Coastal conundrum: New Jersey bill may protect economy but not environment

By Meghan O'Connell

A new $10 million bill proposing a catastrophe fund could act as an incentive for further development along the already urbanized and vulnerable New Jersey coast, sparking complaints from environmentalists statewide.

The bill would also encourage emergency preparedness, and would be partially paid for by state residents.

Dan Riley, legislative director for Assemblyman Michael Panter, co-sponsor of the bill, said work on the fund was spurred by the aftermath of Hurricane Katrina and by consulting experts and meteorologists who predicted that a destructive storm will hit New Jersey in the next five to 10 years. The bill would create a catastrophe fund with a one-time input of $10 million from the state, and annual contributions from insurance companies operating in New Jersey. The fund would guarantee payouts on all claims should a storm cause extensive damage.

The bill will ensure that the catastrophe money cannot be raided for other purposes, Riley said. Interest that accumulates on the money will be used to issue grants to local governments for emergency planning and equipment.

However, by guaranteeing insurance will be available for coastal development, the state may be subsidizing new construction along the shore.

“There may be a reverse incentive to encourage more development,” said Benson Chiles, the director of the Coastal Ocean Coalition, a New Jersey-based network of environmental organizations. However, he said, he has spoken with Panter on how to incorporate environmental protections in the bill and vouched for the assemblyman’s commitment to protect the coast.

“There’s a lot of things that we’re working on to ensure that it’s not taken advantage of,” Riley said. He said that Panter hopes to work with environmental groups to ensure that the fund does not harm New Jersey’s coast, though mentioned that “it’s such a complex issue, we’re really hesitant to focus on some of the environmental concerns.”

“New Jersey is like the poster child for how not to develop,” said Bill Wolfe, Director of the New Jersey chapter of Public Employees for Environmental Responsibility and former policy analyst and planner for the New Jersey Department of Environmental Protection. “If you look at our shoreline, it’s ripe for a catastrophic storm, and the insurance industry has now come to realize this. It has many billions of dollars in insurance payouts at risk on the Jersey Shore.”

New Jersey ranked fifth in fiscal year 2005 for National Flood Insurance Policy claims, trailing only Louisiana, Mississippi, Florida and Pennsylvania.

The Coastal Area Facility Review Act dictates regulations on development along the coast and miles inland. However, there is a loophole that environmentalists want fixed — any new developments of fewer than 25 units are not covered by the restrictions. This has led to the construction of numerous unregulated 24-unit developments.

CAFRA also includes a right to rebuild clause that allows property owners to reconstruct on the footprint of a destroyed building, therefore allowing redevelopment in a proven danger zone for flooding or storm surge.

In place of the right to rebuild, Wolfe would like to see a right to refuse rebuilding.

“It just doesn’t make any sense,” Wolfe said. “Rebuilding in a hazard area is making the insurance problem worse.” The state should compensate property owners, he said, to prohibit redevelopment where the previous real estate was destroyed by natural causes.

To this end, Wolfe wants more funding for the Blue Acres program, the NJDEP program that allocates $15 million for localities to purchase at-risk land before development and after development has been damaged. That land is then set aside for conservation or recreation purposes.

“Where they are building now, which is almost literally in the water, it will be in the water,” said Amy Goldsmith, State Director of the New Jersey Environment Federation.

A 2005 study from the Woodrow Wilson School of Public and International Affairs of Princeton University predicted that by the end of this century, sea level rise due to global warming will submerge one to three percent of New Jersey’s land, and six to nine percent of the state will be vulnerable to high levels of flooding. In the most likely scenario of a two-foot sea level rise, the report states, the NJ coast would creep 240 feet inland.

Wolfe would like to see all development eventually moved several miles inland from the coast. He says that the economy will benefit in the long term from moving the at-risk property by reducing the instances of rebuilding and lowering insurance premiums.

Limiting construction in at-risk areas, Wolfe said, is like restricting night driving for new drivers. Both initiatives limit a hazardous behavior and benefit society by reducing costs associated with them.

“You don’t have any right to create a hazard that’s going to impact me,” Wolfe said, “and if you are building in a flood area or storm surge area drives up my insurance rate, then you’re hurting me and society as a whole.”

The money for the bill should come from New Jersey’s general budget, Riley said, though taxes could be raised to cover the fund.

The only reason state money is involved is so the fund can grow without being taxed, Riley said. And after a certain period of time, he added, the IRS allows the state to recover some of its investment in public-private partnerships such as the catastrophe fund.

“This is long term policy planning,” Riley said. “Now we’re taking proactive steps forward and we’re going to see some of that money down the road.”

Market forces acting on the insurance industry may help limit coastal development because eventually they may refuse to underwrite vulnerable reconstruction, Goldsmith said.

But the insurance companies aren’t leaving yet.

“We’re not seeing any companies pulling out. We’re seeing a fairly stable market,” said Marshall McKnight, the public information officer for the New Jersey Department of Banking and Insurance. McKnight said that the NJDOBI shares the concern about issues raised by the fund but has not taken a position on the bill yet.

The proposed fund may actually attract more insurance companies to the state through providing a cheaper alternative to reinsurance.

Reinsurance is insurance for insurance companies. Insurers pay reinsurance businesses, which, Riley said are largely foreign-based or out-of-state, to cover claims beyond a certain cost in the case of an extensive disaster.

These reinsurance companies charge large fees for their coverage. This expense is then passed down to consumers in the form of heavier premiums. The fund would offer insurers a cheaper alternative to reinsurance, Riley said. It would hopefully attract more insurance companies to the state by decreasing the cost of insuring property, and it would follow that the increased competition would decrease policy prices for New Jersey residents.

Insurance companies have cause to worry about coastal development. Construction near the shore isn’t just poised to receive a battering from storms, but is highly vulnerable to storm surges. Beach replenishment is often used to protect from storms by combating erosion, but costs millions and must be repeated indefinitely. In 2000, the state’s coastal protection projects totaled 14 percent of the national total and accounted for $25 million annually, the Princeton report states.

“We’ve basically concentrated NJ to the point where the land can’t absorb the water,” Goldsmith said. More open land means more places for the water to go.

A concern of limiting coastal development is that it will harm the tourism industry. Tourism in New Jersey was a $25.7 billion industry in 2005, making it the ninth largest industry in New Jersey. It ranked as the third largest private sector employer, sustaining 472, 326 jobs.

“I don’t think anyone can say that it’s going to kill tourism to protect the environment on the Jersey Shore,” Chiles said. He noted that tourism and eco-tourism, such as bird-watching, fishing and sightseeing, depend on a clean and healthy environment.

Visitors will still head to the shore, and will pass through development to get there, so beach businesses and tourism will continue to thrive, said Tim Evans, research director for New Jersey Future, a land use research and policy group.

“There’s no development on Island Beach State Park. People still go there,” Evans said. “There are no shops on the island but people still have to go through Seaside to get there.”

But even if tourism wouldn’t be damaged, individual owners would probably fight backing away from the beach.

“In New Jersey the coast is so heavily urbanized and developed you can’t expect people to simply agree to retreat – there’s too much invested in the shore,” said Martin Bierbaum, director of the Municipal Land Use Center at the College of New Jersey.

Evans said that although residents may resist retreating, it is feasible to relocate coastal development inland. The state could require high-density developments to use less land, he said, and a transferable development rights (TDR) program could ensure that area is available for development where it is most environmentally sound.

A TDR program could restrict development along the coast without limiting construction in the state. TDR programs allow landowners in designated conservation areas to sell their development rights to others in designated growth areas. TDR purchasers are then able to build at a higher density than would otherwise have been allowed. The Pinelands Commission, for instance, has run a TDR program since 1981 through which over 40,000 acres of environmentally sensitive land and farmland in the southern New Jersey have been preserved.

Long Beach Island is an 18-mile-long barrier island located near the Pinelands in southern New Jersey, and has been heavily developed. About 9,000 people call Long Beach Island home year-round and many others drive hours from northern parts of the state to arrive at summer houses. They take breaks for miniature golf, enjoy fudge near the water slides and work at the shops and restaurants that spring to life with the end of school. Families reconnect in memory-laden homes and friends celebrate graduation.

Yet a hurricane or northeaster could easily devastate this thriving summer playland, and beach replenishment is a continuous necessity to combat erosion. The once-sloping dunes behind some homes on the south end now plunge steeply to narrow beaches. A 1944 hurricane that brushed within 30 miles of New Jersey’s coast destroyed over 300 homes on LBI. And a 1962 storm brought the ocean to the bay, forming a temporary inlet through the island. But despite periodic flooding, LBI has been settled since 1690, and it’s not likely people and businesses will leave.

“In the long run,” Riley said, “this is something that’s going to be good for the state of New Jersey, it’s going to be good for the residents of New Jersey and it’s going to be good for the insurance industry in New Jersey.”

Photos courtesy of the U.S. Geological Survey, lbi.net, Michael Oppenheimer and by Meghan O'Connell