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Yet Another Trillion-Dollar Unfunded Liability: WHY California Is Burning

by John Rubino ◆ December 8, 2018 24 Comments

The apocalyptic fires that hit California last month have left observers scratching their heads and wondering how destruction on that scale could be possible – and how much it will cost in the future if the causes aren’t addressed immediately.

This morning’s Wall Street Journal concludes that 1) the problems aren’t being addressed and 2) this failure is going to cost a fortune that no government is prepared to cover (emphasis added below).

Why Californians Were Drawn Toward the Fire Zones

Building codes, state grants and low insurance rates have encouraged people to flee expensive cities for their dangerously fire-prone fringes.

California fires
A Nov. 15 view in Paradise, Calif., above, shows charred remains of houses among the trees after the Camp Fire burned down more than 11,000 homes. PHOTO: CAROLYN COLE/LOS ANGELES TIMES/GETTY IMAGES

The historically deadly wildfires that have roared through California this fall, and a string of similarly destructive ones over the past two years, are boosting calls to do more to slow climate change. But another underlying problem has contributed to the fires’ tragic damage: For decades, California, supposedly the greenest of states, has artificially lowered the cost of encroaching on nature by living in the woods.

Permissive building codes, low insurance rates and soaring taxpayer spending on firefighting and other services have provided an economic framework that has encouraged people to flee the state’s increasingly expensive cities for their leafy fringes. The forested exurbs, including places once thought too hilly or too dry to develop safely, have offered comparatively affordable living with jaw-dropping views.

The upshot: More houses have been packed into the fire-prone border between civilization and forest—known among planners as the “wildland-urban interface,” or WUI—in California than in any other state.

This problem isn’t restricted to California’s woodland. Along the coasts, loose building standards and easy federal flood insurance have socialized the costs of building in the path of worsening storms and rising sea levels. It is time, in the parlance of classical economics, to internalize the long-externalized costs of building in the trees or by the beach.

California, both a bellwether of aggressive environmental policy and a pioneer of suburban sprawl, typifies the problem. For years, Cal Fire, the state wildfire-fighting agency, has been spending increasing sums to put out wildfires, as has the U.S. Forest Service. Already by 2006, according to an audit, most of the money the forest service was spending to put out large fires was “directly linked to protecting private property” in the wildland-urban interface. Meanwhile, at public cost, government has been encouraging more development by pushing infrastructure—roads, utilities, rescue services—ever farther into the forest.

Lax building codes are at the base of the problem. Even in California, which has some of the toughest such rules in the country, they often aren’t adequate or adequately enforced. The codes often dictate the use of fire-retardant materials in house construction but typically say nothing about how a development must be situated on the landscape—and that can help determine whether that development will burn in a fire, says Max Moritz, a cooperative-extension wildfire specialist at the University of California, Santa Barbara. “So the developers are able to come in, propose something, and often, without too much oversight, walk away after having built something in a dangerous place,” he says. “And we pick up the tab.”

In Redding, a city in far northern California where some neighborhoods were devastated by this summer’s massive Carr Fire, city officials have worked in the past with developers navigating the building code to help them save on costs, City Manager Barry Tippin says. For instance, Redding let a developer build a subdivision with just one road in and out instead of two under an allowed exception in the code; the one road was wider, but two are generally considered safer in an emergency. Now, he says, officials are reassessing their view of the code and have won a grant to pay for an outside review of their rules. “In the future, we should take a more deliberate and maybe harder stance,” he says.

Between 2000 and 2013, more than three-quarters of all buildings destroyed by fire in California were in the state’s WUI, and more were destroyed there than in all the WUI areas across the rest of the continental U.S. combined, according to a recent study led by Anu Kramer, a researcher at the University of Wisconsin-Madison. That is partly because of increasing construction in the WUI and partly because it is so weakly regulated. Ray Rasker, executive director of Headwaters Economics, a Montana-based nonprofit research firm that specializes in wildfires, notes that rules to protect buildings from fire—for instance, requirements for sprinklers and for regular fire-code inspections—tend nationally to be far stricter in urban areas than in the WUI, despite the relative risk. “If you place a home out in the woods, in a tinderbox, those rules don’t apply,” he says. “It’s backward.”

Once a house is built in California’s WUI, the state’s unusually low insurance rates have the effect of shifting much of the real cost. The average California homeowner pays about $1,000 a year in homeowner’s insurance—about half the level in Florida or Texas, two other states with markedly rising incidences of natural disasters believed linked to climate change.

That is a result of state policy, not an accident. California has an elected state insurance commissioner, one of 11 in the country who are elected, who caps the rates private insurance companies may charge. When insurers seek permission to raise rates to cover catastrophes, state law requires that they average at least 20 years of prior catastrophic-loss data, which minimizes the recent dramatic increases in fire damage. Those increases, wildlife specialists warn, suggest things to come.

If your response after reading this is “Those people are total morons,” you’re probably in the majority. Using artificially-cheap insurance and purposefully-lax building standards to destroy what’s left of a unique ecosystem is a crime against nature.

And asking taxpayers to cover the resulting catastrophic costs is political suicide. But of course the politicians, builders and bureaucrats who created this system will have moseyed off into the sunset with their fortunes intact before the full consequences come crashing down on tomorrow’s taxpayers.

Add the cost of entire future communities consumed by flames to the already gargantuan pile of unfunded pension liabilities that the state has accumulated, then toss in the plunge in tax revenue sure to result from the coming recession and equities bear market, and California might have bumped Illinois from the top of the “first state to go bankrupt” list.

As for why non-Californians should care, well, just go back a decade and note how the federal government (read national taxpayers) had to take on nearly the entire $10 trillion liabilities of the mortgage industry. Bankrupt states will no doubt get similar bail-outs when their time comes. Which means the dysfunction will eventually find its way into the currency markets.

Gold becomes more necessary with every one of these stories.

 

Emigrate While You Still Can

Comments

  1. DR01D says

    December 9, 2018 at 4:48 am

    1) Overpopulation is real.
    2) In 2022 Californians are having their water consumption reduced from 100 gallons per person, per day down to 55 gallons.
    https://www.mercurynews.com/2018/05/31/california-drought-jerry-brown-sets-permanent-water-conservation-rules-with-new-laws/
    3) Is running out of water and endless fires bullish for house prices? Maybe not so much.

    Reply
  2. Bruce C. says

    December 9, 2018 at 1:28 pm

    OR California could become like Puerto Rico where only the wealthiest or least damaged areas revive and continue and the damaged areas remain stagnant.

    (THAT basically is the current aftermath of PR’s bankruptcy.)

    Reply
    • James Anderson says

      December 9, 2018 at 2:29 pm

      Helps in PR that the IRS is deeming about 98% of the island an ‘Opportunity Zone’. Only Dorado Beach is excluded I believe. Should be positive both medium and long term for the island’s economic future.

      Reply
      • vickeymautner says

        December 26, 2018 at 4:53 am

        JamesHenryAnd important

        Reply
  3. disqus_4CZB5L8hUr says

    December 9, 2018 at 5:34 pm

    Look at the photo of the houses completely disintegrated down to their foundations while the nearby trees are untouched, still with their green leaves intact and ask yourself if you think that was a normal “forest fire”.

    Reply
    • Hyman Griebowitz says

      December 10, 2018 at 1:46 am

      DEW Dude !
      Nobody notices, good job.

      Reply
      • disqus_4CZB5L8hUr says

        December 10, 2018 at 1:38 pm

        Cars with their engine blocks melted while surrounding vegetation looks fine. And we’re supposed to believe that’s because too many Californians living in wooded areas and not following building codes. Yeah right.

        Reply
  4. frankensteingovernment says

    December 10, 2018 at 6:40 pm

    One of the problems- perhaps the most prescient- is that California is so busy robbing every taxpayer that they do not have the adequate funds left over to build correctly. You can only rob people so much before they start cutting corners and leaving neighborhoods with 500 dollar+ association fees while paying 13% state taxes. California’s socialist policies have destroyed any incentive to work there but encourages non workers and immigrants to belly up to their free s*** buffets.

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  5. m. scott mcmannis says

    December 13, 2018 at 1:48 am

    You had me following along, nodding my head in agreement, until this statement:

    “…Florida or Texas, two other states with markedly rising incidences of natural disasters believed linked to climate change.”
    Prove it. Don’t simply drop in the current whipping boy, climate change, and walk away.
    California’s forest fire disasters are made much worse by poor land/forest management practices driven by the left-wing environmentalist radicals. Why is that not included in your piece?

    Reply

Trackbacks

  1. Yet Another Trillion-Dollar Unfunded Liability: Why California Is Burning | peoples trust toronto says:
    December 9, 2018 at 5:14 pm

    […] Authored by John Rubino via DollarCollapse.com, […]

    Reply
  2. La Californie a brûlé : John Rubino nous explique pourquoi. Suite à l’immigration folle et à la croissance démographique, on construit n’importe quoi n’importe où avec l’aide d’emprunts bidon et d’un gouvernement inepte. Les arbres ne b says:
    December 10, 2018 at 7:53 am

    […] Écrit par John Rubino via DollarCollapse.com, […]

    Reply
  3. La Californie a brûlé : John Rubino nous explique pourquoi. Suite à l’immigration folle et à la croissance démographique, on construit n’importe quoi, n’importe où, avec l’aide d’emprunts bidon et d’un gouvernement socialo-écolo inepte says:
    December 10, 2018 at 7:54 am

    […] Écrit par John Rubino via DollarCollapse.com, […]

    Reply

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