As natural disaster costs rise, Midwest may need to emulate Florida
8 min read
When the Federal Emergency Management Agency rejected Gov. Gretchen Whitmer’s disaster declaration request July 23, it upset the four counties Whitmer had sought assistance for: Branch, Cass, Kalamazoo and St. Joseph.
“The damage from this event was not of such severity and magnitude as to be beyond the capabilities of the state, affected local governments and voluntary agencies,” FEMA Administrator Deanne Criswell wrote, according to a copy of the letter shared with The Bond Buyer. “Your request for a major disaster declaration is denied.”
As extreme weather events become more common, the growing number of disasters and the lack of federal funding may force municipalities and states to issue bonds to pay for repairs and encourage states to create disaster funding akin to Florida’s hurricane catastrophe fund.
On May 7, severe storms struck those counties, with four tornadoes touching down in the area. It was the first tornado emergency on record for the state — “something you think will never happen here … something you’d see in Oklahoma or Kansas,” the meteorologist who issued the tornado warning told
There had been a string of severe weather events leading up to those storms, with damages totaling an estimated $28 million, DeWine noted: “The state also finds itself stretched thin after suffering multiple disasters over the last 24 months.”
FEMA’s preliminary damage assessment for the April storms was $17.4 million, beyond the typical payouts of the Ohio Emergency Management Agency. DeWine repeated his request for a major disaster declaration through the Public Assistance Program for eight counties: Belmont, Monroe, Washington, Morgan, Meigs, Noble, Guernsey and Jefferson.
“The greatest impact is damage to critical infrastructure in low-tax-revenue areas, making the expensive repairs needed with their own budgets not feasible,” DeWine said.
The denials come as FEMA is projecting its Disaster Relief Fund will run dry by mid-August. Department of Homeland Security Secretary Alejandro Mayorkas told the
The Biden administration requested $9 billion for the DRF in October 2023, but that money
“They’re separate considerations,” said Stan Gimont, senior advisor for community recovery at Hagerty Consulting, an Illinois-based emergency management firm specializing in disaster recovery. “There’s a process in the Stafford Act that lays out what the criteria are for making a disaster declaration … The availability of money won’t, to my understanding, impact whether or not something is determined to be a disaster.”
If the DRF runs out of money, FEMA will implement immediate needs funding, in which they “throttle back on the availability of money for ongoing activities,” such as infrastructure repairs involving past disasters, to pay for more immediate disaster response needs, Gimont said.
A FEMA spokesperson said: “FEMA continues to work with the administration and Congress to ensure sufficient funding is available. Without additional funding, FEMA will take steps prior to funding exhaustion to ensure resources are available to support ongoing lifesaving and life-sustaining activities and provide a reserve for initial response and recovery operations.”
The disaster declaration rejections and changing weather patterns raise questions about whether local governments in the Midwest will have to resort to bond financing for disaster recovery, and whether states will create catastrophe funds as extreme weather events become more common.
“Within the federal government, there has long been a desire to see states really step forward a bit more to respond to the number of smaller events and also to have more skin in the game in the recovery, rather than just believing it should be a federal responsibility to respond,” Gimont said. “To the extent that states do create these funds, they’re useful.”
In April, Florida issued
Municipal Market Analytics
According
The three most expensive years for extreme weather in the U.S. have been 2017, 2005 and 2022. Because the costs of such weather events tend to peak from August to December, it’s too early to say where 2024 will place in the ranking.
Nationwide, the costs have been highest in Florida, Texas and Louisiana. In the Midwest, the costs have been higher in Illinois, Missouri and Iowa than in other states.
Homeowners insurance was unprofitable in eight out of 11 Midwestern states as of 2023, according to a recent New York Times
“With disasters increasing in frequency and severity, [rainy-day] funds are not enough to make communities whole,” said Lucia Bragg, policy manager at Columbia University’s National Center for Disaster Preparedness. “You see signs of this in financial markets, not least of which is the increasing number of large insurance companies pulling out of higher-risk home insurance markets. In the most basic sense, creative tools, like catastrophe bonds, are a way for governments and insurance companies to share this risk with other entities and limit the worst-case scenario recovery costs.”
Some Midwestern states have disaster recovery funds, but they tend to be narrower in scope and don’t address the insurance impacts of extreme weather as Florida’s does. The Illinois Disaster Response and Recovery Fund,
Missouri has community development block grants for disaster recovery, but the grants are only for presidentially declared disasters. And Iowa earlier this month rolled out four new programs to help residents in disaster-struck areas, but two of them require official disaster declarations from FEMA.
According to
Some of that increase may be leftover distortion from the pandemic. Still, the U.S. has seen 10 denials so far in 2024, with more natural disasters expected in coming months. FEMA issued 17 denials nationwide in 2023, which was second only to 2016’s 22 denials (the data set runs from 2000 to present). In 2022, it issued 12 denials.
The agency has issued an average of 13.33 denials per year during the Biden administration, not counting 2024. It issued an average of nine denials per year during the Trump administration, an average of 12.5 denials per year during the Obama administration and an average of 14.875 denials per year during the George W. Bush administration.
The Midwest has received two denials in 2024. Not counting this year, it saw an average of 2.33 denials during the Biden administration — five denials in 2023, one denial in 2022 and one denial in 2021 — an average of 3.25 denials during the Trump administration, an average of 3.0 denials during the Obama administration and an average of 2.625 denials during the Bush administration.
There have been 87 disaster and emergency declarations approved so far this year, nine of them in the Midwest. In 2023, FEMA approved 114 declarations, 12 of them in the Midwest. In 2022, the agency approved 90 declarations, 12 of them in the Midwest. And in 2021, it approved 120 declarations, four of them in the Midwest.
There is some evidence that states are taking a more active role in disaster recovery. A
“Of these, 300 fund state agencies and programs, 168 provide funding to local governments, 116 relate to federal funding, 52 involve cost-share or matching between multiple levels of government, 95 provide assistance to individuals or households, 87 provide funding to the private and nonprofit sectors, and 45 relate to insurance mechanisms to fund disaster mitigation,” the report notes.
Among the 2023 legislation was North Dakota’s HB 1070, which drew on federal STORM Act funds to establish a hazard mitigation revolving loan fund. The
The Columbia report says Congress and the executive branch since 2017 have “placed an increased emphasis on the state and local role in disaster management.”
Bragg, a co-author of that report, also pointed to a
“I don’t believe that there’s been any material change in those thresholds for some time,” said Gimont. “You’re getting an awful lot of things that qualify because those thresholds haven’t been changed over the years. And it creates more events for FEMA to respond to, and that is stretching the staff beyond capability.”
A spokesperson for the Ohio Office of Budget and Management said Ohio has no plans to use bond financing for disaster recovery and that Ohio “looks forward to continuing to work with our federal partners” as they process DeWine’s appeal.
A spokesperson for Whitmer did not respond to requests for comment on the state’s willingness to bond for disaster recovery needs.
A spokesperson for FEMA Region 5, which includes some but not all of the Midwest, said “every disaster declaration request is considered individually based on the declaration factors outlined in the Stafford Act.”
The spokesperson noted FEMA considers appeals submitted within 30 days of the denial letter’s date.
“Affected residents should file claims with their flood and homeowners or renters’ insurances,” the FEMA spokesperson said.
