March 7, 2000
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Uncle Sam, insurer of first resort

By Gilbert M. Gaul
and Anthony R. Wood

Related material:
* Graphics and the series so far

It wasn't much as storms go. There was heavy rain and strong winds, flooding in low-lying areas, and beach erosion. In short, about what you would expect from a winter storm along the New Jersey coast.

But to local officials, Washington bureaucrats and President Clinton in early 1998, this was much bigger than just a storm. It was a federal disaster.

Gov. Whitman pleaded for help, contending that the state and beach resorts did not have the resources to cope. And on March 3, 1998, a month after the storm, the President responded, declaring Shore counties disaster areas, eligible for federal aid.

Taxpayer dollars poured in - nearly $3.3 million. But not for what you might imagine. The U.S. government agreed to repair tennis courts, fix a gazebo, patch boardwalks, replace street signs, pay for landscaping, buy tourism brochures, and rebuild beaches.

And the victims?

Records show that there were no injuries, deaths or destroyed homes. The Federal Emergency Management Agency (FEMA) budgeted more for paperwork and administration than it did for aid to individuals.

"We didn't ask a lot of questions for why we got that disaster [declaration]," said Joe Painting, a state emergency management official.

Nor, apparently, was New Jersey as desperate as federal officials had been led to believe. The state finished the year with a $1 billion surplus - enough to give New Jersey property owners rebates averaging $120.

By comparison, it would have cost the state's eight million residents just 41 cents each to have paid for the storm damage themselves.

An aberration?


Thanks to the largesse of Washington, an ever-expanding definition of federal emergencies, and a legacy of risky building along the coast, disasters have become a growth industry. Among the beneficiaries are exclusive beach towns and resorts with some of the lowest tax rates in America.

Many use taxpayer-funded disaster relief as a form of insurance for their municipal property. They carry little or no coverage, relying on federal funds to cover storm damage, including ruined Christmas decorations, flooded tennis courts and snapped flagpoles.

The average number of annual federal disaster declarations has more than tripled - from 13.4 in the 1950s to 41 in the 1990s. The number peaked in 1996, an election year, at 74.

Disaster spending by FEMA increased from an inflation-adjusted $337 million in the 1950s to more than $24 billion in the 1990s, a 72-fold spike. Yet there were more frequent and far more powerful hurricanes in the 1950s than in the 1990s.

All told, federal agencies from the Department of Housing and Urban Development to the Small Business Administration have spent an estimated $140 billion on disasters since the 1950s.

And despite promises from Congress and the Clinton administration about closing disaster loopholes, the numbers keep going up.

More than one-third of all disaster declarations - 410 awards - were made from 1990 through 1998. They accounted for a disproportionate share of all federal disaster spending - 58 percent of the nearly $42 billion, inflation-adjusted, handed out by FEMA since 1953.

In 1998, FEMA awarded Delaware nearly $2.9 million for the same coastal storm that hit New Jersey, with almost one of four dollars - $656,000 - for administrative overhead. The rest went to local governments, not individual victims. Gov. Tom Carper contended that the storm posed "a significant threat" to the state's economy. Yet Delaware finished the year with a $432 million surplus.

And in September, Clinton again took out the taxpayer checkbook for the Jersey Shore after Whitman wrote that waves, wind and storm surge from Hurricane Floyd had "caused substantial damage." Her Sept. 17 appeal was made before state emergency officials had completed an assessment. Floyd caused hundreds of millions in damage inland, but barely grazed the coast. The Shore was declared eligible for federal aid anyway.

Increasingly, disaster funds are propping up beach towns that have built in harm's way - part of an unprecedented development boom that has transformed the nation's coasts from seaside hamlets to exclusive resorts with property worth $2 trillion. In this scenario, government disaster aid has become a form of entitlement, benefiting relatively wealthy beach resorts yet paid for by all taxpayers.

Now, lax government rules and a surge in risky development are threatening to drive up disaster costs even more. An examination of 10,000 federal disaster records and more than 100 interviews has found:

Loose criteria. By law, state and local governments are supposed to receive federal disaster aid only when it is beyond their financial capability to respond. But there are no objective criteria, and almost anyone can qualify. On average, two of every three requests for help are approved.

Lax financial standards. In 1986, Congress prohibited FEMA to use strict means tests for disaster aid. Nor does the agency consider a town's property values or tax rate. This allows wealthy beach towns like Avalon, N.J., and Westport, Conn., to shift to federal taxpayers some of the risks and costs of doing business in a storm-prone area.

"Disasters should only be declared when it's beyond the capability of municipalities, and this has gotten way out of hand," said Richard W. Krimm, a former top FEMA executive.

An unofficial standard. FEMA has an unofficial standard for awarding aid. To qualify, storm damage is supposed to exceed an amount equal to $1 for each resident of a state. That 15-year-old figure has never been adjusted for inflation. How did the agency come up with $1? "It was a round number," joked Robert J. Adamcik, a FEMA official.

Damage is supposed to exceed $2.50 per capita at the county level. But FEMA bases its estimates on year-round population figures, which seriously underestimate the size and wealth of summer vacation resorts, making it easier to collect disaster aid.

Vulnerable property. In the last decade, FEMA has directed $9 billion in disaster assistance - or two of every five disaster dollars - to vulnerable coastal resorts and U.S. territories, including Puerto Rico. Private insurers' costs also are soaring, with hurricanes responsible for three-fourths of the $43 billion in claims between 1950 and 1992. And Small Business Administration disaster loans, which provide up to $200,000 for housing repairs and $40,000 for contents, also are rising.

Governments take advantage. FEMA has awarded state and local governments nearly $13 billion in the last decade, more than half of all of the agency's disaster payments. Millions have gone for mulch, wood chips, bocce courts, baseball scoreboards, greenhouses, equestrian trails, lifeguard stands, water coolers, swing sets, garbage cans, lawn fertilizer, toys, insurance deductibles, and salaries and food for prisoners who clean up after storms.

Golf course subsidies. In the 1970s, Congress expanded disaster benefits to include public golf courses and marinas. Since then, FEMA has spent more than $10 million on those facilities - and more than $200 million on parks and recreation sites.

After a 1992 nor'easter, the agency approved nearly $3 million in claims to repair the Borough of Atlantic Highlands' municipal marina, and $185,000 to rebuild the Village of Loch Arbor's beach club. The Links at Key Biscayne, a golf course near Miami, claimed $300,000 to replace trees damaged by Hurricane Andrew in 1992.

"Why be prudent in locating a home or business when the government will offset or blunt the losses with all of these subsidies?" asked Raymond J. Burby, a University of New Orleans natural-hazards expert.

Added Gregory E. van der Vink, who teaches a course on disasters at Princeton University: "There is no free-market system that would help create natural selection, with people bearing the consequences of their risky land use. The natural selection is blunted by federal disaster relief and insurance, and it's the wealthiest segment of society that benefits most."

FEMA director James Lee Witt agrees that the nation spends too much on disasters, and says he is trying to cut costs. The agency is pouring hundreds of millions into efforts to make beach towns and other areas "disaster-resistant."

FEMA also has proposed tightening financial eligibility and requiring governments to carry insurance on public buildings. But Witt faces stiff opposition from those who benefit from lax standards. "I'm getting huge, huge political pressure not to publish this [insurance] rule," he said.

New Jersey cashes in

The transformation of routine storms into federal disasters has accelerated under the Clinton administration.

Without stronger standards, FEMA contends that it has little choice but to hand out disaster dollars. Congressional delegations and governors lobby heavily for aid, often appealing directly to the President.

The agency's own loose rules compound the problem. Some FEMA regions are tougher than others when determining eligibility. This has opened the door to the disaster equivalent of grade inflation. In some cases, disasters are declared even before damage is tabulated.

Nearly 60 percent of all declarations are for less than $10 million, records show. Almost 40 percent are for less than $5 million. In some cases, local governments could raise these funds with a minimal tax increase. Yet FEMA rarely takes that into consideration when handing out disaster dollars.

That was the case in federal Disaster Declaration 1206 covering Atlantic, Cape May and Ocean Counties in the winter of 1998.

On Feb. 18, Whitman wrote "with utmost urgency" to request federal aid after heavy surf and flooding hit the coast that month.

"The storm caused extensive damage and has continued to severely tax state, county and local resources left bare from a very hectic storm season," the governor wrote FEMA and Clinton.

Whitman's request did not spell out why the state could not afford to cover the damage itself, and made no mention of New Jersey's surplus. FEMA, for its part, appears to have accepted the governor at her word. Documents obtained under the Freedom of Information Act provide no evidence of agency officials' testing the state's claims. One record shows that the state even failed FEMA's $1 test.

The agency calculated disaster repairs at $4.7 million for the Shore counties. That worked out to 60 cents for each state resident. "Normally, the way things work . . . you have to have $1 in damages per person," said Painting, the state emergency official. "We got a disaster turned on for less than that."

How did FEMA conclude that New Jersey and the beach resorts could not pay for their own repairs?

That's secret.

FEMA considers its recommendations to the president privileged documents that describe the "deliberative process" of a federal agency. It refused to provide all but the cover sheet of those letters. And those appear to repeat almost verbatim the information supplied to the agency by the state.

FEMA records do show that the coastal storm produced relatively minor damage, primarily to the dunes protecting private beach homes and local roads. Under the category "Impact on Individuals," FEMA officials penciled in "0." In fact, nearly two-thirds of disaster dollars budgeted for Declaration 1206 went to local governments, not individuals.

After a December 1992 coastal storm, Jersey Shore towns requested thousands of dollars from FEMA to replace damaged holiday decorations.

"That storm wiped out all of their Christmas lights. In most cases, it was paid. It was eligible," Painting said.

Overall, New Jersey received more than $100 million in federal disaster aid in the 1990s, much of it for coastal damage.

Such public-assistance aid accounts for more than half of FEMA's $22 billion in disaster expenditures in the last decade - double what it spends on individuals.

Most of that individual aid is for temporary housing for year-round residents displaced by storms. Though FEMA does not cover vacation properties, owners benefit from taxpayer-funded repairs to sewers, roads, water systems and beaches. Many also qualify for low-interest loans and have federally backed flood insurance.

In effect, the agency functions as a taxpayer-funded charity for coastal towns, states and territories, providing millions in aid regardless of their wealth.

After Hurricane Georges in September 1998, FEMA approved $26,513 in disaster claims to repair pigpens and replace 44 piglets at two prison farms in Puerto Rico. The agency approved $2,160 for aviaries and $200,850 for baseball fields and a billboard. Millions more went to repair roads, utilities, and damaged government buildings.

Such generous subsidies are a disincentive to safe coastal development, in effect rewarding governments that build on barrier islands and other storm-prone sites, concluded a 1993 report by the federal Office of Technology Assessment.

Local officials offer another view. "My personal philosophy is as long as they have these programs available, I'm going to do everything I can to take advantage of them. That's my job," said Dave Carmany, city manager in Pacifica, Calif., which received more than $1 million for El Nino storms in 1998.

Normally, the federal government picks up 75 percent of the cost of public assistance, rarely more. If local governments do not have the cash to meet their share, FEMA will provide a low-interest loan. The agency has handed out more than $171 million to 10 governments, including such storm-prone U.S. territories as Puerto Rico, American Samoa, the Marshall Islands, and the U.S. Virgin Islands.

FEMA also has a loan program to cover economic losses. Nearly half of those loans, $46 million, have been written off by the agency.

One reason FEMA spends so much on public assistance: Many local governments have not insured their public property, or have underinsured, counting on taxpayers to help them rebuild. The agency has proposed that local governments be required to cover at least 80 percent of their property value. But the governments and their congressional representatives are resisting.

Witt said the proposal would be a tough sell; the entire California delegation opposes it, and a congressional study of the cost impact has stalled. "So I mean, what do you do, you know?" Witt said.

Another proposal, calling for minimal financial standards in declarations, is expected to go ahead, with the backing of some key members of Congress. It calls for using the $1 per capita threshold, adjusted for inflation, and would set a $1 million minimum on public-assistance losses.

"I think seriously we're moving in the right direction," Witt said, "but I think it's at a snail's pace in comparison to what it should be."

Few options for FEMA

In 1979, Hurricane Frederic, a bruising Category 3 storm, ripped across Dauphin Island, Ala., leveling 140 homes and causing millions of dollars in damage. Among the casualties was the only bridge linking the private resort to the mainland.

Since then, the barrier island has been struck by four hurricanes and has received millions in federal disaster aid, including $32 million for a new bridge. Hurricane Georges, a relatively weak storm, lashed the island in September 1998, sweeping away 41 houses and leaving dozens of others teetering in the Gulf of Mexico on stilts.

FEMA approved more than $2 million for repairs, including nearly $1 million to build a protective dune in front of private houses on the vulnerable west end of the island. An additional $3.9 million in federally backed flood claims flowed to property owners.

One might think, given Dauphin Island's vulnerable nature, that federal officials would try to prevent more building there.

They can't.

That power lies almost entirely with local officials, who control building and zoning laws. The most FEMA can do is use its disaster dollars to encourage safer building.

Powerless to stop risky building, FEMA attempts to hold down future losses by investing in costly preventive measures. FEMA calls this strategy mitigation. It has become the agency's rallying cry.

Under Witt, whom Clinton named FEMA director in 1993, FEMA has increased funding for prevention and education programs. The agency has begun marketing its message with almost religious zeal, asserting before one news conference, "A disaster does not have to be disastrous, and Director Witt will explain why."

Last June, Witt urged mayors to make their communities "disaster-resistant."

"We do not have the technology to prevent disasters," he said, "but we absolutely have the technology to prevent disaster damage."

FEMA has handed out $1.2 billion in mitigation grants in the last decade, and the money is a valuable new subsidy to beach towns looking to armor themselves against nature's fury.

FEMA officials contend that mitigation works, and point to savings - $2 in disaster aid for every $1 spent raising houses, buying storm shutters, repairing sand dunes, and fortifying water and sewer systems.

But those "savings" are dwarfed by soaring disaster costs: $337 million in the 1950s, $2.85 billion in the 1960s, $8.49 billion in the 1970s; $5.62 billion in the 1980s, and $24.1 billion in the 1990s, adjusted for inflation.

"There really isn't that much FEMA can do, so it is pushing mitigation," said Rutherford H. Platt, a University of Massachusetts natural-disaster expert. "And what happens is, it ends up giving these towns bonuses for doing things they should be doing themselves."

With no means testing, and taxpayers picking up 75 percent of the cost, the mitigation grants are popular politically. Last year, FEMA started attaching Vice President Gore's name to major-grant announcements, on orders from the White House, FEMA said.

In 1997, Witt introduced Project Impact, a highly publicized attempt to showcase disaster prevention in select communities. The program has awarded millions in grants to 200 communities. The towns are selected by state officials and approved by the agency.

The Project Impact communities represent 1 percent of the 19,000 flood-prone communities nationwide. And, though growing, mitigation funds are a fraction of FEMA's budget. The agency spends more on administrative overhead than prevention, documents show.

One recipient of Project Impact funds is hurricane-prone Dauphin Island. It plans to upgrade drainage systems and buy storm shutters for private houses.

In 1979, Frederic submerged most of the 15-mile-long island and caused $7 million in property damage, not including the cost of replacing the bridge.

FEMA officials warned that building a new bridge would encourage development on the barrier island resort - and lead to more disaster spending. The agency was right on both counts.

Development boomed after the bridge was completed in 1982. A $9 million sewer plant was installed three years later, at taxpayer expense. Today, Dauphin Island is crowded with an estimated $250 million in property, including vacation homes that rent for $1,500 a week and up.

Most of the 41 owners whose houses were destroyed by Georges have decided to rebuild, said Jimmy Reaves, local compliance officer. Ironically, the hurricane seems to have boosted land values. Last year, officials approved a seven-story hotel on the beach.

Dauphin Island has a year-round population of approximately 1,500, which swells tenfold in summer. About 70 percent of properties are second homes and rentals.

"People live here disaster-free for 300 days of the year, and the other 65 can be hell," council member Alma Wagner said. "But as long as they have that 300 days of happiness on the water, they will continue to build bigger and better."

FEMA is helping. The agency has approved nearly $1 million for the temporary dune in front of private houses. The agency says the proposed dune is designed to protect city-owned utilities, not rental properties.

Dauphin Island remains at extreme risk. The west end is flat and has no trees or vegetation, leaving scores of houses exposed to fierce hurricane winds. Storms and erosion have placed the state's construction control line more than 100 feet offshore, under several feet of water.

More than a year after Georges, there was still little beach. Strollers had to duck under houses on the west end and maneuver around stilts.

What beach is left on the west end is largely private. Owners have placed "No Trespassing" signs at the ends of their driveways.

That has not stopped FEMA from helping to advertise the island. After Georges, the agency approved $1,125 to replace the resort's welcome sign.

Gilbert M. Gaul's e-mail address is; Anthony R. Wood's is

Inquirer researcher Frank Donahue contributed to this series.

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