July 13, 2007

Red lights and Insurance Rates

Two articles caught my eye last week. The NC Supreme Court decided that revenues from red-light enforcement cameras had to go to local school boards while a struggle between the folks at FEMA and the state Building Code Council threatens to drive up flood insurance rates. Both issues feature struggles between government agencies and both prove the adage the good public policies often come into conflict*. I was going to write about the recent developments in affordable housing but Ronnie at Outer Banks Real Estate has covered that topic quite well.
Red-light cameras have been increasingly popular around the state. They offer a dual benefit. They have a long track record of reducing red-light running and the associated side impact crashes. They also have been free or even better provided a revenue stream that governments could use to further improve traffic safety. The programs use an innovative financing method where a private company installs and operates the camera, providing the city with a list of violators for approval and enforcement action. In return the company keeps a share of the revenue from the enforcement fines.
The controversy arises from a clause in the state constitution that requires all "fines and forfeitures" to be used to fund public schools. When the legislature began authorizing the use of cameras they dodged this issue, allowing towns to operate under the model described above. The towns position was that the share of the revenue going to the private firms represented "costs of collection". The courts have historically allowed governments to deduct costs of collection from fees before passing them on to local school boards. Historically the costs have been capped at 10%. The town of Winstion-Salem was challenged by a motorist who claimed the ticket he got for running a red light was part of an unconstitutional program. The school board, seeing a major potential revenue source quickly agreed and joined the suit. The case made its way to the Supreme Court which ruled last week that the 10% limit applied and the revenue would have to be turned over to the BOEs.
The windfall for education comes at a price for public safety. The cameras are expensive to install and operate without the support of the revenue they generate. Don't expect to see new cameras anytime soon despite their proven benefits. Towns can't afford them and it would take a constitutional amendment (read statewide referendum) to change to court's position. The constitutional constraint on the keeping the revenue serves broadly to keep local governments from using law enforcement as a revenue tool rather than to maintain public safety. You can't lower property taxes or raise police salaries by running speed traps, the money goes to the school board. Funding education is good public policy as is enforcement for the right reasons. Increasing traffic safety and saving lives at low cost is good public policy. Good policies conflict the Wilimington Star News has an opinion, what do you think?
The second issue gets even more convoluted (if thats possible). FEMA manages the Federal Flood Insurance Program (FFIP). Local governments must meet certain minimum standards before coverage can be extended to homes in the area. The program encourages communities to go beyond the minimum by offering discounted rates for cities that adopt good flood prevention programs. The savings can be quite significant. At one point the savings in Nags Head equaled a penny on the tax rate. The ratepayers in Wilmington currently get a 25% discount as do several Dare towns.
Several years ago FFIP announced that the program would limit discounts in areas that didn't adopt stringent building code requirements, makes sense strong buildings should equal reduced flood damage, except the specific code provisions FFIP wanted to require involved protection from wind borne debris. Many localities around the country cried foul, how could a flood insurance agency justify requiring protection against wind related damage, damage that wouldn't be covered under their policies. The battle was joined and FFIP held firm in their position - Build better buildings or pay more for insurance simple.
Ah, would that it were that simple. In our state building codes are established by the North Carolina Building Code Council. As you would expect this group is dominated by the builders, largely by homebuilders. Local governments have little sway. Like the Utilities Commission, the Building Code Council protects its turf. Example, Nags Head can't require additional fire protection measures in homes used as rental property, even though it might save lives and similar standards exist for other commercial rental property. Why? because the Building Code Council controls building codes and Nag Head is preempted from adopting stronger standards by the provisions of the State Constitution that say when state regulates an issue the locals can't.
The Building Code Council has balked at adopting the revised wind-borne debris standards. They have several good policy reasons for resisting, foremost among them is the lack of any demonstrated benefit from the new standards. There is little data to prove the changes would save more than they would cost, and don't kid yourself they would cost. In fact cost is the council's second reason. They argue that the new standards would make already expensive coastal homes even less accessible to low and middle income families (remember I told you I wanted to write about affordable housing).
Currently we are at a stand off. The FFIP says it won't bend and Building Code Council says no changes in the wind-borne debris standards. Who wins - both boards will get what they want. Who loses - You do if you have flood insurance in a community with a decent rate discount. That discount will drop to 5% in the fall. You pay so new homeowners don't have to. Welcome to good government FEMA and Building Code Council style.
Which should it be safer buildings or more affordable homes? Both are good policy. What's your choice?

As Ron White says "I told you that story so I can tell you this one" Writing this takes me back to a post on the Outer Banks Republic blog. The post mused about an independent arbiter coming to the county to make the correct; the right decision about issues like replacing the Bonner bridge. Its a wonderfully appealing concept. You put all the facts on the table and come up with the right answer, should be simple. But public policy it isn't that simple and it shouldn't be. Legitimate policy goals conflict; traffic safety versus education. Safer homes vs. cheaper homes. The list is endless. The job of elected officials is to sift through the competing values and find the right balance. Its never easy and often involves compromise, compromise that single issue advocates call cowardice or pandering or worse. Advocates have the freedom to care about only one issue - global warming, free trade, public access ot our beautiful beaches, the list is endless. Elected leaders don't have that freedom. They have to address all the issues as fairly as they can. Remember that the next time government gores your sacred cow, maybe it wasn't a mistake but a choice of competing policies. Ask yourself if the outcome has benefits you don't value highly but others might. If you still don't like the choices remember municipal filing ends in a week. You have a chance to be the one making those choices. try it, you might like it.
Thanks for staying til the end.

* If you spend much time thinking about public policy issues you quickly realize that policies that seem sound when considered individually often impact other policies that are equally beneficial. Simple example the use of ethanol as a fuel additive reduces our reliance on fossil fuels at the same time requiring its diverts grain that could be used to feed the hungry and will drive up food prices as the market Which policy is more important solving world hunger or reducing our use of oil?
This type of choice occurs whenever policy decisions are made and its why honorable and honest people can disagree about solutions without either side being "wrong".


At 2:25 PM, Blogger Kevin Schwartz said...

Okay, the reality of the wind-borne debris deadlock is that the insurance lobby has equal or greater clout than the homebuilders and those two entities are really at center on this issue. And why? Because the insurance companies outright refuse to share any information about wind-borne debris losses, which the homebuilders think are negligible, especially on the coast. When is a piece of wind-borne debris going to crash through the window of an oceanfront home? Think about it.

Nobody is saying that doesn't happen, but trust and verify, right? So how can the insurance companies claim this is needed to get the additional flood discount without sharing data? That is the real issue.

At 7:08 PM, Blogger Monticello said...

I have been back and forth on red light cameras. I've read someplace that simply increasing the delay time at an intersection (the time for your light to become green after the opposing light goes to red) by a mere second has the same empirical effect on accidents as a red light camera. And, it seems that if the red light camera worked too well, the camera company would lose revenue.

But in the scheme of things, its not such a big deal either way, and with cameras you do catch and monetarily punish the offenders. It does seem silly that the State feels obliged to tell the locality how to spend their fine money. Suppose its left over from the bad old days of small town radar traps filling the municipal coffers?


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