Potential Increases in Hurricane Damage in the United States: Implications for the Federal Budget
As requested by the Ranking Member of the Senate Committee on the Budget, this report analyzes the relationship between climate change and increased hurricane damage. In its analysis, CBO estimates annual federal spending for relief and recovery as a percentage of expected hurricane damage. It identifies three different strategies to help reduce the burden on federal aid: limiting greenhouse gas emissions, shifting more costs to state and local governments and private entities, and investing in structural changes to reduce vulnerability to hurricanes. The report includes projections of hurricane damage for 3 benchmark years: 2025, 2050, and 2075. It also explains the methodology of how the Congressional Budget Office (CBO) arrived at such projections. The strategies outlined in the report are then evaluated based on feasibility and expected level of success.
This report estimates the future cost of hurricane damages to the federal government by examining the two main factors contributing to greater projected levels of hurricane damage: climate change and coastal development. Climate change affects hurricane damage indirectly through sea-level rise, as rising seas promote larger storm surges that stretch farther inland. Additionally, the increasing coastal development puts more assets at risk. The report finds that U.S. counties classified as susceptible to hurricane damage grew 22 percent faster than the national average (Page 4). As a result, hurricanes of similar force today cause much higher levels of damage on areas for no other reason than because there are more assets in their path.
The CBO calculates future hurricane damage by first identifying the four different conditions that contribute to hurricane damage: Sea levels in different states, frequency of hurricanes of various intensities, population in coastal areas, and per capita income in coastal areas. The report points out that sea levels and frequency of hurricanes are a product of climate change, while population and per capita income in coastal areas are attributes of coastal development. Both climate change and coastal development can operate independently as well as in synchrony.
The CBO calculates expected hurricane damage under the current measurements of sea levels, hurricane frequency, population, and per capita income in coastal areas. The reference case depicts Florida as contributing 55% of the total damage in CBO’s reference case, followed by Texas at 13% (For a more in-depth analysis of the CBO’s reference case, refer to Figure 1 on page 6). The CBO then projects how the four factors will change over time to devise new conditions for years 2025, 2050, and 2075. The CBO uses these new conditions to calculate the expected damages for these benchmark years.
Future trends of federal spending in response to hurricane damage are estimated and described in the report. Utilizing estimates produced by the National Oceanic and Atmospheric Administration, from 2005-present, CBO identified that federal spending made up an average of 60% of hurricane damage assistance. Federal spending is expected to continue to average 60% of total hurricane damage assistance.
Federal budgetary implications of hurricane damage are described in detail including mandatory spending from the National Flood Insurance Program, and discretionary spending such as:
- Federal Emergency Management Agency: Disaster Relief Fund;
- Department of Housing and Urban Development: Community
- Development Block Grant Disaster Recovery Program; and the
- Army Corps of Engineers: Civil Works and Disaster Response.
Based on these calculations, policy recommendations are provided that may reduce the amount of federal spending needed in the aftermath of hurricanes. Mitigation strategies, while considered important to overall reduction in hurricane damage, are not prioritized here due to interest in focusing primarily on short-term adaptive strategies that can begin to take effect immediately. Instead, Priority policy recommendations suggested by the CBO are:
- shifting more costs to the state and local government and private entities by raising flood insurance premiums,
- Setting a Higher Minimum Threshold for Disaster Declarations,
- placing more of the burden of financing FEMA (Federal Emergency Management Agency) on state and local government as opposed to federal are priority strategies, and
- investing in Structural Changes to Reduce Vulnerability to Hurricane Damage.
Publication Date: June 2016
- Congressional Budget Office
- Policy analysis/recommendations