Aftermath Of The Hurricanes – Economic Dynamic

Hurricanes Harvey, Irma, and Maria have impacted numerous sectors in three distinct geographical areas of the United States. Sectors affected include tourism, housing, energy, transportation, and jobs.

Hurricane Maria exacerbated financial and infrastructure issues in Puerto Rico. A frail power grid and debilitated infrastructure has left the island nation in disarray. Congress will determine if Puerto Rico, a territory of the U.S., will receive the same assistance as Texas and Florida received, following Harvey and Irma.

In the wake of Hurricane Irma, preliminary damage estimates across the state of Florida may exceed $45 billion based on various economists reviewing the storm’s impact. Irma has already prompted new state mandates for all nursing homes to quickly install power generators, which was a deadly issue during the hurricane.

Property taxes are a vital source of state revenue for both Texas and Florida, where such funds pay for schools, roads, and other public services. Texas and Florida are 2 of 7 states that have no state income tax, creating a greater reliance on property taxes. State income tax can act as a buffer against a fall in sales tax revenues with states that impose it.

Florida state revenues could decline as residents spend cash on insurance deductibles and out of pocket damage expenses. About 76% of the state’s revenues come directly from sales tax. Tourists visiting Florida make up 13% of the state’s sales tax revenue, with nearly 113 million tourists visiting the state this past year. Tourism is expected to languish for sometime.

Much of the damage in both Texas and Florida was not due to direct hurricane damage, but from flooding. This complicates the issue since flooding is not covered by most homeowners insurance policies, thus leaving the financial burden to homeowners.

Federal Reserve member William Dudley said that the devastation caused by Hurricanes Harvey and Irma could boost U.S. economic growth in 2018 as rebuilding of infrastructure efforts get underway. The Fed also mentioned that the storms were unlikely to prevent the Fed from its rising rate trajectory or from reducing its $4.5 trillion balance sheet.

Sources: Federal Reserve, Texas.gov, Florida.gov, IRS