Louisiana is nearly broke, but the flood recovery could help fix that

Record-breaking floods in Louisiana have killed 13 people, damaged or destroyed 40,000 homes and landed 8,000 people in shelters. And yet flood-hit East Baton Rouge Parish — where 14 percent of residents live below the poverty line — and the rest of Louisiana are expected to ultimately benefit from the rebuilding effort as insurance funds and federal dollars start to pour in.

"If history is any guide there's going to be a short-term fiscal crunch," said Jan Moller, director at the Louisiana Budget Project. "In the medium term I think this is actually, as horrible as it sounds, going to be good for the state's fiscal situation."

With the floodwaters still receding, the expected cost of the disaster is unclear. The Federal Emergency Management agency said it's too early to make any estimates, but judging from prior disasters such as Hurricane Sandy, the tally will be well into the billions. The Red Cross expects its costs to exceed more than $30 million, making it the organization's largest disaster response operation since Hurricane Sandy hit the east coast in 2012.

"It's not anything we haven't seen in Louisiana before, it's just more of it," said Greg Langley, spokesman for the state task force managing the recovery. "It's unprecedented in its scope, in its magnitude, other than Katrina."

It all comes as Louisiana faces a $2 billion budget shortfall that required Governor John Bel Edwards to push through a temporary tax hike in March to avoid going over a looming fiscal cliff. "The fiscal condition of this state is not going to limit what we do to make sure that people get the assistance they need," Edwards said earlier this week.

Long term, Louisiana will benefit from billions in federal aid and insurance dollars coming its way.

The state saw unprecedented budget surpluses in the years following Hurricane Katrina, peaking at $1.1 billion in the 2006-2007 fiscal year. More than $120 billion came in from the federal government along with $30 billion in insurance claims in the aftermath of the storm.

Since the federal government declared the flooding a major disaster, FEMA will be stepping in to handle recovery efforts and costs for 20 parishes across the state. Typically, the agency covers 75 percent of costs, but in some cases they can fund up to 90 percent.

Moller said Louisiana will start to see an economic stimulus when checks from FEMA and insurance companies start coming in. With 40,000 homes affected and in need of repair, residents throughout the affected area will cash those checks and use their own money to rebuild their houses. In turn, this should boost employment, local economic activity, and payroll tax revenues.

"We're going to see a lot of people go back to work," he said, specifically those in construction and other building trades. "If you're a roofer this could be a bonanza."

Other industries could see some short-term bumps, either from local residents or the several thousand relief workers and volunteers expected to trickle in during the response period. According to CBRE Group, hotel demands rise 3.4 percent on average for the quarter that a disaster event occurs, although the demand tends to decline again within a year.

Moller acknowledged there won't be nearly as much funding and money as the state saw after Katrina, the most expensive disaster response ever in the US. Beyond being smaller in scale, low rates of flood insurance in the affected areas means less money will come in from insurance companies.

Most of the affected parishes were not in flood zones where homeowners are required by law to purchase flood insurance. In East Baton Rouge, just 12 percent of homes had flood insurance, with similar rates in other parishes and rates as low as 1 percent in St. Helena. They will still be eligible for FEMA funding.

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