Opportunities, tradeoffs, and caveats for private sector involvement in US floodplain buyout programs

For several decades, the USA has increasingly relied on government-administered floodplain buyout programs to reduce flood risk and remove flood-damaged dwellings from floodplains. However, high transaction costs and long administrative timelines dramatically hamper buyout program efficiency. A growing literature describes significant barriers governments face in ensuring positive financial (and social) outcomes for displaced property owners. Some of these barriers may be the result of cost-sharing and other requirements placed on local and tribal governments. Under what conditions, financing mechanisms, and market structures could private sector involvement offer a meaningful strategy for improving buyout program performance and reducing costs? In this paper, we derive financial efficiency thresholds suggesting situational advantages to both private- and government-run buyout programs. We also evaluate alternative institutional structures for implementing buyouts and novel mechanisms for financing buyouts. For these alternatives, we note a variety of equity impacts, as they relate to community- and household-buyout selection processes, social and economic impacts, and cost-share requirements. We also describe ideas for incentivizing privately financed buyout markets, and identify areas of uncertainty with respect to potential changes to buyout policy structures. We show that, by distributing investment risks outside the public sector, certain privatization schemes could re-structure programs in a manner that achieves hazard mitigation objectives and aligns stakeholder interests. We couch these ideas within a discussion of legislative changes necessary to leverage private financing in implementing buyouts, noting legal and social equity challenges to these policy changes.