Flooding poses a growing challenge for state and local governments in the Eastern and Southern United States, according to Moody’s recent report.
The analysis highlights the economic vulnerabilities caused by increased flood risks, which now impact nearly a quarter of the nation’s population and gross domestic product (GDP).
Rising insurance costs, aging infrastructure, and limited disaster recovery funds further complicate the issue.
The report attributes the heightened risks to a combination of hurricanes, sea-level rise, and extreme rainfall. Inland areas, previously considered less vulnerable, are experiencing more frequent and severe flooding. For example, the annual average of flood events in Galveston, Texas, quadrupled between 1990-2009 and 2010-2023.
Key concerns include the underinsurance of properties in high-risk areas. Nationwide, fewer than 5% of residential properties have flood insurance, with coverage in high-risk regions ranging from 10%-30%.
Federal disaster aid typically covers only a fraction of repair and rebuilding costs, leaving local governments vulnerable to economic disruption. For instance, federal payouts average $3,000 per flood claim compared to $66,000 from insurance under the National Flood Insurance Program (NFIP).
The report also examines the implications of aging infrastructure. Many public systems, such as wastewater treatment facilities and stormwater networks, are increasingly unable to withstand extreme weather events. These challenges were evident in 2023 when flooding overwhelmed Baltimore’s wastewater system, releasing 14 million gallons of sewage. The American Society of Civil Engineers estimates a $700 billion funding gap for infrastructure improvements required by 2029.
Flood risk is further exacerbated by development trends. Between 2010 and 2017, $4.6 billion in housing was constructed in flood zones in New Jersey. Despite efforts to update building codes, only 32% of hazard-prone jurisdictions have adopted standards that meet federal guidelines.
Insurance markets are also undergoing transformation. The NFIP’s Risk Rating 2.0, implemented in 2021, aligns premiums with actual flood risk. While some premiums have remained stable or decreased, high-risk areas face increases of up to 500%. Declining NFIP enrollment, down nearly 20% since 2022, adds to the financial strain.
Moody’s emphasizes that solutions will require substantial investment, including expanded insurance mandates, enhanced building codes, and federal or state aid. However, such measures may disrupt property markets and reduce affordability in high-risk areas.
How should governments and communities balance the economic impact of flood risks with the need for long-term resilience? Share your views in the comments.
