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Resilient infrastructure: Who pays?

Resilient infrastructure Who pays? Featured Image Local Government Sept 2016

Should we be having a much bigger, bolder debate about where people can live, work and play in a country vulnerable to natural hazards such as floods, earthquakes and rising sea levels? Four experts shared their views on the value and costs of resilient infrastructure at the IPWEA NZ conference earlier this year. Ruth Le Pla was there.

 

In June last year unpredicted rainfall and unprecedented high river levels devastated Whanganui. They caused the largest flood ever recorded in the town’s urban riverbank area and suburban hills. Hundreds of people were evacuated from their homes. Houses and businesses were inundated. Landslides took out dwellings and there were over 4000 slips on rural roads. The Whanganui River flowed over existing stopbanks at 11.30pm on June 20 and the next morning council deliberately breached a stopbank to release the trapped water.

The river, which normally flows at just over one metre, peaked at almost 22 metres. And 4755 cubic metres were recorded 50 kilometres upstream – the highest ever recorded.

Mayor Annette Main says there’s now an urgent need for some hard decisions. These include the need to raise the level of the town’s urban stopbanks and replace stormwater pipes overwhelmed by the well-over one-in-100 year rainfall.

Yet, as she points out, it simply isn’t realistic for a community of 45,000 to replace the whole network at a cost of millions or to immediately rebuild higher stopbanks. “We already have debt from our previous work to protect our industrial area.”

Then there’s the not inconsiderable matter of who will ultimately fund a $40 million new wastewater plant needed to meet the area’s needs into the future. The plant is a vital building block for Whanganui’s future industrial and population growth.

“The discussion with our community is yet to be had about where those costs will fall once it’s built.”

Previous opposition to costs associated with protecting the town currently mean that while the industrial area is protected to a one-in-200 year level, the urban area is only protected to a 30-year level.

Annette says it’s time for hard talk on “compelling” protection for communities to a level that protects against medium-sized events.

It’s a conversation that needs to be had with central government, she says. “Because when people are able to be consulted about the cost of things – and they’re not used to seeing flood levels such as we had recently – it’s really easy for them to say no and override the opinions of a council.”

In the post-flood clean-up, most homes in the flooded areas have been repaired and people have either returned home or moved on.

“But others have bought damaged houses and rebuilt them, knowing the risks,” says Annette. “On the hills in our town, some may never return and face ongoing legal argument with EQC because in a place like Whanganui the relatively low value of the land means there’s no way people can repair the damage with what they’re offered.

“So in our community we feel for them but as a council there’s nothing we can do apart from help them gain some advice and work through the process.”

Nor are private market signals helping resolve the long-term issue of where it’s wise, or best, for people to live, work or play.

Annette says she had wanted to encourage people away from flood-prone areas “but they were able to get insurance and so stayed”.

Join the dots

Another IPWEA NZ conference speaker, barrister and solicitor Susan Thodey says that, on a nationwide scale, it’s time to join the dots between all interested parties and the issues. “There’s got to be a national policy developed that can lead to greater resilience in community structure.”

For many years managing partner of Heaney & Partners, Susan now consults to the firm. She outlines two possible payment models for funding resilient infrastructure and their potential implications (see box story “Two scenarios”).

For Local Government Funding Agency (LGFA) chair Craig Stobo, the list of interested parties includes not just homeowners, businesses, insurers, and local and central government. He’d like to see a direct “technological thread from the natural hazard science community, through local and / or district councils to households”.

Perhaps delivered via an app on mobile phones, scientific information could help drive behavioural change by householders facing natural hazard risk.

“Householders could see the potential risks from the sites of their households,” says Craig. “Or local authorities could see the potential risks from hazards for their infrastructure and could react accordingly.”

At the moment many people are just “baffled”, he says. “It’s very hard for householders to react… We’re not using our science community effectively.”

Much data is currently held across a mix of public and private sector organisations – many engineering firms have hazard mapping abilities, for example.

Craig is hopeful the private sector would eventually manage the flow of information via such an app, which would not be hard to acquire or build.

Meanwhile, he calls for leadership from central and / or local government to set up ways to start funnelling public science information to communities.

The insurance sector already has such mechanisms in place, notes Craig. “And the banking industry is starting to adjust mortgage interest payments with a premium for areas where they perceive there is agreement around natural hazard risk.

“So the community is reacting but it’s very slow. Technology solutions will allow us to do that much faster and more directly in the future.”

He adds the Commission for the Environment has already published maps of risk-prone areas. “The sooner they are picked up and used by insurers the better.”

In the same tent

Similarly, Auckland Council chief of strategy Jim Quinn calls for a “deep and collaborative” approach to funding resilient infrastructure.

“In the event of a natural disaster everybody tends to club around, he says. “If everybody’s in the tent on the way through when the decisions are made, the likelihood that everybody stumps up in a fair and equal way when an event occurs is more probable.”

Practical steps include forming a single dataset, and agreeing on assumptions and risks.

“If we don’t act in a collaborative way it’s easy for everybody who has a choice to walk away. Then it’s left to those who have nowhere to go to deal with the whole problem – and intuitively that’s council and central government.

Meanwhile, many people expect the rate and severity of natural hazards to continue to worsen. If there are no mechanisms for directly linking the impact of area-wide disasters to specific decisions that community members make, local authorities will increasingly suffer from a Cassandra complex. They will have the blessing of being able to accurately predict upcoming crises and the curse of not being taken seriously by their communities. And the question will remain: who pays?


Two scenarios

Susan Thodey.
Susan Thodey.

Susan Thodey is a barrister, solicitor and a consultant to Heaney & Partners. At the IPWEA NZ conference she put forward two propositions on payment models for resilient infrastructure. The following is an abridged version of her speech.

SCENARIO 1: Individuals should be given the option to fund their own risk upfront.

Local authorities are rightly nervous to allow development where individuals or a developer takes on the risk of loss. In New Zealand there seems to be a trend where the courts are not reluctant to make the decision for local or regional government, and allow development to proceed on the basis of certain conditions.

A good example is a 2014 court decision concerning the development of land in the Mahia Peninsula which was the subject of ongoing coastal erosion. The owners of the land proposed they develop the land on a number of conditions.

These included that a number of the new houses would be relocatable. Secondly, they would pay a bond in respect of each individual house to the concerned local council. In the event that the house needed to be removed at a later date, there were funds available for the local council to attend to that.

In this instance the district council was very happy with the proposition but the regional council was not. The court identified that the core question they were being asked was whether it was reasonable to approve development on an erosion-prone piece of land by allowing applicants to take the risks associated with that development.

The court said yes despite the fact that erosion may take place up to seven metres in front of the affected properties within a limited period of 20 years.

I think it would be unwise of local or regional government to allow development to proceed without being extremely conservative in their approach. If there are any concerns at all it’s my proposition that they should return the matter back to the court.

Unfortunately, there are no national policies or regulations that say yes or no. So the initial decision in New Zealand gets left with local and regional government.

My experience of New Zealand society is that it’s human nature for individuals to take a risk at a given point in time.

Yet when the loss arises five, 10, 20 years down the track – be it that they have suffered damage to their beachfront property or have had a loss on their return on investment – they blame regional decision-makers or the individual that may have given them the advice, such as the engineer.

So it’s extremely important for anyone giving upfront advice to be particularly careful about whether they allow such development to take place.

SCENARIO 2: Greater upfront consultation between local / central government and insurers.

In New Zealand there is no accord or agreement, or indeed any real consultation, between those who are funding upfront – most likely local and central government – and those who pay at the end – the insurers. On top of this, the provision for insurance for residential properties, for example, is fairly complex and is different from any other model in existence in the world.

As more natural events occur, insurers will start to dig deeper. They will make a more detailed assessment of risk and we may find sections of our communities unable to secure insurance or pricing may be too high.

A good example of how government and insurers might interact can be seen from experience in the UK. As long ago as 1950 there was a gentlemen’s agreement between government and insurers that balanced spending on flood protection against the ability and willingness of insurers to pay for damage following one-off events.

The government promised to keep spending at a certain rate and the private insurance industry promised that, no matter what the risk, it would provide basic insurance to the owners of every property in 
the UK.

So insurers in the UK effectively spread the risk across all policy holders. By about 2000 there had been a number of significant floods in the UK. The insurance industry issued a moratorium on the issuing of insurance for floods in certain areas in the UK and up to 25 percent of residential properties were affected.

Insurers had perceived that central and local government were cutting back on infrastructure spending and attempting to move the burden of cost to the insurer.

After a great deal of angst the government eventually had to bow to the demands of the insurance industry and reach a revised gentlemen’s agreement with them whereby there was a commitment to a greater taxpayer-funded spend.

So if you are involved in the decision-making processes upfront, do not depend on an insurer coming along at a later date and paying for the damage that might have ensued from a natural event or disaster.

There needs to be greater consultation between local government, central government and insurers upfront to stop issues arising later.


This article was first published in the September 2016 issue of NZ Local Government Magazine.

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