Are your government’s finances ready for an earthquake?

Jun 9, 2022

As part of “Cascadia Rising”—a series of exercises from June 13 to 16 to test Washington and Oregon's response and recovery capabilities to catastrophic earthquakes—SAO has compiled some steps governments can take to financially prepare for potentially large earthquakes and other natural disasters.

The Cascadia Subduction Zone (CSZ) is a large fault line stretching from northern California to southern Canada that is capable of producing the strongest of earthquakes. Stresses have been building along this zone for more than 300 years; experts believe that a giant earthquake, including one as high as a magnitude 9.0, followed by large tsunami, has a 15 to 25 percent chance of occurring in the next 50 years. A CSZ earthquake will greatly affect nearly every city and town in western Washington, as well as all sectors of our state's economy.

While the CSZ has the potential to be the largest disaster in Washington's history, other earthquake risks exist across the state. In fact, the Washington State Department of Natural Resources reports on earthquake risk for 19 other scenarios in our state that could directly affect counties like Yakima, Kittitas, Douglas, Chelan and Walla Walla. A major earthquake is going to be very costly if your area is directly affected, and even more so if your government is unprepared.

Your government may have an emergency response plan, but as financial managers, have you been included in some of those discussions? Your role in disaster preparation could include advising your board on financial risk management strategies, budgeting and capital improvement planning, grant management, and assessing the adequacy of emergency cash reserves. Here are some steps you can take to help your government financially prepare for a large earthquake disaster:

  • Solidify your business continuity plan. Your government should have a business continuity plan for financial services—something that will work even if you have no Internet, power or phone service. Staff should be trained on how to access the plan in case of an emergency.
  • Assess capital asset vulnerabilities. Financial managers should understand how many capital assets are at risk, including buildings, utility infrastructure, bridges and critical roads, and how seismic remediation work will be prioritized. Local governments that spend money now on seismic remediation can save themselves from incurring larger losses later, after an earthquake has wreaked its havoc. Ideally, you want to know how much seismic remediation is expected to cost, as well as cost estimates if repairs are not accomplished before an earthquake occurs. This information should inform your insurance decisions, capital improvement planning and utility rate-setting processes.
  • Form your financial risk management strategy. Know your insurance options and coverage details, as well as your insurance company's size and financial standing. Parametric risk insurance is an emerging tool that provides a set payout based on the earthquake's magnitude rather than the extent of damage. These products could pay out within days, whereas insurance proceeds may take months or even one to two years.
  • Familiarize yourself with preparedness and mitigation grant funding. Grants are available to pay for mitigation and preparedness efforts, such as the Emergency Management Performance Grant, the program for infrastructure preparedness called Building Resilient Infrastructure and Communities, and the Hazard Mitigation Grant Program. These opportunities are available to local jurisdictions as subrecipients to the state. You can find more information at https://mil.wa.gov/grants.
  • Qualify your government for recovery-based grants now. Learn about recovery-based grants and the steps you need to take now to qualify for grant funding after a disaster. Recovery-based grants can have prequalifying conditions or requirements for maintaining eligibility, such as mapping your community, seeking preapproval, creating a hazard mitigation plan, maintaining insurance, or implementing certain building codes. Talk with your local emergency management department, the Washington State Department of Commerce, and the Washington State Military Department to help identify potential programs.
  • Advise the governing body on emergency cash reserve levels. Depending on the size of the earthquake, an event of this nature could be more costly than you ever imagined, and your emergency cash reserves should reflect your estimated need. Consider the effects on your tax revenues, the extra costs to support the community, potentially high costs for materials and supplies to carry out repairs, and the overall estimated length of recovery.
  • Prepare to manage grant(s). You will need people with special skills to apply for and manage federal grant money. They should be familiar with local and federal procurement rules as well as grant regulations and local grant policies. Evaluate your capacity to manage an influx of grant funds and what steps you will need to take if the need exceeds the capability of your resources. You'll want to think about how you would meet those financial management obligations and what that process may entail (e.g., expedited hiring). If you do not manage these grants properly and maintain the appropriate documentation, you may have to repay grant funds years after receiving them.
  • Create a recovery plan for your tax base. As a financial manager, you could help other leaders in your government plan a course of action to help your tax base recover faster after an earthquake. Plan and prioritize how best to support various industries in your community.

Given the potentially hefty price tag of an earthquake disaster, you should be informed about the extent of risk facing your government and the financial implications, and you should be actively helping to shape the path forward.

Learn more about the earthquake risks in Washington

Contact us

If you have questions, comments or suggestions, feel free to email us at Center@sao.wa.gov.

Note: Earthquake probability statistics were obtained from the Pacific Northwest Seismic Network, which were adapted from the United States Geological Survey. Read more in the School Seismic Safety Project 2019-2021 Legislative Report (see Figure 1, page 11).