The parade of natural disasters in 2017, once again, proved that cities, with their expanding infrastructure and growing populations, continue to be vulnerable to acute impacts from drought, earthquakes, flooding, land subsidence, coastal hazards, and wildfire. Separately, any one of these natural forces can have a devastating impact on life, private property, city infrastructure, and natural resources. When multiple impacts arrive simultaneously the resulting impacts can be catastrophic for people, property, infrastructure, and natural resources including wildlife. Note that Congress recently (October 2017) approved $36.5 billion in emergency spending for disaster relief, including: $18.7 billion for FEMA responses to storms and wildfires; a $16 billion “forgiveness” of debt accrued by the National Flood Insurance Program; $1.2 billion in aid to Puerto Rico; and, about a half-billion dollars intended for wildfires in western states. The general media reports that Governors of affected states are clamoring for much greater relief funding – but the Congress and Administration are hard-pressed to provide more, and recent tax cuts may limit federal financial assistance. Cities are well advised to have a plan B when federal relief (plan A) is absent or insufficient: or better yet, city planning can be plan A. The question remains, will resiliency planning make a difference?
The Mayors Water Council meeting in Miami Beach on June 17, 2017, and a separate meeting held on December 7-8, 2017 in Napa, CA featured case studies on natural disasters and how cities respond to them. The cities reviewed include Aurora, CO; Houston, TX; Napa, CA; New Orleans and New York City. What is becoming clear is that planning efforts need to evolve more quickly into action projects to mitigate disasters. The disaster planning and project implementation process involves data analytics to help identify problems and generate the information decisionmakers need to make intelligent choices over investments, both capital and asset management and maintenance expenditures, that yield the greatest level of protection commensurate with local affordability of solution cost.
The Mayors Water Council reached out to 2 premiere organizations providing disaster planning services to cities in a Q&A interview format to better understand the language and concepts used in disaster forecasting and strategic intervention. We interviewed John Gibson, President & COO, Municipal & Commercial, Veolia Water, and Alex Kaplan, Head, North America, Senior Vice President, Global Partnerships, Swiss Re Management (US) Corporation.
Resiliency Starts with Planning but Must Evolve to Actionable Projects
Ryan Berni, Former Deputy Mayor of New Orleans, and Patrick Schultz, Veolia North America, presented information on the multiple challenges involving chronic and acute natural processes facing the city of New Orleans’ drainage systems. They described Veolia’s role in developing a resiliency plan along with strategic partner Swiss Re for the Sewerage and Water Board of New Orleans’ (SWBNO). The two companies (one a giant in water delivery, the other in insurance, risk assessment and infrastructure risk transfer) combined capabilities to, according to Schultz, “…conduct a risk evaluation of SWBNO’s critical infrastructure and identify opportunities to protect assets by pre-funding catastrophic losses,”. Schultz further stated that “meaningful resiliency planning needs to be at the asset level.” He said SWBNO has 200 key assets, and the risk assessment analysis applied resulted in identifying: $160M of must-have surge hardening investments to reduce expected loss by 60 percent; identification of a series of operational excellence recommendations focused on asset reliability and workforce development; and $6.5M of quick-win surge hardening investments to reduce expected loss by 72 percent. The results of the risk assessment are now part of the SWBNO’s strategic resiliency investments.
New Orleans is also a member of the Rockefeller Foundation 100 Resilient Cities program. The program was established to help cities around the world become more resilient to physical, social, and economic shocks and stresses. The Program has generated “…a global network of cities already collaborating with and learning from each other.” The collaboration of cities and experts is intended to help local government incorporate resiliency principles when making infrastructure decisions and sharing best practices that yield success. The Rockefeller Foundation helps local government by providing “Access to a platform of partners providing technologies and services to help cities implement a resiliency strategy. Partners include Microsoft, Swiss Re, and the Nature Conservancy.”
Resiliency efforts are evolving at the local level. Problem identification and alternative solutions – the planning-strategy selection phase, should mature into an implementation-action phase. The collaboration between Veolia and Swiss Re in advising municipal clients on drainage, flood control, land subsidence and other natural phenomenon provides a good example of how data analytics is used to identify priorities and implement projects where exposure is the greatest.
There are 19,354 Incorporated Places in the US that Need Resiliency Strategies
As local governments move from studies that array risks and assess their potential threats to more action-oriented “implementing projects” to reduce the greatest risks, they are relying on collaborations like Veolia and Swiss Re because each organization brings special skills and knowledge to address local problems; and when combined they might be critical to protecting cities now and in the future.
The application of combined expertise also introduces new concepts to local government about risk assessment and identification of priority projects to reduce risk. For example, resiliency experts often talk about changing a negative (e.g., sea-rise, flooding) into a positive that will improve the quality of life and attractiveness of a city – competitive advantage. Other resiliency concepts such as pre-funding catastrophic losses, risk transference, and the resiliency dividend, have special meaning in resiliency planning and implementation. We asked Veolia and Swiss Re the Questions below and share their Answers.
Q. What do you mean by “pre-funding catastrophic losses”?
A. Municipalities around the country often think about how they would improve their critical service systems physically, but very few have the financial mechanisms to do so. They do not have liquid capital to respond to these events. As such, public entities fund catastrophic losses via raising taxes, raiding existing budgets or issuing debt in an unfavorable market. We believe these are three inefficient ways of paying for things we know are going to happen. Instead, they should pre-fund these inevitable losses and insurance is one tool to do this.
Q. Risk transference usually means that someone just moves the risk to another party, such as the tax payer. What does “risk transference” mean in resiliency planning?
A. Risk transfer is moving financial risk to another party. Currently, taxpayers shoulder most of the risk. Instead, we’re talking about reducing the burden on the citizens who are already funding operations and capital plans but moving the catastrophic risk off the taxpayers’ shoulders and into the private market. This is similar to what the National Flood Insurance Program did in 2017. By buying private market reinsurance, the US taxpayer saved $1B from the very active hurricane season, like Hurricane Harvey. In terms of resilience planning, having a risk transfer strategy in place means that cities can look forward, even in the face of disasters, and don’t suffer anemic economic recoveries or have large losses in population simply because they don’t have the funds to offer critical services.
Q. Are we approaching an era where decision makers will be forced to plan for stranded assets despite adaptive planning measures?
A. From an insurance perspective, the question of ‘insurability’ grows as exposure changes. If the frequency or severity of loss increases over time, so does the cost to protect these assets. Cities need to be planning long-term and using insurance can be a good metric of prediction on the longevity of critical assets.
Q. Cities are generally self-insured and can use borrowing power and levies for various taxes and service fees. What about the over 116 million plus private households in America?
A. We need to distinguish ‘self-insured’ with ‘uninsured’. Simply because a municipality retains the risk on their balance sheet and can leverage post-disaster resources does not mean they have a sustainable financial strategy. These unfunded contingent liabilities expose the cities to various shocks and uncomfortable decisions. Many municipalities across the US purchase various forms of insurance but rarely is it
sufficient to recover from shock events. In 2017, there were $306 billion dollars lost in disasters globally. Only $136 billion was insured. Who is paying for $170 billion?
Q. How does planning for resiliency vary from resiliency itself?
A. Resiliency is about being able to adapt and bounce back from adversity. Planning for resiliency means cost effectively hardening assets and preparing both the infrastructure and its operations for all possibilities of climate events. In some instances, this means infrastructure assessment and emergency operations planning, while in others it might mean finding new uses for existing infrastructure such as cooling centers to shelter residents during heat waves. Smart, dependable infrastructure that is operated to function during and after a climate event is the key to a resilient city.
Q. What do you mean by “meaningful resiliency planning needs to be at the asset level”?
A. Asset-level resiliency isn’t just ensuring that a critical replacement valve won’t bring the entire system down, however it must include that kind of detailed asset-level planning. A city’s infrastructure (energy, water, building, transit, etc.) is made up of interconnected assets that can be made more reliable. Meaningful planning means evaluating the interconnection between systems and their operations, and whether a city has the resources to support those operations during a climate event.
While it sounds like a tautology, planning for resiliency also makes your team more prepared – both within the City and with your partners. For example, the result of some of our resiliency assessments has been that the Veolia team is able to be more responsive during the event – we understand critical points of failure and can mobilize more quickly with the best approach to recovery.
Q. Beyond avoiding incident-specific losses, how can resiliency yield public benefits?
A. Cities plan for likely scenarios as opposed to the worst-case scenarios. However, ‘worst case scenario’ events continue to present themselves. For example, the City of Houston has had three 500-year storms in the past 3 years. Storms are getting more intense and their impact will continue to be difficult to manage unless cities prepare accordingly.
The process of resiliency planning convenes stakeholders (political, civic, utility, first responder) and that process builds an ability to take action and collaborate effectively when an incident occurs. Resilient cities are able to address relief, restoration, and recovery of their populations and infrastructure which impacts their financial health.
Q. Evaluating your city’s weaknesses and making the investment to address them have different price tags, do they have value separately?
A. In the case of New Orleans, we were able to lean on the evaluation work that had been done to make smart decisions for the city’s infrastructure when it needed it most. Truly addressing infrastructure challenges takes time and money, but the benefits are clear.
While the planning process enabled us to work with the City of New Orleans to develop a plan to upgrade resiliency, this summer’s storms galvanized that next level of investment. Resiliency is planned and then learned from experience. Unfortunately, cities like Houston, New Orleans, and New York will continue to learn to upgrade resiliency. This is the concept of the resiliency dividend, becoming more flexible and bouncing-forward, instead of just bouncing back.