Fiscal Impacts of Wildfires
The frequency and severity of wildfires is increasing, as are the damages. The past several years have seen devastating blazes around the world from California to Australia, from Brazil to Indonesia. In the western United States, development has pushed into the wildland-urban interface (WUI), where structures intermingle with fire-prone vegetation. This, along with climate changes, decades of suppression practices, and insect infestations, have driven up the risk of wildfire damages and the costs of fire suppression.
Total damage and economic losses caused by California wildfires alone in the past three years (2017-2019) are estimated to be $565 billion. Wildfire costs are borne by a number of different parties, including residents of impacted areas, property owners, insurance companies, electric utilities, and taxpayers at all levels of government. The costs emanating from a wildfire can be broad and impact many sectors.
The Fiscal Impacts of Wildfires on California Municipalities
In an ongoing project, Risk Center researchers are examining the fiscal impacts of wildfires on California municipalities. The research provides some of the first empirical estimates of the impact of natural disasters on the sub-components of municipal budgets. The authors combine detailed financial data from 1990-2015 with data on historical wildfire perimeters in California. They find that wildfires increase both revenues and expenditures. Sales taxes temporarily increase and property taxes increase to a permanently higher level; this appears due to state law that limits reassessments of property until time of sale. Wildfires also cause a long-term increase in local spending on preparedness and planning. The overall impact of wildfires on municipal budgets is negative and substantial. For more information, contact Penny Liao.
FEMA Individual Assistance and Wildfire Costs
For homeowners with a standard homeowner’s policy or other property insurance, funds to repair or rebuild after a wildfire typically come from private insurance claims. Absent insurance or lacking sufficient coverage to meet their needs, most individuals directly impacted by wildfire events turn to federal assistance programs when they are authorized. Victims are usually first directed to the Small Business Administration’s (SBA’s) disaster loan program, which offers loans to victims for rebuilding. When they do not qualify, victims may turn to a grant program in the Federal Emergency Management Agency (FEMA). While these programs help numerous households recover from catastrophic events, they can only go so far to help residents in disaster areas recover, particularly when households lack insurance, are credit-constrained, have low incomes, and/or suffer severe losses. Risk Center researchers are investigating these sources of recovery.
To learn more about individual assistance grants to households in recent California wildfires, click here.
Financing Third Party Wildfire Damages: Options for California’s Electric Utilities
Policy Incubator Project 2018-2019
Escalating wildfire risk and a unique legal regime threaten the financial health of California’s electric utilities, with consequences for customers, taxpayers, and shareholders. A Policy Incubator project culminated in a report examining potential financing options for third-party wildfire damages, including a discussion of possible funding sources and mechanisms, and their distributional implications.
For an overview of wildfire costs in California and the role of electric utilities, also read the Risk Center Issue Brief introducing the topic.
The Fiscal Impacts of Wildfires on California Municipalities (Working Paper)