to be a next time. I mean, the storms are going to keep coming, and just because people didn’t think it was happening this time while then we have to be ready for it in the future, and we have to mitigate for those particular storms may not be exactly the same thing. It won’t be necessarily Helene part two, but it’s certainly going to be another storm at some point that is going to hit these areas and is going to have an impact. And we have to mitigate, and my favorite term, we have to respond to those future disasters and that every dollar we spend recovering should make sure that we don’t have to spend that dollar again in the future.

Josh Sewell:

And I was having a conversation with someone about this stuff, and they’re talking about the unprecedented nature of, especially out there in Western North Carolina. And it’s true, but also for every precedent at one point, it wasn’t every precedent was unprecedented. And so we can look at this and think, okay, we see the risks that are there, and so there is a chance that this will happen again or it could be worse. And so you start calculating and thinking about what can we do in direct spending, but also in policy at the federal level and also at the state and local levels to figure out how can we reduce the likelihood that this will occur again through some changes in policy or just some different decision making perhaps. And again, it’s also, it should serve as a reminder for people who aren’t in those areas to take a look at their own lives and their own communities and say, well, what could happen in my area? Every time one of these things happens, I look at my, I don’t have flood insurance, not even in the 500 year floodplain, but I’m like, well, what would happen if I got two feet of rain and now I’m going to go probably think about that this weekend to be frank and see if maybe I should go ahead and buy some flood insurance the next time I have a chance.

Steve Ellis:

To your point, you talked about, and I said this earlier, I mean, these massive rainfall events are what is kind of not necessarily modeled as well. And this is the third one that I can think of just off the top of my head. And you think about in Baton Rouge had several feet of rain in a very short period of time, massive flooding there, and Baton Rouge just for budget watch off a FA, it ain’t right on the coast. And so you have that, or in the case of Houston, mean Hurricane Harvey, even though it was a hurricane, it was really the massive rainfall and how it parked itself over the city of Houston that created a lot of the flooding. It wasn’t the winds, it wasn’t the things that actually make a hurricane. We talk about a hurricane, it’s by wind speed. It’s not actually by the amount of water or precipitation it generates. And then obviously we have this with Helene and the impacts. And so clearly these mega rainfall events can occur just about anywhere. And even if it’s a place where it’s relatively dry, it can actually be more vulnerable because if you have a massive rainfall event in a very short period of time, it’s not ready to respond to that. So that’s something that everybody has to keep in mind.

Josh Sewell:

We’ve been doing this for so long. I think we have the benefit of hindsight in a lot of these areas, but that’s also what policymakers and individuals need to tap into as well, is this is an extreme hardship for a lot of people. And there’s a lot of communities that are going to have a hard time rebuilding and recovering. And frankly, after some of these events, some of the communities don’t come back. But moving forward, folks need to really use this as an opportunity to figure out what worked and what didn’t work. And one of the few good things that can come out of tragedies like this is that they can inform future policy decisions. Basically, you can inform the decisions that we make at every level of government and in our individual lives to help reduce the likelihood that such a drastic event will happen to people. And just that’s the most important thing to do is get some of these lessons learned.

Steve Ellis:

And part of it is getting back to people is not putting people back in harm’s way. And that rebuilding has to be done in a smarter, more resilient fashion. And like you said, in some of these places, it may be too high of a risk. And certainly some of these people, they were living right across the street from a stream or right across the street from a river and didn’t really think about the potential flooding. And then we talked about flood insurance earlier. And so that while that can help you rebuild, if you actually purchase flood insurance, it doesn’t actually remove the risk. And you still have that impact and all of the issues of applying for the assistance and rebuilding. And so it masks some of the risk, but it doesn’t actually remove the risk.

Josh Sewell:

And this is where we go into a policy here where people may know that at TCS, you, Steve Ellis, you are our expert on flood insurance. I play a flood insurance expert in the press sometimes, but I can’t quite get into it all the way because it just, frankly, it pisses me off because of what you just mentioned, the structure of hiding risk. We hear from people in these debates about how to fix the flood insurance program. One of the big things to do is to have truly risk-based rates. An insurance company looks at the risks that are out there, and they charge premiums based on that risk. And there are some places where those premiums would go up significantly. And so the solution for lawmakers, oftentimes, even lawmakers that we tend to agree with on other issues is to say, well, that’s just too much. We got to subsidize that. So we just can’t let rates go up that much for people. You’re literally just hiding the risk. Hiding risk does not reduce it. That is where you put people in harm’s way.

Steve Ellis:

Yeah, it is. You’re lulling people into a sense of security, which may be fiscal security, but you’re not actually helping inform them. And that’s part of the whole thing about rates and is risk communication and that we are not doing a very good job of communicating risk to people and letting them know. And in many cases too, there are people who are holding onto massive subsidies that they have the insurance, but they’re not paying their full freight. And we certainly, and it’s been documented by the government accountability office, that there are massive cross subsidies in the program where there are places like North Carolina, and I can’t say specifically, but are paying more than they actually should, whereas there are places on the coast that are playing less than they actually should. And one of the issues is if you are charging people more, you’re going to lose people out of the program. And so it’s something that is a huge challenge and a huge issue. And as I pointed out earlier, this isn’t going to be as big of a blow on the flood insurance program as it should be because so many people didn’t purchase flood insurance. That’s going to be a blow on other, generally on taxpayers, and certainly on the economies in these areas.

Josh Sewell:

And politically, it’s not necessarily easy. There’s a lot of complicated issues that go into this. There’s a lot of interest. But in the end, it’s I think showing people the risks that they actually face should be, and it is, it’s a bipartisan desire in the reform community, and there’s some bipartisan obstacles to it, but I think that is the greatest way to move forward, not just in flood insurance, but in other insurances run by the government and in other programs. Because once people know what they actually face, then we can have a sober and realistic discussion about how to reduce those risks. And that’s what we need, especially when we’re facing 35 trillion in debt. And in the long run, if we don’t get that debt paired down or at least not growing as much, it’s going to be harder for us to be able to say, yeah, we can just open the checkbook. And cost isn’t an issue in disaster response. It isn’t recover. We got to be a little more sober. But for the most part, we don’t really talk about saving money. I don’t think very few people do in talking about disaster response. But if we don’t have the money to pay for it in the future, it’s going to be even harder to do that.

Steve Ellis:

It is a challenge, Josh, and it’s something where we are up to that challenge of trying to make sure that these supplemental spending bills, we know they’re coming, that they actually are allocated appropriately and wisely, and then also to ensure that we get the policies in place to reduce the risk. And that’s actually gets to one other point that we’ve raised before, and that is we should have a national disaster recovery board. We should have a board just like we have for transportation disasters, the National Transportation Safety Board, that actually looks at what happened, what went right, what went wrong in the response and the recovery, what went wrong leading up to this as far as how construction was done so that we can learn, because we know it may not be in North Carolina and Tennessee and Georgia next time, but we can apply those lessons to try to mitigate the risk in future disasters in other areas of the country.

Josh Sewell:

Absolutely. I would be a hundred percent behind that.

Steve Ellis:

Well, Josh, TCS Director of Research and Policy, this has been a great and a very important conversation. Thanks for being with us on the pod.

Josh Sewell:

Yeah, I’m happy to try to do what I can to make things better here.

Steve Ellis:

Well, there you have it. Dear podcast listeners, the post-election spending debate is real and coming at taxpayers quickly. This is the frequency. Mark it on your dial, subscribe and share and know this taxpayers for common sense has your back America. We read the bills, monitor the earmarks, and highlight those wasteful programs that poorly spent our money shift long-term risk to taxpayers. We’ll be back with a new episode soon. I hope you’ll meet us right here to learn more.