AMES, Iowa -- We know the 2008 floods devastated Iowa, with 83 of the state's 99 counties being declared disaster areas by Gov. Chet Culver. But what we won't know for some time is the actual economic impact of those flood-damage losses, according to a new report by economists from Iowa State University's Regional Capacity Analysis Program (ReCAP).
The report, "Economic Impacts of the 2008 Floods in Iowa," details how the economic impact of this year's flooding will be calculated. Once all of the official losses are reported, ISU economists say the total may approach or exceed the $1.45 billion in losses to crops, livestock and personal property/income reported in the 1993 floods. (ISU Professor of Economics Dan Otto was lead author of that October 1993 report.)
But until the current numbers are in, any early projections putting losses in the billions of dollars are premature, the ISU economists say.
"We can measure lots of things. What we can't measure is the thing that people really, really want to know -- and that's the cost to the state in terms of losses from the flooding," said Liesl Eathington, director of ReCAP and lead author on the report. "We won't know that until everyone reports the damage. We also won't know that until some of the (state, federal and private) aid starts to flow in, which could take months -- or in some cases, even years."
Expect 1-3 years until the numbers are in
Eathington says economists will rely on government accounts of the economy, which come out quarterly, but only at the state level and usually with a one-year lag.
"And so it may be a year, two years or three before we can actually look at the overall performance of the economy and figure out what the net effect was," she said.
Otto's 1993 report also figured in the net effect. Taking into consideration offsets such as insurance, federal disaster payments and/or grants, and additional contributions, the report put total net ag losses at $676 million, net wealth losses at $113.1 million and lost personal income at $112 million from the '93 floods.
For now, economists can only estimate losses. As an example, the ReCAP report estimates the loss to farmers from this year's flooding. The USDA reported that nine percent of corn acres and eight percent of soybeans have been flooded. Assuming that half of that land is still able to be planted or replanted into soybeans, then ISU economist Dave Swenson calculated that the change in anticipated gross sales for Iowa's crop farmers might be as much as $1.2 to $1.5 billion less than it otherwise might have been in a normal growing year.
When losses are officially reported and the economists begin to calculate the full extent of the damage, Eathington points out that the economic impact may overstate the effects on businesses and understate the effects on households.
"It's easier to get numbers for businesses because they have those types of records," Eathington said. "They're more likely to keep track of what they had and what they lost. It's much harder to get numbers for households. And in a lot of cases (of people who experienced flood losses), there's no point in even tallying the household losses because they're not going to be compensated."
"I would think by next year, when you start looking at business in these towns that were flooded, you're going to start seeing decline," said Meghan O'Brien, a ReCAP economist who specializes in retail business. "You might have a better picture of the overall health than you would with households, but even then, it's something that will play out over years. So I don't know that you'll have a firm grasp on actual business loss for a while."
Don't judge economic impact by GDP
In the 1993 floods, real nonfarm Gross Domestic Product (GDP) in Iowa actually posted a 2.7 percent gain. But the ISU economists warn that it may be different this time around because the economy was coming out of a recession in 1993 and could be entering one this summer.
But GDP isn't really a good gauge when it comes to measuring a disaster's economic impact anyway.
"A contributing reason GDP went up in '93 is because of the rebuilding and disaster dollars that came into Iowa," Otto said. "These are measured by GDP and from an aggregate statewide measure, this was an economic stimulus. On the other hand, there were certainly losses in personal wealth which is not measured in GDP accounts."
"Caution must be used when looking at GDP growth following a disaster," O'Brien said. "It does not capture the whole story nor should it imply that floods have some net benefit for the economy. Real people, especially those affected by the floods, can no more feel GDP growth than they can recover what was lost in the floods."
The ReCAP staff plans to continue analyzing the economic impacts of the 2008 floods to Iowa as data becomes available.