A Storm To Remember: A Storm To Remember Part IV: Hurricane Harvey And The Texas Economy – Major Hurricanes In Texas And U.S. Wrap Up

A Storm To Remember: A Storm To Remember Part IV: Hurricane Harvey And The Texas Economy – Major Hurricanes In Texas And U.S. Wrap Up

February 15, 2018
0 13 minutes read

In a typical year, about 100 storms and tropical disturbances develop in the Atlantic Ocean, Caribbean Sea and Gulf of Mexico. Some of these turn into tropical storms, and on average…
Editors Note: This is the final part of a four part series.


Appendix 1: Major Hurricanes in Texas and the U.S. —
A Historical Perspective

In a typical year, about 100 storms and tropical disturbances develop in the Atlantic Ocean, Caribbean Sea and Gulf of Mexico. Some of these turn into tropical storms, and on average, two each year become hurricanes that make landfall in the U.S.40 Between 1851 and 2016, 289 hurricanes affected the continental U.S. Of these, 63 made landfall in Texas.41

Hurricane season runs from June 1 to Nov. 30, with most storms making landfall during August and September.42 In Texas, these storms make landfall on the Gulf Coast, generally moving north or northeast through the state.

Major Texas Hurricanes

The Galveston hurricane of 1900, a Category 4 storm, was the deadliest natural disaster in U.S. history, bringing a 15-foot storm surge and winds of more than 135 mph. The hurricane killed between 6,000 and 12,000 and brought damages totaling about $881 million in 2017 dollars.43

Since then, Texas has been affected by 20 more major hurricanes (classified as Category 3 or higher).44 Exhibit 5 lists major hurricanes that have made landfall in Texas since the early 1950s, when the U.S. National Hurricane Center began naming each storm.

Costliest U.S. Storms

Of course, hurricanes and other major storms affect the entire country, not just the Gulf Coast. Exhibit 6 lists the most destructive storms affecting the U.S. in the last half-century.

Hurricane Katrina, which caused $161.3 billion in damages, still ranks as the costliest storm in American history; Hurricane Harvey is expected to rank second, with total estimated damages of about $125 billion.45

 

Appendix 2: Detailed Methodology of Net Economic Impact Analysis

Economists use various modeling techniques to estimate the effect of economic trends and government policy options over time. For this report, the Comptroller’s office developed an approach to analyze the cost of a disruptive event on the Texas economy as well as the subsequent economic activity generated as a result of the shock. Our economic impact analysis thus estimates the net effect of Hurricane Harvey on the Texas economy.

To estimate the cost of the storm on Texas, productivity loss is approximated by discounting the expected economic forecast for three years by the amount of time businesses were closed or out of production, varying in length by industry.

To estimate the gain from rebuilding, reported and anticipated expenditures are introduced that offset the negative effects of production loss.

The forecast employs a 70-sector, 24 Council of Government (COG) region version of Regional Economic Models Inc. (REMI) Policy Insight+ for Texas, Version 2.0, an economic software application that generates realistic annual estimates of the total regional effects of policy or other market changes, based on an approach that combines and builds on input-output, general equilibrium, computable econometric and economic geography modeling techniques. The software calculates differences between the baseline (a regional control forecast) and the shock forecast.46

The COG regions affected by the storm are assumed to be those containing counties that received FEMA assistance due to the storm.47 All counties in the Houston-Galveston, South East Texas and Golden Crescent COGs were affected by the storm. The Brazos Valley, Coastal Bend, Deep East Texas, Alamo Area and Capital Area COGs were only partly affected and were discounted by the share of population in the affected counties in each COG to the total population of each (a “population discount”). The estimate assumes all of the businesses in affected counties were affected.

The estimate’s timeframe is the initial shock year and two forecast years. Determining the cost share among federal, state and local governments is ongoing, even as more costs are being recorded. Because we do not yet know who will ultimately bear the burden of some Harvey-related costs, the scope of this analysis is limited to a relatively short time period.

The estimate uses nominal dollars (unadjusted for inflation).

Productivity Loss

The productivity-loss component of the estimate assumes business days lost due to the storm, whether from power outages, damaged structures or temporary labor shortages, result in lower output (a “time discount”). The estimate assumes most industries were offline or experienced reduced revenue for one week, from landfall on Friday, Aug. 25, followed by five days of rain and subsequent dam overflows in Houston until it dissipated in Louisiana on Aug. 30.48  Industries are discounted differently depending on the amount of time they were estimated to be offline, their level of competition and their place in the supply chain:

  • manufacturing and mining were assumed to be offline or experiencing reduced revenue for 15.4 days.49
  • hospitals were assumed to be offline or experiencing reduced revenue for four days.50
  • firm-level competition is assumed for all industries except those with a high location quotient (LQ > 4) such as oil and gas extraction, which are considered exogenous.51
  • retail and wholesale trade are further discounted to account only for the markup of cost of goods sold, to avoid double-counting.52
  • accommodation is assumed to be unaffected by productivity losses as the decrease in tourism from the storm could be counterbalanced by the increase in hotel occupancy by evacuees.

The standard regional control is reduced by a percentage of sales derived from a combination of the time discount and population discount. The results show the reduction in GSP due to this reduction in output.

A similar reduction in labor productivity was considered; however, it is assumed the negative effects on wages in August would be counterbalanced by increases in the fourth quarter. It is also assumed that salaried employees were largely unaffected by the storm and would either telework or make up lost time in September, while non-salaried employees would experience a dip in productivity and income in August but would have more work opportunities and higher wages in the recovery months following the storm.

Because the model treats labor productivity differently based on regional and industry variation, the effects of the storm on labor productivity could have counterintuitive effects; nevertheless, change in labor productivity is left outside the scope of this estimate.

Gains from Rebuilding

Following economic shocks, institutions begin to respond to the community’s needs, both immediate and ongoing. Gains from the rebuilding component of the estimate account for increases in spending from government, businesses and nonprofits on timely disaster relief, shelter and food for displaced people, debris removal, medical attention and reconstruction.

For this estimate, current and expected expenditures were collected — via either news sources or self-reporting — from federal and state agencies as well as private insurance companies and large nonprofits; these are non-exhaustive. Each organization’s expenditures are categorized by expected use over a three-year period, divided 40/20/20, and assuming the remaining 20 percent will be spent in future years beyond the three-year scope of this analysis.

Funds flowing from and through state agencies are allocated by individual industry and weighted by output in construction, housing, health care and social services.53 The estimate weights funds categorized as government administration or equipment by population. It excludes agency expenditures reallocated from a similar use, such as medical costs expected to be covered by Medicaid funds.

Funds from the National Flood Insurance Program,54 Small Business Administration (SBA) loans,55 private insurance companies56 and nonprofits57 are allocated by individual industry in the proportion by which funds were released for SBA loans following Superstorm Sandy: roughly 64 percent on construction for real estate damages, weighted by output; 10 percent on equipment for business content, weighted by population; and 26 percent on relevant consumer spending for home content (such as motor vehicles, furnishings, housewares and health services), weighted by consumer spending.58

Limitations

This estimate is intended to depict Texas’ economy as a whole and the net effects of Hurricane Harvey based on currently available data. Figures for government spending may change as agencies report expenditures and more people submit claims.59 It is a projection, and does not account for:

  • damage to commercial, government or personal property, including real estate, contents, equipment, vehicles, inventory, etc. Instead, it accounts for the funds likely be spent in the next three years to rebuild and replace these items.
  • expenditures from smaller nonprofit organizations.
  • change in tax burden on Texans at the local and state levels due to increased costs from Harvey recovery or state budgetary actions that may be taken.
  • change in government services provided due to resource reallocation.
  • income to insurance companies from deductibles or potential changes in insurance premiums.
  • productivity loss and gains from agricultural insurance; this study focused on the nonfarm portion of the economy. The REMI model does not include an agriculture sector.
  • non-pecuniary losses due to fatalities or decreased desirability of living in an area. The estimate assumes people who do not receive a buyout will rebuild — especially property owners along the coast in hurricane-prone areas, who are likely to understand the risk of property ownership in their location.
  • the long-term costs of flooding, including buyout programs, new reservoirs, bayou dredging or seawall construction. These flood mitigation efforts will cost billions of dollars over a number of years and are beyond the scope of this study.

The model available divides Texas into COG regions and depicts dynamic relationships between industries and market forces; future studies may benefit from a more granular model to show county-level damage to housing stock, which would eliminate the need for the population discount.

This estimate intends to depict the order of magnitude of the net effects of Hurricane Harvey on the Texas economy as a whole. The economic losses and gains may not be known in their entirety, but our approach aims to provide a high-level perspective of the possible damage by a severe weather event such as Harvey as well as the strength of the Texas economy to withstand such events.

Individual Texans and communities may continue to bear a heavy burden rebuilding their lives in the wake of the storm, but the assistance provided by government, business and nonprofit resources and the diversity of Texas’ economy protect the state from the level of devastation experienced by smaller, less robust economies after an economic shock.

Endnotes

Note: Endnote links were accurate at the time of publication.

  1. National Oceanic and Atmospheric Administration, National Weather Service, “Hurricane Harvey & Its Impacts on Southeast Texas from August 25th to 29th, 2017;” and National Oceanic and Atmospheric Administration, National Weather Service, “Hurricane Harvey 2017 – Impacts to South Central Texas.”
  2. National Oceanic and Atmospheric Administration, “Reviewing Hurricane Harvey’s Catastrophic Rain and Flooding,” September 18, 2017.
  3. Texas Division of Emergency Management, Disaster Summary Outline spreadsheets for November 28, 2017 and November 29, 2017.
  4. Texas Department of Motor Vehicles, “TxDMV Informs Owners of Flood-Damaged Vehicles of Duty to Brand Their Title,” October 23, 2017; and Business Insider, “The Auto Industry May Take Longer Than Expected to Recover After Hurricane Harvey,” December 16, 2017.
  5. Texas A&M AgriLife Extension Service, “Texas Agricultural Losses from Hurricane Harvey Estimated at More Than $200 Million,” October 27, 2017.
  6. National Oceanic and Atmospheric Administration, “U.S. Billion-Dollar Weather and Climate Disasters,” 2017; and Kevin Quealy, “The Cost of Hurricane Harvey: Only One Recent Storm Comes Close,”The New York Times (September 1, 2017).
  7. National Oceanic and Atmospheric Administration, “U.S. Billion-Dollar Weather and Climate Disasters.”
  8. National Oceanic and Atmospheric Administration, “Hurricanes in History,”; and “U.S. Billion-Dollar Weather and Climate Disasters.”
  9. U.S. National Weather Service, National Hurricane Center, Tropical Cyclone Report, Hurricane Katrina (PDF), 23-30 August 2005, by Richard D. Knabb et al., Updated September 14, 2011, p. 11,
  10. National Oceanic and Atmospheric Administration, “U.S. Billion-Dollar Weather and Climate Disasters.”
  11. National Oceanic and Atmospheric Administration, “Hurricanes in History.”
  12. National Oceanic and Atmospheric Administration, “U.S. Billion-Dollar Weather & Climate Disasters, 1980-2017,” (PDF) by Adam Smith et al., p. 8; and “Hurricanes in History.”
  13. National Oceanic and Atmospheric Administration, “U.S. Billion-Dollar Weather & Climate Disasters 1980-2017,” p. 7; and “Hurricanes in History.”
  14. National Hurricane Center, Tropical Cyclone Report: Hurricane Sandy (PDF), 22 – 29 October 2012, by Eric S. Blake et al. (February 2013), pp. 13 and 82.
  15. National Hurricane Center, Tropical Cyclone Report: Hurricane Sandy, 22 – 29 October 2012, p. 17.
  16. National Oceanic and Atmospheric Administration, “U.S. Billion-Dollar Weather & Climate Disasters,” p. 4.
  17. Alana Semuels, “How a Disaster’s Economic Impacts Are Calculated: Providing an Early Estimate of a Storm’s Costs is Generally a Pretty Rough Science, and Harvey is a Particularly Tough Case,”The Atlantic (August 29, 2017).
  18. Federal Reserve Bank of Dallas, “Texas Manufacturing Outlook Survey.”
  19. Federal Reserve Bank of Dallas, “Texas Businesses Feel Impact of Hurricane Harvey on Revenue, Production,” September 25, 2017.
  20. Calculated using REMI, reducing capital stock by reported residential and non-residential losses and comparing standard regional control projection, leaving optimal capital stock unchanged.
  21. U.S. Bureau of Economic Analysis statistics on GDP by state, current dollars, all industries, for Texas.
  22. The overall gain is measured in GSP years and calculated by taking the sum of the difference in GSP between the standard regional control and the forecast for each year of the analysis.
  23. Federal Reserve Bank of Dallas, “Texas Economy Finishes the Year Firing on All Cylinders,” by Christopher Slijk and Keith Phillips, December 20, 2017.
  24. Harris County, All Hazard Mitigation Plan (PDF), Section 1, p. 1.
  25. Ella Nilsen, “The National Flood Insurance Program was Already $24 Billion in Debt before Harvey and Irma,”Vox (September 11, 2017).
  26. Neena Satija and Kiah Collier, “Documents Detail Concerns about Houston Dams — Before Harvey,”Texas Tribune (September 28, 2017).
  27. Gulf Coast Community Protection and Recovery District, Storm Surge Suppression Study Phase 3 Report: Recommended Actions (PDF) p. 6.
  28. Harvey Rice, “George P. Bush Emerges as Ike Dike Champion,”Houston Chronicle (March 20, 2017).
  29. Neena Satija, Kiah Collier and Al Shaw, “Boomtown, Flood Town,”Texas Tribune (December 7, 2016).
  30. Dylan Baddour, “How to Fix the Houston Floods,”Houston Chronicle (January 3, 2017).
  31. David Schaper, “3 Reasons Houston was a ‘Sitting Duck’ for Harvey Flooding,” National Public Radio, August 31, 2017.
  32. Neena Satija and Kiah Collier, “Houston’s ‘Flood Czar’ Says Harvey Has Brought the City to a Decision Point on Flood Control,”Texas Tribune (September 13, 2017).
  33. “Hurricane Harvey Shows Need to Use More Green Infrastructure,” Civil + Structural Engineer (September 21, 2017).
  34. Natasha Geiling, “Harvey is an Unprecedented Disaster Made Worse by Poor Planning,”Think Progress (August 28, 2017).
  35. Neena Satija, Kiah Collier and Al Shaw, “Boomtown, Flood Town.”
  36. Ford Fessenden, Robert Gebeloff, Mary Williams Walsh and Troy Griggs, “Water Damage From Hurricane Harvey Extended Far Beyond Flood Zones,”New York Times (September 1, 2017) .
  37. Neena Satija, Kiah Collier and Al Shaw, “Boomtown, Flood Town.”
  38. Ella Nilsen, “The National Flood Insurance Program Was Already $24 Billion in Debt Before Harvey and Irma.”
  39. Benjamin Powell and Phil Magness, “Here’s the Best Way to Limit the Risk of ‘Widespread’ Hurricane Damage,”CNBC (September 11, 2017).
  40. National Weather Service, The Deadliest, Costliest, and Most Intense United States Tropical Cyclones from 1851 to 2010 (PDF), by Eric S Blake et al., (Miami, Florida, August 2011), p. 15.
  41. National Oceanic and Atmospheric Administration, “Continental United States Hurricane Impacts/Landfalls 1851-2016.”
  42. National Oceanic and Atmospheric Administration, “Tropical Cyclone Climatology.”
  43. National Oceanic and Atmospheric Administration, “The Galveston Hurricane of 1900: Remembering the Deadliest Natural Disaster in American History” ; and National Weather Service, Texas Hurricane History (PDF), by David Roth (Camp Springs, Maryland, January 2010), p. 31.
  44. National Oceanic and Atmospheric Administration, “Continental United States Hurricane Impacts/Landfalls 1851-2016.”
  45. National Oceanic and Atmospheric Administration, “U.S. Billion-Dollar Weather and Climate Disasters.”
  46. Productivity loss was calculated with a percent decrease while rebuilding gains were calculated with dollar amounts available at the time of the study.
  47. Federal Emergency Management Agency, “Texas Hurricane Harvey (DR-4332),” December 4, 2017. Forty-one counties were declared disaster areas: Aransas, Austin, Bastrop, Bee, Brazoria, Caldwell, Calhoun, Chambers, Colorado, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Grimes, Hardin, Harris, Jackson, Jasper, Jefferson, Karnes, Kleberg, Lavaca, Lee, Liberty, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Tyler, Victoria, Walker, Waller and Wharton.
  48. Texas Department of Public Safety, Texas Division of Emergency Management, “State Situation Report, Tropical System Harvey,” Report Number 3, August 25, 2017, and Report Number 8, August 30, 2017; and “Harvey Timeline: See How the Storm Developed and Marched Across Texas and Louisiana,” Corpus Christi Caller-Times (September 7, 2017).
  49. Federal Reserve Bank of Dallas, “Texas Manufacturing Outlook Survey,” September 25, 2017. The average number of days businesses were either completely shut down or experienced a reduction in revenue/production is 15.4. Because 59 percent of firms that experienced a reduction in revenue or production reported ongoing reductions, it is assumed that productivity losses continuing beyond the date of the survey are counterbalanced by the 41 percent of firms that did not experience reduced revenue/production.
  50. Andrea Hsu and Becky Sullivan, “In Houston, Most Hospitals ‘Up And Fully Functional,’”All Things Considered, National Public Radio (August 30, 2017). Although some hospitals were evacuated, many remained operational or entered “ride-out” mode in which outpatient services were postposed while inpatient services continued; only four days are assumed for disruption in service.
  51. Industries are assumed to compete locally because goods and services could be obtained from neighboring counties that were not affected by the storm; this is thus a more conservative estimate. Some industries, however, were disproportionately affected because of the high number of businesses located in Texas relative to the nation. These categories in the North American Industry Classification System with a high location quotient, a measure of industrial concentration, are treated differently: 211 Oil and Gas Extraction, 213 Support Activities for Mining and 486 Pipeline Transportation had an LQ > 4 for Texas and were considered industry-level (exogenous) production.
  52. A discount rate of .277 was applied to 42 Wholesale Trade and 44-45 Retail Trade as prescribed by experts at REMI, Inc.
  53. The amount of funds flowing through the state of Texas are being updated as new costs are incurred and new information is received. The figures presented were determined by the best data available as of Nov. 30, 2017.
  54. David Hunn, “FEMA on Track to Pay $11 Billion in Hurricane Harvey Insurance Claims,”Houston Chronicle (September 13, 2017).
  55. “SBA Has Approved $1B-Plus in Harvey-related Disaster Loans,”Houston Chronicle (October 11, 2017).
  56. “ICT Pegs Hurricane Harvey Insured Losses at $19B,”Insurance Journal (September 15, 2017).
  57. Morgan Smith, “How Much Has Been Raised for Harvey Relief — and How’s It Being Spent?”Texas Tribune (October 6, 2017).
  58. Construction is spread by individual industry and output. Equipment is spread by population. Consumer spending is spread by commodity and consumption across these categories: new motor vehicles, net purchase of used motor vehicles, motor vehicle parts and accessories, furniture and furnishings, household appliances, glassware, tableware and household utensils, tools and equipment for house and garden, food and nonalcoholic beverages purchased for off-premises consumption, alcoholic beverages purchased for off-premises consumption, food produced and consumed on farms, men and boys’ clothing, women and girls’ clothing, children and infants’ clothing, other clothing materials and footwear, motor fuels, lubricants and fluids, fuel oil and other fuels, pharmaceutical and other medical products, household supplies, personal care products, rental of tenant-occupied nonfarm housing, group housing, physician services, dental services, paramedical services, hospitals, nursing homes, other motor vehicle services, purchased meals and beverages, accommodations, personal care and clothing services, social services and religious activities and household maintenance.
  59. For example, on Nov. 17, 2017, the U.S. Department of Housing and Urban Development announced it would award $5.024 billion in community development block grants for hard-hit areas in Texas; the expenditure timeline was unknown at the time of publication, however, and therefore is not included in this study. See “HUD Provides $5 Billion To Help Texas Recover From Harvey,” Office of the Texas Governor, November 17, 2017.

 

Read A Storm To Remember Part I: Hurricane Harvey And The Texas Economy – Introduction

Read A Storm To Remember Part II: Hurricane Harvey And The Texas Economy – Economic Impact

Read A Storm To Remember Part III: Hurricane Harvey And The Texas Economy – Future Mitigation Opportunities

This story and the photo’s were originally published by the State of Texas Comptroller.

 

February 15, 2018
0 13 minutes read

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