Iowa's 2008 floods were stimulus, report says

More than $2 billion in federal disaster-relief helped offset devastation to Iowa homes and businesses caused by historic flooding in 2008, according to a new report from two Iowa State University economists.

As central Iowa communities assess the damage from the flooding earlier this month, economists Dave Swenson and Liesl Eathington said their evaluation failed to find conclusive evidence of measurable and lasting reductions in overall industrial production or household consumption from the 2008 flooding.

Swenson found that close to $2.4 billion in federal aid spent to either restore households, assist businesses, repair of restore public facilities, or otherwise aid in the relief effort sustained almost 16,700 jobs in the first year of recovery and 14,350 in the second.

“We realized that the rebuilding effort - the massive flow of funds and federal assistance to households and businesses, as well as the FEMA-assistance to governments - was actually working in a very concentrated way to stimulate job creation and really stimulate demand for consumer goods in those areas,” Swenson said. “And that was masking, if anything, what would have been some kind of measure of the net loss.”

“So we were getting the economic stimulus before the rest of the country in the form of disaster relief funds,” Eathington added.

As an example, Swenson reports that Cedar Rapids closed out 2008 with a 5.5 percent gain in Gross Domestic Product over the previous year - approximately a full percent greater than the state of Iowa's gain.

However, Cedar Rapids businessman who has been part of the recovery effort saw a disconnect between the study and the experience of the average flooded business owner in Cedar Rapids.

“I would hate to tell the flooded small business community in Cedar Rapids that we saw limited economic impact” said Gary Ficken, president of Bimm Ridder Sportswear, which was displaced by the flood, and a member of the Cedar Rapids Business Long Term Recovery Team

Their full report can be found here: http://www.econ.iastate.edu/sites/default/files/publications/papers/p11867-2010-08-23.pdf.

Swenson and Eathington were surprised by their findings.

“It was like the old Timex ad - we took a licking and kept on ticking,” Swenson said. “Our economy was strong enough in that combined region - for example, the Cedar Rapids, Iowa City economy - and so large and diverse that it took that kind of devastation literally in stride. And while we recognize that there was incredible destruction and heartache in the core of the flood area, that's different than the aggregate economic impact.”

Ficken, however, said the study seems to ignore the Business Long Recovery Team's findings that 150 businesses have closed, 2,500 people lost their jobs, and business owners have taken cuts in their personal wages and drained $20 million from retirement plans.

“I would have a real hard time saying the flooded business community in Cedar Rapids … took a licking and kept on ticking,” Ficken said.

“I am afraid it is a different world for those of us who have been devastated by the floods of 2008,” Ficken said. “We still face an uphill battle for survival.”

The report by Swenson and Eathington did not detect strong evidence of net population loss in areas most affected by the flooding. And while they found a measurable short-term boost in unemployment and layoffs at the time of the disaster, they did not see evidence that the most flooded counties posted higher unemployment rates than would have been expected because of the recession.

In order to make their analysis, Swenson and Eathington first identified the areas that were hardest hit by the weather that year. Using data from selected federal disaster assistance programs on household, public sector, business and crop losses, they determined six counties fell into the “Very High Impact” category: Black Hawk, Bremer, Butler, Johnson, Linn and Louisa. Four other counties - Benton, Cerro Gordo, Floyd and Muscatine - also fell into the “High Impact” category.

Combined, those 10 high impact counties accounted for 84 percent of measured household losses; 79 percent of losses to public buildings, parks, roads and other infrastructure; and 94 percent of documented losses to business because of the weather, according to the report.

“We figured that if we could first identify the areas with the most wide-spread damage, they ought to be the ones that demonstrated the greatest impact in terms of what happened to their job levels, their population, their school enrollments, etc.,” Eathington said. “And when we looked at all the counties, there was a group that stood out as being the highest dollar amounts of loss across the four sectors.”

The ISU economists also determined that previously feared high losses to Iowa agriculture in 2008 were substantially less than initial estimates because those losses were significantly offset by crop insurance indemnity payments and targeted federal disaster assistance.

Because state and federal disaster relief funding was quickly made available to victims of the recent flooding across Iowa, Swenson sees similar economic trends playing out in the state's most recent disaster.