Projects

Decision support to local governments in budget planning under coastal risk

Abstract

Purpose:
The purpose of this research is to develop a decision making tool to identify the optimal policy alternative to allocate financial reserves necessary for local governments along the coast to minimize the financial burden of cleanup, recovery, and reconstruction costs from future tropical storm events.

Objectives:

Measure the comparative financial health of coastal parishes through financial indicator analysis both before and after Hurricane Katrina in order to evaluate the changing financial health and current financial vulnerability of a parish/county’s public sector to a future tropical event.
Using a specific parish as a case study, apply a participatory research methodology to analyze and estimate optimal level of financial reserves needed to address recovery costs of future tropical events.
Develop an extension/outreach manual for Resiliency in Local Government Financing under Coastal Risk.

Approach:
Objective 1 will be accomplished by applying financial ratio analysis to major financial statements of Southeast Louisiana parish governments both before and after Hurricane Katrina. We will use liquidity and leverage/solvency ratios to newly available government-wide audited financial statements of parish governments. The expected outcome of this objective is a comparative analysis product for parish governments that will assist them better assess their financial health as they prepare for future tropical storm events.

Objective 2 will be accomplished through the use of participatory research methods as applied by the authors in previous studies through the use of a case study political jurisdiction. Representative storm analysis will be applied using recovery and reconstruction data from previous storms combined with local government revenue and expenditure forecasts from the Coastal Community Impact Model to assess the local government’s financial burden for future storms with various probabilities of landfall/storm gust. The Analytical Hierarchy Process (AHP) decision making tool will be used with an advisory panel of parish stakeholders to identify an optimal policy option for parish government to implement in order to mitigate financial burdens of future tropical events.

Objective 3 will be accomplished through the codification of an extension manual that will provide a step-by-step guide for analyzing a county/parish’s financial health, identify projected financial burden of future tropical storm scenarios, and apply the AHP decision making tool to identify optimal policy alternatives for local government to mitigate future storm costs. In the manual, easy-to-manipulate templates in such software as Microsoft Excel will be used so that future outreach agents that may apply the decision making system will only have to input data in pre-constructed locations that will provide decision making outputs without having to “code” the underlying formulas.  One of the major expected outcomes of this objective is that the project team will work with the Coastal Storms Program Outreach Coordinator to replicate the decision making method in other states. Such replication would possibly include training programs for agents. 

Objectives

  1. Measure the comparative financial health of coastal parishes through financial indicator analysis both before and after Hurricane Katrina in order to evaluate the changing financial health and current financial vulnerability of a parish/county’s public sector to a future tropical event.
  2. Using a specific parish as a case study, apply a participatory research methodology to analyze and estimate optimal level of financial reserves needed to address recovery costs of future tropical events.
  3. Develop an extension/outreach manual for Resiliency in Local Government Financing under Coastal Risk.

Methodology

Objective 2 will be accomplished by applying financial ratio analysis to major financial statements of Southeast Louisiana parish governments both before and after Hurricane Katrina. We will use liquidity and leverage/solvency ratios to newly available government-wide audited financial statements of parish government. The expected outcome of this objective is a comparative analysis product for parish governments that will assist them better assess their financial health as they prepare for future tropical storm events.

Objective 2 will be accomplished through the use of participatory research methods as applied by the authors in previous studies through the use of a case study political jurisdiction. Representative storm analysis will be applied using recovery and reconstruction data from previous storms combined with local government revenue and expenditure forecasts from the Coastal Community Impact Model to assess the local government’s financial burden for future storms with various probabilities of landfall/storm gust. The Analytical Hierarchy Process (AHP) decision making tool will be used with an advisory panel of parish stakeholders to identify an optimal policy option for parish government to implement in order to mitigate financial burdens of future tropical events.

Objective 3 will be accomplished through the codification of an extension manual that will provide a step-by-step guide for analyzing a county/parish’s financial health, identify projected financial burden of future tropical storm scenarios, and apply the AHP decision making tool to identify optimal policy alternatives for local government to mitigate future storm costs. In the manual, easy-to-manipulate templates in such software as Microsoft Excel will be used so that future outreach agents that may apply the decision making system will only have to input data in pre-constructed locations that will provide decision making outputs without having to “code” the underlying formulas.  One of the major expected outcomes of this objective is that the project team will work with the Coastal Storms Program Outreach Coordinator to replicate the decision making method in other states. Such replication would possibly include training programs for agents.

Rationale

The lack of a deliberate decision making process in both identifying the optimal level of  reserves to cover cost share requirements for cleanup and recovery following a tropical event  as well as identifying the policy mechanism to generate these reserves is the primary rational for this research/extension project.

Hurricane Gustav, a storm with its heaviest physical damage in South Central and Southeast Louisiana, caught many local jurisdictions off-guard regarding the severity of impacts to the delivery of local services such as electricity, cable, transportation, and sewer services. In addition to public and private providers of these services struggling to bring these services back on-line, costs of clean-up such as debris removal were more expensive for many of these parishes than was Hurricane Katrina. These costs overwhelmed planning efforts of many parish (county) and municipal governments that began to scramble to pay for such services.

These costs created a liquidity problem in which they did not have sufficient short-term financial resources to cover contractor costs for clean-up when these bills came due and the time they would be reimbursed by FEMA. Second, these costs created a solvency problem. While in Hurricanes Katrina and Rita, cleanup costs were reimbursed 100% by the federal government, FEMA originally required 25% local government cost share. (This was later reduced to 10%). Katrina and Rita created a moral hazard dilemma where local governments expected these entire costs to be covered by FEMA and were not financially prepared to cover local cost share requirements.

Given the rationale, the purpose of this research is to develop a decision making process to identify the optimal policy alternative to allocate financial reserves necessary for local governments along the coast to minimize the financial burden of cleanup, recovery, and reconstruction costs from future tropical storm events.