The Economic Consequences of a Catastrophic Earthquake: Proceedings of a Forum (1992)

A variety of state and federal policies and programs exist to assist both the public and private sectors in postearthquake recovery efforts. The purpose of the next three presentations is to describe what policies are currently available to assist in economic recovery and to identify the limitations of those policies if a catastrophic earthquake were to occur. Special emphasis will be placed on the consequences of these limitations outside of the direct impact area.

The first presenter is L. Thomas Tobin, the executive director of the California Seismic Safety Commission. He is a registered professional engineer in California with a graduate degree in geotechnical engineering. Mr. Tobin will provide a state perspective of economic-recovery issues.

Robert G. Chappell will present a federal perspective of earthquake-recovery policies and programs. Mr. Chappell, a federal employee since 1958, is a member of the Senior Executive Service. He is currently the assistant associate director for disaster-assistance programs at FEMA, which makes him responsible for managing the federal response to presidentially declared disasters. His topic covers the federal disaster-relief programs following a catastrophic disaster.

Richard J. Roth, Jr. has a bachelor's degree in engineering, a master's degree in economics and statistics from Stanford University, and a law degree. Since 1984, he has been the assistant insurance commissioner and chief property-casualty actuary in the California Department of Insurance. His presentation will cover the role of insurance in economic recovery.

The threat of earthquakes in California is real, but it is not magnitude 9 earthquakes and it is not Armageddon. Questions about whether we should rebuild or not are not legitimate. Questions regarding whether California cities will die are not realistic. Even after the worst earthquake imaginable, we will rebuild.

If anything comes out of this forum, I hope it is a better dialogue among our different disciplines. There is a real need for us to come together. If I were a member of Congress, after hearing the different views expressed, I would not even consent to a hearing on federal participation in the matter of earthquake insurance, let alone vote for it. Yet, I believe federal participation in earthquake insurance is very important and necessary, and it should be sooner, not later.

I live in the Bay Area, and am quite happy and comfortable living there. I expect a major earthquake to occur. I expect to repair the damage to my house, and help my neighbors, and go back to work in a few days. Our experience is that after a major earthquake, which may be catastrophic in terms of its economic effects, 80 percent of the buildings will still be standing and in use. One problem will be: how do we get people to work the day after the earthquake? I am not trying to downplay the deaths, injuries, and damage, but only to make the point that more will be standing than will be lost. Economic recovery will begin with a base of existing, functional buildings and structures.

That concept has been lost in much of what has been presented. Our model and scenarios must be legitimate. Clearly, more information is needed.

Although the state is part of the recovery process as a supplier of capital, it has limited resources. The California Legislature certainly demonstrated the fact in July 1990 by taking 43 days beyond the constitutional deadline to pass a budget. State government is in dire straits economically, in spite of a healthy economy.

In addition, California lacks flexibility to spend tax revenues. The General Fund, the primary source of state recovery-financing money, comes primarily from taxes. State expenditures are limited by the Constitution to annual increases no greater than a combination of population growth and the consumer price index, and experience shows that state programs grow faster than the combination of those two elements, so the competition for General Fund monies gets more intense each year. The problem will get worse before it gets better.

Constitutional and statutory language limits the amount of money California can raise and spend and how it can be spent. Over 82 percent of the General Fund expenditures are fixed by law and the Constitution. For example, the Constitution guarantees a minimum of 40 percent of the General Fund for K-through-12 education, even when we have an earthquake. While that 40 percent can be suspended for 1 year, it cannot be reduced in subsequent years without a constitutional amendment, even if there is a fiscal necessity to do so that was precipitated by a natural disaster, such as an earthquake.

Other programs that are certainly not frivolous are guaranteed cost-of-living adjustments by statute. The governor and the Legislature cannot change another 42 percent of the expenditures without passing new and controversial laws to reduce support for health and welfare, higher education, prisons, property-tax relief, and other critical programs.

The only areas where there is budget flexibility are in natural resources, state consumer services, business, transportation, housing, and a few other

programs. Thus the state, despite a $54 billion budget, lacks flexibility and the capacity to redirect funds after an earthquake.

California also lacks flexibility in raising new revenues. Even if the spending limitations were circumvented, the Constitution limits increases in state and local government taxes. After the Loma Prieta earthquake, the Legislature and governor agreed on a 1/2 percent increase in the sales tax for 13 months, but there is little political support for increasing personal income tax, sales tax, bank and corporation tax, or insurance premium taxes, except for a short period. Support might exist for increasing the sin taxes—tobacco, liquor, and horse racing—but those only account for 1 percent of the General Fund. There is not much there.

General obligation bonds are thought to be the silver bullet. However, they must be sold after the disaster—at a time when the bond market may be unhealthy or unreceptive to California obligations. In any event, the principal and interest must be paid back out of the General Fund. Raising money through general obligation bonds is slow and uncertain. In California, they require approval by the voters, and a special election may be needed. The state of California has limited resources.

While the state still is struggling with repair of state buildings and coping with disrupted operations after a disastrous earthquake, ongoing demands on the General Fund will not go away. Citizens in the rest of the state outside of the damaged area, and those who reside and work in the 80 percent of the buildings inside the disaster area that are still serviceable, need normal state services to continue without interruption.

Disasters in California have been affordable. California lacks experience in recovering from a major urban earthquake. There is no model. Damage in the Coalinga earthquake was about $35 million, in the Whittier earthquake about $350 million, and in the Loma Prieta about $5.6 billion. Prior to Loma Prieta, California had nine presidentially declared natural disasters with total losses of less than $2 billion. We have a lot of experience with disasters in California, but they have all been relatively small. Our government and financial systems have not been tested.

Local governments in California have similar limitations. Very few have large funds for economic uncertainties. There are constitutional restrictions on increasing the property tax or sales tax without voter approval. Other funds, such as from fees and licenses, can be raised, but must be used for increasing the services. Increased income from building-permit fees only covers increased costs for plan checking and construction inspections. In fact, local government in the damaged area tends to lose revenue from sales tax and property taxes.

Federal relief funds are not a sure thing. Every year, FEMA receives an appropriation for the amount of disaster aid believed necessary. When that is exceeded, it takes congressional action to increase the money in that fund. After the Loma Prieta earthquake, California sent a delegation of California legislators to Washington to seek federal legislation to increase the monies and to provide money through the Department of Transportation for rebuilding our transportation system. Approximately $3.45 billion was

eventually appropriated, but the message they brought back was that Congress was extremely reluctant to appropriate the funds for use in California because of federal budget problems and because of the perception that California's economy and government should be capable of financing recovery. We cannot depend on the federal government to automatically provide an unlimited amount of recovery funds.

State and local governments are victims and will suffer a large share of the losses to government facilities. The Loma Prieta damage was estimated to be $5.6 billion; of that, $2.3 billion—40 percent—was for damage to public properties. State and local governments are generally uninsured, although the state also had some insurance covering lost toll revenues. We must assume that government losses in any major urban earthquake are substantial, and that rebuilding damaged facilities will be a high priority.

Sufficient state aid is not a sure thing, and this can be illustrated by the way California coped with the Loma Prieta earthquake. After it occurred, the governor first drew on his Fund for Economic Uncertainties. At the beginning of the fiscal year in July 1989, that fund was probably around $800 million, but the earthquake was not the only uncertainty to occur during the year. After the earthquake, the governor called an extraordinary session of the Legislature. Although an extraordinary session may not have been necessary during either the response or the initial stages of the recovery phases, politically it was necessary for state government to demonstrate concern and the ability to respond. The Legislature passed 12 identical bills in the Assembly and in the Senate simultaneously. All 24 were signed by the governor. The most important bill (ABx 48, Assemblyman Areias; and SBx 33, Senator Mello) that passed during the extraordinary session increased the sales tax by a quarter cent for 13 months. It filled an obvious need, and it appeared to be a small sacrifice for Californians to make after the earthquake. But passage was not automatic. The debate was heated, and the vote was close. Passage of a revenue bill takes a two-thirds vote in each house of the Legislature. The measure passed the Assembly with a 60–17 vote, even though there was nearunanimous agreement that the state should pay a share of recovery. Even after a disaster, there remained strong philosophical opposition to increasing taxes. Nearly one-third of the Assembly believed that the way to cope with the need for revenue was to cut other state programs. Even from the state of California itself, a large amount of disaster aid is not a sure thing.

About 6 months after the earthquake, state spending was reduced by cancelling outstanding contracts and freezing new equipment purchases and some hiring. But since the damage was so limited, the rest of the state was unaffected, and the demand for ongoing state programs continued. The business of government has to go on.

The temporary quarter-cent sales-tax increase was estimated to raise about $800 million; however, these projections are turning out to be high. Receipts after 7 months of the 13-month period are about $354 million. It appears that it will raise about $700 million over that 13 month period. A total of about $1.5 billion will be raised from the toll-interruption insurance,

the Fund for Economic Uncertainties, and the quarter-cent temporary sales tax. Since then, some general obligation bonds also were approved to repair four damaged state buildings.

Cash flow must be considered. Although we are raising less revenue than projected, our recovery expenditures after the Loma Prieta earthquake have not caused a cash-flow problem. Nevertheless, the amount of money needed, and when it is needed, affect the ways the funds can be raised and the earthquake's economic impact. The speed with which holdings in various markets are liquidated affects their value, and the time taken to raise revenues from other sources affects the tax rate and political acceptability. Timing of recovery funding needs more consideration.

California has authorized bonds to finance some repairs to damage from the earthquake. State Proposition 122 authorizes a $300 million bond measure for retrofit of state and local government buildings; approximately $150 million will be used for repairs to three state office buildings. California voters also passed Propositions 108 and 111 to authorize transportation bonds and increase gas tax for new freeways. A portion of these funds will be used for repairing damage and retrofitting existing structures. Public support for earthquake safety was perceived as so strong that supporters aired TV spots that stressed earthquake retrofit rather than traffic congestion.

According to the State Department of Finance, the state's expenditures and obligations for the Loma Prieta earthquake (that is, commitments that have been made) to date are about $120 million. This compares with the $354 million income from the increased sales tax to date. The same sources indicate that the federal government has obligated $1,489 million. By comparison, the State Disaster Field Office indicates that the state's expenses to date are $340 million (about three times as much as the Department of Finance estimates as spent or obligated), and that the federal expenses are $1,500 million.

Ten months after the earthquake, its cost to the state and the federal government is still uncertain, but the numbers clearly indicate that rebuilding capital is not all needed immediately, and after 7 months (the date of my figures), less than half of the amount needed has been spent.

Reasonable earthquake events should be used to provide a realistic view of the range of losses. In California, studies should be based on magnitude 7 events occurring in urban areas. That is the size of event expected on the Newport-Inglewood fault, or the Elysian Park thrust fault underlying the Los Angeles basin, and the events expected on the Hayward fault, the Rogers Creek fault, and the San Andreas fault in the Bay Area. There is about a .9

probability that one or more of these earthquakes will occur in California within a 30-year period.

The probability of a magnitude 8-or-greater earthquake occurring is quite small compared with the more frequent magnitude 7s. It makes far more sense for us to be planning for two magnitude 7s within a given period of time, rather than a magnitude 8.

We need more loss studies. Old numbers are being used, even though better methodology and data are available. The numbers that we use in California come from a FEMA-USGS-NSC study in the late 1970s. It is a shame that 10 years later we still must pursue major public policy initiatives with old numbers based on out-of-date methodology. We need new loss studies.

Even though I do not disagree with the Earthquake Project's numbers, and even though I use them, I am concerned that the 40 percent of their estimated losses, those for losses due to fire following earthquake and workers' compensation, to my knowledge are based on one study on each topic. Although I do not have any problems with either study, and in fact respect the authors, I am surprised that an important public policy initiative would go forward based on only two studies. To maintain our credibility, we need additional points of view. We need additional loss studies and additional dialogue aimed at building consensus on the losses we can reasonably expect.

We need a consensus. When experts disagree and legislators have doubts, nothing happens. The need for federal participation in a catastrophic-earthquake- insurance program is so important to the public, the state of California, and the insurance industry that it is imperative we reach an understanding.

Earthquake insurance and disaster aid must be evaluated as part of an economic-recovery-management program. At present, the economic aspects of recovering from a major disaster are not understood. We do not know how to speed the recovery; we do not know what are efficient investments; we do not understand the time dimension. Our state and local disaster aid programs are largely humanitarian aid and are not tailored to assist economic or business recovery from an earthquake. Because the amount of recovery money available may be quite limited, we have to know how to best spend what we have. Certainly the wise and timely use, not political use, of recovery dollars determines the extent of ripple effects in the economy.

A simple model relating direct losses, indirect losses, and recovery time illustrates our problems and suggests policy needs. Direct losses mostly occur the moment the earthquake occurs, while indirect losses continue to increase until recovery is complete. Management of indirect losses is of foremost importance, since they can be double or triple the direct losses.

Indirect losses vary with a number of factors, but the most important variables are the amount of direct loss and recovery time. If recovery time is shortened, indirect losses are lessened.

The second variable is the amount of physical losses. Indirect losses and the length of time to recover increase as the physical losses increase. If we

lessen the physical losses through mitigation, recovery time will be shorter and indirect losses will be less. The time of recovery also depends, in part, on how quickly and effectively recovery funds are spent.

It is only through mitigation that we reduce direct losses. It is largely through mitigation that we reduce indirect losses. The issue is not whether or not mitigation should be a mandatory element of a federal-private sector partnership in earthquake insurance; it is what mitigation can be used. There is no reason to wait. Mitigation should be an important insurance-industry strategy now. It is clear the insurance industry has to deal with its role in mitigation before we can talk about federal participation in earthquake insurance.

The insurance industry seems not to have the reserves available that they would like to have, and from my perspective, we do not have the insurance coverage we need. Because insurance is the traditional private sector mechanism to spread the risk of financial losses without relying on government, it is a recovery mechanism that must be used more effectively. Resolving the problems that prevent its greater use is my interest.

In closing, my agency is writing a report on the Loma Prieta earthquake and will cover the financial impacts and the sources of funding. It should illustrate the cost of losses, and sources of recovery funds, for a pretty big earthquake, if not The Big One.

FEMA and California have been working pretty closely together on the Loma Prieta earthquake during the past year. Thank God Loma Prieta happened in California rather than South Carolina or in the central United States. California is the best-prepared state, both from a standpoint of state capability, local resources, search and rescue capability, and mitigation activities. It is a state that we all should look to for leadership and for guidance as the other states in the country that have similar earthquake hazards begin to develop the programs California now has. We see that as something that sets a good example for most of us.

With reference to Mr. Tobin's presentation, is that I am glad to hear California thinks this earthquake is going to cost less than we originally thought it was. We had just received $1.1 billion from Congress to deal with the Hurricane Hugo activities and then, 30 days to the day from Hurricane Hugo, Loma Prieta came along. Now, the question is: Would the Congress have readily made the second $1.1 million available to us on such a timely basis if Hugo had not occurred?

Certain folks wanted to fence in whatever funding was made available, either for Hugo or on Loma Prieta. The President's Disaster-Relief Fund, which we have the responsibility for managing, is a pot of money, it is noyear money, it is given to us on an annual basis by Congress, and we went in this case obviously for a supplemental appropriation, which can go to any

disaster. Frankly, there were a lot of them this year in addition to Hugo and Loma Prieta. There was flooding throughout the Midwest. We had tornadoes. We are into hurricane season again, and heaven help us if we go through another Hugo at this point in time, because we are really still suffering from the administrative burdens of last year's activities.

I have a responsibility for managing the disaster program at FEMA. I am the civil servant guy. I have a boss named Grant Peterson who is the political appointee for the Disaster-Assistance Program, and we have been trying to do a kind of a dog and pony show over the past few months to deal with the lessons learned from Hugo and Loma Prieta and how we can all benefit from that.

It goes back many years, even into the 1950s, but it was 1973 where the Federal Disaster Assistance Relief Program was really created in what essentially is its present form. It came about as a result of a series of tornadoes that affected the central United States. One town in particular was the community of Xenia, Ohio, that was devastated by a tornado, and Congress at that point enacted a federal disaster-relief program, Public Law 93-288. This essentially established a federal relief program of substantial efforts to deal with immediate recovery activities and funding to the extent of dealing with temporary housing for disaster victims and individual and family grants in concert with the states to those that had unmet needs. The Small Business Administration had its own relief programs and in addition, FEMA's predecessor at that point was given the responsibility of working with state and local governments and restoring the disaster-damage infrastructure. That program was 75 percent federal, 25 percent state and local, although it originally started in 1973 and was 100 percent federal funding.

So in 1988, we saw a change in disaster-relief funding legislation, and the Robert T. Stafford Disaster-Relief Act was passed. Essentially, it made current what the 1973 law had brought us and established in law that it was not less than 75 percent federal funding for disaster relief to state and local governments, and then established a broad range of federal programs for FEMA dealing with individual and family needs as well as temporary housing, crisis counselling—many of the things that we have utilized during the past year in disaster relief activities.

The program is designed to deal with the immediate needs of families, individuals, and communities. It is not designed to deal with long-term needs. There has been very little effort and attention to the long-term recovery needs of the various communities, individuals, families, and industries that might be affected by disasters. The program that we have now on our plate, and which has been responsive to Hurricane Hugo, Loma Prieta, and some 30 other disasters during the last year, has really been a supplementary one. We are supplementary to the state and local efforts. We are not the first responder. State and local governments are the first responders. There are many in the federal community and in the Congress that believe that maybe the federal government should have some first-response capability—911, if you will, of the

federal government—and FEMA has been asked to maybe take on that responsibility.

There are 233 people that work in the Disaster-Assistance Program, and who been spread during this year from the Virgin Islands and Puerto Rico to American Samoa, the Northern Marianas, California, Alaska, and various other places. Getting 233 people to deal with disasters in that broad range of geography is really not something that gives me any confidence we have the ability to be first responders. But simultaneously with all this disaster activity and with the changing of legislation, there was a series of events that were occurring outside this country. Two of those more significant ones were the Armenian earthquake that occurred a few years ago and the Mexico City earthquake, and it brought home the fact that really this country had a limited capability to respond to such catastrophic events.

These two instances brought life into an initiative to develop a program of federal response planning that dealt with a federal response to a catastrophic event. So in 1986, some 25 agencies and the American Red Cross agreed to develop a plan for federal response to a catastrophic earthquake, and this planning process has been going on during the past 3 or 4 years. Last August, almost a year ago, this plan was tested in California, and it was a Hayward fault earthquake exercise that was conducted in Sacramento, involving the state of California along with many federal agencies, local governments, and many other states being there as observers.

It was about an 8.0 earthquake that was premised along the Hayward fault which is on the east side of the San Francisco Bay. It was very successful earthquake exercise. One of the things it brought to us was a communication system allowing us and the state and local governments to know who the players were and how the process worked.

Well, it was good training because we not only had the Loma Prieta earthquake, but we had Hurricane Hugo. Many believed that Hurricane Hugo represented probably the closest thing to a catastrophic event that has been seen in this country in a long time. It was certainly catastrophic in the Virgin Islands, in St. Croix. We did not know how bad it was there, and because of poor communications we sent a team the day after the hurricane hit. When they arrived on site, they could hear gunfire in the distance, and there were no communications systems. They were to be our eyes and ears there, but little did we know that there were no support systems there, that local and state government—in this case one and the same—had broken down, and there were problems with law and order.

Simultaneously, the governor made a request for military troops to come in. The Department of Justice arranged for that, and at least we were able to deal with the safety of our people there, but there was a very severe breakdown of the capability of this particular governmental unit to provide services for its own people, as well as anybody else that might be affected.

We were in the process of providing immediate lifesaving equipment and supplies to the islands. We used the catastrophic planning process and the coordination process that had been developed with this Federal Response

Plan for a catastrophic earthquake as a base. There is a group called the Catastrophic Disaster Response Group, CDRG. The CDRG is the leadership of the various agencies that are involved, which are the signatory parties to the plan, and we got them all in our emergency information center on a 24-hour basis down at the FEMA building at 500 C Street. We then began to identify what were the needs of the people in the Virgin Islands, St. Croix in particular, and how could we deploy these resources. For example, we sent over 4 million pounds of food to the Virgin Islands. Some of those were meals-ready-to-eat, which I do not know if they ever were, because any of you who have eaten those types of things know that they are not too palatable, but if you are hungry, you will probably utilize them.

The concept was that our people would identify, working with state government, what are the needs, i.e., four-point-something million pounds of food. What types of food, etc. We would pass it off to the Food and Nutrition Service, which is a member of this CDRG. They would go and acquire the food. It would be delivered to a specific air station, and then the military would be tasked, all of this at FEMA cost, to fly it down to the Virgin Islands. Then it would be offloaded by the military that was on site, because they were the only resources available to us, and then distributed to Red Cross serving centers and other places there. Several generators, water purification equipment, and a complete mobile hospital unit (the hospital in St. Croix was damaged very badly by the disaster) were sent.

Portable toilets were also sent. That is one of the things that is not usually thought about a lot, but certainly it is a very basic need. Many thousands of pounds and many millions of dollars worth of equipment were deployed to St. Croix on probably a 3-week basis in order to stabilize the situation, and then state government was able to deal with the longer-term recovery.

The same thing, to a lesser scale, in Puerto Rico, and, of course, by that time, there were disasters in South Carolina, North Carolina, and, 30 days later, in California. So, to give you an idea of how that process worked, and the CDRG's responsibility, and the fact that the federal government does have an immediate-response capability that resides not only in FEMA with our 233 disaster employee resources but within the federal family. The plan that we have utilized is the Federal Response Plan. We also utilized portions of the plan in California when the Loma Prieta earthquake occurred, because we did not know the magnitude of it. We also did not know what the immediate needs were, so we convened the group and asked them to begin working with the state in identifying what the immediate needs were and whether or not California needed supplementary assistance that went beyond the norm, and frankly, they did not.

The Small Business Administration is our major ally in providing assistance to individuals and families. The purpose of their program is to provide assistance in the form of loans to not only businesses but to individuals and families that might be eligible for disaster-assistance loans. They are our major ally. They also spent many millions of dollars in the Virgin

Islands, Puerto Rico, and California, and they represent probably the long-term economic recovery effort that exists at this point in time as far as the federal government is concerned.

Now, we also have other programs at FEMA dealing with national security, but I cannot get into that. However, there is an element of capability in this country that has for a long time been concerned with the potential for a nuclear holocaust, and there has been a planning effort taking place as to how to continue government's capability in the event of such activities. And that involves long-term economic recovery as well as immediate needs being met. Until late last night, we believed that the world situation was cooling down sufficiently that maybe that was not going to be quite as important a fact, but as of this morning (Iraqi invasion of Kuwait), maybe we need to look at that again.

We also have been in contact with many members of private industry and business around the country, and they are doing their own catastrophic planning. AT&T is concerned about how to deal with catastrophic planning in the event of some natural calamity. We also have talked to the Disney people. We have talked to various other corporate organizations about catastrophic planning, how to go about it, the types of things they should be concerned about, and also try to be of assistance to their special needs.

Terrorism is something we do not like to think about, but certainly it represents the potential for a catastrophic event occurring in this country. We recently had a small exercise which dealt with that catastrophic event with the power grids being taken out around New York City, how is that dealt with, what are the implications of it, and certainly the social problems that might result from that and the economic and life-saving needs that would have to be dealt with. My observation of that exercise was that the plan that would be used to deal with such a thing once again resides in the Catastrophic Disaster Response Group that has dealt with Hugo, Loma Prieta, and probably would deal with such things as a terrorism incident in this country.

There has not been a great deal of planning, nor is there a full awareness of the implications of such events. Hopefully, it will not occur during my lifetime or my tenure in government, but I am concerned about it, and I believe that what I can see is that we are not prepared to deal with such events on an adequate basis, certainly on a long-term-recovery basis.

Approximately 40 requests a year come in for disaster assistance to the President. By the way, this is the President's disaster-relief program that we manage, and the President makes the decision as to whether or not a disaster is declared. Unfortunately, the director of FEMA gets to notify the governor when one is turned down. There are a number of disaster requests coming in from states that are not recognized by the President as meeting the needs of, and requirements of, the law.

Certainly, in the case of catastrophic or near-catastrophic events, the President always does declare these as major disasters. Last year, when Hugo was declared, we had a very limited amount of money in the bank. It happened in late September. We were awaiting the next appropriation, and

we had inadequate funds to deal with the immediate needs of Hurricane Hugo victims, so Congress did give us a supplementary appropriation. Congress has been willing, interested, and very responsive to the immediate needs of disaster victims.

Will that continue? I am not certain. I am just not sure as to what the long range outlook is, particularly with the potential for sequestration of funds during 1991, with the Gramm-Rudman-Hollings provisions of law that the Congress is now dealing with in the budget talks, and what the long-term budget outlook is. If money is given to disaster assistance, it has to come out of somebody's pocket, come out of some other federal program, and this is one of the real difficulties that particularly Congress, certainly since Gramm-Rudman-Hollings, has had to deal with. Long range, it is not clear to me, but the experience would indicate that the Congress and the administration, too, have been very responsive to the disaster needs in this country.

A couple of other comments are that with the long-term nature of recovery, it is not easy in an earthquake to identify what the immediate needs might be and how to restructure your infrastructure. In a flood, you can go out and say, well, this bridge needs to be replaced and that road, and you can get in there and do it. In an earthquake, you cannot tell from the superficial nature of disaster damage whether the building is about to fall down or where there is just a hairline crack in that building. We are in very difficult, but I will not say adversarial, negotiations and discussions with, for example, Stanford University over some damage done to their buildings, as well as the city of Oakland concerning their city hall. The Oakland city hall is a historic structure. It was badly damaged. The city of Oakland would like to restore that structure to its predisaster condition and build it up to a certain code level, and that would require a great deal of federal investment. And our argument is that we either put it back to its predisaster condition or that we build a new facility, and the new facility would obviously be a lot cheaper than putting it back to its historic structure state, enhanced to current codes and ordinances.

So the big debate there is cost implications. We are talking about big dollars, and it is going to be a long-term process in making sure that these things are restored in a fashion where they do not represent a continuing hazard, and yet the federal investment is cost-beneficial and we meet the requirements of the law.

Litigation is also going on in California. Prior to the disaster occurring, there were folks there that were homeless, but the program deals with folks that were made homeless as a result of disasters. Yet it represents a national problem that somehow we are now involved in. We are involved in extensive litigation in California in providing housing for those that are in the fuzzy area of predisaster homeless, homeless during the disaster, and others that are now homeless since the disaster. This is another reason that it sometimes takes an inordinate amount of time to complete the recovery effort.

In conclusion, certainly mitigation is something that FEMA and the many representatives of our mitigation staff here today believe in very

strongly. I came out of the National Flood-Insurance Program, as did Frank Riley, and Hal Duryee and we believe that the basic premise of flood insurance is that mitigation goes hand in hand with the provision of insurance. We are trying to promote that throughout the agency and certainly in the Disaster-Assistance Programs. Many requirements, provisions and funding for mitigation in the latest revision of thee Stafford Act. We will continue to try to promote that as a national public policy and we believe that, certainly in the state of California, we are interested in doing that as well.

The long-term economic recovery from catastrophic events is something that has not been dealt with adequately. FEMA has been concerned about this, but must first deal with the immediate recovery and response to the catastrophic event, and that is where our concentration of efforts has been. We do not have the resources to do much beyond that at this point in time, but the nation should consider what are our needs and what should be our future priorities.

I am going to present two areas: the estimated insurance losses from the Loma Prieta earthquake and a short review of pending earthquake-insurance legislation in California.

Being a government regulator has some advantages. After the San Fernando earthquake in 1971, the Department of Insurance issued a special call for data to all of the licensed insurance companies in California. Since the Department of Insurance is a regulator, all of the insurance companies had to respond, so we got a 100 percent response. At that time, the companies reported a $46 million loss. That was such a good idea that when the Whittier earthquake came along on October 1, 1987 and was a 5.9 earthquake, that special call was repeated, and the reported insured losses were $73 million. This time, when the Loma Prieta earthquake came along, I issued a much more detailed special call, and I now have about five boxes of data. And it is not all in yet, because some of the companies have asked for extended time.

There is so much data that we have been going back to the companies and asking them to put it on computer diskettes so we can analyze it. However, for this presentation I took the largest 44 companies that we had and came up with the following summary. (The attached summary is a complete compilation of all companies from a subsequent second call and is the final compilation. The final results show that the total losses to the insurance industry will be over $901 million. The compilation of 44 companies is not attached since it is not obsolete.) For the Loma Prieta earthquake, if you make an allowance for the fact of the deductible plus you take into account that only about 25 or 30 percent of the people were insured, you can scale up to these figures to get an estimate of the total damage caused by the earthquake, insured and uninsured. This would be about $5 billion or $6 billion. In the case of the Whittier earthquake, less than half of the losses

were excluded by the 10 percent deductible and 25 percent of the homes and commercial structures were insured. Therefore, if the insurers paid out $75 million in insured losses after the deductibles, then the total losses, insured and uninsured, would be approximately %75 × 1.67 × 4 = $500 million dollars.

One interesting fact is that the Whittier earthquake was roughly a size 6 earthquake. The Loma Prieta was roughly a size 7, and so there seems to be a scaling of 10 as you go up on the Richter scale. Even though the Richter scale increases about 30 for energy release, it seems that there is a size 10 scaling. The Whittier earthquake is roughly $500 million, the Loma Prieta $5 billion, and the Earthquake Project is projecting $50 billion for a size 8. It seems that we are getting a scaling factor of 10, and this data confirms that.

Concerning the Loma Prieta data. This was also the first time ever that any regulator asked life and health insurance companies for data on life and health insurance, and we received 5 death claims for a total incurred loss of $498,000, 21 accident and health claims for a total loss of $828,000. Now, we do not know whether we got all the A&H claims, because the life insurers are not set up to handle that, but they will be trained. The questionnaire asked not only for the number of claims with payments but also the number of claims, whether or not there was a payment; and there were 97,000 claims filed with insurers, of which 47,000 involved a payment. The reason there were nonpayments is because they were below the deductibles, and the deductible, in most cases, was 10 percent. What was amazing was that there were 97,000 claims and only 47,000 required payment.

For earthquake coverage losses, there were 24,000 claims with payment, and the total amount of payment was $320 million. There were 6,001 automobile claims filed upon which there was a payment—7,500 claims total for automobile, but there were 6,001 cars insured for which they filed a claim and there was a payment—and the total payments were $7,900,000, so that is over $1,000 average per car. This gives an estimate of the vast number of claims there are, even in an earthquake that does not seem to be quite as devastating in terms of the number of claims as the Loma Prieta was.

In terms of fire losses, 201 claims were filed and 183 claims were paid. Over $10 million was paid on fire losses. Over $2 million on just homeowner's alone. I am going to analyze all of this data and issue a special report sometime in the future. This data includes not only the figures given here, but also a listing of all of the claims by ZIP code, so I will know for each ZIP code the damageability factor. I also will know by ZIP code the number of policies the insurance company issued and the number of policies upon which there was earthquake coverage. This has told me that in the San Francisco Bay area, 30 to 40 percent of the homeowners had earthquake coverage. This is larger than the state average. The state average is about 25 percent.

Also, I asked for the detailed information for homes so I will have detailed information on structures, contents, and what is called temporary living expense. For business I will have detailed information on structures, inventory, and business interruption. We know very little about commercial buildings, particularly small businesses, and we know almost nothing about the

business-interruption coverage. On homeowners, the temporary living expense is a very important coverage, because that kicks in when the person has to leave the dwelling or cannot occupy the dwelling, either because it is damaged or because there is a police line around it. From my point of view, that coverage has virtually no deductible, whereas the regular insurance has a 10 percent deductible.

Let me see if I can give you some quick differences between a homeowner's coverage and a small business. Homeowner's, as mentioned, make up about 30 to 40 percent of the homes insured. The average earthquake coverage was between $100,000 and $125,000. About 6 percent of those insured with earthquake coverage had paid loss. The average loss after the deductible was between $10,000 and $15,000, and the total loss amounted to less than 1 percent of the value of the insured homes. For small businesses, you get a little different profile. For small businesses, less than 10 percent of the small businesses had earthquake coverage, so there are substantially fewer small businesses with earthquake coverage. In fact, one of the major agents in Watsonville said that he did not know of anybody who had earthquake coverage on small businesses.

Most of the small businesses that were damaged that he was in contact with had no coverage whatsoever. On a small business, those that had coverage, the coverage was about twice what it is for a home; in other words, about $200,000 for earthquake coverage. And also, the average loss was about twice as great for a home. It was about $20,000 to $30,000 for a small business. This is the only data I am aware of that exists on small businesses. I also have all businesses, but basically my primary interest is small businesses.

We also did a survey of insurance companies and asked them the number of policies statewide with earthquake coverage, and we came up with a result which interested me. Statewide—we are getting off Loma Prieta for a minute-statewide, homeowner's policies were 23 percent. Condominiums, 26 percent of the condominium owners had earthquake insurance and renters had 26 percent. What interested me is that I had no idea so many condo owners and renters had earthquake coverage. What this tells me is that the demand for earthquake insurance is broad based. It is not just homeowners protecting equity, it is a broader social demand for earthquake insurance. Risa Palm is doing a study on the demand for earthquake insurance. She also has concluded that the demand for earthquake insurance is broad based over all age groups, educational groups, income levels, and the amount of equity you have in your home. It really is not correlated with any of those factors. It is simply based on a demand, an individual demand for earthquake coverage, and that demand is broad based, as shown by these figures and also by the fact that in the San Francisco Bay area, as I mentioned, over 30 percent of the people have earthquake insurance, and they are paying quite a bit, $200 to $400 for this coverage.

Now, there is an economic question that occurred to me in these figures. I was interested in the fact that the percentages here have been practically the same for homeowners, condos, and renters; in other words, about 25 percent.

The premium, the average premium paid, is $217 for homeowners, $69 for condos, and $39 for renters. Another factor may be entering in here, and that is the price that was charged by the insurance company. When they go to set their rate, I have a feeling, although I cannot prove it, that they set their rate to try and get a balance, so that they only get about 25 percent of their insurers. I detect in working with the insurance companies that when they start getting a penetration greater than 30 percent, what they do is they start tightening up on their underwriting, they start raising their rates, and very few insurance companies like to have a book of business greater than that. What they are looking for is a spread, and they do not want a high concentration of insureds buying earthquake insurance. You see this particularly in San Francisco, where we get a lot of complaints in the department, where somebody has a house and they were turned down or nonrenewed for their earthquake coverage, and the reason is simply the insurance companies are limiting their exposure in that area.

Going on to another topic, I work closely with Karl Steinbrugge, who also works closely with the U.S. Geological Survey. We recently published a book entitled Earthquake Losses to Single Family Dwellings, California Experience, and I want to express my gratitude to the U.S. Geological Survey for printing this. This book's contents are available from the U.S. Geological Survey. The book lists extensively the data and the loss curves, loss-over-deductible curves, for the San Fernando and Whittier earthquakes, and this is particularly important for insurance purposes, because it gives the amount of loss that the insurance company can expect for a 5 percent deductible or a 10 percent deductible or a 15 percent deductible and also for a zero deductible, so it gives the total loss that is expected for a particular type of building, a particular type of home.

The expected loss varies dramatically whether it is pre-World War II or post-World War II or whether it is wood frame or masonry or it is built on wood foundation or a concrete foundation. This book contains all the data that I am aware of. This is raw data—this is not theoretical—this is raw data on dwellings, and also it contains attenuation curves from distance to a fault, and it also contains formulas for scaling up the losses for larger earthquakes. We therefore feel that in California, we know a lot about dwellings and the impact of an earthquake on dwellings. We do not know very much about the impact of an earthquake on small businesses or large businesses, and that is an area where we need to do more research. Unfortunately, it is a dramatically more complicated subject.

I also issue an annual report. I send out an additional questionnaire to all licensed companies automatically annually, asking for their exposure and the amount of business they have written by construction class. Using that information, I write an annual report every year. What this report does is give losses to structures. It does not apply to workers' compensation, automobile, or life and health, just structures. What it does is it gives the industry's exposure to structures, but it also attempts to look at the economic impact.

For instance, in Los Angeles, my latest report shows that the insured losses are about $6 billion. This breaks out to commercial, $5 billion, and residential, $1 billion, so even though the residential gets a lot of attention, actually the main exposure in terms of dollars is the commercial. Now, in insurance we have what is called reinsurance, so that when an insurance company insures a large building, they do not keep the whole risk; they turn around and reinsure it with other companies. Over 60 percent of the commercial business is reinsured around the world, and less than 23 percent of the residential. There is much less need for residential insurance to be reinsured, because you have a smaller risk, and more of them, whereas in commercial you have a higher dollar value, and there are fewer of them, so you need to spread the risk among insurance companies.

Now, one of the main reasons for the Earthquake Project is the industry is running out of reinsurance capacity. We are dealing with a worldwide community. If there is an earthquake in San Francisco, it is not just California companies that will pay for it, and not even United States companies that will pay for it; it is the whole world financial insurance market that will pay for it, and we have just about reached the point where there is just no more reinsurance.

One of the legislators asked me, ''Well, can't we create a fund and use that fund to buy reinsurance in the world market?' I made a few telephone calls, and all of them gave me the same answer. They said the most the state could buy would be $250 million of coverage for reinsurance if they set up a program. That gives you an idea of how limited the reinsurance capacity is. I know the people in New Zealand were very concerned because of their exposure. For a while, it was just limited to the capacity of the government and a fund they built up to pay for an earthquake loss in New Zealand. They said they felt that what they should do is buy insurance in the world market. So they went out and with a great deal of difficulty, they bought $1 billion worth of coverage for risks in New Zealand. Reportedly, they have just bought with great difficulty that second billion dollars of coverage in the world market, and so the insurance industry just cannot really expand its coverage of commercial, because there is not any reinsurance market available.

Another point I want to make is that I just mentioned that the insurance industry insures $1 billion of residential coverage. Okay, let us do some simple mathematics. That residential coverage has about a 10 percent deductible. If you use the damage curves that are in Carl's book, going from a 10 percent down to zero will increase the losses about five times. In other words, if you were to insure everything for a zero deductible instead of a 10 percent deductible, you would have five times more loss. So we multiply that times five. Now, d only 25 percent of the people have insurance, to get the total loss, insured and uninsured, you have got to multiple by four. So if you multiply $1 billion times five times four you get $20 billion. That is the total estimated loss to dwellings from one earthquake, one size 8 earthquake in California, so that is a way of estimating what the total loss would be just to

dwellings, and that is not counting all the other coverages, workers' compensation, automobile, and commercial.

What happened after both the Whittier and the Loma Prieta earthquakes was that the legislators received many, many complaints about the 10 percent deductible. I do not think there is anything that bothers people in California more than the 10 percent deductible. Yet, they understand it. You talk to somebody, they say, yes, we understand it. The industry does not want to settle all these small losses. We just would not have coverage unless there was some kind of large deductible like that. It is basically a catastrophe coverage, but even though they say that, the reality is that when they have about $200,000, of coverage so that means a $20,000 deductible, if you have a loss and you have to pay the first $20,000 that is a significant hardship for a lot of people.

So there were a lot of complaints about the 10 percent deductible. Another thing that happened is that the legislators took notice of the fact that there were a lot of disaster-relief loans and grants to be paid out. After the Whittier earthquake, the loans and grants amounted to at least $175 million. The Loma Prieta earthquake—as Tom Tobin says, he does not know, and I do not know—but it is at least a billion dollars. What happened is that after the major earthquake, there is a huge demand on the state legislature and on the federal government for disaster-relief loans, so you have this sudden, unexpected, unwelcome demand on the financial resources of the state.

A third issue that came up was that the Northern Auto Club had a $1,500 coverage for temporary living expense. It turned out that as small as this is, only $1,500, it was immensely popular, and the policyholders of the Northern Auto Club were ecstatic to get this $1,500 check. And the legislators took notice of this and saw that for very little money, you can make a lot of people happy.

A fourth issue that came up was the raising of the sales tax 1/4 percent just to pay for the road damage. They could not pay it out of their own resources. They had to raise the sales tax, and we know what the perils are of asking for a tax increase, but the people accepted it. Anyway, the point is the state resources were so limited that they had to raise the sales tax. Putting all of these together, California legislators say we have got to do something, we have got to prepare for the future. We have to have a prefunded insurance program in advance of the next earthquake of the size of Loma Prieta. So the legislators fell all over themselves submitting bills. I am not kidding, the pile of bills that high covering everything.

There are four main bills dealing with insurance, and I am not going to go into detail, because they have a lot of common features. The common features are all prefunded and what they want to do is collect the money, put it into the state fund, and have it accumulate taxfree. Now, they know that this is legal because the workers' compensation state fund does not pay federal taxes, so there is an insurance program which operates free of federal taxes, and the California workers' compensation fund is a residual market. If you cannot get workers' compensation anywhere, you can get it from the state

fund, and that is the reason for its existence. So you can create a fund and have it accumulate taxfree.

Now the question is, what kind of coverage do you want? The governor made a proposal to have $15,000 of coverage, $15,000 excess of the deductible, roughly of $1,500. There is a formula but it is roughly $1,500. The idea is that, the current state of the proposal is that everybody with a homeowner's policy would pay a surcharge—it is not a tax, not a premium, it is a surcharge—and if you call it a premium then you have to pay a premium tax on it. If you call it a tax, that is bad. It is a surcharge, and it is going to be put into this fund and then accumulate. Now, they want this fund to build up, and they want to offer this coverage, but they do not want the state to be liable. So they have what is called the Japanese formula in there in that if there is a loss, the fund essentially goes bankrupt and pays a pro rata share. So if the fund is a billion dollars and the total losses under this program are 2 billion, then you get 50 cents on the dollar.

The reason for the $15,000 coverage is they wanted a fairly small amount, but they did not want to compete with the voluntary market, so that if you want full coverage, you would still have to go into the voluntary market. And also, they did not want to conflict with any federal program which might be set up. In fact, they explicitly support the federal program. There is a Senate Joint Resolution 57 in the Legislature which supports any federal earthquake insurance program. They urge Congress to pass that.

Other features of these four bills, and they vary somewhat, are the use of money for retrofitting and mitigation. Most of the bills have quite a bit to do with retrofitting and mitigation. The governor's bill has a provision in there where if the amount starts to exceed a billion dollars, then a certain percentage of the fund can then be used as loans for retrofitting and so forth, which is an excellent idea, and as the fund grows larger and larger, a larger and larger proportion of that fund is legally available for retrofitting and mitigation.

QUESTION: I have a question for Dick Roth. Dick, it is a real pleasure to work with you and have someone as interested as you are in the insurance area. When you talk about the loss to dwellings, I think you projected a figure of $20 billion. Is that a vibration damage only or does that include fire following and additional living expenses?

MR. ROTH: No, that is strictly structure, not fire following. It was based strictly on the structural losses estimated in my questionnaire, expanded to remove the deductible and expanded to include everybody who is insured and noninsured. Fire losses would be in addition.

QUESTION: Additional living expense also would be in addition to the coverage.

MR. ROTH: The additional living expense should be extra, but I have a feeling some companies are including potential liability for additional living expense in the estimates they give to me. But the additional living expense should be additional.

QUESTION: I have a question for Mr. Tobin. What types of losses do you expect to residential dwellings in California?

MR. TOBIN: In California, the primary type of dwelling is a wood-frame dwelling. The primary weakness we have in about 25 percent of our 6 million or so dwellings is they are not bolted to their foundations. They were constructed prior to the time the code required that. Evidence is that will cost from 1 to 2 percent of the building's value to bolt them to the foundation. After the Loma Prieta earthquake, it cost 10 to 15 percent to put them back on their foundations. If you have a weak soft story like in the Marina District, or cripple walls, the cost of retrofitting would be higher. Usually you have fairly good access, so it is not too expensive. When you deal with brick buildings, multifamily residences, the costs go up. The cost to retrofit unreinforced masonry buildings is 10 to 25 percent of the replacement value of the building.

QUESTION: This creates a problem then. If we give them a discount in premium for retrofitting, premiums will have to be raised for those not retrofitted.

MR. TOBIN: That is true if premiums are risk-based. However, the requirements for mitigation need not be solely an insurance premium. For example, there is a proposal by a state senator to require insurance companies to provide a homeowner's booklet explaining how to identify weaknesses in their houses and ways to strengthen them. The insurance industry is neutral on that bill. That is unbelievable! It's such an easy way for the insurance industry to support a mitigation program.

QUESTION: Mr. Tobin, you said it costs 10 to 15 percent of the value of the house to put it back on the foundation?

MR. TOBIN: Yes.

QUESTION: And that is about what the deductible was?

MR. TOBIN: That is correct. There is an interesting study relevant to your question. Ron Gallagher, who is a structural engineer, did a survey after the Loma Prieta earthquake of the costs of repairs to single-family houses and mobile homes. That study developed some cost-benefit ratios. It is interesting data, and I recommend it to you. It can be obtained from Mr. Roth's agency.

QUESTION: I wanted to ask Mr. Roth, from the legislators' point of view, how do they feel about two issues: one, what is the government's view of universal mandation? and number two, how do they feel about having a surcharge that is fully risk-based?

MR. ROTH: Most of these bills are mandated in the Legislature. In other words, the surcharge is put on every homeowner's policy. About risk-based, the provision in the governor's bill is that it would be risk-based according to soil condition, age, the characteristics of the house, but not the

value. Not the value because it is a limited, $15,000 policy. The intent is that it should be actuarial.

The governor's bill happens to have a range or a limit. In other words, it must be greater than this and less than that; but that is subject to change over time. Some of the other bills do not have a range in them. So actuarially, the range is dramatic. It can go from practically pennies for a well-built house up in the northern counties to hundreds of dollars for a beautiful brick home in Berkeley.

QUESTION: I would like to direct my question to Mr. Roth. Could you please elaborate on that kind of limited insurance that is being proposed. Is it basically trying to take care of the deductibles that are presently in the insurance policies? It seems to me that if that particular fund is actuarially fair and if it will be able to pay the insured claims, that the smaller claims are more easy to predict in terms of recurrence and in terms of the capability of the insurance industry to honor their policy. Is it really just a matter of tax purposes? It seems to me that it should be the other way around. If the insurance industry cannot handle big claims, which are the ones that they are now having, then there is a reason to call in the federal government. But when you are talking about small claims, 20 percent deductible, 10 percent deductible, and the industry's ability to deal with them, I do not think that is the right way to approach it.

MR. ROTH: You have to step back and ask: what are the options? What the legislators saw was an opportunity to have the maximum political benefit for the buck. Yes, it was designed to cover most of the deductibles, and this created a lot of the problem. Also, they wanted to give us, because of the popularity of the Northern Auto Club program, at least some money. It does create a problem, because you are dealing with a segment where the frequency is dramatic. As I mentioned, there were 100,000 claims filed for all different coverages. I consider that a lot of claims. If you are insuring the $15,000 that way, you are going to have a lot of claims. That is one of the reasons why the coverage in the bill was limited to structures only. Currently, insurance covers structures and contents.

MR. TOBIN: I think there is another issue, and that is that we really do not know where to invest the money to speed recovery. It might be a wiser recovery strategy to insure small businesses rather than invest small sums of money into damaged residences. We just do not understand the recovery process well enough.

There is another issue that came up as the insurance bills were being heard. Another bill would have provided coverage up to $100,000, also for a low premium. It had a similar formula: It would have been mandated, and if the amount in the fund was less than the total claims, there would have been a proration. The reaction of the chairman of the insurance committee was that if the fund were not fully funded and homeowners had been encouraged to back out of the commercial market for catastrophic coverage, they would be shocked to find out that they might only get $5,000. He said that this situation would be ''tantamount to a fraud on the public," whereas if the

$15,000 coverage is not fully funded and the payment is prorated to only $5,000, he said "that is just a bad day at the office." Politically, it was a lot easier to go the route of a "deductible gap" insurance.

QUESTION: To return to the homeowner's, the bolted foundation and unbraced cripple wall really represents a tremendous problem, because that is your $15,000 loss. But it also means that the home is unusable for weeks or months, which is a tremendous social hardship. There are people in Watsonville today still living in shelters because of that situation. At the same time, it is the one mitigation effort with the dearest benefit. You can almost ensure that will not happen if you put plywood on the cripple walls. It is also very easy to do yourself. If you do it yourself, the cost is about 1 percent. I would like to see a little more imagination applied to getting that done. In other words, what I have in mind is something which relatively unskilled people could do. You could have the California Conservation Corps trained to do it. In the energy programs, there is a lot of imagination used in terms of grants and loans to get people to insulate their dwellings. So let us look at changing that part of the environment as well; and, if we find something is worth doing, let us also find imaginative ways to do it. I think that is a very big payoff on its own.

MR. TOBIN: There is a bill on the governor's desk today that would require that homes be bolted or that crippled walls be strengthened on sale or transfer. It would be a cost that the seller would have to bear. It is another bill where the insurance industry is neutral, yet we need a governor's signature on that bill. There is a tremendous potential savings there for the industry. [Note: The bill was vetoed.]

QUESTION: Is the deductibility of casualty losses and the effect of tax payments making people who claim such losses consider it income provision?

MR. ROTH: No, I do not look at that at all.

QUESTION: But yet presumably all these losses that are not covered by insurance are tax deductible. You might want to comment on that. That, after all, represents a transfer from general to federal revenues to taxpayers in California who experienced that loss.

MR. ROTH: Yes, the federal government is in the business of insuring for earthquakes right now. For that reason, there are disaster-relief programs.

MR. CHAPPELL: That is correct. I think that not only the benefits that might accrue, if you want to call it benefits, from the income tax provisions, but also the unmet needs otherwise not covered by insurance or other resources that might be eligible for some type of federal assistance, also represent costs to the taxpayer.