Extreme Weather Events: Limiting Federal Fiscal Exposure and Increasing the Nation's Resilience
Released: 2014-02-12T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: According to the United States Global Change Research Program, the costs and impacts of weather disasters resulting from floods, drought, and other events are expected to increase in significance as previously “rare” events become more common and intense. These impacts pose financial risks to the federal government. While it is not possible to link any individual weather event to climate change, these events provide insight into the potential climate-related vulnerabilities the United States faces.

GAO focuses particular attention on government operations it identifies as posing a “high risk” to the American taxpayer and, in February 2013, added to its High Risk List the area Limiting the Federal Government's Fiscal Exposure by Better Managing Climate Change Risks . GAO's past work identified a variety of fiscal exposures—responsibilities, programs, and activities that may either legally commit the federal government to future spending or create the expectation for future spending in response to extreme weather events. This testimony is based on reports GAO issued from March 2007 to November 2013 that address these issues.

GAO is not making new recommendations but made numerous recommendations in prior reports on these topics, which are in varying states of implementation by the Executive Office of the President and relevant federal agencies.

section_title: What GAO Found
paragraphs: The federal government has opportunities to limit its exposure and increase the nation's resilience to extreme weather events. Since 1980, the U.S. has experienced 151 weather disasters with damages exceeding 1 billion dollars each. This testimony focuses on 4 areas where the government could limit its fiscal exposure.

Property and crop insurance . The financial risks from two federal insurance programs—the National Flood Insurance Program administered by the Federal Emergency Management Agency (FEMA) and the Federal Crop Insurance Corporation (FCIC)—create a significant fiscal exposure. In 2012, the NFIP had property coverage of over $1.2 trillion and the FCIC had crop coverage of almost $120 billion. As of December 2013, FEMA's debt from flood insurance payments totaled about $24 billion. For various reasons, FCIC's costs more than doubled from $3.4 billion in fiscal year 2001 to $7.6 billion in fiscal year 2012. In 2007, GAO found that the agencies responsible for these programs needed to develop information on their long-term exposure to climate change. The Biggert-Waters Flood Insurance Reform Act of 2012 requires FEMA to use information on future changes in sea levels and other factors in updating flood maps used to set insurance rates. Private insurers are also studying how to include climate change in rate setting. GAO is currently examining the extent to which private and federal insurance programs address risks from climate change.

Disaster aid . The federal government does not fully budget for recovery activities after major disasters, thus creating a large fiscal exposure. GAO reported in 2012 that disaster declarations have increased to a record 98 in fiscal year 2011 compared with 65 in 2004. Over that period, FEMA obligated over $80 billion for disaster aid. GAO's past work recommended that FEMA address the federal fiscal exposure from disaster assistance.

Owner and operator of infrastructure . The federal government owns and operates hundreds of thousands of facilities that a changing climate could affect. For example, in its 2010 Quadrennial Defense Review, the Department of Defense (DOD) recognized the risk to its facilities posed by climate change, noting that the department must assess the potential impacts and adapt. GAO plans to report later this year on DOD's management of climate change risks at over 500,000 defense facilities.

Provider of technical assistance to state and local governments . The federal government invests billions of dollars annually in infrastructure projects that state and local governments prioritize, such as roads and bridges. Total public spending on transportation and water infrastructure exceeds $300 billion annually, with about 25 percent coming from the federal government and the rest from state and local governments. GAO's April 2013 report on infrastructure adaptation concluded that the federal government could help state and local efforts to increase their resilience by (1) improving access to and use of available climate-related information, (2) providing officials with improved access to local assistance, and (3) helping officials consider climate change in their planning processes.

section_title: Letter
paragraphs: Thank you for inviting me to discuss our work on opportunities for the  federal government to reduce the fiscal exposure and financial risks  posed by extreme weather events. According to the United States Global  Change Research Program (USGCRP), the impacts and costliness of  weather disasters—resulting from floods, drought, and other events such  as tropical cyclones—are expected to increase in significance as  previously “rare” events become more common and intense due to  anticipated changes in the global climate system. Typically, climate  change is described as average annual changes in temperature or  precipitation, and is associated with shifts in the frequency and severity of  extreme weather that can impose substantial costs on society. The 151  weather disasters since 1980 with overall damages exceeding $1 billion  each illustrate these vulnerabilities. While it is not possible to link any  individual weather event to climate change, these events provide insight  into the potential climate-related vulnerabilities the United States faces.

Federal, state, and local policymakers increasingly view adaptation— adjustments to natural or human systems in response to actual or  expected climate change—as a risk-management strategy to protect  vulnerable sectors and communities that could be affected by extreme  weather events and changes in the climate. For example, adaptation  measures may include raising river or coastal dikes to protect  infrastructure from sea level rise, building higher bridges, and increasing  the capacity of storm water systems. As stated in a 2010 National  Research Council (NRC) report, even though uncertainties exist  regarding the exact nature and magnitude of impacts, mobilizing now to  increase the nation’s resilience can be an insurance policy against  climate change risks.

My testimony today is based on reports we issued from March 2007 to  November 2013. We conducted work for these reports in accordance with  generally accepted government auditing standards. Our issued reports  have detailed information about our scope and methodology.
subsections: section_title: Limiting Federal Fiscal Exposure and Financial Risks from Extreme Weather Events by Increasing the Nation’s Resilience
paragraphs: Among other impacts, climate change could threaten coastal areas with  rising sea levels, alter agricultural productivity, and increase the intensity  and frequency of severe weather events such as floods, drought, and  hurricanes that have cost the nation tens of billions of dollars in damages  over the past decade. For example, Congress provided around $60 billion  in budget authority for disaster assistance after Superstorm Sandy.These impacts pose significant financial risks, but the federal government  is not well positioned to address this fiscal exposure, partly because of  the complex nature of the issue. Given these challenges and the nation’s  fiscal condition, in February 2013, we added Limiting the Federal  Government’s Fiscal Exposure by Better Managing Climate Change  Risks to our list of high-risk areas.

Climate-related impacts will result in increased fiscal exposures for the  federal government from many areas, including, but not limited to its role  as (1) the insurer of property and crops vulnerable to climate impacts, (2)  the provider of aid in response to disasters, (3) the owner or operator of  extensive infrastructure such as defense facilities and federal property  vulnerable to climate impacts, and (4) the provider of data and technical  assistance to state and local governments responsible for managing the  impacts of climate change on their activities.
subsections: section_title: Federal Government as Insurer of Property and Crops
paragraphs: The financial risks from two important federal insurance programs—the  National Flood Insurance Program (NFIP) administered by the Federal  Emergency Management Agency (FEMA) and the Federal Crop  Insurance Corporation (FCIC) administered by the United States  Department of Agriculture (USDA)—create a significant fiscal exposure.  In 2012, the NFIP had property coverage of over $1.2 trillion and the  FCIC had crop coverage of almost $120 billion. NFIP has been on our  High Risk List since March 2006 because of concerns about its long-term  financial solvency and related operational issues. While Congress and  FEMA intended to finance NFIP with premiums collected from  policyholders and not with tax dollars, the program was, by design, not  intended to pay for itself. As of December 2013, FEMA’s debt from flood  insurance payments totaled about $24 billion—up from $17.8 billion  before Superstorm Sandy—and FEMA had not repaid any principal on  the loan since 2010. Further, the federal government’s crop insurance  costs have increased in recent years for a variety of reasons, more than  doubling from $3.4 billion in fiscal year 2001 to $7.6 billion in fiscal year  2012.

In March 2007, we reported that both of these programs’ exposure to  weather-related losses had grown substantially, and that FEMA and  USDA had done little to develop the information necessary to understand  their long-term exposure resulting from climate change. recommended that the Secretaries of Agriculture and Homeland Security  analyze the potential long-term fiscal implications of climate change on  federal insurance programs and report their findings to Congress. The  agencies agreed with the recommendation and contracted with experts to  study their programs’ long-term exposure from climate change. Both  agencies have incorporated the findings of the reports into their climate  change adaptation plans—as directed by instructions and guidance  implementing Executive Order 13514 on Federal Leadership in  Environmental, Energy, and Economic Performance. We are currently  examining how these programs account for climate change in their  activities.

GAO, Climate Change: Financial Risks to Federal and Private Insurers in Coming  Decades Are Potentially Significant, GAO-07-285 (Washington, D.C.: Mar. 16, 2007). topography, coastal erosion areas, changing lake levels, future changes  in sea levels, and intensity of hurricanes in updating its flood maps.

The Biggert-Waters Act also reauthorized NFIP through 2017 and made  other significant changes to the program, including removing subsidized  premium rates for certain properties, eliminating the grandfathering of  prior premium rates when a property is remapped, and requiring FEMA to  create a reserve fund. While these changes may help put NFIP on a path  to financial solvency, their ultimate effect is not yet known. In addition, the  program faces challenges in making the changes. For example,  implementation of certain changes was delayed by provisions in the  Consolidated Appropriations Act of 2014, and S. 1926, which passed the  Senate on January 30, 2014, would delay the implementation of certain  rate increases contained in the Biggert-Waters Act. As we have  previously reported, such delays to rate increases may help address  affordability concerns, but they would likely continue to increase NFIP’s  long-term burden on taxpayers.

section_title: Federal Government as Provider of Disaster Aid
paragraphs: In the event of a major disaster, federal funding for response and  recovery comes from the Disaster Relief Fund managed by FEMA, and  disaster aid programs of other participating federal agencies. The  federal government does not fully budget for these costs, thus creating a  large fiscal exposure. We reported, in September 2012, that disaster  declarations have increased over recent decades to a record of 98 in  fiscal year 2011 compared with 65 in 2004. Over that period, FEMA  obligated over $80 billion in federal assistance for disasters. We also  found that FEMA has had difficulty implementing long-standing plans to  assess national preparedness capabilities and that FEMA’s indicator for  determining whether to recommend that a jurisdiction receive disaster  assistance does not accurately reflect the ability of state and local  governments to respond to disasters. Had FEMA adjusted its indicator  to reflect changes in personal income and inflation, 44 percent and 25  percent fewer disaster declarations, respectively, would have met the  threshold for public assistance during fiscal years 2004 through 2011. In  September 2012, we recommended, among other things, that FEMA  develop a methodology to more accurately assess a jurisdiction’s  capability to respond to and recover from a disaster without federal  assistance. FEMA concurred with this recommendation.

section_title: Federal Government as Property Owner and Operator
paragraphs: The federal government owns and operates hundreds of thousands of  buildings and facilities that a changing climate could affect. For example,  in its 2010 Quadrennial Defense Review, the Department of Defense  (DOD) recognized the risk to its facilities posed by climate change, noting  that the department must assess potential impacts and adapt as  required. We plan to report later this year on DOD’s management of  climate change risks at over 500,000 defense facilities. In addition, the  federal government manages about 650 million acres––nearly 30 percent  of the land in the United States––for a variety of purposes, such as  recreation, grazing, timber, and fish and wildlife. In 2007, we  recommended that that the Secretaries of Agriculture, Commerce, and  the Interior develop guidance for their resource managers that explains  how they expect to address the effects of climate change, and the three  departments generally agreed with this recommendation. However, as  we showed in our May 2013 report, resource managers still struggled to  incorporate climate-related information into their day-to-day activities,  despite the creation of strategic policy documents and high-level agency  guidance.

section_title: Federal Government as Provider of Technical Assistance to State and Local Governments
paragraphs: The federal government invests billions of dollars annually in  infrastructure projects that state and local governments prioritize and  supervise. In total, the United States has about 4 million miles of roads  and 30,000 wastewater treatment and collection facilities. According to a  2010 Congressional Budget Office report, total public spending on  transportation and water infrastructure exceeds $300 billion annually, with  roughly 25 percent of this amount coming from the federal government  and the rest coming from state and local governments. These projects  have large up-front capital investments and long lead times that require  decisions about addressing climate change before its potential effects are  discernable. The federal government plays a limited role in project-level  planning for transportation and wastewater infrastructure, and state and  local efforts to consider climate change in infrastructure planning have  occurred primarily on a limited, ad hoc basis.

Infrastructure is typically designed to withstand and operate within  historical climate patterns. However, according to NRC, as the climate  changes and historical patterns—in particular, those related to extreme  weather events—no longer provide reliable predictions of the future,  infrastructure designs may underestimate the climate-related impacts to  infrastructure over its design life, which can range as long as 50 to 100  years. These impacts can increase the operating and maintenance costs of infrastructure or decrease its life span, or both, leading to social,  economic, and environmental impacts.

For example, the National Oceanic and Atmospheric Administration  estimates that, within 15 years, segments of Louisiana State Highway 1— the only road access to Port Fourchon, which services virtually all deep- sea oil operations in the Gulf of Mexico, or about 18 percent of the  nation’s oil supply—will be inundated by tides an average of 30 times  annually due to relative sea level rise. Flooding of this road effectively  closes this port. Because of Port Fourchon’s significance to the oil  industry at the national, state, and local levels, the U.S. Department of  Homeland Security, in July 2011, estimated that a closure of 90 days  could reduce the national gross domestic product by $7.8 billion. Figure  1 shows Louisiana State Highway 1 leading to Port Fourchon.

Despite the risks posed by climate change, we found, in April 2013, that  infrastructure decision makers have not systematically incorporated  potential climate change impacts in planning for roads, bridges, and  wastewater management systems because, among other factors, they  face challenges identifying and obtaining available climate change  information best suited for their projects. Even where good scientific  information is available, it may not be in the actionable, practical form  needed for decision makers to use in planning and designing  infrastructure. Such decision makers work with traditional engineering  processes, which often require very specific and discrete information.  Moreover, local decision makers—who, in this case, specialize in  infrastructure planning, not climate science—need assistance from  experts who can help them translate available climate change information  into something that is locally relevant. In our site visits to a limited number  of locations where decision makers overcame these challenges— including Louisiana State Highway 1—state and local officials  emphasized the role that the federal government could play in helping to  increase their resilience.

Any effective adaptation strategy must recognize that state and local  governments are on the front lines in both responding to immediate  weather-related disasters and in preparing for the potential longer-term  impacts associated with climate change. We reported, in October 2009,  that insufficient site-specific data—such as local temperature and  precipitation projections—complicate state and local decisions to justify  the current costs of adaptation efforts for potentially less certain future  benefits. Executive Office of the President develop a strategic plan for adaptation  that, among other things, identifies mechanisms to increase the capacity  of federal, state, and local agencies to incorporate information about  current and potential climate change impacts into government decision  making. USGCRP’s April 2012 strategic plan for climate change science  recognizes this need by identifying enhanced information management  and sharing as a key objective.

GAO, Climate Change Adaptation: Strategic Federal Planning Could Help Government  Officials Make More Informed Decisions, GAO-10-113 (Washington, D.C.: Oct. 7, 2009). designated by the Executive Office of the President work with relevant  agencies to identify for decision makers the “best available” climate- related information for infrastructure planning and update this information  over time, and to clarify sources of local assistance for incorporating  climate-related information and analysis into infrastructure planning, and  communicate how such assistance will be provided over time. They have  not directly responded to these recommendations, but the President’s  June 2013 Climate Action Plan and November 2013 Executive Order  13653 on Preparing the United States for the Impacts of Climate Change  drew attention to these issues. For example, the Executive Order directs  numerous federal agencies, supported by USGCRP, to work together to  develop and provide authoritative, easily accessible, usable, and timely  data, information, and decision-support tools on climate preparedness  and resilience.

We also have work under way exploring, among other things, the risk  extreme weather events and climate change pose to defense facilities,  public health, agriculture, public transit systems, and federal insurance  programs. This work—within the framework of the February 2013 high- risk designation—may identify other steps the federal government could  take to limit its fiscal exposure and make our communities more resilient  to extreme weather events.

Chairman Carper, Ranking Member Coburn, and Members of the  Committee, this concludes my prepared statement. I would be pleased to  answer any questions you have at this time.

section_title: GAO Contact and Staff Acknowledgments
paragraphs: If you or your staff members have any questions about this testimony,  please contact me at (202) 512-3841 or gaffiganm@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this statement. Alfredo Gomez, Director;  Michael Hix, Assistant Director; and Heather Chartier, Diantha Garms,  Cindy Gilbert, Richard Johnson, Joseph Dean “Pep” Thompson, and Lisa  Van Arsdale made key contributions to this testimony.

This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.


Question-summary annotations: questions: question: What risks do the federal flood insurance programs pose?
answer: The financial risks from two federal insurance programs—the National Flood Insurance Program administered by the Federal Emergency Management Agency (FEMA) and the Federal Crop Insurance Corporation (FCIC)—create a significant fiscal exposure.
child_questions: question: What specific risks do NFIP, FCIC, and FEMA carry?
answer: In 2012, the NFIP had property coverage of over $1.2 trillion and the FCIC had crop coverage of almost $120 billion. For various reasons, FCIC's costs more than doubled from $3.4 billion in fiscal year 2001 to $7.6 billion in fiscal year 2012. As of December 2013, FEMA's debt from flood insurance payments totaled about $24 billion.
child_questions: question: What was GAO's recommendation to these programs?
answer: GAO is currently examining the extent to which private and federal insurance programs address risks from climate change. In 2007, GAO found that the agencies responsible for these programs needed to develop information on their long-term exposure to climate change.

question: How did the Biggert-Waters Flood Insurance Reform Act impact FEMA?
answer: The Biggert-Waters Flood Insurance Reform Act of 2012 requires FEMA to use information on future changes in sea levels and other factors in updating flood maps used to set insurance rates.

questions: question: To what extent does the federal govenrment budget for disaster recovery?
answer: The federal government does not fully budget for recovery activities after major disasters, thus creating a large fiscal exposure.

question: What is the trend in disaster declarations?
answer: GAO reported in 2012 that disaster declarations have increased to a record 98 in fiscal year 2011 compared with 65 in 2004. Over that period, FEMA obligated over $80 billion for disaster aid.

question: What has GAO recommended to FEMA?
answer: GAO's past work recommended that FEMA address the federal fiscal exposure from disaster assistance.

questions: question: How could climate change affect the federal government?
answer: The federal government owns and operates hundreds of thousands of facilities that a changing climate could affect.
child_questions: question: How has the government realized this?
answer: For example, in its 2010 Quadrennial Defense Review, the Department of Defense (DOD) recognized the risk to its facilities posed by climate change, noting that the department must assess the potential impacts and adapt.

question: What does GAO plan to do regarding this problem?
answer: GAO plans to report later this year on DOD's management of climate change risks at over 500,000 defense facilities.

questions: question: What is the relationship between the federal government and state/local infrastructure?
answer: The federal government invests billions of dollars annually in infrastructure projects that state and local governments prioritize, such as roads and bridges.
child_questions: question: What is the breakdown of funding sources for those investments?
answer: Total public spending on transportation and water infrastructure exceeds $300 billion annually, with about 25 percent coming from the federal government and the rest from state and local governments.

question: What did GAO conclude in their report?
answer: GAO's April 2013 report on infrastructure adaptation concluded that the federal government could help state and local efforts to increase their resilience by (1) improving access to and use of available climate-related information, (2) providing officials with improved access to local assistance, and (3) helping officials consider climate change in their planning processes.

questions: question: What is predicted of weather disaster costs?
answer: According to the United States Global Change Research Program, the costs and impacts of weather disasters resulting from floods, drought, and other events are expected to increase in significance as previously “rare” events become more common and intense.
child_questions: question: What is a potential government-related effect?
answer: These impacts pose financial risks to the federal government.

question: What can be gleaned from these risks?
answer: While it is not possible to link any individual weather event to climate change, these events provide insight into the potential climate-related vulnerabilities the United States faces.

questions: question: What is GAO's High Risk List?
answer: GAO focuses particular attention on government operations it identifies as posing a “high risk” to the American taxpayer and, in February 2013, added to its High Risk List the area Limiting the Federal Government's Fiscal Exposure by Better Managing Climate Change Risks .
child_questions: question: Why was it added?
answer: GAO's past work identified a variety of fiscal exposures—responsibilities, programs, and activities that may either legally commit the federal government to future spending or create the expectation for future spending in response to extreme weather events. This testimony is based on reports GAO issued from March 2007 to November 2013 that address these issues.