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Higher Street, Lower Flood Coverage

The city of Miami Beach is taking steps to protect infrastructure in flood-prone neighborhoods. As a result, some local businesses are having trouble obtaining flood insurance.

This goes to show that while some laws, like speed limits, are easily circumvented, the law of unintended consequences simply will not be denied.

Flooding has always been a fact of life in Miami Beach, but it happens more often these days – four times more frequently in the past decade than in the two decades prior, according to research presented by academics at the Florida Center for Environmental Studies. Most of the flooding occurs in the western part of the city, much of which was built on soggy swampland along the edge of Biscayne Bay. The high water has multiple causes, including the city’s frequent tropical downpours and the “king tides” that occur every year when the earth, moon and sun align in a way that maximizes the heavenly bodies’ gravitational pull on the world’s oceans.

Rising sea levels are exacerbating flood activity in many parts of the world, and while there is uncertainty – and some dispute – about the pace and scale of future increases, virtually nobody expects the oceans to recede any time in this century. In Miami Beach, and especially in the flood-prone reclaimed swamps in the west of the city, the problem is exacerbated by land subsidence: Parts of the city are sinking. These factors are not mutually exclusive. Water flows downgrade, and it doesn’t matter whether the grade changes because the starting point is now higher or the destination is now lower (or both).

Miami Beach civic leaders are trying to get ahead of the curve. The city spent over $400 million on the initial phase of a project designed to improve infrastructure and mitigate some of the worst of the potential flood damage before the waters arrived. One of the main strategies was to raise streets in an effort to keep them dry. So far, it seems to be working in the low-lying area of Sunset Harbour. This is not only good local public policy; it is also what federal agencies like the Federal Emergency Management Agency want localities to do in order to minimize future damage.

But while the roads in Sunset Harbour seem to be keeping dry, the restaurants and businesses that are now a few feet below the roadways are a little soggier.

The Miami Herald spoke to a restaurateur whose establishment suffered an estimated $15,000 in damages during a heavy thunderstorm in October. When you own a restaurant in Miami Beach, you have flood insurance – but Antonio Gallo, the owner of Sardinia Enoteca Restaurant, received a letter informing him his business is no longer covered because the adjuster classified the restaurant as a basement under government guidelines. Basements are not covered by National Flood Insurance Policy rules. Gallo is appealing the decision.

FEMA, which also runs the federal flood insurance program, has created a Catch-22 by encouraging changes like those made in Sunset Harbour. The mere act of protecting public infrastructure like roads and utilities by raising them above flood heights means neighboring properties can suddenly be deemed below grade. In FEMA’s eyes, at least according to some adjusters, what was once a street-side cafe may now be a basement – an uninsurable basement.

To an extent, such a view just acknowledges reality; water will always flow downgrade. Raising a road means, all else being equal, that water will spill off the road onto neighboring unraised ground. That is exactly why Miami Beach installed pumps to remove the runoff before it could damage other property. Unfortunately, if the pumps are not working, the water doesn’t go where we want it to go.

That is what happened in Gallo’s case. During the early October storm, only one of six installed pumps was working properly. The drainage system was overwhelmed and the water, predictably, backed up into the businesses below street level.

These Miami Beach properties may need something beyond traditional flood insurance. What they really need is pump insurance – to protect themselves if the city’s pumps fail when they are needed. Unfortunately, as far as I know, no such insurance product presently exists.

Thus works the law of unintended consequences. Nobody wants a better-protected street to cause damage to street-side businesses, but water doesn’t care what we want.

The only short-term fix is for the government to adjust the federal flood insurance rules, possibly in tandem with making sure local governments take appropriate mitigation measures when they make flood-resistance improvements. Private insurers don’t want to touch flood insurance because of built-in adverse selection. Floods don’t happen to all property owners randomly, like fires or accidental falls; floods happen repeatedly in the same places. The only property owners who buy flood insurance are those whose property is apt to flood, which makes the insurance too expensive to sell without government support (which effectively transfers some of the cost to taxpayers who have little or no flood risk). That means the government, not the open market, will need to solve the problem of Miami Beach’s newly low-lying commercial properties.

In the long run, the only effective answer is to raise those other flood-prone structures as well. Because water doesn’t care. It will always try to flow downhill, and that is one consequence we can count upon.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book Looking Ahead: Life, Family, Wealth and Business After 55.

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