Financing the Operation and Maintenance Costs of Hurricane Protection Infrastructure

Options for the State of Louisiana

by Trey Miller

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Research Questions

  1. What fiscal capacity do local levee districts in southern Louisiana have to shoulder the burden of operating and maintaining the Hurricane and Storm Damage Risk Reduction System and other key hurricane protection infrastructure currently under construction by the U.S. Army Corps of Engineers?
  2. What approaches are other government agencies responsible for operating and maintaining flood and hurricane protection infrastructure using to generate revenue to cover those costs?

Abstract

This report analyzes the fiscal capacity of eight local levee districts in southern Louisiana to shoulder the burden of operating and maintaining the Hurricane and Storm Damage Risk Reduction System (HSDRRS) and other key hurricane protection infrastructure currently under construction by the U.S. Army Corps of Engineers. It specifically focuses on operation and maintenance (O&M) costs, assuming that costs associated with major repairs and levee lifts will not be borne by levee districts. It also discusses some approaches that other government agencies responsible for operating and maintaining flood and hurricane protection infrastructure are using to generate revenue to cover those costs. The report discusses the methodology used to project the O&M costs associated with hurricane protection infrastructure. It provides O&M cost estimates for each newly constructed piece of the HSDRRS and estimates the total O&M costs to be borne by eight major levee districts within the HSDRRS. Some of these estimates differ from estimates based on cost-plus engineering estimates because they are based on historical expenditures by levee districts to maintain existing infrastructure. The report then discusses the author's methodology for projecting levee district budget revenues and budget balances through 2016. The report concludes with a discussion of some options that other states have used to generate revenue for the O&M of levees and hurricane protection infrastructure.

Key Findings

Collective and District-Level Burdens for Operation and Maintenance Costs May Need Reallocation

  • Incremental operation and maintenance (O&M) costs stemming from new Hurricane and Storm Damage Risk Reduction System (HSDRRS) infrastructure vary considerably across levee districts.
  • The maximum increase in O&M costs as a consequence of new HSDRRS infrastructure will be 78 percent or less of pre-Hurricane Katrina O&M expenditures in all districts.
  • Levee districts, the Coastal Protection and Restoration Authority, and other stakeholders should work to determine the ultimate responsibility for O&M costs.
  • Levee district ad valorem revenues have generally rebounded since Katrina.
  • Levee districts vary considerably in terms of projected surpluses in ad valorem revenue in the medium term, but the overall fiscal condition of levee districts is likely to be solid.
  • Most levee districts in Louisiana and flood control agencies in other states rely on ad valorem or other forms of property taxation for most of their income.
  • The operation and maintenance functions for three major pieces of infrastructure in the West Bank have yet to be determined. The annual O&M costs for these contested pieces is a combined $4.2 million, roughly one-third of total incremental O&M costs stemming from new Hurricane and Storm Damage Risk Reduction System infrastructure in the eight levee districts studied. Stakeholders should work to determine the O&M responsibilities for these pieces of infrastructure so that levee districts can engage in effective planning and meet future revenue needs.
  • Given that the overall fiscal health of levee districts appears strong through 2016, the state might consider actions surrounding the consolidation of levee districts. One option that might be acceptable to levee districts would be to grant the Southeast Louisiana Flood Protection Authority East and West the authority to shift funds between constituent districts. Given that the projected surpluses in Orleans and East Jefferson would more than cover the projected deficits in Lake Borgne, and the modest surplus in Algiers would just offset modest potential deficits in West Jefferson, such an option could solve funding concerns through 2016.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Projecting Operation and Maintenance Costs of Hurricane Protection Infrastructure

  • Chapter Three

    Projections of Budget Balances, by Levee District

  • Chapter Four

    Approaches That Other States Have Tried for Financing O&M Costs of Levee and Hurricane Protection Infrastructure

  • Chapter Five

    Findings

This project was sponsored by Louisiana's Coastal Protection and Restoration Authority and was conducted under the joint auspices of RAND Environment, Energy, and Economic Development and the RAND Gulf States Policy Institute.

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