FEMA Proposal Could Prove Costly to City

Fearing a potentially hefty price tag, Los Angeles officials have launched an attack on a federal proposal to require cities to insure their buildings to be eligible for disaster assistance.

For Los Angeles, which has 750 uninsured buildings worth billions of dollars, the cost of meeting the proposed insurance requirements could be in the tens of millions of dollars annually, said Richard Welch, the city’s director of risk management.

“What they are proposing would theoretically be very expensive for us,” Welch said. “It eliminates self-insurance programs such as the city has.”

The Federal Emergency Management Agency provided more than $3.4 billion to repair public buildings damaged by the Northridge earthquake in 1994.

The cost of providing disaster relief to local government agencies has risen dramatically during the last decade, a time in which FEMA has paid out a total of $25.5 billion nationwide, said agency spokesman Carl Suchocki.

“Over the years the building repairs costs have been a major element in the escalation of disaster relief costs,” he said. “Basically this [rule proposal] is part of an overall process to revise and revamp the federal assistance programs.”

FEMA is considering a proposal by its director, James Lee Witt, to require local government agencies that want to be eligible for federal disaster relief to either secure commercial insurance coverage for public buildings, or maintain a dedicated self-insurance fund equal to at least 5% of the buildings’ value.

The city currently has insurance for only a few city buildings that are bond-financed, including the Convention Center and Central Library, Welch said.

Most buildings, including City Hall, are not insured. The city does not know the value of its real estate holdings, but Welch estimated they are worth several billion dollars. A valuation study is about to get underway, Welch said.

Instead of holding commercial insurance, the city considers its buildings to be self-insured because it can dip into its $30 million reserve fund for repairs in an emergency.

However, without dedicated funds equal to 5% of each building, the city could become ineligible for FEMA aid in the future, Welch said.

The difference between the $30 million reserve fund and the amount of dedicated money that would be required would be in the tens of millions of dollars, Welch estimated.

In a recent letter to Los Angeles’ congressional representatives, Mayor Richard Riordan and Council President John Ferraro said the new rules would have “a severe adverse impact on the city of Los Angeles and public agencies throughout California.”

Riordan and Ferraro asked that Witt delay publishing the rule until cities throughout the country can provide alternatives to reduce the cost of disaster relief.

“California in general, and Los Angeles in particular, has a unique problem with earthquake vulnerability,” wrote Riordan and Ferraro. “We have the expertise to help craft a more workable solution to the problem of curbing disaster costs.”

In turn, U.S. Sens. Dianne Feinstein and Barbara Boxer and 51 members of the House of Representatives have signed letters urging Witt to reconsider the proposed rule, and allow cities to provide input.

Riordan and Ferraro said the rule could create the impression during a disaster of government agencies at odds with one another, which would not look good to the public.

“In the event of a large disaster affecting several jurisdictions it would be a public relations nightmare,” Riordan and Ferraro wrote. “It does nothing for public safety and is unrealistic from both a practical and a political standpoint.”

Suchocki said FEMA is considering the input from the cities and members of Congress, adding he does not know when the new rule will be published.