#2: The Over-Federalization of Disasters Makes Everyone Worse Off
Whenever hurricane season begins, there are often multiple calls for Congress to adopt a catastrophic hurricane fund (CAT fund). This fund is the ultimate in public options—and would provide government insurance to homeowners and businesses in the most disaster prone regions.
But placing more federal dollars or resources in this manner will make everyone worse off. Not only does it force taxpayers from around the country to subsidize those who choose to live in these regions, it also provides a disincentive for state and local governments to get prepared for disaster—knowing that the federal government will bail them out.
Proof in the increased federalization is in the numbers. The number of federal disaster declarations has skyrocketed, and the number keeps going up. And it isn’t a Democrat or Republican problem; Presidents from both parties have chosen to exercise the declaration option more often than needed. A CAT fund would only make the problem worse by distorting the insurance market and encouraging risky behavior.
It isn’t fair to make all Americans subsidize the choices of a few. And we shouldn’t shortchange our preparedness abilities for a few federal dollars. As Mayer, Johns, and Carafano point out:
Most states in America are relatively safe from catastrophic natural disasters. The citizens living in those states should not be forced to subsidize those Americans who freely choose to live in a higher risk state. The Homeowners’ Defense Act will distort the insurance market and encourage risky behavior. Congress must stop federalizing disasters across America and let the markets determine the appropriate rates for homeowners insurance. Rather than creating another massive federal program through the Homeowners’ Defense Act, Congress should adopt a different strategy: letting the market due its job.
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