1. Sea Level Rise Relocation Accounts
Responsibly Preparing For Future Housing Funding
When homeowners eventually need to abandon their residences due to sea level rise (SLR), will they be financially ready?
One tool to start preparing U.S. taxpayers for property abandonment in the decades ahead may be an "SLR Relocation Account."
Here’s how such a program would work:
Modeled after the current Roth IRA savings program, which was established by the Taxpayer Relief Act of 1997, qualified homeowners who can no longer safely reside in their homes due to encroaching waters, would be allowed to annually save money to allow them to move to areas not threatened by rising ocean waters.
Such deposits into the relocation account would be tax-deductible if certain qualifications are met.
What criteria could apply?
The funds could only be used for new housing financing or rental options. Any other use would be restricted. Those utilizing SLR Savings Accounts would also have to keep their current mortgage or rental obligations current and avoid defaults.
Qualified individuals could include homeowners in areas identified annually by local governments as vulnerable to SLR.
Those using this forward-looking financial tool could only use the funds for their new primary residences. Any other use would be prohibited.
With savings accumulating over a period of 10 to 25 years or more, the increasingly expensive financial burden of securing a new place to live, whether by ownership or rent, would be eased in the future.
In those areas of the nation where sea level rise offers local relocation alternatives, individuals and families would be able to keep up their mortgage and rental payments, while at the same time saving critical funds for the future.
At the same time, in areas where local economies will survive rising seas, economic activity will be assured continuity, as the work force can remain geographically connected to existing and future jobs.
As with any proposal impacting federal taxation, this idea requires federal action. The time to start a detailed dialogue on saving for the future is now. New housing is always a crucial component of a viable U.S. economy. We need to protect economic interests today, while preparing for the financial realities of tomorrow.
To promote saving for future housing costs when current properties become uninhabitable, a "Sea Level Rise Relocation Account" may be a valuable tool.
2. Sea Level Rise Mortgage Modifications
Constructively Dealing with the Ticking Mortgage Bomb
For current mortgagees and lenders, an alternative to Sea Level Rise (SLR) Relocation Accounts may be the "Sea Level Rise Mortgage Modification."
Consider the example of a property owner who purchased a house in a vulnerable SLR area in the year 2000. At that time he or she never heard of rising seas, and SLR science was just beginning to formulate credible projections for coming decades. The borrower committed himself to a 30 year mortgage.
Fully intending to stay in the property for as long as possible, the borrower ultimately learns his property has a finite term of usefulness as swelling seas pose increasing risk to the health, safety and security of the his family and neighborhood.
On paper, the borrower's financial commitment ends in 2030. In some coastal areas of the nation, as the waters incrementally rise between 2000 and the end of the mortgage term, the property becomes increasingly hard to sell. Forced to stay in his home, the homeowner cannot pay off the mortgage balance early.
The lender and borrower face difficult choices never before encountered in the world of real estate and finance.
When regularly and then permanently flooded, mortgagors will not want to make a choice between paying their mortgage obligations or, alternatively, defaulting and finding a new venue in which to live. Bad credit and a judgment against the homeowner would result from a default on the original mortgage obligation, making it almost impossible for him to qualify for a new loan.
On the other hand, banks and other lenders who hold the mortgages will not want to foreclose on useless flooded properties.
Further, if the properties are not prepared responsibly by these stakeholders, toxins from the property which is not structurally ready for intruding waters will harm the oceans in ways never before imagined by the architect and builder of the house, not to mention the local government.
What to do in this stark financial reality as nature encroaches? We need solutions. One possible option is to modify the loan agreement.
An "SLR Mortgage Modification" could take many forms and could be structured something like this:
A. Two thirds of the principal and interest payments continue to be made as they are now...to the lender. These payments continue until the local government declares and certifies, under strict federal and state criteria, that it is no longer safe to use and reside in the property.
B. The remaining one-third of the payments can be equally divided into three distinct categories.
1. One portion of the monies would be placed into a tax-free SLR Savings Account, to allow the property owners/borrowers to save monies to move elsewhere in the years to come. This is the "mortgagor" component.
2. Another portion of those funds would be paid to the mortgage company at the end of the habitable term of the property. This is the "mortgagee" component.
3. A final portion of the funds would be used to environmentally "shore up" or secure the structure and underlying land so that when flooded, toxins from tanks, utility connections and other environmentally dangerous sections of the property do not further pollute and acidify the intruding ocean. This is the "public interest" component.
C. The mortgage lender would be contractually assured the borrowers would do business with it in the future when new housing is needed and located. By participating, the lender would have a "first option" to finance the borrowers new property if home ownership (as opposed to renting) is chosen again by the displaced homeowners.
D. Federal and State governments would provide tax credits for the lenders to participate in this program. In exchange, the lender would not foreclose on the properties, and the homeowners would not suffer an adverse credit score by not being able to pay the full life of the original loan, should that occur. Stated simply, there would be no foreclosure if certain well-defined criteria, established by law, were met.
Such a formula should be vigorously debated, as the interests of the lender, borrowers, general public and government are served by such a plan, or something substantially similar to it. It takes years to introduce such new tools into the marketplace, but we must start now. The oceans are not waiting.
For mortgage lenders and borrowers, a tool to keep the economic gears of the nation moving forward.
3. Special Sea Level Rise Tax Districts
Extending the Useful Life of SLR Impacted Regions May Rely On Historical Precedent
Certain areas are eventually going to be officially classified by local governments as vulnerable to sea level rise. Near-term funding solutions must be identified.
For those neighborhoods, special considerations will require expensive adaptation measures. Such initiatives, designed to extend the habitable life of streets and adjoining properties, will require large infrastructure investments.
If the political will to save specified but endangered lands exists, the obvious question is, “Who will pay?” Reluctant to put more money into areas which ultimately give way to the sea, funding from Washington and state capitols most certainly will be hard to realize.
Cooperation between those using at-risk properties and their local city halls may result in the need to create special tax districts or zones. The only alternative may be a premature retreat from land which would otherwise be usable for an extended period of years with the right infrastructure improvements.
Take, for example, beach areas which thrive on tourism. It is predictable that hotel and motel owners, restaurants and shops will do all they can to extend the life of their properties and local transportation systems. They just have to find the millions of dollars to get the job done.
Without sympathy from state legislatures, what to do? History provides a potential funding solution.
Special tax districts are not new, as they date back to the time of Benjamin Franklin, reports Floridajobs.org. In 1736, residents paid special fees to enjoy fire protection services. In Florida, the use of such districts dates back approximately 190 years, with the creation of the Road, Highway and Ferry Act of 1822, which was funded by labor. It’s mission: Maintain early public roads.
Following statehood, the Florida Legislature created a special district financed by landowners based upon “benefits derived,” according to the Florida Department of Economic Opportunity (FDEO). “By the 1920’s, the population had increased substantially in response to Florida’s land boom. Many special districts were created to finance large engineering projects,” recalls the FDEO.
Special districts in the Sunshine State have even focused on beach erosion efforts.
As Florida’s population grew, so did the use of special taxing districts. Now that Florida begins to slowly shrink, history’s precedents provide valuable opportunities to extend the viability of threatened areas.
The State of Florida characterizes one of the main functions of a special district: “…to finance, construct, operate and maintain capital infrastructure, facilities and services.” Governing boards concentrating on “specific community needs and issues” particular to the district run these limited governmental entities.
According to the FDEO, “Special districts can provide local governmental services - often in response to citizen demand - that a municipality or county is unable or unwilling to provide.” It adds, “Special districts generate money to pay for projected growth without putting an excessive burden on other taxpayers and governments, since only those who benefit from the special district's services are required to pay.”
Most importantly, such special districts “…protect property values by assuring property owners that their roads, water and sewer lines, and other essential facilities and services will continue to be maintained.”
By requiring local tax payments, using tax-exempt bonds and utilizing tax-free purchases, special sea level rise districts may be the key to economic viability in threatened areas.
This proven financial solution could allow for more storm sewer improvements, construction and other key strategies to deal with rising oceans such as elevating roads and utilities at a time when governmental funding is more limited, and politically complicated, than ever.
One financing tool from the days of Benjamin Franklin may help extend the life of areas threatened by advancing ocean waters.
4. Innovative Public- Private Partnerships and Sea Level Adaptation
Private Enterprise Will Work With Governments To Invigorate Public Infrastructure As Seas Advance
The financial demands on all levels of government to confront the challenges of sea level rise will be staggering. In just one city alone, Miami Beach, over $400,000,000 is being spent to improve drainage and construct pumping stations.
Such investments, into the trillions of dollar level, will be multiplied by hundreds of coastal villages, towns, cities and counties across America.
Just as a noted attorney once said, "No man is an island." Neither are governments. That’s why Public-Private Partnerships ("P3's") exist.
According to the Florida Council for Public-Private Partnerships, a P3 is "A collaborative solution involving the private-sector to procure public assets." Through unique financing agreements, P3's aid in the construction and operation of public assets in the delivery of services to the public. In exchange, private industry makes money from the public investments.
According to Stateline, the Daily News Service of the Pew Charitable Trusts, "Under the P3 strategy, private companies typically cover the up front costs of projects, in exchange for the right to run the facilities and to collect tolls or other payments."
Intelligent adaptation to sea level rise has two key byproducts.
The first is the potential generation of massive economic activity, including jobs and significant revenue.
The second is efficient delivery of governmental functions, run by private entities.
Simply put, billions of dollars will be made in making the "new Florida." Private industry will have a larger role to play in SLR adaptation than ever envisioned.
Take, for example, salt water intrusion into the aquifer of South Florida.
As more ocean water invades the fresh water deposits we all depend upon, the cost of creating drinking and potable water for the millions who live in this area will increase. Ultimately, scores of desalination plants will be needed to meet the demand.
The use of P3's to build and maintain water facilities is not new, and the P3 example is being used to create toll roads, schools, tunnels, university dormitories, prisons and other public works infrastructure.
Notes the South Florida Water Management District (SFWMD): As of 2012, South Florida had two seawater desalination plants and 33 brackish desalination plants with the capacity of producing "245 million gallons of portable water per day."
If current predictions about sea level rise are correct, and as fresh water supplies decrease, many more expensive plants will be needed.
The public cost of producing more desalination plants to meet ecological and human demands over the coming decades can be mitigated by the use of P3's. The example has already been established with the Southwest Florida Water Management District’s partnership with a private company to run the Tampa Bay Seawater Desalination Plant.
Here’s the point: The P3 method of financing, construction and operation will not end with water treatment facilities. They can extend to storm sewer pumping stations, bridge projects, road and land elevation projects and other adaptation projects for the public good.
Florida is changing physically. Soon more creative P3 fiscal functions will be utilized to deal with advancing ocean waters.
When it comes to rising seas, Public-Private Partnerships will be used for infrastructure projects in ways not previously imagined.
A quick introduction to P3's. Courtesy of UNECE. Published March 16, 2012. Length: 4:47.
5. Sea Level Bonds...The Next Generation of SLR Project Funding in Vulnerable Areas
U.S. Capital Markets Can Embrace a "Green" European Model
Sea level rise will be expensive. Very costly. That’s why all different forms of financing adaptation projects is crucial.
We can look at existing capital funding tools and modify them to the task of addressing the multiple challenges posed by intruding bodies of water.
Bonds are like loans; they allow issuers of bonds to raise money over long periods of time. As securities, bonds create extended-term creditors. Already, among the voluminous types of bonds, exist "Climate Bonds."
Such debt instruments are issued by governments, or even corporations. Traditionally, this form of capital finance has been divided between these sectors: Transport, Agriculture and Forestry, Energy, Climate Finance, Waste and Pollution Control and finally Buildings and Industry.
According to the Climate Bonds Initiative, a European group focused on climate bonds, in 2012, "Bonds that finance a water supply resilient to the impact of a changing climate remain elusive to our screening of the bond market." The same report stated that in the United Kingdom, "we were unable to identify with sufficient confidence any bonds linked to climate compatible water infrastructure or conservation solutions." (For more information, see www.climatebonds.net).
Therein lies the opportunity in North America.
What I propose is another dimension of climate bonds....let’s call them "Sea Level Bonds." They would only be invested in the fight against rising seas and have specific adaptation goals and standards.
In most other respects, such SLR bonds would look like regular bonds. As the Economist noted in a 2011 article on green bonds in October, 2011, there would be no risk to the investors in the projects where the bond money is used and no extra costs would be involved.
What’s the advantage? Sea level rise bonds could be utilized to extend the useful life of local economies by strengthening public infrastructure to keep area viable, longer.
Here’s another plus: If governments are smart, creative and attractive tax incentives could make such a small segment of the bond market very attractive to investors.
Certainly there are many other types of bonds which pay for public infrastructure. But "green" sea level rise bonds, with specific criteria, may help create high quality standards for projects financed with this mechanism.
Large investors need to appreciate the great opportunities in some areas of the nation for SLR bonds. Using wise tax policies to stimulate such bonds can create hundreds of thousands of jobs as river banks and harbors are secured, agricultural acreage is raised and other engineering solutions are brought to the forefront in the battle against the insistent seas.
These forms of investment grade finance can play key roles in allowing local communities in dealing with some, and especially early, effects of swelling oceans. Such bond financed programs can also include constructing new storm sewer systems, securing public buildings to prevent toxins from entering the ocean when waters permanently submerge properties, raising roads and improving and protecting public transportation in SLR vulnerable areas.
Supporters of climate bonds maintain such tools spur significant investment. If they are correct, sea level rise bonds can create stunning economic activity across the globe. Such projects are exactly what responsible sea level rise adaptation requires.
If we focus on the sea level rise component of our changing planet, jobs can be created and communities strengthened...through bonds focused on rising waters.
As the Economist opined in June, 2012, "As the climate warms, climate bonds may become quite hot."
My thought: As the tides threaten Main Street, SLR bonds will be quite resilient.
There are many types of financial bonds...fixed rate, floating rate, zero-coupon bonds, high-yield bonds, convertible bonds, exchangeable bonds, inflation-indexed bonds, asst-backed securities, subordinated bonds, covered bonds, perpetual bonds, bear bonds, government bonds, municipal bonds, lottery bonds, war bonds, serial bonds, revenue bonds, social impact bonds, and even "climate bonds."
Now it is time for "Sea Level Rise Bonds".
Courtesy Bloomberg. Massachusetts leads with green bonds. June 6, 2013. Length 5:54.
Sea Level Rise & You. Length: 1:44.