After the 500-YearFlood

by Adam M. Zaretsky

T he costliest naturaldisaster in history" is

how some have describedthe flooding of the upperMississippi Valley this year.At this writing, it is stilltoo early to validate thissupposition. And althoughthe water has receded belowflood stage in many parts,forecasts of continuing raincast doubt as to when theMidwest will fully dry out.

This flood has beendubbed a "500-year flood,"not because it happensevery 500 years, but becausethe chance of a flood ofthis magnitude occurring inany year is approximatelyone in 500. It is thus quiteconceivable, although highlyunlikely, that this couldoccur again next year.

Determining the totaldamage wrought by theflood will take some time:The water must recedeenough to allow people toreturn to their homes andbusinesses before they canassess the damages. An even-tual return to normalcy willrequire rebuilding what, forthe most part, are uninsuredlosses. Government assis-tance through emergency

An Early Look at

the Return

to Normalcy

programs is available, but such assis-tance is mostly through loans thatusually do not cover all of the loss.In some cases, buyouts at pre-floodmarket values were offered to thosewith flood insurance and extensivelydamaged homes. Some without floodinsurance have received some paymentfrom their local governments, butthese amounts have usually beennominal. In either case, transfer ofthe property's title to the governmentwas usually a necessary conditionfor the payment.

Different estimates of the total dam-age have been floated, many basedon assumptions that cannot easilybe verified. In some respects, it isnot difficult to claim that this naturaldisaster could be the costliest in historysince damages are measured in currentrather than inflation-adjusted dollars.One should therefore be careful toaccount for inflation when comparinga disaster in one year with a disasterin a prior year. Nonetheless, damageassessments for the flood that werecurrent as of this writing indicatethat final losses could reach historicproportions.

Some PreliminaryNumbers

In early August, the State Emer-gency Management Agencies (SEMA)in Missouri and Illinois had estimateddamages for their states of $2.7 billion

and $930 million, respectively.These figures included damage toagriculture (more than one-halfthe totals), infrastructure, privatehousing and additional unemploy-ment insurance claims. In Missouri,SEMA estimated that about 3,200businesses suffered physical damageand that bridges, roadways and otherpublic facilities suffered more than$120 million in damage. This publicfacilities figure, however, did notinclude any damage to JacksonCounty (Kansas City), St. Louis Cityor St. Louis County. In Illinois, mostof the $930 million was dividedbetween crop losses ($565 million)and infrastructure ($258 million),with the remainder for housingand unemployment.

The Army Corps of Engineers, afederal agency, estimated damagesbetween $2.5 billion and $3 billionfor its St. Louis District.1 This figurewas attributable primarily to infra-structure damage, much of whichwill not become apparent until winterapproaches and roadways begin tofreeze and thaw. Even at this writing,though, the estimates from these threeagencies were understated becausethey did not include the damagethat occurred when the MonarchLevee in the western part of St. LouisCounty broke. This breach floodedmany industrial parks, affectingabout 300 businesses, closed thesecond-busiest airport in Missouri andforced the evacuation of a county jail.Early damage estimates were between$150 million and $200 million forthis area alone. The appraised valueof this flooded real estate, excludingpersonal property and exempt propertysuch as the airport and jail, equals65 percent of the total appraised valuefor all flooded land in St. Louis County.Accounting for this additional damage,the St. Louis Fed's estimate for totaldamage to Missouri and Illinois, atthis writing, was between $2 billionand $3 billion.

The Accuracy of EarlyEstimates

To add perspective to these figures,a comparison with the 1973 flood isin order. Accurate damage figuresfor the 1973 flood are available, andthey demonstrate well the difficultyin estimating final damages beforecomplete assessments can be made.

In 1993 dollars (calculated usinga GDP deflator), the initial estimatefor damages from the 1973 flood inMissouri was $358 million. Missouri'sfinal damage assessment was $396.91million. This estimate was off by11 percent. In Illinois, the initial

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! Regional EconomistOctober 1993

damage estimate, in 1993 dollars, was$257.1 million, and the final figurewas $768.29 million. This estimatewas off by a whopping 199 percent.As it turned out, of the 16 statesreporting damage in the 1973 flood,Illinois recorded the second-largestloss after Louisiana.2 In the morerecent flood, Missouri's losses lookto be the largest of the nine statesreporting losses.1

Of course, the comparison betweenthe two floods is not perfect. The 1973flood was concentrated in the lowerrather than the upper MississippiValley, it happened in the springrather than in the summer, and itsmagnitude was much smaller thanthat of the recent flood. What'smore, the 1973 flood lasted aboutone week, while the recent flood haslasted more than two months. Thus,many of the flooded structures havebeen submerged longer than everbefore, leaving to speculation theextent of the water's destructive ability.

The Effects onAgriculture, Businessand Banking

In addition to figures for totaldamage, estimates for the amountof acreage damaged by this year'sflooding were also reported. Accordingto the Agricultural Stabilization andConservation Service (ASCS) inMissouri, about three million acreswere damaged by flooding. Thisdamage figure represents approxi-mately 7 percent of Missouri's landmass. The ASCS in Illinois reportedthat about 874,000 acres were dam-aged by flooding, approximately2.5 percent of Illinois' land mass.Most of the acreage in both states isused for corn and soybean production.

The U.S. Department of Agriculture,in its September Crop ProductionHighlights report, projected cornproduction in Missouri and Illinoisto be lower for this year than last:Missouri's corn production in 1993is projected to be 42 percent lessthan 1992's crop and 11 percent lessthan 1991's. Interestingly, Illinois'1993 corn production forecast isfor a crop 15 percent smaller thanlast year's, but 19 percent larger than199l's crop. The forecasts for soybeansfollow a similar pattern: In Missouri,1993's output should be 22 percentless than 1992's and 7 percent lessthan 199l's; in Illinois, this year'ssoybean output should be 6 percentless than last year's but still 12 percentmore than 1991's.

In industrial areas, many businesseshad to suspend operations because ofdirect flooding in their facilities or

transportation troubles related to theflooding. These suspensions affectednumerous employees who were shutout of their workplaces. According tothe Missouri Department of Employ-ment Security, about 31,500 workersstatewide were displaced at the peakof the crisis because of flooding. Asof mid-August, approximately 11,000were still out of work. The floodingalso increased applications forunemploymentinsurancebenefitsby 10,900.Illinoisreportedabout 500nonagricul-tural workersdisplacedbecauseof flooding,with about200 still outof work bylate August.This figure didnot include workerswho were shut out oftheir workplaces but stillreceived vacation pay andwere therefore consideredstill employed.

A survey of Eighth District banksin the affected areas revealed thatoperations continued as usual inmost cases. Some banks did haveto move their operations to differentlocations, but were able to conducttheir normal daily business withminimal inconvenience. About10 percent of the surveyed banksreported significant (more than10 percent) effects on their portfolios,mostly because of agricultural loans.4

In mid-August, predictions werethat regular traffic would resume alongthe Mississippi and Missouri riversby mid-September at the earliest. Inlate August, the Missouri River wasreopened, and trial barge movementsalong the Mississippi River had begun.Before the Mississippi reopens fully,however, the Coast Guard will proba-bly have to rechart it to determinehow the channel might have shiftedbelow the swiftly moving water.Delays in reopening the river willmost likely translate into greaterstrain on the alternative transporta-tion systems, especially trucking,and higher transportation costs forfirms. Nevertheless, once the riveris reopened, regular flows of goodswill resume, bringing us one stepcloser to normalcy.

Counties DeclaredFederal Disaster Areas(as of August 20, 1993)

Counties in nine states weredeclared disaster areas. Ofthese, only Missouri andIllinois are in the EighthFederal Reserve District.

Adam M. Zaretsky is an economistat the Federal Reserve Bank ofSt. Louis. Thomas A. Pollmannprovided research assistance.

ENDNOTES1 The St. Louis District comprises

those counties on the Missouriand Illinois sides of the MississippiRiver from Cairo, Ill., northto Quincy, Ill., including theconfluence of the Mississippiand Missouri Rivers. It does notinclude the areas surroundingthe Missouri River. In somecases, the district is more than200 miles wide.

2 The 16 states were Arkansas,Illinois, Indiana, Iowa, Kansas,Kentucky, Louisiana, Minnesota,Mississippi, Missouri, Ohio,Oklahoma, Tennessee, Texas,West Virginia, and Wisconsin.

3 The nine states were Illinois,Iowa, Kansas, Minnesota,Missouri, Nebraska, NorthDakota, South Dakota, andWisconsin.

4 The survey excluded banksfrom St. Louis City and St. LouisCounty.

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