How much does a natural disaster cost?

Posted Wednesday, October 31, 2012 in Analysis

How much does a natural disaster cost?

Aftermath of the tornado in Joplin, Missouri, 2011

by Gina Hamilton

Hurricanes and earthquakes usually get all the headlines, but natural disasters come in all flavors, some of them not terribly flashy, but nearly all of them more expensive than a single state can bear.

Here are just a few of recent history's "billion dollar events".  And as of Tuesday, we can add another one to the list -- Hurricane Sandy, whose early estimate of damage is somewhere between $20-30 billion, and is likely to go much higher.

Let's look at the Joplin, Missouri tornado as an example.  The cost of the tornado's cleanup and rebuilding was $3 billion.  In Missouri, the expected revenue from all tax sources in FY 2011 was $7.22 billion.  As it turns out, they didn't get that much money, it was about $700 million less.  But even if they had received the entire amount, the Joplin costs -- one tornado, and Missouri also had flooding, drought, and other problems that year -- would have consumed 41.5 percent of their budget for the year if Missouri had had to pay for the entire costs of the disaster.

Now let's look at Katrina.

The majority of the damage took place in Louisiana, but Mississippi and a part of Alabama were also affected.  Louisiana's entire revenue expectation was $6.21 billion for that year; Mississippi expected $5.87 billion; and Alabama had $19.4 billion.  Together, the three states affected by Hurricane Katrina had $31.48 billion.  But Hurricane Katrina, the most expensive natural disaster in U.S. history, cost $125 billion.  It would have taken these three states four years to pay for Katrina damage, if they had no other budget constraints at all.

Which is why the entire country pools its resources to pay for natural and other disaster costs, through FEMA.  Large scale disasters require large scale response, which is often beyond the abilities of individual state governments to provide. 

At some level, everyone in the country, no matter where they live, is invested in keeping the nation's arterial rivers open; keeping wheat, soybean, corn, and cattle farmers in operation; keeping Californian fruit and vegetables coming; keeping the port cities safe up and down the Atlantic and Pacific coasts; keeping oil production going in the gulf and in the northern plains; keeping Americans alive and safe wherever they are. 

None of us live in a region completely immune to natural disasters.  Maine suffered an earthquake two weeks ago and a hurricane this week.  In six weeks' time, we may be buried under a blizzard. When disaster strikes, we have every reason to expect that the states we help with our tax dollars will reciprocate.


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