The fiscal mess left by Hurricane Ian may be a turning point
It wasn’t so long ago that a billion-dollar natural disaster was unusual. Now, it’s the norm. Hurricane Ian, the latest of these disasters, may have done as much as $57 billion in damage to Florida and South Carolina along with the tragic loss of more than 100 lives. Meanwhile, nine other natural disasters have already caused over $1 billion in damage each during 2022, according to federal estimates. This week, I’m looking at some of the financial implications of Hurricane Ian for governments and what it might mean for measuring climate risk.
Hurricane Ian’s financial toll on the Southeast
The Category 4 Hurricane Ian swept across Florida, skimmed Georgia and made final landfall as a Category 1 hurricane in South Carolina last week. Ian spared few places in its wide path of damage and destruction but all four states have strong finances and other positives that point toward a general recovery.
The latest Index of State Economic Momentum, ranks Florida, Georgia and the Carolinas in the top 10 strongest states. The index, released periodically by the nonprofit Federal Funds Information for States, ranks states based on their most recent performance in personal income growth, employment growth, and population growth. And a peek at Florida’s latest state budget report card from the Volcker Alliance shows that the state has a robust budget forecasting practice, which will help it adjust in the months ahead. (Find more state report cards here.)
The speed at which localities recover, however, depends on both their fiscal and climate resiliency. In the immediate aftermath of a storm, states and localities have to foot the bill for cleanup while they wait to be reimbursed by FEMA. The ratings agencies have all weighed in by now and the consensus is that most municipalities in their portfolios have the financial flexibility to manage the immediate storm expenses. Still, federal funds won’t cover everything and Florida localities in hard-hit Lee and Charlotte counties (including school districts) without substantial budget reserves could struggle.
Noteworthy:
S&P Global: Electric utilities may have a harder time recovering compared to previous hurricanes because they “will face severe supply chain hurdles as they source replacements for damaged infrastructure.”
Moody’s Investors Service: “Florida local governments and public transportation and infrastructure issuers…face substantial unbudgeted cleanup and rebuilding costs.”
Default risk warning from Municipal Market Analytics: More than 150 senior living facilities were evacuated, affecting 8,000 residents. “Moving this population is challenging and will likely be difficult to move them back in the future when it is safe to do so.”
Bottom line: There’s a lot going for the region’s economy and its localities but the question is, for how long? The southeast may have economic momentum now, but it’s also the region most vulnerable to high-cost natural disasters.
A key local issue will be the cost of rebuilding, which is complicated by home insurance problems (more on that below) and rising inflation. Building code compliance and increased insurance costs could slow the recovery or discourage rebuilding in some places altogether.
“Tax base growth in high-risk areas could be tempered if hurricane damage leads to permanent relocations or if homeowners and businesses decide not rebuild with exorbitant insurance costs or insurance unavailability,” Fitch Ratings noted.
Whether it’s financially and environmentally viable to rebuild certain areas is a question local officials will have to answer.
Read more
Grist.org: Hurricane Ian was a powerful storm. Real estate developers made it a catastrophe
Politico: The Boomtown That Shouldn’t Exist
Will Florida’s state-run homeowner’s insurance survive?
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