In the face of stronger and more frequent disasters, Opportunity Zones could turn the resilience investment tide
by Alexis Palmer, Global Resilience Institute
September 14, 2018
As Hurricane Florence barreled into the eastern seaboard of the U.S. this season, the headlines were reminiscent of this time last year, when Hurricane Harvey hit Houston and Maria decimated Puerto Rico. This isn’t a new phenomenon; over the past few decades, billion dollar disasters have become more frequent, with 2017 being named the most expensive year for disasters in U.S. history. Hurricanes and tropical cyclones are the most expensive, averaging $21.8 billion per event, followed by drought, flooding, wildfires, and winter storms.
While this rising cost is somewhat tied to the increased severity of these events (after all, Harvey was the third “500-year” flood in three years in Harris County) by far the greatest challenge is the growth of coastal populations and infrastructures. These disasters can be especially difficult to recover from for already vulnerable populations, who are less likely to have excess resources or expenses like flood insurance that enable recovery.
The challenges of these trends are twofold: first, increasing severe weather events are rapidly becoming the ‘new normal.’ Second, the effects of these events are not actually natural disasters – they are manmade; we build in vulnerable places and infrastructure interdependencies lead to cascading consequences when any part of a system fails. Our nation’s critical infrastructure was not designed with resilience to disasters in mind, so not only do they fail but those failures lead to greater damage and danger to human lives in the process. Exacerbating the problem, the average age of infrastructure is steadily increasing, with the consequent decrease in quality. This lack of preparation for disasters requires the nation to shoulder the responsibility of funding recovery. FEMA can wind up paying for at least 75% of disaster costs. This is despite the fact that about 85% of the nation’s critical infrastructure and resources are privately owned. Our current policies are feeding a vicious cycle where private industry is unwilling to pay for mitigation when the government will fund recovery, and the government does not have the funds or legal authorities to adequately incentivize mitigation.
The Global Resilience Institute (GRI) at Northeastern wants to leverage the newly established Qualified Opportunity Zones (QOZ) to help solve this problem. Established by the 2017 Tax Cuts and Jobs Act, QOZ offer the chance for private investors to put their capital gains into funds to invest in the areas that need it most in exchange for lowered and deferred capital gains taxes. There is a pool of up to $2 trillion in capital gains that could be invested in these funds. GRI would like to leverage this opportunity to drive new investments into resilient infrastructure. As privately held infrastructure is developed, expanded, modernized, or rebuilt after a disaster, building in resilience and mitigation measures will pay off for the investor, the owner, and the community which would be affected if infrastructure fails. We cannot continue to build as if disasters are avoidable, and with the government already incentivizing investment in communities that need it, there is a unique opportunity to make our country more resilient, starting from the ground up.
CLICK HERE to learn more about GRI’s efforts, including a national summit to be hosted in January 2019
To demonstrate the importance of private infrastructure and resilience, the Global Resilience Institute will feature a new story from a recent disaster every day this week. See our first installment here.