Fiscal Implications of Disasters and the Managed Retreat Thereafter: Evidence from Hurricane Sandy

Abstract

Local governments stand at the frontline of responding to natural hazards, but they often lack the capacity and resources necessary to manage such crises. Disasters can affect local government spending and revenue streams and also trigger land-use changes with enduing fiscal implications. This paper examines the aftermath of Hurricane Sandy and the subsequent New York state buyout and acquisition programs, focusing on their impact on the local finances of municipalities and school districts across the state. Utilizing a difference-in-differences model, we found that the storm led to a significant short-term increase in both total revenues and expenditures across the affected municipalities and school districts. The surge in revenues was driven mainly by increased intergovernmental transfers, and the increase in expenditures was manifested largely in general government spending. Our findings also suggest that there were discernible disparities in fiscal responses between wealthier and poorer municipalities and that the state’s buyout program did not affect local fiscal stability, and had negligible effects on local tax bases and public service delivery. These findings offer insights for policymakers and stakeholders as they plan local fiscal strategies and prepare for future disasters.