Flooding is a costly natural disaster in the U.S., and damage is expected to worsen due to coastal development and climate change. Spending on flood adaptations, such as building dams and levees or elevating properties, can reduce future damage. The Army Corps of Engineers (Army Corps) and the Federal Emergency Management Agency (FEMA) typically receive most federal funding for these adaptations. CBO estimates that, on average, every $1 billion spent on flood adaptations—accounting for state and local contributions—reduces future flood damage by about $3 billion to $4 billion over 30 years, measured in today's dollars.
Effects on Federal Spending for Disaster Relief:
- Flood adaptations are expected to reduce future federal spending on disaster relief, as less damage will occur.
- CBO estimates that each $1 billion of federal spending on flood adaptations would reduce discretionary spending on disaster relief by $1.8 billion (using a Treasury discount rate) or $1.4 billion (using a fair-value discount rate) over 30 years.
- The evidence suggests that flood adaptations funded through the Army Corps and FEMA have reduced expected damage by more than their cost, and future reductions in federal spending on disaster relief would likely exceed the amounts spent on flood adaptations, on average.
- The actual reductions in disaster relief spending depend on future decisions by lawmakers regarding the amount of relief provided, the types of adaptations funded, and matching rates for state and local governments.
Effects on Spending for Flood Insurance:
- Federal spending on flood adaptations could also affect the cost of flood insurance.
- As subsidies for the National Flood Insurance Program (NFIP) are phased out, greater spending on flood adaptations will mainly benefit policyholders by lowering their premiums.
- CBO estimates that each $1 billion of federal spending on flood adaptations would reduce NFIP claims, decreasing premiums and subsidies paid by policyholders by $0.3 billion over 30 years (using both Treasury and fair-value discount rates).
- The effect on NFIP claims would be smaller, on average, than the effects on flood damage or disaster relief spending, as most properties at risk of flooding are not covered by NFIP policies.
Reductions in Flood Damage From Adaptations:
- CBO estimates that the average expected reduction in future damage ranges from $3 to $4 per dollar of federal spending on flood adaptations over a 30-year period.
- The benefits of flood adaptations depend on how development patterns, local land-use decisions, and climate conditions evolve.
- Significantly increasing spending on flood adaptation programs in the future might not reduce flood damage to the same extent as spending at current levels.
- After a certain amount of spending on property-level adaptations, the marginal effects of additional spending on damage reduction would fall below the historical average but still be above the cost of the adaptations.
Effects Under Different Decisions by Future Lawmakers:
- Lawmakers' decisions on the amount of disaster relief provided and the types of adaptations funded will affect the federal budget.
- If Congress cut back on disaster relief spending as a share of disaster damage, flood adaptation spending could cost more to implement than it would generate in future cost reductions.
- Prioritizing the selection of projects based on their damage reduction effects would increase the expected reduction in future federal spending.
- Changes in the extent of federal projects requiring state and local matching funds could shift the cost-sharing burden and have budgetary consequences.
