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

Letter

Limiting Federal Fiscal Exposure and Financial Risks from Extreme Weather Events by Increasing the Nation’s Resilience

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.

Federal Government as Insurer of Property and Crops

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.

Federal Government as Provider of Disaster Aid

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.

Federal Government as Property Owner and Operator

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.

Federal Government as 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 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.

GAO Contact and Staff Acknowledgments

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.