Flood Standards: Carrots, Sticks and Unfunded Mandates

We have just experienced one of the most tragic floods in our nation’s history. We must help those affected put their lives back together and rebuild. The priority must be on the victims and healing.   My prayers and thoughts are with them.

But there are those who chose this time to jump into the fray in support of the recently rescinded flood risk management standard. They are in a clamor to revive it or some form of it. They are insisting that no one rebuild anything with Federal money unless the new or restored facility passes their standard and their version of rectitude. Presumably anything that Federal money rebuilds should be rebuilt to the terms of the defunct FFRMS without regard for benefits or costs. If the FFRMS is not followed then the facility or residence should not be rebuilt at all -- they say. Of course this standard would make little difference in the outcome of near term floods. Measures like the FFRMS may affect new development (at the margin) but can have little effect on existing development which of course is the development that gets damaged in any flood. If restricted to Federally funded activities as urged by its proponents, the influence of such a standard on near term floods would be weak indeed.

Amid meeting the needs and addressing of the suffering of those who have endured Harvey, we should put aside our concerns about long term flood risk management. We must not permit those who suffer from Harvey to become hostages in the enactment of much needed disaster assistance. We should defer our debate on flood risk policy to other times and venues. We must be compassionate and responsive to the victims of the storm. There were no flood risk management policy strings for hurricanes Katrina and Sandy and there should be none for Harvey. A supplemental iapppropriations act is no place to make long term policy.

In the long run, I share the concerns about moral hazard in recovering from natural disasters. When the costs of natural calamities are borne by those other than those directly affected, there is a breakdown in incentives to live in ways that decrease the probability and intensity of disaster consequences. This principle applies to hurricanes, floods, tornados, earthquakes, wildfires and other natural disasters. Long term policy goals should concern us but the aftermath of a flood is not a good time to rush toward long term solutions. 

Regardless of the need for cool-headed deliberation, Federal zoning is not the correct answer. I heard the real story of highway engineers who were contemplating the FFRMS and evaluating bridges that would be required to meet that standard. They reported that the bridges would be built far, far above the flood plain and that in any flood equaling or exceeding the base 100-year flood elevation, all the roads leading the bridges would be underwater. The advocates for the FFRMS waved off this example saying, “Of course we don’t mean this standard to apply to everything. Just to some things and not your bridge example. The bridge would be excepted.” Of course with this kind of regulation, no one knows for sure when a standard applies to regulating activity. The list of exceptions will be long when one regulates to a “one size fits all” standard. The situation becomes one of classic regulatory uncertainty and spawns layers of bureaucracy to determine applicability of a standard even before the standard can be applied. One can look at the Corps permit program where things have become so elaborate that jurisdictional determinations must precede the actual adjudication of a permit. 

Clearly the bridge example is one that is resolved by comparison of the benefits of the flood risk standard to the costs of complying with the standard. For a bridge that can’t be reached during a flood there are no benefits to raising it to a high elevation. We started with a “standard” that said “raise high the bridge” and that led us to a cost- benefit analysis that rejected the standard.

Why wouldn’t we just prefer to do the cost-benefit analysis in the first place, and why shouldn’t cost-benefit analysis be our standard for deciding how high to build facilities to withstand flood events? After all an elevation standard won’t make sense in a significant number of cases (and the FFRMS had three standards not just one standard – go figure!). Just do the cost-benefit analysis. Since doing the cost-benefit analysis would avoid some errors and resource waste incurred by blindly applying the “Federal” standard, it seems logical that constructing facilities to cost-beneficially protect them from flood hazard is the right standard to begin with. It’s also true that arbitrary standards like the FFRMS often can become a default minimum when cost-benefit analysis might show that a higher level of protection is warranted. Standards like the FFRMS have such unintended consequences.

We could temper the cost-benefit principle a little. For example, the agency head approving Federal funding for a facility reconstruction could spend more money than the cost-benefit analysis justified if increasing the flood resilience of the facility will protect life. We could also allow an exception if the added costs of resiliency measures are less than say 5 to 10% of the costs of the facility. These exceptions are principled and are few in number. Everyone is on notice that a cost-benefit analysis is required and there are a couple of good exceptions. Usually the cost-benefit analysis doesn’t need to be that elaborate and knowledgeable people can complete the analysis very quickly. Taxpayers can be assured their money has been efficiently and well spent. In the interests of expedience, we could even allow Federal agency heads to use either the cost-benefit criterion or the “base flood elevation plus one standard” used for Federally funded reconstruction following Hurricane Sandy. But we should be cautious about giving a blank check for this kind of arbitrary standard and should do so only after we'e made a thorough assessment of the cost implications. The Office of Management and Budget should make a rigorous inquiry.

Therefore, I support a flood risk management standard applied to construction and recovery decisions that use Federal funds. Here’s the statement of the standard. A facility funded by the Federal government should be constructed to efficiently protect the facility against future flood damages. The head of any agency authorized to expend Federal funds for facility or infrastructure construction should approve construction to achieve flood resilience that maximizes the difference between benefits and costs except that a higher level of resilience may be approved when the agency head determines such a level is essential for the protection of life. A higher level of resilience may be approved on finding that the associated costs, over and above the level that maximizes the difference between benefits and costs, add less than 10 percent to total costs. Obviously, application of the standard would integrate best available science. Cost-benefit principles would be consistent with those articulated in the Obama Executive Order 13563 which is fully contemporary and applicable to this problem. Subject to an OMB assessment and approval, an agency head would be permitted to adopt the Hurricane Sandy rebuilding standard of “BFE +1” if the nature of the reconstruction within his jurisdiction is appropriate to such a standard or adopt this standard for some activities and apply cost-benefit analysis to other more critical or more costly decisions.

This flood standard would apply to the use of Federal funds for facility construction and not be applied to Federal license or permit decisions unless specifically authorized by Congress. Land use regulation is a state and local responsibility and the Federal government should make every effort to sustain Federalism and local decision making. Imposing Federal flood risk management standards on private and totally non-Federal activities in the manner of the FFRMS represents a huge unfunded mandate. Except for the floodplain management incentives and the insurance mandate contained in the flood insurance act, Congress has not authorized application of any flood standards on licenses or permits.

With regard to flood plain management incentives, I once formulated a flood plain management incentives proposal to be applied to Corps of Engineers flood control projects. In this proposal I was assisted and encouraged by one of the well-known and respected flood plain management experts that used to be around the Corps. I won’t mention this person by name but I want to share the credit as is just. I believe we can look to ideas like this one – perhaps not this idea exactly – to give some consideration to incentives for managing our flood plains. I offer it here to encourage a conversation on incentives -- carrots rather than always sticks. Unfortunately the Administration would not support my proposal. I hope we’ll see more proposals for positive incentives for flood plain management as we move forward.

SEC. ____. INCENTIVES FOR COMMUNITY FLOOD PLAIN MANAGEMENT.

(a) The Secretary, in consultation with the Director of the Federal Emergency Management Agency, shall establish an incentives program under which communities participate voluntarily-

(1) to provide incentives for measures that reduce the risk of flood or erosion damage that exceed the criteria set forth in section 1361 of the National Flood Insurance Act of 1968 (42 U.S.C. 4022) and evaluate such measures;

(2) to encourage adoption of more effective measures that protect natural and beneficial floodplain functions;

(3) to encourage floodplain and erosion management; and

(4) to promote the reduction of Federal flood insurance losses.

(b) INCENTIVES.-- The program shall provide incentives or in the form of credits on flood damage reduction cost sharing as provided in Section 103 of the Water Resources Development Act of 1986 (33 USC   ) in communities that the Secretary, in consultation with Director of the Federal Emergency Management Agency, determines have adopted and enforced measures that reduce the risk of flood and erosion damage that exceed the criteria set forth in section 1361of the National Flood Insurance Act of 1968 (42 U.S.C. 4022). In providing incentives under this paragraph, the Director may provide for credits to flood damage reduction cost sharing in communities that the Director determines have implemented measures that protect natural and beneficial floodplain functions.

(c) COMMUNITY RATING SYSTEM. The credits in paragraph (b) shall be based on the Community Rating System established in Section 541 of the National Flood Insurance Reform Act of 1994 ( USC   ).

(d) LIMITATIONS.—The credits on flood damage reduction cost sharing under (b)

(1) shall not exceed ten percentage points below the cost sharing percentage for flood damage reduction established in Section 103 of the Water Resources Development Act of 1986 (33 USC     )

(2) may include waiver of the five percent cash requirement for flood damage reduction established in Section 103 of the Water Resources Development Act of 196 (33 USC   ).

(d) SLIDING SCALE. In implementing this section the Secretary shall employ a sliding scale of credits on flood damage reduction cost sharing to reflect the extent to which communities have adopted and enforced measures that reduce the risk of flood and erosion damage that exceed the criteria set forth in section 1361of the National Flood Insurance Act of 1968 (42 U.S.C. 4022).

SEC. 541. COMMUNITY RATING SYSTEM AND INCENTIVES FOR

COMMUNITY FLOODPLAIN MANAGEMENT.

Section 1315 of the National Flood Insurance Act of 1968 (42 U.S.C. 4022) is amended-(1) by striking “After December” and inserting the following:

“(a) REQUIREMENT FOR PARTICIPATION IN FLOOD INSURANCE PROGRAM.-

“(1) IN GENERAL.-- After December”; and

(2) by adding at the end the following new subsection:

“(b) COMMUNITY RATING SYSTEM AND INCENTIVES FOR COMMUNITY FLOODPLAIN MANAGEMENT.-

“(1) AUTHORITY AND GOALS.-- The Director shall carry out a

community rating system program, under which communities participate

voluntarily-

“(A) to provide incentives for measures that reduce the risk of

flood or erosion damage that exceed the criteria set forth in section

1361 and evaluate such measures;

“(B) to encourage adoption of more effective measures that

protect natural and beneficial floodplain functions;

“(C) to encourage floodplain and erosion management; and

“(D) to promote the reduction of Federal flood insurance losses.

“(2) INCENTIVES.-- The program shall provide incentives in the form of credits on premium rates for flood insurance coverage in communities that the Director determines have adopted and enforced measures that reduce the risk of flood and erosion damage that exceed the criteria set forth in section 1361. In providing incentives under this paragraph, the Director may provide for credits to flood insurance premium rates in communities that the Director determines have implemented measures that protect natural and beneficial floodplain functions.

“(3) CREDITS.-- The credits on premium rates for flood insurance coverage shall be based on the estimated reduction in flood and erosion damage risks resulting from the measures adopted by the community under this program. If a community has received mitigation assistance under section 1366, the credits shall be phased in a manner, determined by the Director, to recover the amount of such assistance provided for the community.