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Insurance Money, Reconstruction in Hard-Hit Storm and Tornado Areas Boosting Economic Activity

Source: NY Times - Michael Cooper

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Posted on 01 Jun 2011

A new phase is slowly beginning in some hard-hit tornado and flooded areas throughout the South and the Midwest: reconstruction, which past disasters show is typically accompanied by a burst of new, and different, economic activity.

There is no silver lining to a funnel cloud, as anyone who survived the tornadoes can attest, but reconstruction can help rebuild local economies as well as neighborhoods.

More than a tenth of the businesses in Tuscaloosa, Ala., were badly damaged or destroyed in April when a tornado swept across a 5.9-mile stretch of the city, and nearly 6,000 Alabamians have filed storm-related claims for unemployment benefits.

An even deadlier tornado laid waste to roughly a quarter of the businesses in Joplin, Mo., on May 22, wiping out some of the big-box stores the city relies on heavily for sales tax receipts. The flooding Mississippi River closed all nine riverboat casinos in Tunica, Miss., this spring, leaving 4,600 hotel rooms empty for weeks and depriving the county of so much tax revenue that it had to reduce its workers’ hours.

But there are already stirrings of economic activity. Home Depot, whose store in Joplin was destroyed, began selling lumber and other supplies from a parking lot there on Tuesday as it prepared to open a 30,000-square-foot temporary store.

Tamko Building Products was doubly hit. Its plant in Tuscaloosa had to halt production for weeks after the April 27 tornado destroyed a warehouse,blew out windows and knocked out power. Then in May disaster struck closer to home: Tamko’s headquarters are in Joplin, where the company was founded in 1944. The tornado that tore through Joplin left Tamko’s facilities undamaged, but destroyed the homes of roughly 20 of its employees.

But as much as it was buffeted by the storms, Tamko, which donated $1 million to the Greater Ozarks Chapter of the American Red Cross, is well-positioned to prosper once reconstruction fully kicks in. Its main product — roofing shingles — is always in demand after a tornado.

No one would suggest that disasters are a desirable form of economic stimulus. But economists who have studied the impact of floods, tornadoes and hurricanes have found that after the initial anguish and huge economic disruptions, periods of increased economic activity frequently follow as insurance money and disaster relief flow in to jump-start rebuilding.

But reconstruction also attracts vultures who prey on the desperate, through price-gouging or fraud. The Kentucky attorney general, Jack Conway, accused the Marathon Petroleum Company of price-gouging in April when it raised gasoline prices steeply after the flooding Ohio River led to a state of emergency. The company denied the accusation, and a judge denied Mr. Conway’s request to force the Marathon to lower its prices.

Alabama’s attorney general, Luther J. Strange, recorded a public-service announcement warning people not to be conned into paying steep “up-front” fees for construction work or to be lured by “today-only” prices.

“Let us be vigilant against unethical, unprofessional contractors who seek to take advantage of our citizens in their time of need,” Mr. Strange says in the announcement.

Even as the natural disasters eliminated thousands of jobs, the needs of recovery have created others. Companies like Unified Recovery Group, which is clearing storm wreckage in Alabama and Tennessee, are hiring workers and subcontractors to cart off debris. Construction companies are hiring, too. In Tuscaloosa, James E. Latham, chief executive officer of WAR Construction, said his firm had rehired workers who had been laid off during the

downturn and had added new employees to prepare for the work ahead, like rebuilding an elementary school.
As insurance claims are paid, a further economic stimulus lies in the shopping that some people will do to replace lost goods.

When researchers studied the economic impact of a deadly tornado that hit Oklahoma City in 1999, they found that the labor market improved after the storm, and not just in the construction sector.

The fact of the matter is, it created this catalyst for a renewal,” said one of the researchers, Jamie Brown Kruse, director of the Center for Natural Hazards Research at East Carolina University.

Of course, that Oklahoma tornado struck in a very different time, Dr. Kruse noted. The American economy was strong, and people felt confident enough to rebuild and replace what was lost, often with new structures that were better than the old.

Communities, for the most part, are “amazingly resilient,” said Kevin M. Simmons, an economics professor at Austin College and author of “The Economic and Societal Impact of Tornadoes.”

But struggling communities have sometimes been undone by tornadoes. Mr. Simmons pointed to Picher, Okla., a Superfund site that never recovered from a tornado in 2008. “The tornado was basically the last nail in their coffin,” he said.

The flurry of economic activity in a recovery often realigns the jobs market.

After Hurricane Katrina hit the Mississippi Gulf Coast in August 2005, employment dropped steeply, said Marianne T. Hill, a senior economist at the Mississippi Institutions of Higher Learning. By May 2008, however, the area had 99 percent of the total jobs it had before the storm, Ms. Hill said, but the employment makeup had changed. There were more construction jobs and government jobs, and fewer jobs in manufacturing, retail, transportation and, as tourism suffered, leisure and hospitality.

“You get a huge spurt of activity,” Ms. Hill said in an interview, “but it’s very different from what happened before.”

Kevin L. Kliesen, an economist at the Federal Reserve Bank of St. Louis, studied the economics of natural disasters after the Mississippi River flooding of 1993. He began a paper on the subject with a quote from the 19th-century English economist John Stuart Mill, who wondered at “the great rapidity with which countries recover from a state of devastation.”

That may seem a long way off in some places.

Terry Waters, executive director of the West Alabama Chamber of Commerce, said the Tuscaloosa tornado killed 41 people and destroyed or significantly damaged about 650 businesses that employ 7,200 workers. But Mr. Waters said he was proud of the city’s resiliency.

“Every day when I drive out,” he said, “I see more and more debris that’s been removed — front-end loaders on private property scooping up debris and hauling it


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