costs of floodplain occupancy that are typically 

 borne by taxpayers or firms providing services to 

 floodplain activities. Examples of sucfi costs are 

 subsidized flood insurance; casualty income tax de- 

 ductions; flood emergency costs; and flood dam- 

 ages to utility, transportation, and communciation 

 systems. Reduction of costs not borne by the flood- 

 plain activities may be a major benefit of projects to 

 evacuate or relocate floodplain activities. Reduction 

 of flood damages borne by floodplain activities 

 should not be claimed as a benefit of evacuation or 

 relocation because they are already accounted for 

 in the fair market value of floodplain properties. 



(1) Benefit from saving insurance costs. One cat- 

 egory of costs that can be avoided by a removal 

 plan is public compensation for private flood dam- 

 ages through the subsidized Federal Flood Insur- 

 ance Program. Expressing savings in these exter- 

 nalized costs as project benefits is appropriate for 

 properties in communities that participate in the 

 Federal Flood Insurance Program or are expected 

 to participate under the without-project condition. 

 This benefit is the reduction of insurable flood dam- 

 ages projected over the life of the project with 

 careful attention to the projected without-project 

 condition. 



(2) Insurable flood damages. Base the projection 

 of insurable flood damages on traditional depth- 

 damage-frequency relationships used in projecting 

 total flood damages. Then reduce projected total 

 damages by subtracting. Losses that are noninsura- 

 ble either because they are in noninsurance loss 

 categories or because they exceed the coverage 

 limits of the subsidized program; the deductible por- 

 tion of each expected flood damage event; and the 

 annual cost of the insurance premium paid by the 

 policyholders. For this benefit calculation, assume 

 that all eligible parties purchase subsidized insur- 

 ance. This assumption is appropriate because the 

 market value of properties, which determines pro- 

 ject costs, reflects the availability of the program, 

 not the extent of its utilization by current floodplain 

 occupants. 



(b) Intensification benefits. If step 5 indicates that 

 land uses are the same with and without the pro- 

 ject but activity is more intense with the project, 

 measure the benefit as the increase in market 

 value of land from step 9 or changes in direct 

 income from step 6. Care must be taken to avoid 

 double counting. 



(c) Location benefits. If step 5 indicates that land 

 use is different with and without the project, meas- 

 ure the benefit by the change in the net income or 

 market value of the floodplain land and certain ad- 

 jacent land where, for example, the plan creates 

 open space (step 9). 



2.4.15 Evaluation procedure: Problems in 

 application. 



There are four major problem areas in computing 

 flood hazard reduction benefits: 



(a) Income losses. The loss of income by com- 

 mercial, industrial, and other business firms is diffi- 

 cult to measure because of the complexity involved 

 in determining whether the loss is recovered by the 

 firm at another location or at a later time. Direct in- 

 terview and empirical post-flood studies are the 

 most appropriate data sources for analyzing wheth- 

 er a real resource loss, such as idle capital or de- 

 caying inventories, is involved. The loss of income 

 because of idle labor may be measured from the 

 point of view of the firm or the household, but care 

 must be taken to avoid double-counting. Loss of 

 income because of idle labor must be net of 

 income to labor employed in cleanup and repair of 

 damages; unemployment compensation and other 

 transfer payments to idle labor are not income from 

 an NED perspective. 



(b) Intensification benefits. This category of bene- 

 fits is theoretically applicable to urban situations, 

 but there are to date few documented case studies. 

 This benefit cannot exceed the increased flood 

 damage potential when the existing activity is com- 

 pared to the intensified activity (without the pro- 

 posed plan). 



(c) Risk. The analysis of response to a flood 

 hazard is based on a probability weighting of floods 

 of various magnitude. This implies that floodplain 

 occupants are nsk-neutral, but many occupants, in- 

 dividually or as a group, either avert or accept risk. 

 Therefore, responses to actual and potential flood 

 damages should be viewed broadly in determining 

 land use, mode of conducting business, and even 

 benefits. Explain any significant deviations from ex- 

 pected behavior based on actual or potential flood 

 damages computed on a risk-neutral basis. 



(d) Sensitivity analyses. The report should con- 

 tain sensitivity analyses that present a range of 

 benefit levels representing data and assumptions 

 about which reasonable persons might differ. 

 Report the benefit level that is most probable; pres- 

 ent other levels for public information. If increases 

 in damages are based on increases in value, con- 

 duct a sensitivity analysis of value per structure 

 under the alternate assumption that there is no in- 

 crease in the average value of structure or contents 

 and that increases in damages are due solely to in- 

 creases in the number of structures and/or shifts 

 from one type of structure to another. 



39 



