Midwest flooding opens spigot on fiscal and policy debates

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The March floods that devastated large swaths of Nebraska and other Midwest states have spurred a fresh tide of debate over better ways to prevent natural disasters and fund recovery efforts.

Local governments and states are still grappling with the fiscal toll on local infrastructure and transportation networks and they are bracing for a damage bill is estimated to top $3 billion.

The recovery could pressure the balance sheets of the hardest-hit local governments in Nebraska through increased borrowing or dwindling reserves.

"I don't think there's ever been a disaster this widespread in Nebraska,” Gov. Pete Ricketts said recently.

Many are eyeing the federal government for help through disaster declarations and are calling for action on policy changes and local initiatives that could help combat mounting weather disasters that some blame on climate change.

Federal disaster relief remains the standard response to such a severe disaster, but relief funding for the Midwest may also be impacted by President Trump's animus for Puerto Rico, which has led to sparring with the House of Representatives over relief efforts in the wake of last year's Hurricane Maria.

The severity and frequency of recent major natural disasters may require a wholesale shift in how they are dealt with, both before and after.

“Record disaster years have led to a growing recognition that we need to better prepare for and rebuild differently, not to mention adapt to the impacts of climate change,” Rob Moore, a senior policy analyst at the not-for-profit environmental group the Natural Resources Defense Council, wrote in a blog post.

Moore said Congress could reverse Trump's revocation of a standard that required federally funded infrastructure, like public housing, hospitals, fire stations, and highways, be built with a higher margin of safety against extreme floods and sea level rise.

Another solution, according to Moore, would be to make it easier for people to move out of flood-prone areas. “In the face of climate change and rising flood risks and damages, the National Flood Insurance Program should provide interested homeowners the option of relocating,” he wrote.

Moore said it is time to reform the federal National Flood Insurance Program.

“The NFIP not only provides insurance to millions of Americans, it is also responsible for mapping flood risks, establishing minimum development standards for the nation’s floodplains, and is a primary source of flood risk information. In every aspect of the program, it fails to deliver what’s needed,” he said.

The March floods hit the Missouri River Valley particularly hard as the river spilled over its banks in Nebraska, western Iowa, southeast South Dakota, and Missouri.

Illinois, Minnesota, Wisconsin, Indiana, and Ohio were not spared as major rivers like the Mississippi couldn’t handle the rains. Most Midwest governors declared either emergencies or issued disaster proclamations.

The region’s waterways were at high levels and the ground unable to absorb the mid-March storms created by a rapidly intensifying “bomb cyclone.”

Fall flooding left the ground saturated and the ground was unable to absorb the rains as warm air moved through the region and melted remaining snow.

The National Weather Service says the potential for more spring flooding will depend on rainfall and how quickly temperatures warm. The National Oceanic and Atmospheric Administration in a March 21 spring outlook report warned that 25 states are at heightened risk of moderate to major flooding.

“This is shaping up to be a potentially unprecedented flood season, with more than 200 million people at risk for flooding in their communities,” Ed Clark, director of NOAA’s National Water Center, said in the report.

The threat of disaster highlights the importance of healthy state reserves. Destruction caused by Hurricane Florence in September 2018 underscored that position. After the storm struck North Carolina, legislators authorized the drawdown of $756.5 million from the state’s $2 billion savings reserve to help finance recovery, the Volcker Alliance says.

"Although a few states lack rainy day funds or have ones that are practically empty, the economic recovery that began in 2009 has helped most states restock their vaults with cash. At the end of fiscal 2018, the median state had reserves of 5.8 % of general fund expenditures, the largest cash trove since rainy day funds hit a recent low of 1.9 percent in 2011,” the Volcker Alliance wrote in its December report on state budgeting practices.

The only states without money in a rainy day fund and with a minimal or negative general fund balance at the beginning of fiscal 2018 were Illinois and Pennsylvania.

Nebraska and Ohio received C grades for their reserve levels and policies while Iowa, Missouri, South Dakota, and Wisconsin received B grades. Indiana, Michigan, Minnesota, North Dakota received A grades. Illinois received a D.

In addition to damage to more than 15 state highway bridges, the Nebraska Farm Bureau estimates that farm and ranch losses caused by flooding could reach $1 billion, with at least $400 million because of crops that will be planted late or not planted at all, and $500 million of livestock losses.

Moody’s said in a March 22 report that the flooding is a credit negative for Nebraska.

Nebraska is the second-most farm-centric state in the U.S., Moody's said, with farming contributing more than $21 billion to Nebraska's economy in 2017, or approximately 17.6% of GDP, compared to 1.1% nationally.

“The flooding will further weaken farm income in Nebraska, which is already weighed down by stagnant commodity prices, trade uncertainty and weaker foreign demand,” Moody’s said. Nebraska is rated Aa1 by Moody's and AAA by S&P Global Ratings.

A softening in farm income had already hurt revenue collections, Moody's said, with the state government under political pressure to bolster public education, fund Medicaid expansion and cut taxes.

Federal disaster funding will help but the levels of aid remain to be seen. In the short-term, the state benefits from $650 million of accessible liquidity.

“The good part of their liquidity position is that any near term, costs that they need to cover at the moment before FEMA aid becomes available they will be able to cover it with the liquidity that they have on hand,” said Moody’s analyst Pisei Chea. Nebraska also benefits from a relatively low debt burden and liabilities.

At the local level, governments may feel more pinched.

About 85% of the state's counties have declared states of emergency, in part because of damaged infrastructure. The Nebraska Emergency Management Agency estimates that the current public cost of the flooding is $553 million.

Plattsmouth suffered up to $15 million of damage to its water, wastewater and other infrastructure — roughly the same size of the city’s budget last year, said city administrator Erv Portis.

The city council has already authorized emergency borrowing of up to $15 million so repairs can begin but Portis said that is big burden for its 6,500 residents to carry.

“We are not sitting on this big surplus of cash reserves. The legislature has cut back local spending so there is not a whole lot left for disasters,” said Portis. “We are talking about some very big costs on the back of our community.”

Portis said the city will making the flood relief applications to the Federal Emergency Management Agency and the Nebraska Emergency Management Agency. He hopes the federal government will eventually pay 70% and Nebraska another 12.5% percent.

Portis said that city officials have over the years had the conversation over how to fund infrastructure fixes but the issue is “you need to get out of the flood plain but you always need to be near your water source so how do you do that and what is the cost and how do you pay for it?”

Portis said legislators need to look hard at changing its rules to allow for aid to municipalities for recovery efforts.

The flooding, Chea said, will have less effect on local governments dependent on property taxes because of federal disaster aid and because it is unlikely property values will change as a result of the flooding.

Counties more reliant on economically sensitive revenue such as sales and income taxes will likely suffer a more immediate blow.

The floods are already the subject of bond disclosure.

The Nebraska Investment Finance Authority which had a total of $1 billion bonds outstanding as of December published a bondholder notice on the Municipal Securities Rulemaking Board’s EMMA site notifying investors that the flooding had not impacted offices or its day-to-day operations but “does not have sufficient data to determine what impact, if any, these floods may have” on various programs and mortgage-backed securities and loans.

A federal disaster relief bill with aid for the Midwest is in limbo. Political tensions over funding Hurricane Maria relief for Puerto Rico — opposed by President Trump — was among the factors leading to the failure Monday of procedural votes needed to advance the Senate version to a floor vote, raising concerns over the ability of Democrats and Republicans to resolve their differences needed to get aid flowing.

The Senate is considering a $13.45 billion package of federal disaster aid for Midwest flooding, wildfires in the West and damages caused by hurricanes and typhoons that offers less for Puerto Rico than a $14.17 billion bill approved by the House Jan. 16.

The House bill includes $3.76 billion in assistance to farmers and rural communities, $3.07 billion for infrastructure and economic and community development and $2.54 billion for resiliency funding to mitigate damage from future disasters that are accelerating in number due to climate change, according to the House Appropriations Committee.

Neither measure proposes a new version of the $14.6 billion Midwest private activity disaster bond program for states hit hard by 2008 flooding, which expired at the end of 2012.

Efforts are underway on some fronts to better manage flooding.

North Dakota is undertaking a $2.75 billion private public partnership to build a new channel billed as the solution to flooding in the metro areas of Fargo, North Dakota and Moorhead, Minnesota.

The project marks the first use of a public-private partnership to help fund a project overseen by the U.S. Army Corps of Engineers. The diversion is designed to protect $20 million in property value and more than 170,000 people. But squabbles between the states on either side of the Red River underscore how difficult it can be to make tradeoffs on flood safety.
Brian Tumulty contributed to this story.

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Natural disasters Flood control bonds State and local finance State of Nebraska Nebraska Iowa Minnesota North Dakota