An Economic Analysis of Flood Damage Reduction Alternatives in the Minnesota River Basin

Abstract

Incidence of flood costs analysis provides justification for the imposition of land-use restrictions in flood plains in Minnesota. The analysis indicates that governmental units were the ultimate bearers of nearly half the flood costs in the Minnesota River Basin in the 1965 and 1969 floods. Government units have a substantial, justifiable interest in keeping flood costs down. Flood damage potential will continue to rise over time unless land use controls are instituted. Moreover, government costs are likely to make up an even larger proportion of flood costs in the future, with the advent of Federal flood insurance and an expanded Federal role in the provision of disaster relief. Therefore, thorough and vigorous enforcement of the 1969 Flood Plan Management Act is recommended. Whenever thorough economic analyses show them to be feasible, the alternatives of permanent evacuation or construction of local protection works ought to be considered. These two alternatives are probably feasible in some areas. In areas where neither evacuation nor structural protection is economically feasible, land-use restrictions alone will have to suffice to curtail flood losses. The beneficiaries of structural flood control works ought to be assessed for a fair share of the costs of such works. This policy is not so crucial for existing flood plain developments, but is important for areas where new developments are permitted. The alternative approach to improve transportation river crossings in such a way that flooding will not cause traffic interruption shows promise. Such interruptions accounted for over 50 percent of urban flood damages in the 1969 Minnesota River flood, and accounted for about 20 percent of total flood costs. Of the six basic approaches to reducing flood damage potential in the Minnesota River Basin (do nothing, delimit new development in flood hazard areas, evacuate flood prone areas at public expense, build local protection works, construct a series of large reservoirs, and improve transportation river crossings) only two were found to be altogether infeasible at this time. One is the large reservoir alternative, which simply requires too much capital investment, given the amounts of benefits that would be forthcoming from such a project. The other is the “do-nothing” alternative, which has been superseded by the 1969 Flood Plain Management Act. Even so, it is doubtful that the “do-nothing” alternative would be the least cost solution to flood problems in this area. The State of Minnesota should implement a flood data collection unit. The Federal and state governments should amend their tax laws to correct the inequity of the casualty loss provisions. The State and Federal governments should explore ways of reducing agricultural flood losses. The possibilities to be explored should include indemnification programs; flood forecasting and information dissemination; and the feasibility of structural solutions. The Federal share of various alternatives to a particular water resource problem should be placed on the same cost-share basis. The language of Minnesota’s Flood Plain Management Act should be altered slightly so as to state in no uncertain terms that the State’s policy is to oppose further flood plain encroachment. The discount rate for public investment projects in flood control should be raised to a level that accurately reflects the opportunity cost of the funds used.