Katrina's Cost

Following the devastating hurricane and flooding in the Gulf region, President Bush sent Congress two separate requests for hurricane relief, which the House and the Senate passed without delay. They raise Katrina's cost to federal taxpayers to $62 billion so far.

The mounting cost of the hurricane comes at a time when the budget deficit is large, and the cost of the war in Iraq is steadily increasing. Moreover, it comes at a time when the long-term fiscal imbalance is projected to be on the order of 20 percentage points of gross domestic product annually. Given these numbers, let's hope members of Congress will be willing to take a serious look at curbing out-of-control government spending.

The Katrina costs add to the billions of dollars private citizens have donated to aid victims of the hurricane. So while the federal government should help pay for the recovery of affected Gulf states, the president and Congress should also make sure that it does not impose excessive costs on the American economy.

As such, the president should insist that the $62 billion be offset with equivalent spending cuts. The good news is that it shouldn't be too difficult. There is a lot of fat in the current budget.

During the last five years, total federal spending increased by 40.3 percent. Contrary to general belief, most of the new spending is unrelated to Sept. 11 or Iraq. In fact, defense spending accounts for less than one-third of the $610 billion increase in discretionary spending since 2001.

The termination of some programs would save taxpayers about $62 billion. For instance, the work of many government employees, among them NASA workers and air traffic controllers, should be privatized, and the federal government should also sell defective business operations, such as Amtrak.

The government should also cut billions of dollars earmarked for ineffective international aid agencies. Studies have shown how the $2.7 billion spent on foreign economic aid does not promote economic growth abroad and sometimes enriches corrupt and odious regimes. And the Agency for International Development has proven ineffective and wasteful, and needs to be abolished.

Finally, an important lesson needs to be learned from the Katrina tragedy: The federal government should get out of the disaster-relief business. The National Flood Insurance Program was established by Congress to cover property owners who build in flood-prone areas--locations considered too great a risk for private insurers. The program heavily subsidizes some of the riskiest customers, lowering their expected cost of living in dangerous areas.

Not only does the federal program encourage dangerous behavior, but it allows people to constantly make the same mistake. In fact, most claims come from properties that flood repeatedly. There is no reason to ask taxpayers who made the choice to live in safe areas to foot the bill for bad decisions on the part of those who want to live in precarious locations.

Risk-based premiums can be accurately set. The premium for the homeowner living in Dauphin Island, one of the most vulnerable barrier islands in the nation, should be much higher than the one paid by the homeowner in a lower-risk area. And the premium for a homeowner whose house has already been flooded should be even higher when the owner refuses to move.

There should also be a difference between homeowners in earthquake areas who build to the local seismic standards and those who don't. Everyone should be free to live where he or she wants and in the house of his or her choice, as long as he or she is willing to pay the price.

Like millions of Americans who have made personal sacrifices to help the survivors of Katrina's devastation, the president and Congress should make a sacrifice of their own and cut low-priority spending and wasteful programs to offset the new hurricane-relief spending increases.

They also need to get the federal government out of the disaster-relief business to promote responsible behavior on the part of individuals and businesses, which could save taxpayers money in the future. Being compassionate should not prevent lawmakers from being responsible leaders.

Veronique de Rugy is a research fellow at AEI.

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