Property Buyouts Make Sense for Some in Flood-prone Areas

April 3, 2014

Dorothy had it right, Toto, we are not in Kansas anymore.  Since the infamous Sandy hit our shores just over a year ago, we find ourselves navigating a new landscape, and feeling a long way from home.  As we march down the path of recovery, many are working to ensure that the yellow-brick road will lead us to a resilient future.

As communities grapple with this new reality and the long term implications of severe weather events and increased flooding, there’s a focus on buyouts of flood prone homes and properties to reduce risk and provide homeowners relief from repetitive losses.   In fact, state and federal agencies are offering this option to some New Jersey homeowners post-Sandy.  But as we know, the road to OZ is not free of conflict.  Some balk at the prospect of paying for structures that should have never been built in high risk areas like barrier islands and flood plains.  Mayors and town leaders fear the loss of tax ratables as properties are taken off of the tax rolls– in some communities the idea of a buy-out or strategic retreat from high risk areas is viewed as forfeiture.  Many argue we are not investing enough in this effort as we grow weary of subsidizing a federal flood insurance program that incentivizes construction and reconstruction in areas destined to flood again.

In this week’s post, guest blogger Renee Brecht of the American Littoral Society helps us navigate this issue and provides the scientific and economic arguments as to why this approach makes sense for many communities and homeowners in our state.

-Margaret Waldock, Program Director, Environment

In December, the NJ Department of Environmental Protection and the USDA Natural Resources Conservation Service announced the $9.4 million in state and federal buyout of 33 homes and lots in Baypoint, Cumberland County. These voluntary buyouts were offered in the aftermath of Superstorm Sandy to communities where repetitive, sustained loss was the order of the day. They are a much-needed opportunity to allow homeowners the chance to get out of harm’s way, especially in light of sea level rise, and are a critical tool in addressing post-Sandy recovery.

At first glance, those numbers might be troublesome to some. The question of whether the public should pay to buyout the home of someone who chose to build in a place that was inherently hazardous to begin with elicits strong emotions.

Fair enough. This requires some background, so let’s set the stage.

The science, abbreviated: Our shorelines are receding. The mid-Atlantic states are losing ground at three or four times the global rate, and New Jersey has one of the fastest rates of sea level rise for various geologic reasons. These are indisputable facts.

Rutgers scientists predict 1.5 feet of sea level rise for New Jersey by 2050 — less than 40 years away. This sea level rise changes the baseline from which flooding and storm surges occur. So, for instance, a 6-foot flood now would, with 1.5 feet of sea level rise, become a 7.5-foot flood; and with time, what is now a 100-year storm, for instance, will become more common because this baseline has changed.

The economics: The National Flood Insurance Program, which insures most property owners in flood-prone areas, is in debt. The $3.5 million in annual premiums paid by property owners do not cover the loss that has been incurred. Flooding is the most common natural disaster in the United States. According to a paper by the Wharton School of the University of Pennsylvania, and another, the program is in debt to U.S. taxpayers as of March 2013 to the tune of $28 billion in taxpayer funded bailouts to pay for insured losses in excess of received premiums. So as homeowners in some places deal with repeated, sustained flooding, taxpayers have been paying increasing amounts to rebuild homes that repeatedly have flooded.

Thirty-nine percent of the U.S. population resides in coastal communities, on less than 10 percent of the landmass. With more than $527 billion of liability as of 2011, the ability to subsidize losses is seriously jeopardized.

What buyouts are: Buyouts are an opportunity to move people out of harm’s way by means of voluntary programs that include funding from federal and state sources that pay fair market value (in this case, pre-storm value) for a home. The buyouts generally take the form of an easement and a title purchase. The building, once purchased, is demolished and the property is returned to a natural floodplain.

New Jersey and New York have both made use of buyout funding, post-Sandy. The programs inherently are not very different, except in one notable way: New York’s buyouts include incentives that New Jersey’s do not. It offers bonuses of 5-15 percent for various circumstances. For instance, to address issues of lost ratables, a property owner receives a bonus if he relocates within the same county; this keeps the property tax base within the local government, causing no net loss in ratables. If neighbors also buy-in on the buyouts, they each receive a bonus.

Why buyouts make sense: The most obvious reason is that we are moving people out of harm’s way. That also means fewer evacuations, rescue operations and less risk of loss of life. In 2005 FEMA, by Congressional mandate, commissioned an independent study to determine the effectiveness of its programs as it related to property loss. What followed was the realization that buyouts made sound economic sense for the taxpayer. In places like Missouri, Kentucky, Georgia, Iowa – all places where buyout programs were put in place in flood-prone areas and thousands of properties were bought – strong evidence was provided that buyouts were cost-effective. In dollars, for every $1 invested in buyouts of repetitive flood loss properties, a return of over $2 was realized, generally within five years.

FEMA reports of previous buyout programs have shown that there are benefits not only to taxpayers, but also to the homeowners and the communities. The documented success stories of those who have relocated in similar voluntary programs, such as the Missouri Buyout Program, are noted on FEMA reports. Homeowners participating received fair compensation, an opportunity to recoup financial investment, and a chance for a new start that offered peace of mind that eliminated future risk of flooding.

Buyouts offer other benefits as well: restoration of the floodplain creates a buffer to storm-driven waves. Restored open spaces absorb floodwaters, filter pollutants, and allow a place for the salt marshes to migrate. They restore fisheries habitat, so critical to local industries built around commercial and recreational fishing.

Are buyouts always the right answer? No, of course not. But they need to remain on the table as an option for the homeowner who is weary of the loss, and concerned for safety. And they need to remain on the table as we honestly consider coastal vulnerability and determine what is right for any given situation or community.

The take home lesson: We are standing in the midst of sea level rise, and we are rolling up our pant legs. Sometimes it makes more sense to take to the high ground.

In this period of recovery from Hurricane Sandy, there is federal funding available to those who might consider moving out of harm’s way. The United States Department of Agriculture has announced a second round of voluntary buyouts for those who choose to move out of harm’s way. Interested landowners can contact our office at (856) 825-2174 or their local USDA Service Center to learn more about the program and submit an application prior to the April 18 deadline.

Renée Brecht is the Delaware Bayshore Program Director for the American Littoral Society. Originally posted in The Daily Journal.