Cost of rebuilding B.C. after flooding nears $9-billion

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Historic rain storms that unleashed flooding and debris slides across southern British Columbia in November have left governments, industry and individuals with staggering losses, adding up to what is likely to be Canada’s most costly natural disaster to date.

The disaster offers a lesson to Canada about the need to invest in preventative measures in a country that is increasingly at risk of extreme weather catastrophes due to climate change.

The price of recovering what was lost is nearing $9-billion, according to an analysis by The Globe and Mail, and potentially could be much higher. The outlays will challenge the existing cost-sharing arrangements between different levels of government for disasters of this magnitude. They also underscore how Canada’s mechanisms for financing disaster relief reward inertia.

Shortly after B.C.’s devastating storms, an expert panel commissioned by Public Safety Canada issued a warning that the country is underinvesting in risk reduction, resulting in higher costs for response and recovery after disasters strike.

“Outcomes like this are not inevitable – they are the result of choices that put people in harm’s way. There are practical measures that can be implemented to help mitigate the most damaging effects of extreme weather events,” Scott Vaughan, chair of the expert panel from the Council of Canadian Academies, wrote in the introduction to the January report, Building a Resilient Canada.

But that hasn’t happened, in part because Canada’s system for sharing the financial costs of a disaster removes the incentive to invest beforehand in measures to reduce risk, according to the panel of experts.

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The rising cost of disasters

Extreme weather battered B.C. in 2021. A deadly heat wave arrived in June, followed by one of the province’s worst wildfire seasons on record. When record-breaking rains arrived in November, the fire-scarred landscape couldn’t absorb the moisture. The result was significant flooding and landslides from Vancouver Island to the Alberta border.

Railways, hydro lines, pipelines, dikes, bridges and key highways were damaged, resulting in billions of dollars in economic losses. There was a point in mid-November when not a single rail or road route was open between Vancouver and the B.C. Interior – isolating Canada’s biggest port for more than a week, and interrupting national supply chains.

The province’s economy is expected to rebound in 2022. The $9-billion figure is based on estimated costs of repairing damage.

Private insurers expect to pay out $515-million in claims, and the province will likely pay out a similar amount to those property owners who have no overland flood insurance. The provincial government must also rebuild critical highway links in treacherous terrain. Based on the province’s most recent major highway project, that could top $6-billion.

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Municipal governments in the worst-hit communities have estimated they have sustained more than $1-billion in damaged infrastructure.

Beyond those big-ticket items, there are myriad other costs, including emergency relief, dike repairs and Canada’s largest agriculture flood aid package ever.

In the Throne Speech in January, the B.C. government promised not just to build back, but to rebuild to a higher standard. “Climate change compels us to adapt how we plan and prepare for natural disasters. Ensuring infrastructure is climate resilient – built to withstand future events,” it promised.

Given the scale of reconstruction, the province faces tough decisions ahead about which repairs are prioritized, and where retreat makes more sense than rebuilding. Some details may become clear in the province’s budget, to be delivered Tuesday.

Travis Shaw, senior vice-president for public finance at the bond rating agency DBRS Morningstar, doesn’t expect that fiscal plan to give the full picture, however. “Presumably the capital [spending] program increases, but I don’t think it can go up drastically because there are just not enough contractors out there to deliver that much. It probably does result in some reprioritization of projects,” Mr. Shaw said.

Provincial officials have refused to estimate the cost of November’s storms, but there is a strong clue in Ottawa’s $5-billion commitment to help pay for the recovery. That figure, described by the province as historic, is based on Ottawa’s internal estimate of its share of the recovery expenses, under its Disaster Financial Assistance Arrangements (DFAA) program. Ottawa’s share in similar circumstances has been less than half of the total price tag.

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James Davies, an economist at Western University who specializes in disaster financial assistance programs, said the Calgary floods in 2013 offer the best guide to the cost-sharing that will likely apply.

Public Safety Canada’s Canadian Disaster Database shows that for the 2013 floods, the total listed costs were 2.67 times the size of the federal cost-sharing payments. If the same ratio applies for the November, 2021, flooding in B.C., that would put total listed costs at about $13-billion.

The database, which tallies only costs paid out by governments and insurers, has not been updated to include the November storms. It shows Canada’s most expensive disaster as the ice storm across Ontario, Quebec and New Brunswick in 1998, with $6.5-billion in damages.

The next most expensive disaster was the Fort McMurray wildfire in 2016, which resulted in $4-billion in damages, then the flooding in Calgary in 2013, which cost $2.8-billion. (Public Safety Canada provided those figures in cost-adjusted 2016 dollars, for comparison purposes.)

Ottawa’s unprecedented contributions to B.C. flood relief could prove a tipping point for the DFAA program. Professor Davies, in a paper published in 2020 in Canadian Public Policy, argued the provincial and federal disaster financing plans are not sustainable, given the rising cost and frequency of disasters – especially floods.

He said the burden on governments to pay for disasters is increasing, fuelling a desire for reforms that would control these expenses. Now is the time, Prof. Davies said, to remove the built-in disincentive for provincial and municipal governments to invest in necessary disaster mitigation efforts before catastrophes strike. “There is a lot that provinces and municipalities can and should do, but continued high rates of assistance may suppress their impetus to take sufficient action,” he wrote.

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Here are some of the key figures:

$1.125-billion for civic repairs

The rainfall in mid-November sent the Coldwater River over its banks, flooding hundreds of homes and the city of Merritt’s water treatment plant. Linda Brown, the mayor of Merritt, estimates the infrastructure damage in her community is $100-million. Under the provincial disaster funding formula, the city will have to pick up 20 per cent – a significant financial hit for a community of 7,000.

The City of Abbotsford estimates its cleanup and repairs will exceed $1-billion after a dike breached, flooding homes, businesses and farms across the Sumas Prairie. The damage to civic infrastructure is being assessed. The municipal government is looking at 300 sites, ranging from parks to bridges, damaged by the flood.

In the town of Princeton, the dike holding back the Tulameen River breached in three places, sending a wall of water through the downtown, shutting down the sewage pump station and forcing hundreds of residents from their homes.

James Graham, the town’s director of finances, said he expects the cost of repairs to hit $25-million. Under the provincial formula, that leaves Princeton with a bill of $5-million. “That might not sound like a lot, but our annual tax base is $3-million,” he noted.

$285-million in farm damages

About 1,100 farms and 15,000 hectares of farmland were impacted by the floods. The B.C Agriculture Ministry has said on background that total damage has been assessed at $285-million.

In February, the federal and provincial governments announced an aid package of $228-million. But that amount doesn’t cover all the losses. It is designed to fill in the gaps left by other government assistance plans and private insurance.

This was billed as the largest flood financial recovery package ever for agriculture in Canada, but farmers say the program still leaves them facing income losses for years to come.

An estimated 700,000 farm animals died in the floods. The government aid package will help pay for animal shelter repairs, cleanup and restoration of barns and fences, as well as restoration of agricultural land. But farmers’ homes are not expected to be covered by the aid package, and the replacement of livestock remains uncertain.

James Vercammen, a professor of Food and Resource Economics at the University of B.C., said individual farmers have suffered some large losses, but the sector overall did not sustain significant losses in production. “I think the real story is the loss of farm income and productive assets,” he said.

The unknown factor right now, Prof. Vercammen said, is how much agriculture land has been lost – either washed away or contaminated.

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$200-million for emergency highway repairs; more than $6-billion for permanent repairs

More than 50 kilometres of highways were destroyed in the November flooding. In January, when the patched-up Coquihalla Highway (Highway 5) reopened to non-essential traffic, the emergency road patches cost the province between $170-million and $220-million.

More than 20 sites along the highway were damaged or washed away, including six bridges. The real work begins in the spring, with permanent repairs designed to withstand increasing weather extremes.

The province has repeatedly refused to provide any kind of estimate for those repairs. But the current, final phase of the Kicking Horse Canyon highway expansion project offers a guide. Widening the existing highway will cost $125-million per kilometre.

The permanent upgrades on the Coquihalla are a technically challenging project, but so is the flood repair work needed. Entire sections of highway disappeared in debris slides, or were swallowed by rivers. The routes include twisting, cliff-hugging roads through the Fraser Canyon. And the scale of the work will likely drive up costs in a province struggling with a skilled labour shortage.

Again, using the Kicking Horse Canyon rate, 50 kilometres of repairs would cost $6.2-billion.

Seven different sites along Highway 1 in the Fraser Canyon were also damaged, including one collapsed bridge. Highway 8 was badly damaged, including four bridges, some of which were completely washed away. Six kilometres of roadway are gone, and another 20 kilometres were significantly damaged.

When Kelly Scott, president of the BC Road Builders & Heavy Construction Association, saw the damage to Highway 8 during an initial flyover, he said it was difficult to even make out where the road started. But he said his sector can muster enough workers and heavy equipment – even if it means raiding other sectors for skilled labour.

“It’s not going to be as bad as people think. We can take it and build it better,” Mr. Scott said. But the work will have to be tackled in stages. The province will have to pick its priorities.

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$515-million in claims to be paid by insurers; governments to fill gaps

In the short term, the Canadian Red Cross has raised $30-million for B.C. flood relief, which translates to $90-million with provincial and federal matching contributions. That money is earmarked to help thousands of evacuees receiving Emergency Support Services and helps pay for basics – food, clothes and lodging.

For cleanup and rebuilding costs, there are two avenues. Private insurance companies expect to pay out $515-million, and the province is likely to be on the hook for a similar amount.

Laura Twidle, managing director at Catastrophe Indices and Quantification Inc. (CATIQ), expects that just half of residents who had house insurance in the flooded areas would have had overland flood insurance. “It’s less likely that those in the highest-risk areas had flood insurance,” she added. “It can be either very expensive to purchase, or it’s not available from their insurance at all.”

In the absence of private insurance, homeowners, farmers and business owners will look to the province’s disaster financial assistance plan (DFA). Based on CATIQ’s estimates of the insurance gap, the province’s DFA payouts could be equal to the amount paid out by private insurers.

Indirect costs: possibly billions more

Taken together, the direct costs listed so far amount to almost $9-billion to repair everything lost. But the total costs go beyond infrastructure damage and human displacement.

The impact on Canadian trade is roughly $2.5-billion, based on what didn’t move through the Port of Vancouver, according to the port. Approximately 250,000 tonnes of cargo – $323-million worth of Canadian trade – is affected daily when rail connections to the port are fully halted, which occurred for eight days in November.

Overall, $1 out of every $3 of Canada’s trade beyond North America moves through the Vancouver gateway, so any disruption to port operations is also felt beyond B.C.’s borders.

Canadian National Railway Co. and Canadian Pacific Ltd. both saw declines in shipments in the three weeks it took to get railways through southern B.C. repaired. From Nov. 14 to Dec. 4, CN’s network in B.C. was shut down as the company scrambled to repair 58 outages over 240 kilometres of track. CP’s rail line, damaged in 30 places, was down until Nov. 23.

In addition to the goods that didn’t move through the port, the TransMountain pipeline, which normally transports about 300,000 barrels of oil per day, was shut down for 21 days for repairs and inspections after the storms. It remained on reduced output for December and January.

Michael Davies, TransMountain’s chief operating officer, said the direct costs will be in the tens of millions of dollars, but he would not comment on the revenue losses.

Who pays?

Based on the experiences in other disasters, the local, provincial and federal governments will spend years working out who is responsible for financing repairs.

One of the most contentious issues will be repairs to flood protection structures. With so many communities in B.C. built on floodplains or adjacent to waterways, an extensive network of dikes is in place to protect people and property. But a majority of those dikes fail to meet provincial standards.

Last November, the current design standards were tested. The peak discharges of water through the Coldwater, Coquihalla, Tulameen, Similkameen and Cowichan rivers were the highest ever measured, and multiple dikes were breached.

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The province downloaded responsibility for most dikes to municipal authorities almost 20 years ago, but many dikes have no clear ownership – so-called orphan dikes that are not under any government’s jurisdiction.

It took just days after the floods began for the province to acknowledge that change is needed. Premier John Horgan said it was a “bad call” to force local governments to manage flood protection, and both the provincial and federal governments have committed to help municipalities pay for the cleanup and reconstruction.

For the orphan dikes, the province is most likely to left with the task of bringing them up to an acceptable level of service. A December, 2020, report for the Fraser Basin Council found B.C. has more than 100 orphan dikes and calculated the needed upgrades, just for those structures, would cost $865-million.

The 11-to-1 investment payback

Some of the most significant damage from the November storms occurred in Abbotsford, after the Nooksack River overflowed south of the Canadian border, spilling across the floodplain. Before the flood, the city had pleaded with U.S. officials to spend $29-million to install a levee extension to protect the Sumas Prairie. In hindsight, that small investment would have paid off in greatly reducing Abbotsford’s $1-billion losses.

This year, the B.C. government promises to update its programs to focus on reducing disaster risks, including a new flood strategy. Experts say the money spent on prevention will pay for itself many times over, but it has always been difficult to persuade people in power to invest in prevention.

Keith Porter, chief engineer of the Ontario-based Institute for Catastrophic Loss Reduction, says studies of natural hazard mitigation show that building roads and highways up higher in flood-prone areas can save up to $11 per $1 added to costs. The Institute calculates that Canada could spend $500-billion to fix houses at risk due to floods, strong winds, earthquakes or wildfires, and that would save $2-trillion down the road.

Mr. Porter said it has typically been a hard sell to get governments to invest in averting disaster. He said the problem is “misaligned interests”: politicians find that tackling urgent priorities is much more attractive than spending money to avoid a loss that might not occur during their term of office.

But B.C.’s disastrous year of fires and floods may finally convince decision makers of the wisdom of investing in prevention, he said.

“If you think preparing for disaster is costly, what the floods in B.C. have shown us is that not preparing costs a whole lot more.”

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