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Pitch

Municipal property taxes should be adjusted to reflect flood risk, discouraging risky development and providing revenue for flood protection


Description

Summary

Projections have long indicated that the intensification of extreme weather events and sea level rise pose complex flood risks for communities (Diffenbaugh et al, 2005). This is further exacerbated by the global tendency to develop high-value real estate in close proximity to coastal and riverine areas. As such, without significant investments in flood protection measures, it can be expected that property and casualty losses will become larger as a result of climate change. Indeed, there is ample evidence of this trend occurring. Data from Munich Re (2011), the world’s largest re-insurance firm, notes a marked increase in the value of insurable losses between 1980-2010 as a result meteorological, hydrological and climatological events. Recent examples of such extensive high-value flood damage include the 2013 floods in Toronto and Calgary, as well as the extremely anomalous storm surge during Superstorm Sandy.

At present, the monetary risk of high-value, water adjacent properties is not accurately reflected in property costs. Those living in high-value, water adjacent properties tend to have their monetary risk subsidized by taxpayers, and are also most likely to benefit from expensive flood protection measures, despite not contributing any more towards the cost of those measures (Mori & Perrings, 2012). My proposal, to adjust property taxes based on flood risk, offsets the public risk-bearing, and encourages actions which mitigate that risk.  Enhanced revenues generated by higher property taxes in high-risk areas may be utilized by a municipality to fund flood protection measures, which will lessen the financial burden in the aftermath of flood events. Moreover, it is possible that taxes in certain high-risk areas may become prohibitively high as flood risks increase as a result of climate change, potentially discouraging high-risk development or facilitating the abdication of properties if the risk becomes too much to manage.


What actions do you propose?

My proposal is for municipalities to introduce mechanisms by which they adjust property taxes to better reflect flood risk. An important first step in doing so is for municipalities to assess flood risk throughout their jurisdictions. Municipal or other governmental records may allow for the establishment of flood risk zones backed on the historical flood record, but such methods are typically ill-suited to capture changes in flood risk caused by the continued development of cities. Partnerships with insurance firms, which typically have sophisticated geographical data, geospatial flood models, records and risk experts, is one avenue for the detailed assessment of flood risk throughout the city, whether it be analyzed by individual parcels of property or by flood risk zones which see a homogenous assignment of risk. The use of complex geospatial flood models may also be enhanced to include projections of changes in meteorological, hydrological and climatological events expected as a result of climate change.

Once an assessment of risk is performed, analyses on adequate price adjustments are necessary. Again, given the insurance industry’s expertise in assessing risk, partnerships to determine the financial liability of properties/flood risk zones offer a means to overcome potential knowledge deficits by city officials. Specific legislation may be required to provide municipal lawmakers the authority to adjust property taxes according to assessed flood risk, but municipalities tend to have significant control over property taxes within their jurisdiction. Once enacted and the rates adjusted, municipalities will see increased revenue flow from high-risk flood properties.

Tax rates adjusted for flood risk should be revisited on an ongoing, or at least recurring, basis to reflect the changes in flood probability expected as a result of climate change. While it would likely prove controversial, projections of increasing tax adjustments may be developed based on climate projections, which may provide an indication of how flood risk is likely to evolve over time.

The influences of property taxes reflecting flood risk are twofold. First, it provides a revenue stream for municipalities. Flooding events tend to be extremely expensive, and typically requires extensive recovery payments from higher levels of government (Burby, 2006; Downton & Pielke, 2001). An enhanced revenue stream may allow for a more self-sufficient recovery process. However, perhaps the more advisable utilization of this additional revenue would the direct channelling towards flood protection measures. Flood protections measures are typically expensive, and can be burdensome for revenue-strapped municipalities. The direct funding of flood protection measures via adjusted property taxes acts as a means to overcome these resource constraints. Such measures would reduce the severity of flood events, lessening the probability of requiring assistance, as well the properties which are contributing the additional revenue are able to see specific goods provided as a result of increased tax rates. This may increase the palatability of proposing tax increases. Moreover, the recurring assessment of municipal flood risk would take into consideration the mitigative effects provided by flood protection measures. This would ease the extent of adjusting, particularly in light of projections of continued intensification of extreme weather events which would otherwise continually enhance both the severity and spatial extent of risk vulnerability of water-adjacent properties.

The second influence of property tax adjustment is the sending of a market signal which offsets the public subsidization of localized flood risk. Instead, risk is internally priced, compelling the property owner to assess their willingness to pay for the benefits of that property in light of the true cost of risk. This may have several impacts. First, it may spur individual actions to mitigate flood risk, particularly if the risk assessment methods are spatially sensitive enough to process individual mitigative measures in successive evaluation periods. Second, it would send a price signal to discourage development in risky areas and, therefore, stimulate development in areas less prone to flood risk (Filatova, 2014). Third, particularly in cases of excessive risk, it could facilitate the abdication of risky properties – perhaps through buyback programs such as that employed in the wake of Sandy (New York State, n.d.) – particularly in the aftermath of disaster events.

Utilizing the revenue stream provided adjusting property taxes to reflect flood risk to fund flood protection measures and encourage development in low-risk areas, continual improvements can be made to the flood resiliency of a community, offsetting the projected intensification of extreme weather events as a result of climate change


Who will take these actions?

Most actions will be the responsibility of the municipality assessing the property flood risk. As previously noted, partnerships with insurance firms offer a potential means of availability of assessment tools and expertise. The municipality would then be responsible to selecting appropriate flood protection measures and commissioning their installment. 


Where will these actions be taken?

This proposal is theoretically scalable to any coastal city or one in which a floodplain exists. However, it would most likely be effective in larger cities with sufficient tax bases to support flood mitigation measures, as well as the governance capacity to facilitate technically complex assessments of risk. 

While this proposal is scalable to any municipality with obvious disproportionate levels of flood risk, Calgay and Vancouver are two which come immediately to mind which would benefit from such risk-adjusted taxation


What are other key benefits?

The installment of localized protection measures, particularly in larger cities with extensive high-value properties, also reduces the probability of disaster assistance required by higher levels of government. This reduces the overall societal burden of localized flood risk vulnerability.


What are the proposal’s costs?

Flood protection measures can be expensive. However, as the funds would be procured via changes in property taxes, the overall costs to the municipality are expected to be low. Overall, the community is likely to benefit from measures which eliminate the public subsidization of localized risk, and instead fund community-wide protection measures. Noting an absence of such risk-based taxation examples, Deyle and Smith (2000) in Lee County, Florida, found that, while the financial impact on property owners would be modest, and that a community’s tax benefit equity – the distribution of the costs of government services in proportion to their consumption – would be improved dramatically.

It is possible that the implementation of risk-based taxation may spark significant opposition, particularly by those most affected by the proposed adjustments. However, the direct channelling of funds to flood protection measures may mollify some opposition, and the community benefit is expected to be strongly positive.


Time line

The assessment of flood risk and determination of appropriate pricing adjustments, followed by the implementation of the adjustments, would be a process requiring at least a year. The collection of additional revenues would then begin to accrue, which would be channelled to flood protection measures. It is possible that the community would see the emergence of the first flood protection measures between 5 years of the launch of assessments.

Risk-based taxation would be expected to continue in perpetuity upon implementation, given the continuous nature of climate change and the need for flood protection upkeep. As such, this would be a continuously ongoing program.


Related proposals


References

Burby, R. J. (2006). Hurricane Katrina and the paradoxes of government disaster policy: Bringing about wise governmental decisions for hazardous areas. The Annals of the American Academy of Political and Social Science, 604(1), 171-191

Deyle, R. E., & Smith, R. A. (2000). Risk-based taxation of hazardous land development. Journal of the American Planning Association, 66, 421–434

Diffenbaugh, N.S., Pal, J.S., Trapp, R.J. & Giorgi, F. (2005). Fine-scale processes regulate the response of extreme events to global climate change. Proceedings of the National Academy of Sciences of the United States of America, 102 (44), 15774-15778

Downton, M. W., & Pielke Jr, R. A. (2001). Discretion without accountability: Politics, flood damage, and climate. Natural Hazards Review, 2(4), 157-166

Filatova, T. (2014). Market-based instruments for flood risk management: A review of theory, practice and perspectives for climate adaptation policy. Environmental Science & Policy, 37, 227–242

Henstra, D. (2015). The tools of climate adaptation policy: analysing instruments and instrument selection. Climate Policy, (ahead-of-print), 1-26

Mori, K., & Perrings, C. (2012). Optimal management of the flood risks of floodplain development. Science of the Total Environment, 431, 109–121

Munich Re (2011). 2010 Natural Catastrophe Year in Review. MR NatCatSERVICE

New York State (n.d.) Governor’s Office of Storm Recovery. NY Rising Buyout and Acquisition Programs. Retrieved May 23, 2015 fromhttp://stormrecovery.ny.gov/ny-rising-buyout-and-acquisition-programs