Exploring the Impacts of the Federal Emergency Management Agency's Community Ratings System Program on Poverty and Income Inequality

Noonan, Douglas; Noonan, Douglas

Flooding has and continues to be a major problem for the United States, causing numerous deaths and damaging countless properties (Gopalakrishnan, 2013; Sadiq & Noonan, 2015). To reduce the impact of flooding on communities, the US government established the National Flood Insurance Program (NFIP) in 1968. Despite the creation of the NFIP, flooding still poses a major risk to communities. As a result, the Federal Emergency Management Agency (FEMA) implemented the Community Ratings System (CRS) in 1990 as a voluntary program to further reduce flood damages by incentivizing communities to engage in flood risk management initiatives that surpasses those required by the NFIP. In return, communities would enjoy discounted flood insurance premiums of up to 45% based on their CRS class (Kunreuther & Roth, 1998). Despite the flood damage reduction goal of the CRS, the establishment of the CRS raises concerns about the potential for unevenly distributed impacts across different income groups in communities–leading to equity concerns.

Previous work on the CRS has focused on different aspects of the CRS—the determinants of community participation (Landry & Li, 2012; Sadiq & Noonan, 2015a), adaptive capacity (Posey, 2009), the effects of the CRS on flood insurance demand (Dixon, Clancy, Seabury, & Overton, 2006; Zahran et al., 2009), and flood insurance claims (Kousky & Michel-Kerjan, 2015). Although, these and other CRS-based studies may provide valuable information about the consequences of the CRS on communities, there is a need to investigate the unintended consequences of the CRS vis-à-vis poverty and income inequality. Hence the purpose of this paper is to answer the following two research questions: (i) what is the impact of the CRS on poverty? (ii) what is the impact of the CRS on income inequality? Understanding the impacts of the CRS on poverty and income inequality is useful in fully assessing the unintended consequences of the CRS, helping policymakers improve the performance of the CRS, and contributing to a better understanding of the problem of poverty, which remains intractable for researchers and policy makers (Rupasingha & Goetz, 2007).

To answer the research questions, we estimate panel regression models for a national dataset of neighborhood-level observations from 1970 to 2010. The panel data allow us to estimate a fixed-effects regression model with robust standard errors clustered by Census tract, our unit of observation. We use five different data sources to understand the impacts of the CRS on poverty and income inequality—CRS participation from FEMA, the Neighborhood Change Database (NCDB) from Geolytics, Inc., the Spatial Hazard Events and Loss Database for the United States (SHELDUS) from the Hazards & Vulnerability Research Institute at the University of South Carolina, Flood Insurance Rate Maps (FIRMs) from FEMA, and flood risk maps from the United States Department of Transportation (US DOT) (1996). Preliminary results suggest that the CRS has substantial impacts on local poverty and income inequality. We conclude by discussing the implication of federal flood mitigation programs on poverty and income inequality at the local government level.

Association for Public Policy Analysis & Management

Panel Paper: Exploring the Impacts of the Federal Emergency Management Agency's Community Ratings System Program on Poverty and Income Inequality