Let’s Rebuild Mexico Beach

By J.D. ALT

It’s telling that in the media coverage about the damage inflicted by Hurricane Michael, there are a lot of stories about how the citizens of Mexico Beach would like to rebuild their town, but no stories at all about how they might be enabled to do that. Only the opposite: why it’s going to be virtually impossible for Mexico Beach to ever be Mexico Beach again. Why is that?

One reason: These were modest structures in a modest town, paid for with modest, working-class incomes. They cannot be rebuilt as modest structures. If they are to be rebuilt at all, they will have to be elevated, heavier, stronger, laterally-braced and deeply rooted. Replacement costs will likely be on the order of $2 for every $1 of value they might have been insured for. That’s an expenditure few of the Mexico Beach citizenry can afford.

Another reason is the question of whether Mexico Beach should be rebuilt at all. A look at a topo map of the residential community—aligned on either side of HWY 98—shows an average ground elevation of 4 feet above sea-level. Current sea-level-rise (SLR) projections, based on existing ocean-water warming (and anticipated melting of the Antarctic and Greenland ice-sheets) are for a minimum of 3-6 feet of SLR in the next 20-30 years—well within the life-time of any replacement structures. Even if the Mexico Beach structures were elevated on pilings, eventually the roadways and utilities serving them would have to be elevated as well—a daunting public expenditure.

A third reason is this: The American way of doing things is for people to pull themselves up by their bootstraps, pay their own way, and solve their own problems through the mechanisms of free-market enterprise. When a large-scale disaster strikes, we pull together as a nation and provide “disaster relief” to help victims get through the first weeks and months of shock and chaos. We give them blankets and cots, food and water, shelter in gymnasiums or mobile trailers. We give them emergency funds to maybe fix a roof—but not to replace a house, let alone replace a house with one that costs twice as much as the original was worth. For that, they’re on their own in the free-market. Or, to put it another way, the free-market is on its own to “help” them.

Which is why most of the talk about Mexico Beach is about people selling their damaged property to developers, who will buy them for a song and build beach-front condos which they’ll sell at a profit to buyers much less modest than the original Mexico Beach citizens. Because the condos could be put up so quickly, the banks financing the construction would be paid off—and the developer would have exited the scene with his profits—before any threat from the next hurricane had time to come along. And the mortgages taken out by the condo-buyers would be securitized in a myriad of shuffled bundles owned by nameless securities traders who wouldn’t hold them long enough to worry about their ultimate value when sea-level-rise begins lapping at the foundations—or would even know which part of their bundles are getting their feet wet. In the end, it will be the condo owners—many of them, likely, retirees—who will know that their equity positions have been wiped out by the impending SLR even while they still possess an outstanding mortgage coupon book.

The “market mechanism” can’t really deal with Mexico Beach in any other way. But there could be other mechanisms that provide a more rational, humane, and economically sensible outcome. Mexico Beach could be rebuilt as the intimate, small-scale, modest community it once was—and it could be occupied by the same families and businesses who were there before Hurricane Michael—and it could be done in a way that logically, ecologically, and economically prepares for the much larger challenge to come: the inevitable sea-level-rise that will, in thirty years or so, require it all to be finally abandoned. Here’s how:

Eight steps to rebuild Mexico Beach

1. Congress shall establish a National Sea-Level-Rise (SLR) Trust. The trust shall have the authority to purchase properties which are threatened with abandonment, due to SLR, within the time-frame of a 30-year mortgage.
2. Threatened property shall be purchased by the SLR Trust for the current appraised value of the property, or—in the case of recent storm or flood damage—the appraised value prior to the damage.
3. The purchase proceeds shall be in the form of an interest-bearing cash “target-account,” in the name of the seller, which can only be accessed for the purpose of purchasing, or building, a new dwelling in a location not threatened by SLR.
4. A citizen who has sold his property to the SLR Trust shall retain the right to occupy the property, rent it to others, and make improvements to it (at his own expense), until such time the property is abandoned to SLR.
5. A citizen holding the right-to-occupy an SLR Trust property which has been storm-damaged shall be provided a federally guaranteed, no-down-payment, prime-rate, 30-year loan, to repair or rebuild any structure that stood, or is standing, on the property; the amount of the loan shall not exceed the appraised value of the structure that existed prior to the storm damage.
6. Repaired or rebuilt structures shall not be required to meet upgraded building codes but may be built to the building code in force when the structure was originally built.
7. Occupants of such repaired or rebuilt properties shall be under a mandatory evacuation of the property whenever a hurricane or flood warning is posted by NOAA.
8. If the repaired or rebuilt structures are destroyed, or damaged as to render them unlivable, by a subsequent storm event, the SLR Trust shall order the property abandoned, and pay-off any outstanding mortgage principle that might remain.

Let’s stop here and evaluate what has been accomplished:

• The property owners of Mexico Beach have been offered the opportunity to sell their property to a National SLR Trust for its appraised value prior to Hurricane Michael—and prior to the general market awareness of the threat of SLR.
• Property owners who sell to the Trust retain the right to occupy and improve the property until such time it is abandoned to SLR. This provides them time—up to 30 years—to plan and implement a relocation, or to simply live out the remainder of their time without having to relocate.
• Participating property owners are provided a federally guaranteed, no-down-payment, prime-rate 30-year loan to repair or rebuild their property’s structures as they existed prior to Hurricane Michael.
• Participating owners have converted the equity they had in their property to an interest-bearing, cash “target account” which may be applied—at the time of their choosing—to the purchase or construction of a new dwelling in a location not threatened by SLR.

In other words, the citizens of Mexico Beach are enabled to rebuild their community as it was before the hurricane—and can occupy their rebuilt structures for a foreseeable future of up to 30 years. At the same, time two crucial preparations have also been made for the eventual abandonment of Mexico Beach due to sea-level-rise:

1. The land is now owned by a National SLR Trust which can implement an ecologically safe demolition process when the property is eventually abandoned to the sea.
2. The interest-bearing, cash “target-accounts” now held by the prior Mexico Beach owners constitute a pre-funded “consumer market” for replacement homes—or even replacement communities—in non-SLR-threatened locations. Thus, both funding and motivation have been loaded into a pipeline that will result in new construction and development solutions down the road. Such a pipeline could be expected to result in a protracted economic stimulus, as well as a (more or less) orderly retreat from the coast.

Okay, but where will all the dollars come from?

Before going any further, an obviously crucial question must be answered: Where will all the money come from? The proposed National SLR Trust, after all, is mandated not just to purchase Mexico Beach properties, but all U.S. coastal properties which are “threatened with abandonment, due to SLR, within the time-frame of a 30-year mortgage.” To put it perspective, this might include, for example, the entire city of Miami Beach. The magnitude of the SLR Trust’s spending, in other words, will be enormous. More to the point, it will far exceed the dollar-generating capacity of the U.S. federal tax system. There is no reason to even imagine tax-payer dollars footing the bill. So where will the money come from?

Fortunately, there is a group of economists who have been developing the answer to that question over the past two decades, and their findings are now ready for main-stream American politics to pay serious attention to. Their answer is this: In a very real and practical sense, the U.S. sovereign government already has the money.

The economists’ explanation has become known as “Modern Money Theory” or MMT. While the moniker stuck, there’s nothing “theoretical” at all about what these macroeconomic thinkers are telling us is demonstrably true: Since the United States (and the rest of the world) abandoned the gold-standard half a century ago, the U.S. Treasury and Federal Reserve have been operating with a pure “fiat” money system. And that system has remarkable capabilities. Although those capabilities have been demonstrated in key historical crises (such as WWII and, more recently, the Great Recession of 2008), they have never been grasped, or used proactively, by the political system. The time is at hand where that must change.

With respect to our proposed National SLR Trust—and the rebuilding of Mexico Beach, as just outlined—the funding would be created in the form of “SLR treasury bonds” issued by the U.S. Treasury. These bonds can be understood to be certificates of issuance of future U.S. fiat dollars—dollars that will become active and spendable when the bond matures. The Federal Reserve coordinates with its banking system to trade existing bank reserves for the SLR bonds. The traded bank reserves are then spent by the Treasury to meet the spending obligations of the SLR Trust. When the SLR treasury bonds mature, the “future” dollars they contain become spendable within the federal reserve banking system. There is no need to collect tax-dollars to “pay-off” the bond-holders: they already have the money.

According to MMT macroeconomics, true reality is this: The federal government is not constrained by a lack of U.S. dollars—since the Treasury and Federal Reserve are authorized to create fiat-dollars as necessary to meet the spending obligations assigned by Congress. The only thing that constrains federal spending are the real resources—labor, materials, energy, and technologies—that are available to undertake and achieve a particular goal agreed upon by Congress. In the case of rebuilding (and ultimately relocating) the Mexico Beach community—or even the entire city of Miami Beach—two things seem clear: (1) the real resources for the rebuilding and relocating are available. (2) Putting those resources to work, by means of SLR treasury bonds, would not only help thousands of American families recover from storm catastrophes, it would begin the work of adapting to what will become one of our greatest collective challenges—the large-scale retreat from coastal cities and towns as sea-level rises. Finally, it would set into motion an expanding and protracted economic stimulus that will benefit local communities—large and small alike—all around the country: An orderly retreat from the coast-lines, after all, could easily see new communities and neighborhoods sprout up in the Midwest or the Rocky Mountains.

As the first step in a larger macroeconomic transformation, then, let’s rebuild Mexico Beach!