Preparedness & Recovery

Harvey Might Have Been Fiercer Than Katrina, but its Effects Could Fade Faster

Toward the end of the week, as the flood receded and its carnage became clear, many analysts were hailing Harvey as the nation's most destructive storm ever.

by Lydia DePillis, Houston Chronicle / September 5, 2017
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(TNS) - Almost before the rain started in Houston, economic prognosticators started trying to figure out how much Hurricane Harvey was going to cost.

The numbers kept mounting as the rainfall totals piled up. In the first few days of the storm, investment research firms estimated the total property damage at between $30 and $40 billion — not even approaching the toll of Hurricanes Katrina and Rita.

By Wednesday, Enki Research had pegged it at between $48 and $75 billion. Toward the end of the week, as the flood receded and its carnage became clear, many analysts were hailing Harvey as the nation's most destructive storm ever.

"Katrina cost, if I recalled, more than $120 billion," said Governor Greg Abbott on Fox News Sunday. "Now, when you look at the number of homes and businesses affected by this, I think this will cost well over $120 billion, probably $150 billion to $180 billion."

But what does it really mean for what the future looks like in Houston, and how much it will impede the city's growth, in contrast to other hard-hit places like New Orleans and the New Jersey Coastline?

Absolute damages only tell you one side of the story, after all. The other side is the local economy's underlying dynamism and resilience, with resources in the form of prosperous companies and robust non-profit institutions, as well as personal bank accounts that can be tapped for a full recovery.

When those factors are taken into account, Houston's prospects for rapid regeneration appear much better than other cities that have recently shared its fate.

Breaking down the estimates

With so many numbers flying around, it helps to break down what they actually include.

The largest estimate to be thrown out so far, Accuweather's $190 billion over nine months, is also the most comprehensive — encompassing not only insured losses, or even total damage to property, but the total impact to the economy. The weather forecasting company raised its damage estimate from $160 billion last Thursday, as the scope of Harvey's impact expanded.

"We were seeing other estimates of six to eight billion dollars," says the company's founder, Joel Myers. "We were very concerned that this would underplay the magnitude of the disaster, and that it would not cause people to take it seriously enough."

Necessarily, there are a lot of rough calculations involved. If 140,000 homes were damaged, and the average home were worth $300,000, Myers arrived at $30 billion. For drowned cars, Myers added $10 billion. For supply chain interruptions, including lost crops, another $25 to $30 billion. Jobs? He guesstimated about 200,000 would be lost at least temporarily, reducing potential earnings by another $5 billion.

Then there's the increased cost of gasoline due to refinery shutdowns, health impacts due to disease that breeds in warm standing water, damage to highways, losses to businesses that saw their operations interrupted, repairs to bridges and sewer systems. "The total impact is greater than Katrina and Sandy together," Myers says.

Concentrated vs. diffuse impact

That may be true of the whole swath that Harvey cut through the Gulf Coast, from Galveston and Rockport out to Beaumont and Port Arthur. But the economic engine of this region is Houston, and the highest concentration of residences and jobs. So it's worth examining the differences in how Houston fared and the damage to the city most hurt by Hurricane Katrina — New Orleans.

Already, the contrast is stark. About four months after Katrina hit, personal income in Louisiana dropped by 25 percent. The Houston metropolitan area has a substantially larger population than the entire state of Louisiana, and income losses likely won't be anywhere near that. Only about one in three retail food establishments in New Orleans were operating — in Houston, most grocery stores had re-opened within days.

Education and healthcare remained significantly impaired in Orleans Parish, with only five percent of schools open and 32 percent of the city's hospitals. In the Houston area, most school districts will be open by next week, and only a few hospitals had to be partially evacuated. In New Orleans, the number of displaced households had risen to 750,000. Last week, FEMA administrator Brock Long said he expected 450,000 claims for assistance due to Harvey.

All of that suggests that Houston has been less intensively impacted than New Orleans was, and there are therefore more healthy parts of the city to aid those that were submerged — a stronger tax base, more family members to take in homeless relatives, more functioning churches and other non-profits to organize meals and volunteers.

Also, Houston already had several powerhouse industries that can get up and running again fairly quickly, while New Orleans depended largely on its tourist economy, which needed to be rebuilt from scratch.

"If only portions of Houston's economic and household activity is impacted, it's probably more resilient," says Amy Liu, who heads the Metropolitan Policy Program at the Washington D.C.-based Brookings Institution, and monitored New Orleans' progress for years after Katrina. "Median incomes are higher than in New Orleans — that's more capacity for self-help, to invest in clean up and repair."

Eyes on D.C.

Of course, despite Houston's capacity for self-help, much will depend on the generosity and speed of the federal response.

In many disasters, the money that pours in for rebuilding from agencies like FEMA, the Small Business Administration, and the department of Housing and Urban Development — as well as insurance payouts for property and business damage — can end up creating more jobs than the hurricane destroyed. Houston has surplus construction workers already, since the petrochemical refinery boom on the east side of town had been winding down when Harvey hit.

"The negative impact tends to be large at first, but as conditions normalize, economic activity is positively affected as long as insurance and assistance funds are made available," wrote economists from BBVA Compass Bank in a research note last week. "Therefore, the net economic cost will end up being significantly lower after reconstruction activity compensates lost value-added."

Additionally, a recent study found that non-disaster safety net spending — such as unemployment insurance, Social Security, Medicaid and Medicare — increases in the wake of hurricanes as well, decreasing per capita losses substantially.

It's still quite possible, however, that such a response could be delayed or mishandled. Only ten days after Katrina hit, Congress had appropriated more than $62 billion for relief and recovery — a number that would grow to $116 billion within the year. So far, the Trump administration has only requested about $8 billion, which itself will be a challenge in a jam-packed and contentious legislative season ahead.

Additionally, it took years for all that money to be dispensed for the reconstruction of homes and essential infrastructure after Katrina hit, and corruption wasted millions. Red tape — aimed at preventing the fraud that afflicted Katrina relief — slowed the distribution of aid following Hurricane Sandy in New York and New Jersey.

Now, Liu worries about the consequences of the Trump administration's proposed cuts to agencies, like HUD and FEMA, which play essential roles in disaster recovery. In particular, Trump's budget proposed zero-ing out Community Development Block Grants, a flexible source of funding for local priorities that are typically replenished every year. Cuts to Medicaid and Social Security Disability Insurance would negatively impact people whose incomes have suffered in the wake of the storm.

But regardless of the degree of largesse, there seems to be little doubt that Houston will continue as a going concern for a long time in the future — the question is not whether to rebuild, but how to do it better.

"Gas prices going up 25 cents just because of a Hurricane in the gulf is enough to say that we're too big to fail, just like the banks," says Ed Wolff, who heads the government affairs committee for the Houston Association of Realtors. "People are going to have to find a way to live within our natural environment, which in Houston includes flooding."

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