The Preparedness Payoff: The Economic Benefits of Investing in Climate Resilience

Executive Summary

The U.S. experiences a multitude of disasters each year. The cost of cleaning up and rebuilding destroyed homes, businesses, equipment, and infrastructure is immense and growing. In 2022 alone, the cost of natural disasters exceeded $360 billion across the globe, including more than 40 weather events causing over $1 billion in damage.

Case Study: Sacramento

The Preparedness Payoff: Sacramento

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Investments in resilience and preparedness can reduce the cost of damage after a disaster. An accepted ratio is that $1 of investment reduces the damage and cleanup costs of a disaster by $6. What is less known—and what this study set out to find—is how investments in resilience and preparedness impact a community’s local economy, including jobs, workforce participation, production (GDP), and earned income for residents.

The Climate Resiliency Report from the U.S. Chamber of Commerce, Allstate, and the U.S. Chamber of Commerce Foundation shows that investments in resilience and preparedness can substantially reduce the economic costs associated with disasters. The study revealed that each $1 of investment in resilience and disaster preparedness reduces a community’s economic costs after an event by $7. That’s the median ratio for the 25 disasters modeled as part of the study.

That $7 of savings for economic costs is in addition to the $6 of savings for damage already assumed in our model. Combining the two ratios finds that every $1 invested in resilience and disaster preparedness saves $13 in economic impact, damage, and cleanup costs after the event.

• $7 + $6 = $13
  Amount saved in economic impact and cleanup costs for every $1 invested in resilience

Five of the 25 disaster scenarios that we modeled and analyzed are described below. They range in damage and cleanup costs from $1 billion to $130 billion and involve communities of different sizes across the country.

Each scenario highlights the jobs saved, workforce preserved, and economic savings that would come from investing up-front in resilience and disaster preparedness programs and resources. This is true in larger metropolitan areas as well as smaller rural areas and towns. It is also true for more severe major disasters and less severe events.

For example:

• $10.8 billion of investments in resilience and preparedness for a Category 4 hurricane striking Miami would prevent the loss of about 184,000 jobs and save about $26 billion of production and $17 billion of income.
• $833 million of investments in resilience and preparedness for a major earthquake striking San Diego would save about 38,000 jobs. The amount of production and income saved would be about $5.8 billion and $3.3 billion, respectively.
• $83 million of investments in resilience and preparedness for a serious tornado hitting Nashville would save more than 5,300 jobs. The amount of production and income saved would be more than $683 million and $464 million, respectively.
• $83 million of investments in resilience and preparedness for a drought/heat wave in Redding, California, would save 474 jobs, keep $67 million of output, and preserve more than $31 million of income in the area.
• $83 million of investments in resilience and preparedness for a major wildfire in Santa Fe would save 388 jobs, keep almost $45 million of output, and preserve more than $20 million of income in the area.

Investments in resilience and preparedness won’t prevent losses, but they can significantly reduce them. This has economic benefits for a community in terms of both continued economic growth and income. It is vital that community members, small business owners and decision makers at every level have a firm grasp of how such investments can substantially reduce the economic costs of disasters. This study is one small step in that direction.

Glossary of Terms

Disaster Scenarios and Their Impacts

We’ve quantified the losses associated with different disasters, and the benefits of preparing for them. These scenarios show how impacts vary with the size of the population affected and the severity of the disaster.

The larger the disaster (in severity/scope), the larger the destruction and subsequent costs. Not surprisingly, disasters that hit large urban centers as opposed to small towns and rural areas have larger overall costs. It follows that the benefits of pre-disaster mitigation, resilience, and preparedness are greater for larger population centers and larger disasters. Although the savings for smaller areas and less costly disasters are proportionally smaller, they are still large in absolute dollar terms.

Larger disasters such as hurricanes, large storms, and earthquakes also require more investment to reduce the potential damage.

A major hurricane in a highly populated region

A large hurricane hitting Miami (population 6.2 million) causing $130 billion in damage would be a major disaster, but that price tag would tell only a fraction of the human—and economic—story.

Cleaning up and rebuilding, including replacing destroyed homes, businesses, and equipment, requires significant time. The lost economic activity during this recovery time carries additional economic costs.

Category 4 Hurricane Hitting the Miami Area
Damage Inflicted: $130 billion

These other economic impacts would be vast. In addition to direct damage and deaths, the Miami area would lose more than 361,000 jobs (8% of all the jobs in the region). About 140,000 workers (3% of all workers) would leave the labor force, and close to 211,000 people (4% of the population) would move away. The costs would be over $46 billion in lost production and over $29 billion of lost income for local residents as the area recovers. 

If policymakers invested enough in the Miami area to cut the damage from the same storm in half ($10.8 billion), the economic costs would be substantially less. Such investments cannot prevent loss completely, but they would significantly reduce the overall long-term losses.

The same storm hitting Miami after these investments in resilience and preparedness would result in about 177,000 jobs lost, meaning the investments in resilience and preparedness would prevent the loss of 184,000 jobs. Those investments would prevent about 106,000 people from leaving the labor force and more than 164,000 from leaving the area. The amount of production and income saved would be $26 billion and $17 billion, respectively.

The payoff from investments in resilience and preparedness is enormous in this scenario. For instance, the Miami region could spend up to $26 billion and it would still see a positive return compared to the production losses it would suffer from a Category 4 hurricane. 

The $10.8 billion invested would create more than 126,000 jobs, attract more than 37,000 people to the area, grow the workforce by more than 24,000, increase production by close to $13 billion, and grow the area’s income by more than $8.5 billion. Additional investment, above $10.8 billion and up to $26 billion, would likely result in even larger economic gains.

• 361,000
  jobs lost without preparedness investment
• $26 billion
  saved in GDP with preparedness investment

An earthquake in a large metropolitan area

An earthquake hitting the San Diego area (population 3.2 million) causing $10 billion in damage would result in almost 77,000 job losses (3% of all the jobs in the region) and about 26,000 workers (2% of all workers) leaving the labor force. Close to 32,000 people (1% of the population) would likely move away. The dollar costs are over $11 billion in lost production and almost $6.5 billion in lost income for residents while the area recovers.

Earthquake Hitting the San Diego Area
Damage Inflicted: $10 billion

After $833 million of investments in resilience and preparedness, the same earthquake would result in about 39,000 jobs lost, meaning the investments in resilience and preparedness would save about 38,000 jobs. Similarly, those investments would save about 15,000 people from leaving the labor force and 18,200 from leaving the area. The amount of production and income saved would be about $5.8 billion and $3.3 billion, respectively.

In addition to lessening the destruction from a disaster, the payoff from investments in resilience and preparedness is large. For instance, if the San Diego region spent up to $5.8 billion, it would see a positive return compared to the lost output it would suffer from the earthquake. The $833 million invested would likely create about 7,200 jobs, attract more than 2,000 people to the area, grow the workforce by more than 1,800 workers, increase production by close to $1 billion, and grow the area’s income by more than $560 million. Additional investment, above $833 million and up to $5.8 billion, would also mean larger economic gains, further mitigating the losses should a disaster strike.

• $3.2 billion
  in earned income saved with preparedness investment
• 31,533
  people leave the area without preparedness investment

A tornado in a medium-size community

A tornado hitting the Nashville area (population 2 million) causing $1 billion in damage would likely result in 10,500 job losses (1% of all the jobs in the region) and about 2,300 workers (0.2% of all workers) leaving the labor force. Close to 3,500 people (0.2% of the population) would move away. The costs would likely total over $1.3 billion in lost production and $911 million in lost income for residents while the area recovers. 

The path of a tornado only strikes a concentrated area, but the Nashville metropolitan statistical area (MSA) has both dense urban and less dense suburban locations. If a tornado strikes the dense, urban downtown entertainment district, it would likely cause $1 billion in damage in a concentrated area. But, if it were to strike in a less-dense suburban area, the damage would be more spread out. The results here are the average across the MSA.

Tornado Hitting the Nashville Area
Damage Inflicted: $1 billion

The same tornado hitting Nashville after $83 million of investments in resilience and preparedness would likely save more than 5,300 jobs. Those investments would likely prevent about 1,300 people from leaving the labor force and almost 2,000 people from leaving the Nashville area. The amount of production and income saved would be more than $683 million and $464 million, respectively.

Aside from lessening the destruction from a disaster, the returns from the investments in resilience and preparedness would be huge. In this scenario, the Nashville region could spend up to $683 million and still see a positive return (when taking into account lost production alone). The jobs, population, production, and income saved are detailed in the table.  

• 2,308
  people leave the labor forces without preparedness investment
• 5,324
  jobs saved with preparedness investment

A drought/heat wave in a small community

A drought/heat wave hitting the Redding, California, area (population 180,000) causing $1 billion in damage would likely result in the loss of 975 jobs (1% of all the jobs in the region) and 246 workers (0.3% of all workers) leaving the labor force. Close to 265 people (0.1% of the population) would move away. That’s $124 million in lost production and $61 million of lost income for residents while the area recovers.

Drought/Heat Wave Hitting the Redding, CA Area
Damage Inflicted: $1 billion

The same drought/heat wave hitting Redding after $83 million of investments in resilience and preparedness would likely result in 501 jobs lost, 55 people leaving the workforce, and 37 people moving away. Those investments would preserve 474 jobs, keep 191 workers in the labor force, and cause 228 people to stay in the area. The investments would also save $68 million of output and $31.7 million in income.

After accounting for the gains from these preparedness investments, Redding would likely see a net gain in all five economic measures after a disaster occurs. The investments would create 530 jobs, bring 134 people into the labor force, bring 143 people into the region, and lead to $63 million in increased economic output and $33 million in income. Each of these amounts is greater than the losses from the heat wave. Therefore, with the right investments in preparedness, the Redding area economy would likely be stronger after the drought/heat wave.

Additional investment, above $83 million, for example, would also likely produce additional economic gains for the region.

• 530
  jobs gained from preparedness investment
• $63 million
  in GDP gained with preparedness investment

A wildfire in a small community

A severe wildfire hitting the Santa Fe, New Mexico, area (population 89,000) causing $1 billion in damage would likely result in the loss of 788 jobs (1% of all the jobs in the region), and about 157 workers (0.2% of all workers) leaving the labor force. Close to 188 people (0.1% of the population) would move away. That’s nearly $82 million in lost production and $38 million of lost income for residents while the area recovers. 

The same wildfire hitting Santa Fe after $83 million of investments in resilience and preparedness would likely result in about 400 jobs lost, 36 people leaving the workforce, and 33 people moving away. Those investments would preserve 388 jobs, keep 121 workers in the labor force, and cause 155 people to stay in the area. The investments would also save $44 million of output and $20 million in income. 

Wildfire Hitting the Santa Fe Area
Damage Inflicted: $1 billion

After accounting for the gains from these preparedness investments, Santa Fe would likely see a net gain in all five economic measures after a disaster occurs. The investments would create 405 jobs, bring 78 people into the labor force, bring 92 people into the region, and lead to $39 million in increased economic output and $19 million in income. Each of these amounts is greater than the losses from the wildfire. Therefore, with the right investments in preparedness, the Santa Fe area economy would likely be stronger after the wildfire. 

Additional investment, above $83 million, for example, would also likely produce additional economic gains for the region.

• $81 million
  in lost GDP without preparedness investment
• $44 million
  in GDP saved with preparedness investment

Other Scenarios

We simulated 20 other disasters using the same model (see Appendix). They show similarly large benefits from resilience and preparedness investments. In fact, these investments have large potential benefits in smaller communities, greater than the losses caused by a $500 million disaster.

For example, measures taken to prepare for $1 billion disasters in communities like Gulfport, Mississippi, would provide more benefits after a disaster than the up-front costs. The benefits in a community the size of Wilmington, North Carolina, are about equal to the costs of the disaster.

If a disaster does not hit, communities still enjoy the economic gains from investments in preparedness. Those gains are seen in the tables in the Appendix.

In large or small metropolitan areas, whether rural or urban, investing in resilience and preparedness would likely preserve jobs and income that would otherwise be lost following a serious disaster. And the larger the investment, the larger the potential benefits. 

Conclusion: Resilience and Preparedness Pays Big Dividends

Federal, state, and local policymakers—as well as families and businesses—face hard choices about how much to invest in resilience, preparedness, and pre-disaster mitigation. They must balance the need to spend on other priorities with the need to protect their communities in case of disaster.

Many often focus on the tangible cleanup and repair costs that are typically directly spent to recover after a disaster. However, there are frequently other economic costs that go unseen: lost jobs, lost homes, lost population, lower labor force numbers, reduced economic production, and missing income that must be accounted for in city budgets and by planning commissions. While investments in resilience and preparedness cannot totally prevent these losses, they can significantly reduce them. In fact, as this study shows, dollars spent on preparedness and resilience are much more effective at reducing the overall cost of disasters than dollars spent after the fact on recovery. Over time, these preparedness investments can have economic benefits as quantified in this report. 

Resilience, preparedness, and pre-disaster mitigation investments pay big returns—no matter what the disaster. They cannot prevent or erase the direct, obvious damage, but they can greatly lessen the human toll over the long term, which is more important than any economic benefits.

Report prepared in partnership with: