Flooding: Toward a Municipal Contribution to Economic Risk Sharing
The summer of 2024 has been marked by record rainfalls and significant flooding in many parts of Canada and local communities are feeling the brunt of these extreme weather events. In Canada, the burden of rising flood damage costs is primarily covered by provincial and federal assistance programs and, to a lesser extent, by private insurance. Existing cost-sharing mechanisms do not encourage municipalities or disaster victims to reduce flooding risk.
In a paper for the Institute on Municipal Finance and Governance (IMFG), Bernard Deschamps, Philippe Gachon, Michel Leclerc, and Mathieu Boudreault assert that municipalities need to be included in cost sharing for flood damage because of their crucial role in land use planning and risk management. They propose and analyze an economic contribution mechanism for municipalities, using three Québec municipalities, that distributes the cost of damage to residential buildings more equitably. The authors make three key observations from their analysis: 1) a municipality's level of exposure is not correlated with its property value; 2) the low damage rate of a majority of buildings located in flood-prone areas justifies maintaining these buildings in these zones, provided that mitigation measures are implemented; and 3) relocating a minimum number of buildings would considerably reduce the municipality's economic contribution to damage costs.
By implementing an economic contribution mechanism for municipalities and exposed citizens, the authors suggest that the moral hazard and inequity of current approaches would be reduced. Municipalities would be encouraged to implement mitigation and risk reduction measures, which could be financed equitably by all stakeholders.