School fiasco shows federal earthquake aid is broken

The Anchorage School District is in quite a fix. Faced with tens of millions of dollars in repairs stemming from the Nov. 30, 2018 earthquake, district personnel are eyeing federal disaster aid money set aside for just that purpose. But there’s a heck of a string attached: If the district wants the $54 million in federal funding it’s seeking, it will have to purchase earthquake insurance at an estimated cost of $1.8 million per year.

Even if you’re not an accountant, it’s pretty easy to see how the district would be getting a raw deal if it were to accept the money under those conditions. At $1.8 million per year, the district would pay $54 million in premiums in just 30 years, and have nothing to show for it. In all likelihood, the coverage would last longer, putting the district upside down on the amount it received in aid.

So why would the federal government require such an outlay, one that is almost certain to render the aid a liability in the long run? The answer, as with too many one-size-fits-all federal solutions, is good intentions and poor on-the-ground awareness.

The Federal Emergency Management Agency’s rules on disaster aid, though they apply to earthquakes too, were really designed to respond to disasters like floods. Viewed in that light, an insurance requirement makes more sense: floods are more common, their frequency is far easier to predict and their impact, though serious, is limited both in area and scope. Accordingly, coverage is easy to obtain and premiums are relatively low, especially in areas that aren’t especially flood-prone. Even in higher-risk areas, annual premiums cost just more than 1% of the total coverage amount.

Earthquakes, on the other hand, are far more of a crap shoot. Premiums are high, coverage is scarcer and the likelihood that you’ll ever collect on a claim in your lifetime is far smaller, even in places like Anchorage near multiple active faults. Take, for instance, the two major earthquakes of the past 100 years in Southcentral Alaska — last year’s shaker and the 1964 Good Friday earthquake. Both caused damage that required substantial federal aid. But even though they occurred very close together in geologic time — 54 years — an earthquake insurance policy that cost $1.8 million per year would have resulted in the payment of nearly $100 million in premiums. At that rate, the district would be far better advised to forego any aid — but that means asking Anchorage taxpayers to front the money themselves, or at least to pay back a bond for the repairs. With the municipality already picking up the costs of services formerly paid for by the state, that would be a tough pill for residents to swallow.

So what should be done?

First, the state Division of Insurance can petition FEMA for a waiver of the insurance requirement. It should do that. And Alaska’s delegation in Washington, D.C., should shepherd that request through the process. The state and Alaska’s members of Congress should do what they can to impress upon FEMA the gravity of our situation, as well as the ludicrousness of the insurance requirement in general when it comes to earthquakes, here or anywhere else.

Second, FEMA should take this as an opportunity to re-examine the cost and benefits of its earthquake aid and the rules governing it. If accepting the aid will cause the recipient to ultimately suffer a loss, it’s hard to say how the federal government is providing any real service whatsoever.

If, for whatever reason, the district is not granted a waiver of the insurance requirement, it should forego the aid funds and decide how best to muddle through with local money and existing facilities. That’s not an optimal solution, but it’s better than paying for the equivalent of a new school (or several) in insurance premiums over the next few decades with no benefit to residents.