Before the Flood: Climate Destruction and the Bailout of Connecticut’s Gold Coast

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The average house on Fairfield Beach Road in Fairfield, Conn., is big, beautiful, and expensive—several million dollars at the low end. Some houses are second homes, and many have been in the owners’ families for generations. Each property has a priceless real estate asset: a private beachfront on the Long Island Sound.

On a fall evening in 2012, as Hurricane Sandy battered the East Coast, a few of these houses were swept into the Sound. For homeowners, it was a sign that the effects of climate change were already here, even in the richest county in Connecticut. Stephanie Thompson, a realtor who sells in the Fairfield Beach area, remembers the damage. “We had so many trees down, we were without power for over a week. . . . I mean, a lot of houses got knocked down,” she recalls. But the destruction didn’t push Stephanie out of business. “Did it affect sales on Fairfield Beach? No. Not at all,” she says.

Warming oceans mean that storms like Sandy will be all the more common. And as glaciers melt and sea levels rise, the Sound will inch closer and closer to those houses along Fairfield Beach Road. According to CIRCA, a climate non-profit funded by the University of Connecticut (UConn) and the Connecticut state government, the Sound will rise 20 inches by 2050, putting coastal property in Connecticut further at risk of flooding and destruction. The numbers beg the question: How could the best investors in the world own some of the worst long-term investments? The answer: a little denial, and a lot of taxpayer dollars helping wealthy homeowners stay on the shore.

Don’t You Know How Bad It’s Going to Be?

For 18 years, Mitch and Jess McManus lived on a hill in the upland area of Fairfield, safely outside of the flood zone. But a few years ago, they moved directly onto the waterfront, at the end of Fairfield’s Harbor Road. The water is now a few yards from their window. 

“Why did you guys decide to move?” I ask the McManuses, sitting in their kitchen on a rainy day. 

Jess, a stay-at-home mom, smiles and waves her arm towards the large windows in the adjoining living room, through which we can see the water. “This!” she says. “The view.” 

“I think it was a lifestyle choice,” Mitch, a luxury car salesman, adds. “Rather than an investment, [it was a] value choice.” During Sandy, the McManuses’ old house was undamaged, but they weren’t blind to the destruction. After the storm, Mitch and Jess went around town helping friends clear debris. “I had a pump,” Mitch says, “so I’d go from friend’s house to friend’s house to help them clear out their basements because they were completely filled with water.” 

Witnessing Sandy didn’t deter the McManuses from moving right onto the water. In fact, when I spoke to them, they seemed unsure as to how their new house fared during the hurricane. But Joan Hatheway, another resident of Harbor Road, does remember. “I don’t know the McManuses, but I have a dog, and there’s a dog park around there, so I know the area. And we saw those houses flood in the storm,” Joan tells me.

The McManuses aren’t the only ones settling down right on the ocean. Brad Purcell, an investment manager, has lived on Fairfield Beach Road since 2007. He’s building a new property four houses down from his current home. During Sandy, Brad’s basement flooded with several feet of water and the sea rose right up to the back door, stopping inches from the main living area. Still, Brad doesn’t think people are wrong to move on from thinking about Sandy. While he readily admits that the climate is changing and storms are getting worse, he’s not concerned. “We haven’t had a big storm since Sandy,” Brad says. “People are starting to say, well, maybe that really was a 100-year storm and, yeah, we’ll have storms, but we’re not going to have another storm like Sandy.”

The experts disagree. A few weeks before my conversation with Brad, the most important town officials, environmentalists, and academics working on coastal resiliency in Connecticut gathered in a conference room at Fairfield University, in the uphill part of town. The occasion was the first annual Resilient Connecticut Summit. From the first panel discussion, the tone was bleak. 

George Bradner, an official in the Connecticut Insurance Department, told the audience that a disaster worse than Sandy is on the horizon. “What keeps me up at night is that ’38 Express,” he said, referring to the 1938 New England Hurricane, which was a Category 3 storm when it hit Connecticut. (Hurricane Sandy was downgraded to just below Category 1, the lowest grade of hurricane, right before hitting Fairfield.) George continued, “It’s long overdue. The probability of an event like that is much more likely [now] than it was 80 years ago.”

Lori Mathieu, an official in Connecticut’s Department of Public Health, agreed: “We love our little towns, and want to preserve them. But the Category 3 is coming.”

After assuring me that a storm like Sandy isn’t coming again anytime soon, Brad Purcell, the investor, asks me to pull up a website on my laptop, FloodIQ.com. If you enter an address, it shows its risk of flooding during a Category 1, 2, or 3 Hurricane. I type in Brad’s address and select Category 1. “We’re this little piece of land here,” Brad says, pointing to the one house not highlighted in blue or purple, which represent flooding levels, on Fairfield Beach Road. “And we’re still dry,” he says.  

I toggle the settings to show the impact of a Category 3, the type of storm that Lori Mathieu, the public health official, predicted is coming. Brad’s house on the map is now shaded deep purple, meaning three feet of flooding or more.

Brad blinks at the screen, and settles back into his seat. “I would be very concerned about a Category 3, after living through what was almost a Category 1,” he tells me. “Having said that, would it change my decision to live on the beach? No. It would not.” Brad gazes out the window. “I look out here,” he says, “and it’s extraordinary.” 

Jump On the Money

The night before Hurricane Sandy hit New England, Janet Megdadi-Sachs and Paul Sachs were at their son’s eighth birthday party. They’d heard the official suggestion that everyone in the flood zone in Fairfield—which included them—should evacuate, but were planning to stay at home. They had survived Hurricane Irene the previous year and assumed it would be fine to stick around for this storm, too. But a friend at the party insisted they evacuate that same night, so the Megdadi-Sachses went to stay with their in-laws in Branford, Conn. They wouldn’t return to their home for 10 months.

The flooding from Sandy was so severe in their neighborhood that several feet of water inundated their house—a standard two-story they had bought for $875,000 in 2007—and stood for two days before dissipating. Everything was ruined.

But today, Janet, an executive at Visa, leads me around her house with glee, pointing out the improvements from their $700,000 post-Sandy renovation. “We chopped off the garage and put a two-story addition on,” she brags from the front lawn, where she points out where the original roofline was. “We almost doubled the square footage,” she says. 

Since renovating, the Megdadi-Sachses’ house is now worth $1.25 million, they estimate. The nearly 50-percent increase in their property value was not despite Sandy—it was the opposite. These improvements were possible because of the hurricane. “Sandy was like a blessing in disguise,” Janet says.

After the storm ended, Janet and her husband Paul, a stay-at-home dad, started making phone calls—to the insurance companies; to FEMA affiliates; and to their neighbors, telling them to do the same. As soon as Hurricane Sandy was officially labelled a disaster by President Obama, disaster relief funds became available to families like the Megdadi-Sachses. Insurance provided through the National Flood Insurance Program (NFIP) gave Janet and Paul $250,000, and a FEMA-backed 30-year, fixed 1-percent interest rate loan provided another $350,000. Janet and Paul supplied the rest from their own pockets, but the $100,000 they put up in cash was still less than the boost in overall property value. Janet says, “We just jumped on the money really quickly.”

Janet and Paul see no problem with the amount of money they were given. “It’s the regulation behaving as it should,” Janet explains. It is in FEMA’s best interests, she says, if the houses that were destroyed are rebuilt in such a way that there’s no chance of floods destroying them again. The Megdadis-Sachses had to follow specific building instructions in order to qualify, including raising the home from its foundation. When I first arrived at their home, I had to walk up 14 steps to get to the front door.

Janet is well aware that her family won the lottery with Sandy, while less fortunate families are still recovering. “The thing about the affluent neighborhood,” Janet says, “is the people in the affluent neighborhood know how to work the system. That’s why you end up with these crazy beachfront communities where there’s not a house under $2 million. . . . I don’t know if that’s good or bad, but that’s where we’re heading.”

Selling the Dream

The subsidized recovery from Sandy is part of the reason that more and more real estate value is being concentrated on the disappearing shoreline. But the main reason the shoreline is still crowded with mansions has to do with flood insurance. In the mid-’60s, there were no mansions on the coast in Connecticut, according to Diane Ifkovic, an expert in flood mitigation planning at the Connecticut Department of Energy and Environmental Protection (DEEP). Diane says, “When these houses were first built in the ’30s, the ’40s, whatever, they were little shacks that people went to in the summer. They had no heat; they barely had a toilet.” Storms smaller than Sandy would hit the coast, and the properties would be damaged. But Diane says it was never a big deal because the properties weren’t worth much anyway. She tells me, “Oh well, they blew away. You put them back together with whatever blew up on the beach.”    

Today, there are no shacks in Fairfield, and the destruction posed by storms has higher stakes. For decades, the NFIP, the flood insurance program that bailed out the Megdadi-Sachses, has allowed people to build larger, higher-value houses in more flood-vulnerable areas.

The NFIP was formed in 1968 with the dual purpose of creating an affordable policy for towns at risk for flood damage, and to curb development in areas designated as floodplains. Towns across the country could opt in to the program, and give their residents the opportunity to purchase flood insurance through the program, which has subsidized premiums, far cheaper than the rates suggested by actual flood risk.

Isn’t it a good thing if insurance rates are low and people are protected from losing millions? According to Bruce Hyde, an expert in land use planning at UConn, the NFIP has been too good for homeowners. Bruce’s voice gets louder the longer we speak on the phone. “I’m sorry,” he says. “I’m on a rant because the National Flood Insurance Program ticks me off. Because what it did was it allowed people to build in places where they shouldn’t have built in the first place.”

Connecticut is one of the only states in the country where every municipality participates in the NFIP. As part of its rules, if you buy a house in a floodplain with a mortgage, you are required to purchase flood insurance. This provision was supposed to discourage people from buying properties in floodplains, but according to Stephanie Thompson, the Fairfield realtor, as richer buyers bought increasingly expensive homes, insurance became an afterthought—a small price to pay to stay within regulations. “Those houses are in the million-dollar level anyway,” Stephanie says. “You’re not dealing with entry-level buyers. Paying extra for flood insurance is something they’re happy to do.” 

For decades, the NFIP was like a dream for homeowners. But on the federal side, the math was adding up to be a nightmare. Insurance doesn’t work, from the supplier’s side, if you are routinely paying out more money to claims than you are taking in from costs of premiums and policies. Hurricane Katrina threw the NFIP’s finances into chaos; after Hurricanes Irene and Sandy, it became clear there was an issue with insurance costs. They were simply too low to account for the cost of rebuilding multi-million dollar homes on the coast, or to discourage from building in floodplains to begin with. By the end of the Sandy rebuilding process, the NFIP paid out $8 billion in claims. As of 2017, it is estimated that NFIP owes the U.S. Treasury over $24 billion.

In 2012, months before Hurricane Sandy but after Irene, Congress passed the first significant flood insurance reform act in a decade, the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters). Biggert-Waters pegged premiums to actual risks and called for premium costs to increase every year until they are equal with actuary-determined levels. Insurance costs skyrocketed, and the nationwide coastal real estate industry cried murder. In 2014, the industry successfully lobbied Washington for a new bill with less drastic increases, the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA). 

This act not only slowed down increases in premiums, but also eliminated a crucial provision that had been the real estate industry’s primary criticism of the previous bill. Under Biggert-Waters, if a house was sold, its insurance rate automatically adjusted to the actuarial rate. Now, under HFIAA, houses sold with unrealistically low policies keep those rates even after they are sold, allowing artificial safety on the shore to continue.

An Abusive Relationship

The climate crisis is already here. In 2018, over 17 million people became climate migrants as a result of 178 natural disasters. The World Bank reported in 2018 that, by 2050, over 143 million people worldwide could be displaced by climate-related disasters. Climate change impacts the poorest people first. Why should we care about how it’s going to affect the second homes of the richest people in the world?  

This answer is simple: Thanks to the NFIP, an economic co-dependency has formed between homeowners, town administrators, and the state of Connecticut that could ruin the finances of the entire state. 

Connecticut has a home-rule system, allowing each municipality to function as its own political entity. Each town handles its own finances, its own regulations, and importantly, its own measures for shoreline resiliency. For coastal towns, this is complicated by the fact that their budgets are dependent on the property tax revenue coming in from the expensive mansions that line the shore. 

In 2013, the Natural Resources Conservation Service submitted the suggestion to the state legislature in Hartford that the official strategy of coastal communities for shoreline resiliency must be managed retreat, where towns buy back the properties most at risk. Politicians representing shoreline communities immediately killed the resolution at the state level. 

Bruce Hyde, the land use expert, wasn’t surprised. “You’ve got politicians who can’t even respond to climate change right now, let alone try to explain to their constituents what managed retreat is and how it works,” Bruce says. “That is not a political move that anyone wants to take.”

The towns are in a difficult position. None want to voluntarily let millions of dollars leave the positive side of their registers. “[Shoreline residents] pay a huge amount of taxes,” says Diane Ifkovic, the flood mitigation planner. “It’s almost an abusive relationship, a cyclical, parasitic relationship between these properties and the towns, because [the towns] rely on them so heavily.” The towns can’t lose the properties, so they spend millions elevating roads, repairing sewer lines, and replacing storm-destroyed power lines so that they can run into the floodplain.  

Stephanie Thompson, the Fairfield realtor, sees in the codependent relationship between towns and coastal owners another injured party: the American taxpayer. She says, “If people want to live on the water, they live on the water. Personally, I think it’s a little unfair, because it’s you and I who are basically helping to pay for the insurance that covers the rebuilding of all their houses.” Those $24 billion in loans that the NFIP owes to the U.S. Treasury? Those are taxpayer dollars, and there is currently no plan on the table to repay the debt. Nine billion dollars of NFIP debt has been forgiven in the past two years, but the dual 2017 Hurricanes of Irma and Harvey returned the debts to their pre-forgiveness levels.

There’s no obvious solution to this codependency, but simple economics may bring the coastal real estate market, and thus Connecticut’s finances, to disaster if flood insurance costs begin to rise, or a storm worse than Sandy hits. Bruce Hyde thinks it could take a lot before property values dip significantly, but when it comes, it will be catastrophic. 

“And are we prepared for it?” Bruce asks. “No.”

The End of the Dream? 

How long can life on the shore continue as it is? Flood insurance costs are beginning to make real for homeowners the risks of living on the shore. Even under the more conservative HFIAA that passed in 2014, the rates inch closer to actuarial costs every year. The costs have increased significantly. According to Diane Ifkovic, who also acts as liaison between the NFIP and towns in Connecticut, “Every year your rate goes up no more than 15 percent. But that’s a lot each year. We did the math on this: It’s been five years, so right about now, your policy has basically doubled. It’s like compounding interest.” For many homeowners, the increase in prices has become prohibitive. “I’ve had people call,” Diane says, “where they ask, ‘When is this going to stop? I can’t afford this anymore.’”

But even with these first clues of a slowdown, development on the coast hasn’t stopped. Walking along Fairfield Beach Road today, there is almost no sign of the damage from Sandy. There are more properties there now than in 2012. Homeowners who can’t afford rising flood insurance costs sell their lots to richer buyers who can.

According to research published earlier this year by the real estate website Zillow, between 2010–2017, Connecticut built 478 new homes within the 10-year flood risk zone, which in total are worth over $880 million. Of those homes, 318 were in Fairfield County and are collectively worth $755 million. 

The more shocking statistic: In that time, Connecticut built 3.5 times more houses in the flood zone than in safer areas. That’s the highest ratio in the nation. All of the significant development is happening right on the Coast at a time when property values may begin their eventual decline. 

When I ask Bruce Hyde if he has read the Zillow report, he laughs. “I hadn’t heard that, but it doesn’t surprise me,” he says. Even if insurance costs are making it difficult for many people to afford living on the coast, there are still a lot of people with a lot of money in Fairfield County. Bruce tells me, “People have the money to build above the base-level elevation required based on the town zoning regulations, and they want to live on the shore. It’s as simple as that.”

Get Out While You Still Can

I ask each of the beachfront property owners if our discussion of the grim sea level rise statistics and ominous warnings from the experts have them doubting their long-term plans. Most are unfazed. 

The McManuses, who moved into the waterfront house near the dog park, smile politely when I tell them the sea may be at a dangerously high level for their home by 2050. Mitch laughs, and says, “I’ll be dead. I’m older than I look.” 

Jess smiles and rephrases her husband’s words. “We definitely feel like we’ll be here as long as we’re alive. It’s a special place. We love it. Maybe we’ll pass it down to our kids.”

Brad Purcell, who showed me FloodIQ.com, feels confident about his chances on Fairfield Beach Road. “Maybe this answers your question: If I didn’t have a mortgage, I would not have flood insurance,” he says. “That’s how strongly I feel about this house’s ability to withstand flooding.”

At the end of my conversation with the Megdadi-Sachses, the family who “jumped on the money,” Janet Megdadi-Sachs walks me down the stairs to the garage. It’s chilly because, in order to meet FEMA regulations, the garage is not fully enclosed. The outlets are high up, near the ceiling. Fake cobwebs and ghosts made from sheets hang from the walls. A chalkboard next to a zombie mannequin reads, “Get Out While You Still Can.” Janet turns to me and says, “We had a Halloween party in here and still haven’t cleaned up.” 

Paul and Janet plan to move when their youngest daughter, who is eight years old, turns 18 and goes to college, but they disagree on where they’d go. Janet would like to stay on the coast. “I would always live close to the ocean,” she says.

Paul disagrees. He was diagnosed with PTSD after Hurricane Sandy. “Still, to this day, it freaks me out when it rains really heavily. I would rather live somewhere where it’s not a possibility.” 

Janet looks at me to say she has zero concerns about flooding or a storm doing any damage to their house, now that they are FEMA-compliant. She declares, “I say no problem. Bring it on. I do not have PTSD.” 

The lifestyle choices of the experts I’ve spoken to are different. Diane Ifkovic lives in Haddam, Conn. It’s a 20-minute drive from the coast, but it sits on the Connecticut River, which will rise along with sea levels. I ask her if flooding is something she’s concerned about for her own home. “When I bought the house, I did look at the flood map,” Diane tells me. “The 500-year floodplain is at the very bottom of the hill I live on. So, I don’t really have concerns.”

I ask Diane, “So the storm would have to be apocalyptic to affect you?”

“It would have to be pretty biblical,” she laughs. 

Bruce Hyde lives in New London, Conn., half a mile from the Sound, but he says, based on the topography of the town, he’ll be safe from the effects of sea level rise. But about a half hour into our interview, the whole of which has been devoted to a stream of reasons why people shouldn’t live on the coast, he makes a confession: “I’ll tell you, I don’t know that if I didn’t have enough money, I wouldn’t do the same thing. In my head, I say that’s stupid to live on the shore, but it’s a really attractive place to live.” Even for someone whose main responsibility is working to save coastal towns from destruction, Bruce is still attracted by the mystique of living on the water.

“Fortunately, I don’t have to worry about making that decision,” Bruce tells me. “Because I don’t have the money to live on the shore.”

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