The Week in Public Finance: It’s Natural Disaster Season. Can Your Government Afford It?

Most states don't know how much they spend on extreme weather events.
by | July 13, 2018
Hundreds of Oklahomans lost their homes after a devastating tornado tore through the town of Moore in May 2013. (Flickr/DVIDSHUB)

The Atlantic Coast caught a break this week when Hurricane Chris was downgraded to an offshore tropical storm.

California, meanwhile, hasn't been as lucky. The National Guard has already activated troops to begin wildland fire training after several major fires this month in the northern part of the state and near the Oregon border consumed tens of thousands of acres. It’s the earliest activation in five years in what’s expected to be a treacherous fire season.

But after last year, which was the most expensive year on record for natural disasters, how much more can states really afford?

The answer: Most don’t know.

At least, that was the conclusion of a recent analysis by the Pew Charitable Trusts, which surveyed disaster spending across 23 states over the course of five years this decade.

The report comes at a time when the federal government is looking at how to manage increasing costs. Nine of the most expensive years for the Federal Emergency Management Agency occurred between 2007 and 2017. While some places are hit more than others, virtually no state escaped a major event around that time. All 50 states and the District of Columbia between 2005 and 2014 experienced disasters severe enough to trigger a federal emergency or major disaster declaration, including floods, hurricanes, wildfires and blizzards. Wyoming had the fewest, with just three declarations, and Oklahoma -- in the heart of tornado alley -- topped the list at 36.

If states don’t have a handle on their disaster spending, says Pew’s Anne Stauffer, they can’t effectively respond to proposed changes at the federal level that could affect their ability to respond to future disasters. “States need to be able to respond and say, ‘This is what we’re doing already,’” she says. “If you take a comprehensive look and realize how expensive theses disasters are becoming, it informs policy discussion about what to do going forward.”

Two key changes are being discussed at the federal level that would directly affect states in the case of major disasters. One change would raise the financial damage threshold a disaster would have to meet before state and local governments can be eligible for federal aid. The other is an incentive program that would cover more of a government’s disaster costs in places that have already invested in disaster mitigation projects, such as elevating buildings or earthquake retrofits.

According to the report, state mitigation programs generated considerable spending over the five-year study period. Oregon’s Seismic Rehabilitation Grant Program, for example, invested nearly $36 million in earthquake retrofits for public structures. In North Dakota, the state water commission spent nearly $226 million to support local flood control and property acquisition projects.

But because disaster spending -- from mitigation to preparedness to response -- tends to be spread across so many parts of government, no state has a comprehensive picture of its natural disaster spending. In some states, spending involves as many as 17 agencies and departments.

Ultimately, says Stauffer, this lack of cohesiveness means governments could be leaving savings on the table. It’s easier to find money for mitigation efforts when governments can show how much they expect to save. “When you’re understanding how to prioritize investments,” says Stauffer, “you really need to know what you’re spending currently in order to make any strategic decisions about it.”

 

In other public finance news:

Why Some Pensions Perform Better Than Others

No two public pension plans are alike, and that goes for how well their investments perform, too. The average annual rate of return for state and local pension plans over the past 16 years varies from 6.3 percent for the top quartile to 4.6 percent for the bottom, according to new research from the Center for Retirement Research (CRR) at Boston College. In other words, some pension plans performed as much as 20 percent better than others.

The reason, the research found, had to do with the kinds of so-called alternative investments that plans make. Alternative investments, like hedge funds and private equity, have gotten somewhat of a bad rap because they are high risk, high reward and run up higher fees than investments in regular stocks and bonds. But the best-performing and worst-performing pension funds of the last decade actually put a similar share -- roughly one-third -- of their overall portfolio in alternatives.

The difference is in what type of alternative investments these funds make. The bottom quartile holds slightly more in commodities and hedge funds and less in private equity and real estate than the top quartile does, according to CRR. The difference in performance of those assets over time, the research concluded, accounted for nearly all of the variation in long-term returns.

 

Cashless Tolling Equals Less Cash

A new audit by the New York State Comptroller has declared cashless tolling a money loser and one that’s likely to get worse. During an eight-month period last year, nearly $2.4 million in tolls went uncollected, the audit found. (The report makes no mention of the labor savings that cashless tolls generates.)

Even when uncollected tolls can be billed, law firms hired to collect outstanding tolls and fees have not been effective, said Thomas DiNapoli in a statement. For example, as of a year ago, two firms were assigned 241 cases with $5.5 million in outstanding tolls. Of that amount, $1.9 million was settled for $653,290 with just $181,890 collected.

Prior to 2017, only the Henry Hudson Bridge used electronic tolling. When the system was expanded to all nine Triborough Bridge and Tunnel Authority crossings, the dollar amount of unbilled tolls increased six times over, according to the audit. The authority’s officials dispute that finding but they do agree with other recommendations that propose better license plate imaging and access to out-of-state driver information.

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