PHASE I OF THE NATURAL RESILIENCE FUND©TM
The quickest way for The NRF to provide immediate results is to focus on providing climate resilience retrofits for housing units, small commercial buildings (50,000 square feet or less) and BIDs (Building Improvement Districts) in flood zones. We are initially focusing on New York City, Long Island, coastal New Jersey and coastal Connecticut, as these locations mirror the HUD initiative called Rebuild by Design. (www.rebuildbydesign.org).
We intend to establish a climate resilience investment grant (CRIG) for the above property categories by creating a public-private partnership between government and the property casualty insurance industry (P & C Insurers).
Let’s assume a climate resilient housing retrofit costs $100,000. The NRF would offer a $10,000 grant as the last 10% of the dollars required for upgrading of the housing or business structures. This 10% CRIG would be funded by the P & C Insurers in exchange for Property Owners complying with guidelines set by the Insurers that will reduce flood insurance premiums (and provide payouts in case of damage/catastrophe).
The balance of the financing (90%) would be a loan to the homeowner or other property owners that would be structured along the lines of the City of Berkeley’s property tax assessment financing. The PACE (Property Assessed Clean Energy) program is operational in a number of States, including New York.
The PACE program has been used to offer 100% below market financing for home solar energy systems and energy efficiency improvements by partnering with a municipality and adding the cost of improvements onto the homeowner’s property tax bill, amortized over twenty years.
Through the issuance of municipal bonds the interest rate can be as low as 1.5% below the prime rate, and the loans are self-liquidating. The goal is to have the energy savings greater than the cost of financing. In the case of climate resilience, the flood insurance premium savings would have to be greater than the climate resilience effort financing cost.
As per the PACE model:
$90,000 principal for a 20 year loan at 1.75% (1.5% under the 3.25% prime rate) = $444.07 per month or $5,328.82 per year. The flood insurance premium savings would have to be greater than $5,328.82 for the PACE Model to make economic sense.
If we use $100,000 as the average retrofit project and 10,000 structures are eligible, then the 10% CRIG would require $100 million in funding. The amount of a municipal bond offering would be $90,000 x 10,000 structures or $900 million. The total cost would be $1 billion.
By issuing a means to finance 100% of the climate resilience improvements, more of a community could make the necessary improvements with an immediate cash outlay. Perhaps if most of an entire community agreed to make the improvements the flood insurance premiums for that particular area could receive preferred pricing on their flood and property insurance premiums once retrofits are completed.
The implementation of The Biggert-Waters Act of 2012 is going to place undue pressure on property values in flood zones and is heavy handed with regard to its increases. The City of New York realizes that this is an untenable situation and these property owners must be protected in some fashion.
We are proposing that the P & C Insurers set up a $100 million fund through The NRF to establish standards for rebuilding flood zone structures according to climate resilience standards that will reduce flood insurance premiums.
For further information and discussion contact Eric Kaufman at firstname.lastname@example.org.