COMPREHENSIVE FLOODPLAIN MANAGEMENT : Promoting Wise Uses of Floodplains CA Department of Water Resources/ CIFMCG Workshop July 2006

Comprehensive Floodplain Management Workshop Flood Management Economic Analysis

Workshop Modules Comprehensive FPM Comprehensive FPM NFIP Overview NFIP Overview FPM No Adverse Impact Strategies FPM No Adverse Impact Strategies Natural Floodplain Functions and Societal Values Natural Floodplain Functions and Societal Values Flood Management Economic Analysis Ecosystem Evaluation Methods Flood Management Economic Analysis Ecosystem Evaluation Methods Case Study Case Study Technical and Financial Assistance Technical and Financial Assistance

Flood Management Economic Analysis Role of economic analysis in water resources planning Role of economic analysis in water resources planning Federal water resources planning guidance Federal water resources planning guidance Flood damage analysis Flood damage analysis Flood damage analysis models Flood damage analysis models Multi-objective analysis Multi-objective analysis

Flood Management Economic Analysis Role of economic analysis in water resources planning Role of economic analysis in water resources planning Federal water resources planning guidance Federal water resources planning guidance Flood damage analysis Flood damage analysis Flood damage analysis models Flood damage analysis models Multi-objective analysis Multi-objective analysis

Role of Economic Analysis Objective of an economic analysis--determine if a project represents the best use of resources over its life expectancy Objective of an economic analysis--determine if a project represents the best use of resources over its life expectancy Economic justification--total benefits > total costs based upon comparison of without and with project conditions Economic justification--total benefits > total costs based upon comparison of without and with project conditions Key element of planning process: Key element of planning process:  Plan formulation  Evaluate feasibility of plans  Assist in decision-making

Role of Economic Analysis Economic analysis answers these questions: Economic analysis answers these questions:  Should the project be built at all?  Should it be built now?  Should it be built to a different configuration or size?  Will it have a net positive social value?

Role of Economic Analysis Financial analysis answers questions Financial analysis answers questions  Who should pay?  Do they have the ability to pay? It’s possible to have a project that is economically feasible and financially infeasible or vice versa It’s possible to have a project that is economically feasible and financially infeasible or vice versa

Role of Economic Analysis Economic analysis methods: Economic analysis methods:  Benefit-cost analysis: benefits and costs of proposed projects are measured over the life of the project  Cost-effectiveness analysis: determines the most cost-effective approach of achieving a given objective ($/unit)  Socioeconomic impact analysis: measures changes in regional population and economic activity

Flood Management Economic Analysis Role of economic analysis in water resources planning Role of economic analysis in water resources planning Federal water resources planning guidance Federal water resources planning guidance Flood damage analysis Flood damage analysis Flood damage analysis models Flood damage analysis models Multi-objective analysis Multi-objective analysis

Federal Water Resources Planning Guidance Federal agencies involved in water resources planning must follow Federal agencies involved in water resources planning must follow Environmental Principles and Guidelines for Water and Related Land Resources Implementation Studies (US Water Resources Council, March 1983)  US Army Corps of Engineers  US Bureau of Reclamation  Natural Resources and Conservation Service  Tennessee Valley Authority

Federal Water Resources Planning Guidance Federal objective: Federal objective: “..to contribute to national economic development (NED) consistent with protecting the nation’s environment, pursuant to national environmental statues, applicable executive orders, and other federal planning requirements.”

Federal Water Resources Planning Guidance P&G establish four accounts: P&G establish four accounts:  National Economic Development (NED)  Environmental Quality (EQ)  Regional Economic Development (RED)  Other Social Effects (OSE)

Federal Water Resources Planning Guidance National Economic Development (NED)-- economic value of the national output of goods and services National Economic Development (NED)-- economic value of the national output of goods and services  Water supply  Flood damage reduction  Navigation  Hydropower  Recreation  Commercial fishing

Federal Water Resources Planning Guidance Environmental Quality (EQ)-- effects on significant natural and cultural resources Environmental Quality (EQ)-- effects on significant natural and cultural resources  Ecosystem restoration  Preservation of historical resources  Preservation of aesthetic resources

Federal Water Resources Planning Guidance Regional Economic Development (RED)-- effects on regional economic activity Regional Economic Development (RED)-- effects on regional economic activity  Income  Employment  Population

Federal Water Resources Planning Guidance Other Social Effects (OSE)—all other “relevant” effects Other Social Effects (OSE)—all other “relevant” effects  Urban and community impacts  Life, health and safety  Displacement  Long-term productivity  Energy requirements

Federal Water Resources Planning Guidance NED account is required NED account is required Other information that is required by law or which will have a “material bearing on decision-making” should be included in the other accounts Other information that is required by law or which will have a “material bearing on decision-making” should be included in the other accounts Agencies can establish their own specific guidance based on P&G Agencies can establish their own specific guidance based on P&G

Federal Water Resources Planning Guidance Benefit-cost analysis is required for formal economic analysis of federal programs or projects Benefit-cost analysis is required for formal economic analysis of federal programs or projects Criteria: Criteria:  Maximum net benefits—Maximize the present value of benefits minus the present value of costs  B/C Ratio—the ratio of the present value of benefits to the present value of costs; must be greater than 1.00

Federal Water Resources Planning Guidance Corps planning criteria: Corps planning criteria:  Completeness—an alternative must not rely on other activities to function  Effectiveness—an alternative must contribute to at least one of the project’s planning objectives  Efficiency—an alternative must be cost-effective  Acceptability—an alternative must be considered by the general public to be a satisfactory way of addressing identified problems

Federal Water Resources Planning Guidance Corps plans: Corps plans:  National Economic Development—single purpose plan such as flood damage reduction, water supply, navigation, etc.  Ecosystem Restoration—single purpose ecosystem restoration plan  Combined Plan—combines NED and ER purposes  Locally Preferred Plan—recommended by local agencies; may require additional funds from local agency

Flood Management Economic Analysis Role of economic analysis in water resources planning Role of economic analysis in water resources planning Federal water resources planning guidance Federal water resources planning guidance Flood damage analysis Flood damage analysis Flood damage analysis models Flood damage analysis models Multi-objective analysis Multi-objective analysis

Flood Damage Reduction Analysis Types of flood damage : Types of flood damage :  Physical damage (structures, utilities, autos, crops, etc.)  Income loss  Emergency costs  Lost value of public agency services (police & fire protection, hospitals, etc.)  Lost taxes (property and sales)  Injuries and loss of life  Social disruption

Flood Damage Reduction Analysis Flood damage can be expressed Flood damage can be expressed  Event damage: the damage expected to occur from specific flood events (examples: 10-, 50-, 100-year events); used for emergency planning  Expected annual damage: the “average annual” damage for all events that could be expected to occur in any given year; used for project B/C analyses

Flood Damage Reduction Analysis Example: Event and Expected Annual Damage EventFrequency Estimated W/O Project Damage ($Mill) 50 YR 0.02$ YR 0.01$ YR 0.005$ YR 0.002$327 Expected Annual $12 Source: USACE, Lower Cache Creek Feasibility Study, 2003

Flood Damage Reduction Analysis Damage ($) Frequency Expected Annual Damage

Flood Damage Reduction Analysis Models Corps HEC-FDA Corps HEC-FDA  Expected annual damage used in benefit-cost analysis  Project performance statistics used in risk analysis and levee certification  Incorporates uncertainty using “Monte Carlo” procedures

Flood Damage Reduction Analysis Models HEC–FDA Project Performance Statistics HEC–FDA Project Performance Statistics  Expected annual exceedance  Long-term risk  Conditional non-exceedance

Flood Damage Reduction Analysis Models Expected annual exceedance Expected annual exceedance  The annual probability of flooding taking into account all different types of events  Example: 0.10 or 10% chance of flooding in any given year

Flood Damage Reduction Analysis Models Long-term risk Long-term risk  The probability of flooding over a long period of time  Example: 0.30 or 30% over a 25 year period

Flood Damage Reduction Analysis Models Conditional non-exceedance Conditional non-exceedance  The probability of passing a specified flood event  Example: 90% probability of passing a 100 year event  Used in certifying levees

Flood Damage Reduction Analysis Models FEMA HAZUS FEMA HAZUS  GIS-based program  Can be used to asses flooding, hurricane and earthquake hazards  Default hydraulic and structural inventories for communities included in its databases   FEMA Riverine B/C Software FEMA Riverine B/C Software  Spreadsheet-based program  Hazard Mitigation Grant Programs  

Flood Management Economic Analysis Role of economic analysis in water resources planning Role of economic analysis in water resources planning Federal water resources planning guidance Federal water resources planning guidance Flood damage analysis Flood damage analysis Flood damage analysis models Flood damage analysis models Multi-objective analysis Multi-objective analysis

Multi-Objective Analysis Agencies, ASFPM are advocating MOM projects Achieve multiple benefits at lower costs Greater support from diverse groups of stakeholders More likely sources of financial support

Multi-Objective Analysis Monetary values can be assigned to most water management benefits (water supply, flood damage reduction, hydropower, etc.) Multi-objective projects often include ecosystem restoration Problem—how do we evaluate ecosystem benefits?

Multi-Objective Analysis Three approaches for including ecosystem benefits in economic analysis:   Cost-effectiveness ($/unit)   Tradeoff analyses (assign “points” to unit and $ benefits)   Benefit-cost analysis ($’s)

To Monetize or Not to Monetize Ecosystem Benefits? Decision depends upon:   Agency guidance   Available data (quantity/quality environmental outputs)   Identify/quantify environmental outputs and link with human services (water supply, flood damage reduction, recreation, etc.)   Comfort level (what’s a bunny worth??) No approach is perfect!

To Summarize… This module has discussed This module has discussed  Role of economic analysis in water resources planning  Federal water resources planning guidance  Flood damage analysis and models  Intro to multi-objective analysis More info on Federal and state (DWR) economics guidance can be found at: More info on Federal and state (DWR) economics guidance can be found at:

What’s Next? Ecosystem Valuation Methods Ecosystem Valuation Methods