hurricane Harvey Archives - Bankers Anonymous

May 12, 2020May 12, 2020

Hurricane Harvey Macro and Micro Impact

Two and a half years after Hurricane Harvey slammed the Texas Gulf Coast, the first surprising thought is how quickly the Texas economy has recovered, and how quickly households have recovered.

According to the governor’s report on the storm impact, the estimated $125 billion in losses made this the second-costliest natural disaster ever in the United States. (Hurricane Katrina’s impact on New Orleans in 2005 was the only costlier disaster.)
And yet, the state comptroller’s office estimated the impact on state economic output – the equivalent to GDP but for Texas – estimated a 3-year net economic gain of $800 million, due to Harvey

A big temporary hit to state income in year one following the storm – estimated as a $3.8 billion loss – is actually made up for by the spur in economic growth by the need to rebuild in years two and three, estimated at $2.1 billion and $2.5 billion respectively. It’s a stunningly healthy macroeconomic recovery from a major economic shock, with obviously a lot of variation across the state.

Researchers have also used the experience and time since Harvey to study the economic effects on the finances of households, what we could think of as the microeconomic impact of the storm.

A paper released in mid-February by the Federal Reserve of St. Louis and written by economists at the University of Colorado explores the rates of bankruptcy and rates of access to federal financial assistance by affected households in Houston following Harvey.

Federal_Reserve_StLouis — St. Louis Fed Building, 1924

These economists studied household recoveries to see whether – underneath the average strong recovery of households – what kind variation existed. They found a few significant variations.

They show that two types of households weathered the financial hit of Harvey the best: People who happened to live inside the designated floodplain – presumably already forced to be covered by flood insurance – had lower rates of bankruptcy.

They also found people in any part of the city in a strong financial position ahead of time were able to access more federal resources in the form of small grants and larger loans. That finding may have implications for program design in the future.

The authors found no overall change in the level of bankruptcy in the city of Houston, following Hurricane Harvey. Digging into specific circumstances and specific city blocks, however, they did see relatively large jumps in bankruptcy among certain groups.

A big jump in bankruptcy rates occurred in areas of high home ownership where they also measured folks with relatively low access to credit.

That seems a bit counter-intuitive at first, since we associate home ownership with wealth, and renting with less wealth.

The intuition here, I think, is that compared to homeowners, renters have less at stake – between home equity and personal property – when a severe flood hits. Homeowners with low home equity and low access to credit, however, can see their net worth reduced drastically without a fix. So bankruptcy rates spiked in high homeownership neighborhoods, following this sudden drop in wealth.

The biggest observed jump in bankruptcy rates occurred in areas outside of the natural floodplain, rather than in city blocks inside the floodplain.

The explanation there is that homeowner rates of flood insurance outside of the floodplain are low, estimated at 17% flood insurance coverage in Houston, prior to Harvey. Again this is probably because in the case of having a home flooded without flood insurance – like folks outside the designated flood plain – bankruptcy is a far more likely outcome for someone just having had their net worth devastated.

Homeowners inside the floodplain, most of whom would have had to have insurance in place, recovered financially much more quickly. In fact, bankruptcy rates overall declined among homeowners in the floodplain whose blocks experienced the heaviest rates of flooding. We can presume this is because flood insurance provided a big chunk of liquidity when it was needed most, lowering the probability of bankruptcy.

The authors next studied who in Houston got access to federal assistance – mostly from FEMA and SBA – in the months following the storm.

Coming from a higher income area of Houston, the authors found, correlated with a higher likelihood of assistance. It also correlated with a higher dollar amount of assistance, even controlling for the amount of property damage reported. I think it’s obvious to say that federal assistance does not set out – from a policy perspective – to reward people in a disaster who are better off financially, before the disaster.

On the other hand, this result could be explained intuitively by one of the big rules of personal finance. Namely, it helps to have money in order to get money. In the specific case of grants and loans, we can imagine barriers which folks in lower socioeconomic neighborhoods face in applying, following up, and qualifying for federal assistance.

The fact that households who are worse off to begin with benefit less than the better off – following a devastating financial shock – suggests that policy makers have some program design to consider, for when the next big disaster hits.

This post ran a few months ago in The San Antonio Express-News and Houston Chronicle.

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December 26, 2017

Cash Transfers and Hurricane Relief

In response to the extraordinary needs of their city after Hurricane Harvey, Houston philanthropists John and Laura Arnold first gave $5 million to the “Greater Houston Community Foundation’s Hurricane Harvey Relief Fund,” aka the “Mayor’s Fund.”

Following that gift, however, the couple made a second $5 million gift to an atypical organization named GiveDirectly one that had neither previously operated in the United States, nor had worked on natural disasters.

Through their philanthropy, the Arnolds are posing an important question – what’s the best way to deliver resources to a hard-hit community after a natural disaster like Hurricane Harvey? We won’t necessarily all agree, nor is there just “one way,” but it’s an important question to keep asking.

Before Harvey, GiveDirectly had only worked in East Africa. Their mission is to give money, unconditionally, to the most poverty-stricken people in the world. They don’t do “development work” the regular way by building clean-water wells, or houses, or hospitals, or give goats or chickens or food or clothing or solar-powered generators. They do “unconditional cash transfers” (UCT), and they trust the recipients know best how to use it to alleviate their own poverty.

GiveDirectly’s operation in Texas following Harvey is a test of whether that theory of “unconditional cash only, not stuff” could apply to disaster-relief in the United States.

As John Arnold explained to me, he and his wife’s thought process for supporting GiveDirectly was as follows:

First, the private sector can do a great job with the logistics of delivering needed goods and services to Texans, even in the face of catastrophic flooding, as occurred following Harvey. He marveled at watching ten fully-stocked Wal-Mart tractor trailers arriving early after the rains, ready to supply Houstonians.

Second, the missing piece for many people hurt by the storm is simply: money. Wal-Mart, Arnold reasoned, will figure out how to provide the right stuff, as long as people have money in their hands to pay for that stuff.

Third, the best relief is probably a group that can just deliver money into the hands of people who need it.

“Everybody’s highest priority is different,”

Arnold told me.

“Some people’s car was damaged and they can’t get to work. Others had their work interrupted and they just need temporarily help to cover next month’s rent.”

So the Arnolds chose GiveDirectly for their $5 million.

Funded by the Arnolds and other donors, GiveDirectly set up a plan to deliver pre-loaded Visa debit-cards with a $1,500 value to impacted households in Texas. In Rose City, a badly-flooded town next to Beaumont that I wrote about last week, GiveDirectly arrived in October to deliver $1,500 to each one of the estimated 210 households, without conditions.

Rose City Mayor Bonnie Stephenson confirmed working with GiveDirectly to reach substantially all households in her town, holding town meetings and community gatherings to help get the word out. GiveDirectly reports successfully distributing 180 cards to the intended 210 households, according Catherine Diao, Communcations Lead for the organization.. In a few households, says Diao, they simply could not locate eligible recipients despite multiple efforts to do so.

GiveDirectly next expanded its giving to the Lakewood area of Northeast Houston. As of now they have handed out and estimated total of 1,200 pre-loaded cards of $1,500 each, with the intention of distributing up to 3,000 total.

Their methods are still evolving. In Rose City, the cards were meant to be “universal,” meaning that everyone with a household address in town qualified for the funds. In the Northeast section of Houston, GiveDirectly is attempting to target the $1,500 pre-paid Visa cards to only those who have demonstrated property losses.

As John Arnold explained, a classic problem of relief is to design a system that is restrictive enough to prevent fraud, but not overly restrictive that it prevents delivery of resources. It’s safe to say no system is perfect.

The normal model of disaster relief is that a combination of the federal government (primarily FEMA), big organizations like the Red Cross, and state and local officials coordinate major resources, while more locally-focused groups fill in the gaps with stuff at hand, like food, water and blankets.

Problems plague each of these responses, of course. One recurring problem with the smaller “stuff at hand” solution is that the stuff may not reflect what people actually need most, at any given time. The appeal of UCT is that recipients decide exactly what they need, not donors.

At the larger scale, FEMA and Red Cross have far more capacity than local groups to deliver resources. But one recurring complaint about the bigger organizations is whether the big infrastructure and big dollars are efficiently spent. In addition, qualifying for substantial FEMA grants, or even $400 Red Cross payments, involves engaging with a bureaucracy that may seem confusing or overly strict, a bundle of “red tape,” to use a word I heard repeatedly from folks in Rose City, including Mayor Stephenson. GiveDirectly’s attempt with UCT is to make delivery simple.

GiveDirectly, by their own estimation, regards their efforts in Texas as exploratory, but in line with their dual purpose of giving relief and pushing for more efficiency among relief organizations.

As President and co-founder of GiveDirectly Michael Faye wrote me,

“Recipients prefer cash and are frustrated with the opacity and efficiency of the traditional options, and want a direct giving alternative. With donors wanting it, and recipients preferring it, why shouldn’t it exist? At worst, it’ll help people rebuild their lives, and at best, it will force a conversation and potentially shift the [philanthropic] sector.”

John Arnold also explicitly called out the dual purpose of his gifts. First, there’s the charitable reason, which he defined as just providing help to people in Texas who need it the most. Second, there’s the philanthropic reason, which he defines as attempting to be thoughtful about solving problems at their root causes. The combination of charity and philanthropy, I gathered from our conversation, is why GiveDirectly appealed to him and his wife.

See related posts:

The Populist Approach to Hurricane Relief

The Red Cross and Other Disasters

GiveDirectly and Unconditional Cash Transfers

Universal Basic Income – A Radical Right Wing Idea?

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December 22, 2017

The Populist Approach to Disaster Relief

What is the most effective way to deliver resources to a community in need, especially following a natural disaster like Hurricane Harvey?

We’re still far from knowing the best way, and we won’t all agree on the answer. Should relief come from the federal government, primarily through FEMA and the SBA? Should financial relief come from giant international organizations like the Red Cross, even though the Red Cross has come in for attacks in recent years, for its large overhead costs and uneven on-the-ground effectiveness?

Or should we largely look to private citizens to organize themselves to solve local needs using local resources?

One of the challenges of improving disaster relief is that people won’t go on the record criticizing relief organizations. Well, stay tuned.

Rose City, TX, a 500-person bedroom community next to Beaumont, TX and less than a hour from the Louisiana border, got slammed by Hurricane Harvey. Of the estimated 210 houses in town, Mayor Bonnie Stephenson told me, only two houses escaped flooding.

The financial needs of this town are immense, in part because of the preponderance of retired and low-income households. Another factor in Rose City, according to Stephenson’s estimation, is that after Hurricane Ike flooded the town in 2008, 90 percent of residents could not afford, or declined to get, flood insurance. Without insurance, Stephenson claims, FEMA has declined to help the residents of Rose City rebuild. The Mayor herself had flood insurance, which she’s been unable to collect from FEMA, because of what she calls “red tape.”

For Stephenson, the answer to my question above – the best way to deliver resources – is neither FEMA nor the Red Cross.

“FEMA is not helping,”

she told me.

And the Red Cross?

“Red Cross came in and gave $400 gift cards, but everybody didn’t qualify for this. Some of them were turned down. But why were they turned down? And my question with FEMA,” Stephenson continued, “Why do we have to jump through hoops? Why are we having to wait? We’re not trying to cheat anybody.” And for the rest of the town – the majority of people who didn’t have flood insurance – she asks “Why aren’t they [FEMA] going to help the people who need it the most?”

In response to my questions about who actually has been helping, Stephenson named smaller, self-organizing groups of citizens who came to Rose City’s rescue. Volunteers from the Los Angeles Police Department flew in, the week following the Harvey rains, rented cars in Houston and brought barbecue and generators and lights from Home Depot. Church groups, including Baptists and Mormons and other denominations, she said, came to town. She recalled the self-appointed “Cajun Navy” and later the “Cajun Army” arriving from Louisiana, ordinary citizens delivering hot meals and supplies using their own resources.

Perhaps the most impressive of all, according to Stephenson, was the one-man operation of Eric Klein, and his no-overhead-cost CAN-DO.org: “I don’t know how we would have done it without him. He knew how to get things organized.”

I spoke to Klein on the phone recently. He has no doubt in his mind about the answer to my question above.

And politeness about criticizing others’ efforts? That’s not holding Eric Klein back. In fact, he says he got involved in disaster relief 15 years ago precisely because he is fueled by rage – rage at money that never gets delivered. “I have never seen anything this corrupt in my life. People are in dire need, cut off and denied.”

I mention FEMA and the Red Cross. “Red tape is by design,” Klein claims. “Without any doubt [FEMA and Red Cross] create this red tape, and this all happens.”

Shortly after arriving in Rose City in mid-September, Klein recorded a video on Facebook that went viral – 500,000+ views and 16,000+ shares, about a woman sleeping in a tent holding on to the ashes of her deceased son.

In a Not-Suitable-For-Work stream of consciousness video he channels the helplessness and rage of people who have not seen the financial resources of FEMA and the Red Cross show up in Rose City.

In response to what he sees as the financial opacity of big aid organizations, Klein’s calling card is “100% transparency.” He has taken to posting CAN-DO.org’s bank statement on line. He’s self-funded, so all money raised is pledged to Rose City’s residents.

Now, if you ask me, a rational finance guy, whether the one-man-savior approach to disaster relief is the right way, I would say: No way.

In my conversation with Klein, I challenged his approach. Isn’t it inefficient, I argued, to have no infrastructure? How can one dude on his own “scale up” to meet the challenges of a big disaster like Harvey, even in a tiny town like Rose City, Texas?

Klein disagreed, arguing that he’s more than just one man with zero budget, relying on his wits.

“I have the best volunteers. These are top notch. You don’t need to have back office. We designed it this way from day one. We’re going to be as accountable as we can.” He went on: “We’ve been vetted by the top people. We roll into a town, me and a couple of my buddies, and by the end of the week we will have 100 strong.”

In the face of my skepticism about the effectiveness of a one-man relief operation, Klein pulled off a neat trick December 6^th, appearing on Megyn Kelly’s Today Show with Rose City’s Mayor, Bonnie Stephenson, gathering a giant-sized $10,000 check from Lowe’s on live TV for their trouble.

What is Klein’s ultimate goal? His medium-size ambition is to convince a corporation like Lowe’s or Home Depot to look at the amount he raises, and match it, after which he plans to distribute loaded gift cards to all of the residents of Rose City, for home reconstruction.

His Texas-sized ambition would be to use his publicity campaign to attract a big donor for something like $1 million. “With $1 million, we could rebuild Rose City!” enthuses Klein.

Please see related post:

Use Caution With The Red Cross

GiveDirectly and Hurricane Harvey (upcoming post)

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