The Flawed Floodway Buy-out Policy
On July 15, 2013, following the largest natural disaster in Canada’s history when southern Alberta and Calgary’s inner city was severely flooded, the Alberta Government announced several policies upon which it would make available to individual homeowners funding under the Disaster Recovery Program (DRP) established pursuant to Alberta’s Emergency Management Act.
One of those policies conditioned how homeowners of residences designated to be in the “floodway”, as opposed to the “floodfringe”, by the official maps utilized by the Government, could access DRP funding. The objective is to encourage such homeowners to relocate their residences out of the floodway..
The the Alberta Government has offered to purchase the homes in the floodway at the 2012 Municipal Tax assessed value. The homes will be demolished, or sold and relocated if possible, by the Province and the land will form public parkland. Our understanding is that the cost for purchasing the homes will be borne solely by the Alberta Government without reimbursement from the Federal Government.
If the homeowner instead wishes to draw upon DRP funding to rebuild the flood damaged home, then according to the Alberta Government’s policy:
- that use would be one time only and no future DRP funding would be available in the event of a future flood disaster;
- a caveat notifying the public of ineligibility for DRP funding would be filed on the certificate of title and could not be removed regardless of any flood mitigation steps undertaken in the rebuild, unlike homes in the floodfringe; and
- uncertainty remains to the homeowner, as the Government has signalled that “no new development” will be allowed in the floodway.
It must be remembered that the DRP may only provide funds to rebuild to a very basic, utilitarian standard, regardless of the home’s original value. The more expensive the home, the greater loss of value. In addition, the DRP’s administration has struggled, with few dollars actually committed and numerous claims denied.
The buy-out policy rests on the current flood hazard maps that distinguish floodway from floodfringe properties. For numerous reasons, we believe these maps are dated, deeply flawed and not representative of the actual movement of water. Many floodfringe homes sustained damage worse that those deemed to be in the floodway, and many homes designated to be entirely out of flood hazard were in fact flooded. Furthermore, the maps were established as a looking forward land use planning tool and were never intended to form the cornerstone of policies that commit millions of taxpayer dollars to purchase and demolish perfectly viable homes, with no regard to the devastating social implications on the communities that pre-existed the maps, and that were developed over many decades of provincial and municipal building approvals.
Like the flood itself, this policy would impact each community differently and be viewed differently by each. Our views are based on what we see in Calgary’s centuries old communities and our concerns for their integrity.
Given that having access to DRP funding in the future is critical to any home at risk, as Canada is the only G8 country with no overland flood insurance regime to replace private insurance that is just not available, and that no homeowner would want any permanent flag signalling that financial vulnerability to the world, an offer to purchase at anything near market value would be very compelling. Compounding this is the incredible uncertainty faced by all homeowners in the flood plain about the only two meaningful strategies to address the practical and financial risk of future floods, being upstream mitigation strategies and overland flood insurance. Both initiatives can only be undertaken by the Government and neither are presently in place, although it is important to note that we are greatly encouraged by the work that is happening with regard to large scale upstream mitigation strategies
With more than 250 homes in the floodway, the Government estimates its potential purchase exposure at $175M. This is Alberta taxpayer money at risk, not back-stopped for reimbursement by the Federal Government through the DRP. It should be noted that the Federal Government can reimburse up to 90% of funds expended under the Alberta-administered DRP. Accordingly, a $175M investment by the Alberta Government through the DRP would attract Federal Government funding for a disaster recovery pot of $1.75B! Not in this case. This represents a huge lost opportunity to leverage the Federal funding program in order to help many, many Albertans.
What has been the effect of this policy? Unsurprisingly, in the face of fundamental uncertainty and a possibly bleak outcome through DRP, many homeowners who have no interest in vacating their neighbourhoods, are choosing the buy-out option. In some communities, fully half of those eligible intend to take the Government’s offer. The result of this will be the “checker-boarding” of a community with the resulting social cost of vacant lots, significant reduction in overall property value and possible destruction of the neighbourhood, not to mention that isolating these remaining homes and creating new water channels around them leaves the homeowner at even greater risk of loss from any future flooding. In fact, the policy may well offend a municipality’s general by-law prohibitions around floodway development.
It has to be said that the buy-out policy is exceptionally market interventionalist. Rather than treat everyone equally, a select few, based on the outdated maps, will receive tax value, while others mere feet away will face very significant rebuilding cost and lost property wealth. Rather than let these neighbourhoods evolve within the context of certainty around upstream infrastructure, overland flood insurance and development guidelines, and let the markets decide in an undistorted fashion, the buy-out policy pushes homeowners to immediately make living and development decisions of great consequence for all.
So why does the Alberta Government wish to purchase homes, some being brand new multi-million dollar residences, at such a huge cost?
The substantive reason of which we’ve been advised is that the Alberta Government believes that no structures should exist in the floodway – that buildings compromise the natural water flow integrity of the floodway and represent a hazard to the lives of residents and first responders.
We disagree. On the very critical first point, the policy simply does not clear the floodway of development. Many homeowners have no interest in relocating. They love their communities and the numbers under consideration don’t prompt their departure from it. They will not move. And the result is technically worse – buildings existing beside bare lots, which has been shown to exacerbate a flood’s impact.
On the second point, the personal safety of residents in the floodway is not at a greater risk than those in the floodfringe, and a tiny percentage of the $175M earmarked would go a long way toward a world-class early warning system.
However, it would seem that these reasons are not compelling enough, even for the Alberta Government, when the price point is too high. The buy-out policy does not apply to the Fort McMurray and Drumheller downtowns, large portions of which were developed in the floodway. Offering the same buy-out options would potentially cost the Alberta Government many billions of dollars. So floodway “integrity” and personal safety apparently does come at a price point. In reality, if the Alberta Government would apply its own current scientific data, it would quickly recognize that the situation in inner city Calgary with respect to the extent of the “natural floodway” is no different than in these cities that were exempted from the buy-out policy. A buy-out of floodway properties in inner city Calgary based on current science would cost the Government of Alberta orders of magnitude more than the $175M currently earmarked for this policy. Why has Calgary simply not been exempted from the buy-out policy?
When challenged as to why the Government won’t do directly what it is clearly attempting to do indirectly, which is “expropriate” numerous homes, the Government has provided no clear answer. In the normal course, if a government wishes to pursue an infrastructure project, it would have to do so through expropriation, with all its attendant legal checks and balances for both parties. In a time of great crisis, this Government has instead chosen to apply policy to achieve an outcome that is effectively a rewriting of municipal planning and zoning laws. It does so without providing to homeowners any clear or comprehensive hope on meaningful flood protection strategies: upstream mitigation and overland flood insurance. And it asks devastated families to make this choice on a meaningless time schedule of November 30, 2013. So why not treat floodway residences like floodfringe homes? Why not provide DRP funding, even though it won’t likely cover all rebuilding costs (and in many respects won’t be close to doing so), and allow homeowners to install mitigation devices like their neighbours across the street in order to remove the title caveat and have a hope of retaining long term property value?
We are aware of numerous examples of where this policy fails. In one inner city community, a home on one side of the street designated as floodfringe lost its basement, garage and main floor, with an estimated rebuild cost of close to $300,000. The final DRP and sewer-backup insurance coverage provided: about $70,000 – leaving the homeowner out-of-pocket $230,000. A house directly across the street with a similar loss, but designated in the floodway, is being purchased by the Government with taxpayer’s money for $2.8M, and will then be demolished. Same damage, same long-term impact to water flow, but a vastly different outcome to Government coffers and to the respective homeowners.
The Government has also said that it does not wish to be exposed to future DRP payments if a flood reoccurs, to anyone living in the floodway. We understand that this is an actual direct pass-through of the Federal Government’s conditions imposed on the Alberta Government, to these payouts: they are one time only. A simplistic illustration may assist. Let’s assume the Government purchases an average sized floodway home for $600,000. Let’s also assume that the payout under the DRP, even if not at all back-stopped by the Federal Government, is $150,000 (which, based on the metrics used by the Government as we understand them, and direct experience to date, would be extremely high). The amount spent on the buy-out would cover a huge DRP repair bill more than 3 times over, with room to spare and not accounting for the time value of money. With the Government’s recently announced upstream flood mitigation projects, what is the risk of 3 floods of a size sufficient to overwhelm that infrastructure and produce damages like those experienced in June? In our view, given that the Government must immediately implement effective upstream flood mitigation infrastructure to avoid the problem in the first place for downtown Calgary and all Southern Albertans, never.
So if no argument can truly justify the purchase of homes by the Government and the huge financial outlay by Albertans, what does?
Honestly, we’re at a loss. We really don’t know for sure, and we’re left to speculate.
Premier Redford made front-page news in the first days after the flood by saying that the Government would set everything right – that it would do what was necessary to completely rebuild. But this was premature and overstated reality. The only funding mechanism currently available to the Government is the DRP and, while very few homeowners are made whole under that program, it is fundamentally important social assistance in a time of great need, so is welcomed by all affected taxpayers.
Unfortunately, we believe these statements resulted in a taxpayer backlash against flood victims: “How could people who chose to live in a floodplain expect the Province to rebuild their expensive riverside homes?” So on July 15, the Government issued conditions on how it would provide access to DRP funding, which appeared to be more a message to all taxpayers that the Government would not simply give money to flood victims who might need future assistance. To our knowledge, no similar conditions have ever been imposed in providing disaster recovery funding following any other loss by fire, hail, tornado or otherwise, regardless of the relative risk. And our view when they were issued was that they were not well considered and actually caused more harm than good. Fortunately, the Government has heard our feedback with respect to floodfringe homeowner flood mitigation measures and has changed course, which has been tremendously appreciated. Unfortunately, that can not be said about policies concerning the floodway.
If the real perceived problem is continually having DRP funds at risk from future flood disasters because of inner city development, including downtown Calgary, and if the buy-out policy doesn’t really achieve this end, how could $175M be better used? By putting it toward the only two meaningful risk mitigation strategies available, which only the Government can initiate: upstream mitigation infrastructure to avoid the physical risk and overland flood insurance to cover the financial risk. Either strategy would go much further to achieve the desired outcome of protecting the public purse, without needlessly destroying neighbourhoods and property values in the process. Problem solved.
Numerous other strategies could be employed. Perhaps the Government could signal to all homeowners that future DRP funding would be in place while it implements the announced upstream mitigation infrastructure and completes similar strategies, and evaluates and implements overland flood insurance regimes, thus vastly altering the risk profile and financial exposures to Albertans. And only then would the Government determine if it truly needed houses removed from the floodway, through a fair buy-out program or expropriation strategy that, perhaps, recoups any DRP funds used by a homeowner. The homeowner would be whole. The Government would be whole. Neighbourhoods would be whole.
Ironically, the floodway buy-out policy is exactly the outcome the general taxpayer does not wish to see – the Government paying full value for individual homes in response to June’s floods, with no discernable benefit.
We think disentitling property owners to disaster assistance funding for a disaster that a property owner cannot mitigate against is wrong. We think applying the floodway buy-out policy to century-old neighbourhoods in Calgary, while exempting other cities, is wrong. It will pockmark neighbourhoods and will result in unintended social consequences. And we think spending significant Albertan taxpayer money to advance this policy, is just wrong.
The floodway buy-out policy is a tremendously expensive solution in search of a real problem. It creates more issues than it resolves. Albertans should oppose it.