Extreme Weather—Striking a Blow to Government Budgets
Business + Economy

Extreme Weather—Striking a Blow to Government Budgets

The Fiscal Times

It was the wrong kind of post-holiday windfall: 20-plus inches of snow blanketing the East Coast, shutting down airports, roads, businesses and travel plans, and creating a nasty economic ripple effect. Towns across the region are still counting the financial damage.

The East Coast blizzard was the latest in a series of drastic weather events that seem to be arriving at ever shorter intervals, and with ever more intensity. It came on the heels of a weeklong onslaught of severe rain and flooding on the West Coast, overwhelming cities like San Diego. And a few days after the blizzard, unseasonal tornadoes ripped through several Midwestern states, killing eight people and causing states of emergencies in Missouri and Arkansas. Across the country, snowfall has been more persistent and intense than the historical precedent – the East Coast presently finds itself digging out of yet another 19-inch deluge.

If the weather keeps getting more severe, as is widely expected, the economic and fiscal impact will take a toll. Businesses and governments at the local, state and federal level alike are likely to find themselves redeploying scarce funds to keep the roads clear and repair critical crossways.

Post-Holiday Blues
Any number of industries feel the pinch when the weather strikes back. Take the airlines: A total of roughly 10,000 flights were canceled during the three days after Christmas, costing the airlines an estimated $150 million. Delta Airlines alone stomached $45 million in lost revenue, while JetBlue took a $30 million hit.

The storm also came at a crucial time for retailers. ShopperTrak, a leading analyst of retail industry data, estimated that the blizzard cost retailers $1 billion in sales (the post-Christmas week can account for over 15 percent of total holiday sales, according to the National Retail Federation). That number is likely high, given the increase in online sales today, along with the percentage of lost in-store sales which are likely to be made up when the snow melts. Nevertheless, retailers will feel a sting, and for small businesses it can be a particularly rough blow.

“Because of the snow, I was not able to open until the 28th,” says Zoe Van de Wiele, owner of the clothing boutique Cloth, in Brooklyn, NY. Her babysitter was stuck in Buffalo, and she couldn’t find a replacement. When she did finally reopen she had no customers for two days. “I do believe it was because the streets were so impassable,” she says.

Bad weather is also bad business for taxi drivers, salons, restaurants and movie theaters. Add to that mix the insurance industry, which can pay out billions in the aftermath of an extreme weather event.

The Toll on Government Budgets
But it’s local governments that bear most of the responsibility for cleaning up after severe weather – expenditures that are eating into already fragile budgets. Kail Padgitt, a staff economist at the Tax Foundation, says, “This of course comes at a bad time, as local revenues are hurting due to drops in property tax revenue and state level aid.”

On the East Coast, there was the obvious cost of digging out of the snow. The Bloomberg administration estimated this week that the final tally for December’s storm alone will easily surpass New York City’s annual snow budget of $38.8 million. In addition, the Metropolitan Transportation Authority, which runs New York City subways and buses, some bridges and tunnels, the Long Island Railroad and the Metro-North Railroad, had to absorb $30 million in overtime expenses and lost revenues because of the storm – unwelcome news for an organization that has recently eliminated service and increased fares, yet will still find itself $207 million in the hole at the end of 2012.

The large swath of smaller municipalities that were hit by the storm might feel the burden even more acutely. Their funds are already stretched dangerously thin; Mark Boughton, the mayor of Danbury Conn., called the blizzard “a budget buster.” His chief of staff, Wayne Shepperd, says that the city generally incurs $10,000 in cleanup costs for every inch of snow that falls. With almost 80 inches of snow already accumulated this season, the city has more than exhausted its $775,000 snow removal budget, with almost two more months of winter still ahead.

There are less glaring costs, as well. When those retailers take a hit, so do tax receipts for both state and local governments. And all those canceled flights translate into the loss of lucrative landing fees at airports. Even the Postal Service, that stalwart of reliability, had to interrupt delivery and incurred extra costs in making up for lost time.

In some areas, damage was more permanent: In addition to cleanup costs, Suffolk County on Long Island suffered an estimated $10 million in damage to public property from the December blizzard. There is a pending application for aid from the Federal Emergency Management Agency (FEMA) to help pay for cleanup and repairs.

On the other side of the country, pounding rains and flooding have prompted San Diego to apply for emergency funding as well, from both FEMA and the California Emergency Management Agency. The city had to spend between $3 million and $6 million on rescue and cleanup, according to the mayor’s spokesperson, Alex Roth. “Not a very opportune time for expenses such as this, given that we’re trying to close a $72 million budget gap,” he said. But San Diego didn’t even see the worst of it. San Bernardino County, in southwest California, suffered an astonishing $93 million in damage to public and private property.

But a FEMA analysis doesn’t mean that federal funding is in the bag. Officials must determine that “the disaster is of such severity and magnitude that effective response is beyond the capabilities of the state and local government.” And if emergency funding is granted, it usually covers 75 percent of total costs, and can often take many months to come through. For example, earlier this month FEMA announced the approval of $1.7 million in funding to Philadelphia – not for December’s blizzard, but for a severe snowstorm last February.

San Diego, for one, is proceeding under the assumption that the funding will come through, says Roth, and hoping the money will arrive before fiscal year 2012 starts on July 1. Next for the city would be getting approval and funding to clean its network of storm drains. “It takes a lot of money to clean out these storm channels,” Roth says. “More money than we have, quite frankly.”

Storm Facts:

December Blizzard to New York’s Metropolitan Transit Authority: $30 million

Amount borrowed by FEMA from the U.S. Treasury in the wake of Hurrican Katrina: $19.28 billion
Amount still owed: $18.8 billion

Damage in San Bernadino County, Calif., from December flooding: $93 million

Approximate number of flights canceled during the December blizzard: 10,000

FEMA Disaster Declarations in 2010: 81
Average Number of Annual Disaster Declarations Since 1951: 33

A Brewing Storm
Weather emergencies may get worse according to scientists who claim that global warming is responsible for more volatile weather across the country. Indeed, FEMA declared the highest number of disasters in its history in 2010. According to a report by the United States Global Change Research Program, precipitation has increased about 5 percent nationwide over the past 50 years, and this trend will continue; downpours will be heavier; heat waves and droughts will be more intense; hurricanes will be stronger; and cold season storms are “likely to become stronger and more frequent.”

This winter, so far, may be a case in point: You have to go all the way back to 1948 to find a December that produced as much snow in New York City as last month did, and January is shaping up to be the snowiest on record. For their part, the floods in California were unique in that they came during La Nina – this type of weather pattern historically emerges in that area only during El Nino, says Jay Lawrimore, a scientist at the National Oceanic and Atmospheric Administration.

The recent tornadoes – a type of extreme weather more common during the springtime – may be also a result of shifting weather patterns. Chris Buonanno, a meteorologist for the National Weather Service, told the Associated Press that he sees a connection between changes in South Pacific Ocean temperatures and changes in the jet stream which runs through the central Unites States, and which caused the tornadoes.

There are any number of additional changes that are altering weather around the country: the Great Lakes not freezing, snow pack in the western U.S. melting, and oceans warming, to name a few. Each of these phenomena will require additional outlays, in one way or another, by governments at every level. Responsibility for smaller weather events will likely still fall to state and local governments – states must declare a state of emergency before applying for federal aid, and four inches of snow hardly warrants that. The more severe events, on the other hand, are more likely to be covered by the federal government.

The expenditure by the federal government on disaster relief has risen markedly in recent years. Today, that budget regularly surpasses $5 billion per year as opposed to a high of $375 million a decade ago. FEMA also runs the National Flood Insurance Program, a program that was created to insure flood-prone areas that private insurers don’t cover. After Hurricane Katrina, the program borrowed over $19 billion from the U.S. Treasury – money it may never be able to pay back. The next big hurricane could be both a geographical and a fiscal disaster for the program.

The storms are brewing, both in cities and towns across the country, and in the governments that have to weather the financial blast that accompanies them.

Related Links:
Is Extreme Weather a Result of Global Warming? (CBS News)
Is Global Warming Responsible for Wild Weather? (Newsweek)
Freezing Cold or Freakishly Warm (The New York Times)