The Iowa Flood of 2008

Economic Impacts of Flooding

The important first step in assessing the economic impact of flooding is identifying how and where the losses are likely to accrue. The primary effect of urban flooding is on households. This includes homes, vehicles, household goods, and in some cases, lost wages or even jobs. Generally, homeowners in active flood plains have obtained flood insurance, but floods in Iowa are rare.

Another thing hurt by floods is local business. These damages can be due to lost inventory, sales, productivity, and profits, and in this case undermine an economy already suffering through a recession and a credit crisis.

Communities' public services are also affected. Local authorities have to restore supplies of drinking water, repair roads and bridges, restore public lights, and oversee clean-up and waste disposal activities. Since property taxes and local sales taxes will decline significantly in the flooded areas, the redevelopment effort will rely primarily on the availability of federal and state disaster assistance funds, along with funds borrowed from various financial institutions.

Impact of Reconstruction Efforts

After every disaster, there is period of reconstruction and spending that boosts economic growth. During 1993, Iowa's total nonfarm gross state product (GSP) grew 4.2% in nominal terms and 0.8% after adjusting for inflation. On the other hand, farm GSP fell by 10.7% in nominal terms and 12.9% in real terms. In the short run, transfer payments in the form of federal and state disaster assistance, charitable donations, and social assistance programs will partially offset some of the losses to the region. The positive economic results of such programs depend upon the level of local spending and the timely availability of these funds. In the longer run, as homes are rebuilt and furnished, local businesses restore their services, and infrastructure projects get underway, related sectors of the state economy will be stimulated. Firms involved with construction, building materials supply, waste management, skilled trade services (such as electrical, plumbing, and painting), and general merchandise will get a boost. A significant amount of the long-term costs may be associated with the prevention of future floods. Infrastructure reconstruction will have a long term impact on local financial structures, and residents may have to pay higher local taxes as a result.

Conclusion

The extent of the recovery will depend upon several factors, such as the relative strength of the state and local economies prior to flooding, the economic structure of the region, income distribution, and demographic trends. National retail/food-chain businesses located in the flooded areas will have a better chance of recovery than independent and locally owned businesses. Low-income households already reeling under the weight of high gasoline and food prices, the mortgage crisis, and job losses may decide to move to more-affordable locations. This may lead to significant out-migration and declines in homeownership. The gains from disaster-assistance programs and the inflow of insurance funds may benefit some sectors of the local economy, but they can never fully compensate for the all the tangible and intangible losses from the flood on the residents, businesses, and institutions.