New Orleans Flood Control System: Cost and Economic Analysis

New Orleans Flood Control System Analysis

Dr. Maribel Mojica Howell

This paper will look into the cost and benefit analysis of the New Orleans Flood Control System. The origin of the flood protection system and its mode of operation will also be discussed. Finally, we will evaluate the expenses of running the system as well as the valuation of expected returns in case of a subsequent calamity.

The engineers faced with the task of strengthening the city's flood protection confess how much they learned during their trip to Dutch riverbanks and floodgates. They also reveal how Netherland's engineers are advanced in this trade and what could be done to level the disaster management preparedness. The Dutch government has funded flood control in billions of dollars and is still pumping money into the projects. The engineers however believed that support and funding from the government is all they need to reach the same status as the Netherlands since there is nothing extraordinary that they do (Martel, 2006). Lots of engineers and politicians have been to the Netherlands hoping to acquire knowledge on how the Dutch managed to come up with such a strong flood defense - capable of enduring the Hurricane and Katrina, storms that overpowered the New Orleans' Flood Control System (Martel, 2006).

Water control has been at top of all priorities in the Netherlands because of their location, 20 feet below sea level. A $15 billion program that stretched for 50 years to protect the south against storm has recently been achieved by the country in building of dams, sea walls and surge barriers - a program that was facilitated by the death of 1800 people who died in the floods in 1953. Every year the country incurs $15 billion as maintenance of the system that keeps the country dry. Replacement of the 19th century riverbank control system with expertise and professionalism on flood control was the only choice that had to be put in place for the state to fund the project. The system was revised by lawmakers but that was not enough as long as the congress agreed to spend billions for it to guarantee safety from another catastrophe like Katarina. Despite the funding approval by the congress, some people in Louisiana still doubt the corps' ability to take care of the work (Martel, 2006).

Hurricane Katarina still holds the record of being the most destructive disaster ever occurred in the U.S. And most expensive ever suffered by the global insurance industry estimating to between $40-$60 billion insured losses (Hurricane Katarina Profile Of A Supper Cat).

A decision based on cost-benefit analysis focusing on the level of protection the city needs to put in place, is vital in the reconstruction stages of New Orleans. The outcome of such an analysis is dependent on different factors which when altered cause different recommendations (Hallegatte, 2007). First-order analysis considers climate change and related disruptions of the environment caused by humans as the primal cause of such catastrophes. Second-order details on the consequences of large-scale disasters, probable shifts in the rate of discount, the damage diversity and risk aversion - a move that may make hurricane protection a wise decision in as much as risk compensation and moral issues - are part of the analysis (Hallegatte, 2007). These outcomes indicate how sensitive the CBA recommendation is towards unclear assumptions and goes ahead to portray the benefits of second-order costs and diversity of damage in welfare losses. Additionally, climate change creates another aspect of uncertainty in the infrastructural make-up that adds to the probability of increasing risks or reduced costs.

An argument arises concerning rebuilding of the New Orleans as well as the plan of the flood protection system six months after the failure of the fourth category of Hurricane Katarina. The vital need to rebuild and enable the city flood protection system to cope with the fifth category of hurricanes remains in doubt by even the House Speaker, Dennis Hastert (Hallegatte, 2007). Precautionary principle has been suggested as an additional decision-making framework for protection from natural disaster. According to CBA, New Orleans would be a beneficiary of flood protection system capable of sustaining category five of hurricanes as opposed to category three and four hurricanes if only excess costs of the new system was less than the benefits expected from lowered flood damages. This article shows the difference in conclusions made from two assessments putting the dire consequences of Katrina (Hallegatte,2007).

The Protection System

In as much as U.S. Government and the U.S. Army Corps of Engineers ( USACE - organization facilitating the rebuilding of flood protection system) where put to question about their decision that came after the storm, minority doubted the government's dedication to reconstruct the flood defenses better than it used to be (Lo, 2012). USACE prediction was that they come up with a 100-year-level- risk reduction - capable of enduring high floods expected every 100 years - by the beginning of June 2011, an achievement that came to be right on the predicted time (Lo, 2012).

Larry Haser, the program manager at the Inner Harbor Navigation Canal (IHNC) - the company contracted by USACE confessed that most of the time the project was working on two shifts a week in order to meet the deadline stipulated (Lo, 2012). The U.S. government developed a quick way to provide state funds, a move that was done in a straightforward manner but without consideration of eligibility. To begin with, two different administrations made known and convinced the people of New Orleans that the country was dedicated to establish the best risk reduction system to them and to the whole world, a project that made them spend $14 billion. The chief public affairs Ken Holder owes the success of the project to immediate honest funding as opposed to money received in small quantities (Lo, 2012).

Currently, the new Hurricane and Storm Damage Risk Reduction System (HSDRRS) is still going through many changes regardless of exceeding its century level objective. Its main aim being to evaluate why the plan of the 2005 system failed and providing alternative systems, which have never occurred to the country ever before (Lo, 2012). The new defense system includes other additional physical features like levees, floodwalls, pump stations and gated structures. The IHNC - Lake Borgne still holds the world's record of being the largest civil project in the history of USACE. The surge barrier is built in such a way that it is an imposing 26ft tall building that stretches to more than two miles across the Mississippi River Gulf outlet and the Golden Triangle Marsh which marks the most important point at which sudden floods occur (Lo, 2012). The Seabrook Floodgate Complex has been created to work in collaboration with the IHNC -Lake Borgne Surge Barrier in order to offer protection to other areas most affected by the Hurricane Katarina. Such areas include metro New Orleans, the Ninth Ward and St. Bernard Parish. The Gulf Intracoastal Waterway (GIWW) and the West Closure Complex (WCC) are the other major features of the HSDRRS. They contain the biggest pump station in the whole world together with protection of the foreshore and control of water in the U.S. (Lo, 2012).

The effectiveness of the IHNC surge barrier lent a test method that resembled that of Shawn Group. In order to study the effectiveness of the wave forces on the gates of the T-wall and approach wall, a very big basin model was created at the location of the IHNC (Lo, 2012). This is due to the tight schedule and the high quality of the high-tech 3D design software used to create the blueprints and simulate the design of the complex.

Inasmuch as there is still a lot of work for the civil engineers undertaking in the history of USACE, most of the work is complete. Some of the indicated achievements include more pumping stations, closure of canals and mitigation of the environment. The risk of floods from the storms is still a challenge as it still exceeds the system's capability to hold. Professionals indicate that the Greater New Orleans Hurricane and Storm Damage Risk Reduction System are at a better state now compared to any other time in the history of the city. The existence of a new and tough flood protection system is in operation now, and has been delivered at the right time. New Orleans is more protected from the storms than it used to be (Lo, 2012). After the catastrophic event of the Hurricane Katarina in the last six years, the city and the economy are still in the process of building and earning back what was destroyed. The news of the new protection system has enabled the people to regain their lost hope, comfort and gain more hope for recovery from the dreadful event.

Cost Benefit Analysis

In order to conduct a CBA the fifth category of flood protection in New Orleans, it's important to evaluate the system's cost and expected benefits. Assessing the cost of the new system requires an exact system definition and the evaluation of its architectural and upkeep costs. State officers indicate that cost of category five in the initial stages of rebuilding add up to $32 billion compared to that of $1billion to put category three protection in place (Hallegatte, 2007). Due to the fact that the exact information of the cost of category four protection is unavailable, it is therefore in the right assessment to assume it at $5 billion hence the cost of category protection five adding up to $27 billion.

The possibility of assessing the expected benefits is not easy because one needs to consider other benefits like avoidance of casualties, injuries, economic losses and psychological trauma that affect different people and are unforeseeable in the future. Despite such issues, net present value of the expected damages prevented by the new protection system can also define benefits (Hallegatte, 2007). The discounted sum for all the years beginning from the present time into the end of life of the protection system can help calculate the benefits - the yearly probability hit by a category five hurricane times the damage difference between a hurricane on category four verses a category five protection system. The difference is discounted to mean that same benefit is valued higher in the near future as opposed to in the long - run (Hallegatte, 2007).

The outcome from direct damages of hurricanes and floods are used as a representative of the general economic cost of disasters by insurance, and reinsurance companies and other disaster modeling companies as well. With this fact, the companies approximate an amount of $20 billion as the estimated cost of the New Orleans flooding (Hurricane Katarina Profile of a Super Cat, 2005). The issue of loss of life brings into question the difficult nature of assigning value to a lost life when casualties are put into consideration (Hallegatte, 2007).

In most cases, it is inhumane to refer to the amount the general public is ready to sacrifice to reduce risk just for an additional life to be saved instead of the expression "value of life" as this gives the meaning of the existence of market that buys and sells lives. Most approximations however fall between $1 million and $10 million in the U.S. despite the many factors that determine the value like type of risk and the probability of the event taking place. In this article however the most commonly used estimation is $5 million according to the U.S. EPA (Hallegatte, 2007). If this figure is taken seriously, the public would be ready to part with $5 million to prevent the human loss suffered in the New Orleans flood with an added amount of $5billion to account for the many damages and traumatic cases. The estimated cost of the New Orleans flood sums to close to be $30 billion if these approximations are taken into consideration (Hallegatte, 2007).

Category 4 protection does not help reduce the losses suffered by category five hurricanes. This is so since there is minimal difference between no river banks and broken river banks, the calculation of the expected present benefit of a category five protection can be done using Eq (2) at an amount of $1.5 billion with a discount rate of 7% and $6 billion with a discount rate of 3% (Hallegatte, 2007). In both cases, a magnitude of one order lower than the cost of building of such a system is indicated. With these estimates, there isthe proof that the upgrade of the protection system to cope with storms from category five is completely riled out. The unimaginable reoccurrence of the destructions that was suffered in the category four of the hurricane Katarina is not evidence enough to enable the implementation of a protection system that provides maximum safety guarantee. From the view point of economics, the CBA portrays that experiencing the nightmare of the Katarina in the near or far-end future proves to be very possible (Hallegatte, 2007)).

Consequences that could be more significant are ones that may not have been taken into account leading to the discard of estimates on the lack of information. According to the requirements of OMB, circumstances that create very big uncertainties and economic consequences come with an excess of $1 billion (Hallegatte, 2007). Information concerning the impacts of natural disaster is still not sufficient to evaluate these probabilities with conviction as shown by this research.

Other Accountable Factors

The likelihood of a category 5 hurricane would strike New Orleans in the initial stages of the CBA was assessed using historical evidence, an indicator that is no longer applicable. The long life of flood protection is attributed to infrastructures like dams, bridges and gates but most of all the fact that flood protection system has the ability to shape the city's development for a long time (Hallegatte, 2007). Changes of climate are likely to take place in response to the emission of greenhouse gases into the air, with hurricane damages and consequences. A trend in the hurricane destructive nature has already been detected (Hallegatte, 2007). In the past thirty years, Webster has indicated that hurricanes in the most powerful categories (4 and 5) have multiplied twice in number and extent.

The expectation of professionals is that the intensities of hurricane should rise proportionately to the rise in temperature during the 21st century. The risk of occurrence of category 5 hurricanes has also increased according to the world climate model experiments. This is a fact according to high -GHG conditions (Knutson and Tuleya, 2004). According to Emmanuel (2006), a 10% increase in the potential intensity of tropical- cyclone model at a corresponding 2 degree Celsius could result in a 65% increase in PDI. Taking into account the two characteristics of the CBA, a summary of the assumptions taken annually, probability of the floods that have been caused in recent times by category five of the hurricane will have to be multiplied by the number of years. A rise of $1.5 to $5.7 billion or $6 to $22.8 billion is expected on the high probability alone putting into account discount rate (Hallegatte, 2007).

When a big calamity strikes it not only causes monetary and human loss but also leads to disturbance in emotional, communal and administrative balances. For example, the faith of the government's ability to initiate disaster management protocols is put at test. The venture capitalist may shy away from making an investment in the catastrophe hit area, and the traveler may want to spend his holidays in a place safer than from New Orleans. It is understood that if a catastrophe of similar magnitude occurs in the next ten years it would give a strong impetus to such a backlash, resulting in mass exodus from New Orleans, the price of which is difficult to estimate.

In the past, natural calamities have led to administrative upheaval and communal clashes. Such commotion leads to an increase in the existing turmoil (e.g. cyclone Bohla in 1970, which caused a human life loss of 300,000 numbers in Pakistan and without instigating the central administrative machinery to provide respite, strained the communal relations leading to formation of Bangladesh in 1971). This means that the communal and administrative disruption resulting from a cyclone in the U.S. cannot but remain restricted (Lindell and Prater 2003), the repercussion of a near duplication of a Katrina like occurrence cannot be estimated. The loss after two Katrinas would be greater than twice the loss arising out of one Katrina.

Regardless of the duration we take as our test sample when evaluating the effects of such a catastrophe, the end result of a spread of events on local fiscal growth can be noteworthy (Hallegatte, 2007). In fact, as already stated by Benson and Clay, poor economies affected by recurring natural calamities and having an inadequate capability to recuperate the losses in economy and infrastructure, could easily lapse into "poverty traps."

As an illustration, we can consider Guatemala, which had to go through a number of natural disasters between 1997 and 2001, could not progress (Hallegatte, 2007). Similarly, in Honduras, the single cyclonic storm Michele in 2001 "put the country's economic development back 20 years" (Honduran Prime Minister, quoted in IFRCRCS, 2002). Again, it is likely that calamities have, at least in some areas, long-term ramifications that get ignored in the initial evaluations, through reforms in fiscal growth (Hallegatte, 2007). For all this rationale, the susceptibility of New Orleans and its neighborhood (significant fiscal activity in tourism, shipping or energy production; weak rehabilitation capability as a result of low earning community etc.), the magnitude of the disaster (80% of city submerged in water), and the problems in the rehabilitation, the recovery cost would be higher in New Orleans. A reasonable estimation of the inundation is almost 50% higher than the direct loss worked out by the insurance companies, to reach $45 billion. It is tough to estimate the cost of a replication of the Katrina situation.

As a best-case scenario, we can estimate the cost of a successive hit to be, on an average over the life-time of the protection system, 25% higher than the first hit, i.e. amounting to $56 billion. If we take into account the new values of phenomena probability (p=1/130) and likely damages 9d0=$56 billion), the presumed advantage of an improved protection system would be $10.7 Billion with a 7% discount rate and $42.4 billion with a 3% discount rate (Hallegatte, 2007). We estimated in the previous consideration that New Orleans would be reconstructed with the same infrastructure it had before Katrina and all the population of New Orleans will come back to the city, even if no upgrade of the deluge prevention system is taken up. The estimation does not match with the observations and what is anticipated in the future. If this new population is preserved, the cost estimate of a new deluge would come down as compared with 2005 one, making our estimation of avoidable damages overestimated (Hallegatte 2007).