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By GRETCHEN MORGENSON
IT’S going to take a long time to get over Sandy. For homeowners, towns, hospitals, school districts — on and on — the recovery is painfully slow.
Everyone wants the rebuilding effort to go faster. But that takes money — something that many communities have precious little of. Sandy is likely to weigh on local governments and authorities that are already struggling.
You might think that lightening this burden would be a top priority for Washington. But given our enormous federal deficit, dollars are scarce. Of course, the federal government will send cash to cover emergency costs. But if this turns out to be even more expensive than we thought, local resources will be depleted.
Compounding the distress, economic activity is also likely to slow after the storm. Measuring the financial impact of an event like Sandy is imprecise. But a 2008 study by Eric Strobl, a research fellow at the Institute for the Study of Labor in Bonn, Germany, provides one benchmark.
His analysis, “The Economic Growth Impact of Hurricanes: Evidence from U.S. Coastal Counties,” studied effects of storms going back to 1975. Analyzing 409 coastal counties in 19 Eastern and Southern states, he concluded that counties hit by a hurricane experienced a 0.8 percent decrease in annual economic growth initially.
The year after a storm, Mr. Strobl said, these areas typically rebounded by about 0.2 percent. The net economic impact of these events, therefore, is a decline of 0.6 percent.
That’s no small hit, he argued, because the average annual growth rate in these counties is around 1.68 percent.
As economic activity slows, of course, state and local debt issuers that rely on revenue — think bridge and tunnel authorities and transit systems — experience lower cash flows. While an analysis by Fitch Ratings of 23 such issuers in Sandy’s path concluded that most have enough cash to cover potential shortfalls, Fitch also noted that federal emergency money could not be tapped to cover costs of improvements beyond predisaster status. And insurance policies don’t necessarily cover flood damage.
MUNICIPAL finance experts say that larger cities and bigger debt issuers will be less imperiled by Sandy over the long term. But small towns could find it hard to bounce back because their tax rolls may be permanently reduced by the storm.
That’s the view of Richard P. Larkin, director of credit analysis at Herbert J. Sims & Company in Iselin, N.J. “In some of these smaller towns that really got whacked, it may not make sense financially for everyone to rebuild,” he said. “When a small town loses a significant portion of its tax base, you wonder what will be left for it to pay its bills. There’s nothing on the books that says if a city is destroyed the state will assume the debt.”
Municipalities clearly need all the help they can get right now. And John R. Mousseau, director of fixed income at Cumberland Advisors, an asset management firm in Sarasota, Fla., has three ideas for how to deliver much-needed assistance.
First, Mr. Mousseau said, Congress should bring back Build America Bonds, the temporary program created during the credit crisis to raise money for new infrastructure projects.
Almost $200 billion of these bonds were issued from April 2009 to the end of 2010 to build bridges, schools, public hospitals and housing. The federal government paid 35 percent of the interest on the bonds, and public debt issuers saved an estimated $20 billion in borrowing costs, the Treasury Department said.
“Post-Sandy, you’re building and rebuilding a lot of stuff,” Mr. Mousseau said. “Maybe you don’t do it at a 35 percent subsidy, but it’s an effective way to lower costs for municipal governments. And the economic multiplier is far larger than that of any transfer payment.”
Mr. Mousseau also urged Congress to lift the restriction barring issuers from being able to refund bonds now that mature in the years to come. This would let issuers shave costs by locking in today’s lower interest rates.
By law, issuers can raise money to refund noncallable bonds only once before those bonds mature. During the financial crisis, however, Congress relaxed this law, letting issuers pay off so-called refunding issues a second time.
“If the Port Authority years ago issued 5.5 percent bonds to refund an older 7 percent issue, those bonds may have years till they mature,” Mr. Mousseau said, referring to the Port Authority of New York and New Jersey. If Congress changed the law so that the Port Authority could refund that issue again today at 3 percent, it would save a significant amount in debt service costs.
FINALLY, Mr. Mousseau said the storm’s effect on public finance issuers underscored the appeal of municipal bond banks that allow small towns or school districts to raise money faster and less expensively than through usual channels.
States organize bond banks as independent authorities that combine numerous local debt issues into a single large deal. Bond banks have their own overseers, and ratings agencies analyze the banks’ creditworthiness, grading issues accordingly.
In pooled deals, smaller issuers don’t have to pay for their own bond counsels and underwriters, reducing their costs. The offerings can come to market more quickly as well.
Roughly a dozen states have bond banks — Maine, Vermont and Virginia are three. New Jersey and New York do not have a bond bank; if they did, smaller debt issuers would have an easier time raising money after Sandy, Mr. Mousseau said.
“In these last days of a lame-duck Congress, I hope we’ll see them reach across the aisle, not only on the fiscal cliff but also on this problem that needs addressing,” Mr. Mousseau added. “People have been wiped out by Sandy, and it should not be business as usual. If things need to be sped up, whether it’s issuing bonds or getting utility trucks in place, we’ve got to do it.”
"Driven of late by freakish storms" (or as my wife says, the New Norm) . . .
Hurricane Sandy and the Disaster-Preparedness Economy
By ANDREW MARTIN
WAUKESHA, Wis.
FOLKS here don’t wish disaster on their fellow Americans. They didn’t pray for Hurricane Sandy to come grinding up the East Coast, tearing lives apart and plunging millions into darkness.
But the fact is, disasters are good business in Waukesha. And, lately, there have been a lot of disasters.
This Milwaukee suburb, once known for its curative spring waters and, more recently, for being a Republican stronghold in a state that President Obama won on Election Day, happens to be the home of one of the largest makers of residential generators in the country. So when the lights go out in New York — or on the storm-savaged Jersey Shore or in tornado-hit Missouri or wherever — the orders come pouring in like a tidal surge.
It’s all part of what you might call the Mad Max Economy, a multibillion-dollar-a-year collection of industries that thrive when things get really, really bad. Weather radios, kerosene heaters, D batteries, candles, industrial fans for drying soggy homes — all are scarce and coveted in the gloomy aftermath of Hurricane Sandy and her ilk.
It didn’t start with the last few hurricanes, either. Modern Mad Max capitalism has been around a while, decades even, growing out of something like old-fashioned self-reliance, political beliefs and post-Apocalyptic visions. The cold war may have been the start, when schoolchildren dove under desks and ordinary citizens dug bomb shelters out back. But economic fears, as well as worries about climate change and an unreliable electronic grid have all fed it.
Driven of late by freakish storms, this industry is growing fast, well beyond the fringe groups that first embraced it. And by some measures, it’s bigger than ever.
Businesses like Generac Power Systems, one of three companies in Wisconsin turning out generators, are just the start.
The market for gasoline cans, for example, was flat for years. No longer. “Demand for gas cans is phenomenal, to the point where we can’t keep up with demand,” says Phil Monckton, vice president for sales and marketing at Scepter, a manufacturer based in Scarborough, Ontario. “There was inventory built up, but it is long gone.”
Even now, nearly two weeks after the superstorm made landfall in New Jersey, batteries are a hot commodity in the New York area. Win Sakdinan, a spokesman for Duracell, says that when the company gave away D batteries in the Rockaways, a particularly hard-hit area, people “held them in their hands like they were gold.”
Sales of Eton emergency radios and flashlights rose 15 percent in the week before Hurricane Sandy — and 220 percent the week of the storm, says Kiersten Moffatt, a company spokeswoman. “It’s important to note that we not only see lifts in the specific regions affected, we see a lift nationwide,” she wrote in an e-mail. “We’ve seen that mindfulness motivates consumers all over the country to be prepared in the case of a similar event.”
Garo Arabian, director of operations at B-Air, a manufacturer based in Azusa, Calif., says he has sold thousands of industrial fans since the storm. “Our marketing and graphic designer is from Syria, and he says: ‘I don’t understand. In Syria, we open the windows.’ ”
But Mr. Arabian says contractors and many insurers know that mold spores won’t grow if carpeting or drywall can be dried out within 72 hours. “The industry has grown,” he says, “because there is more awareness about this kind of thing.”
Retailers that managed to stay open benefited, too. Steve Rinker, who oversees 11 Lowe’s home improvement stores in New York and New Jersey, says his stores were sometimes among the few open in a sea of retail businesses.
Predictably, emergency supplies like flashlights, lanterns, batteries and sump pumps sold out quickly, even when they were replenished. The one sought-after item that surprised him the most? Holiday candles. “If anyone is looking for holiday candles, they are sold out,” he says. “People bought every holiday candle we have during the storm.”
If the hurricane was a windfall for Lowe’s, its customers didn’t seem to mind. Rather, most appeared exceedingly grateful when Mr. Rinker, working at a store in Paterson, N.J., pointed them toward a space heater, or a gasoline can, that could lessen the misery of another day without power.
While sales of emergency supplies spike during storms, several retailers and manufacturers — including Generac — say their baseline of sales has grown in recent years, too, perhaps driven by economic uncertainty and the frequency of wild weather and power failures in an overtaxed electrical grid.
“Anytime you see as much devastation as what happened in Tuscaloosa, Ala., and in Joplin, Mo., it brings it to everybody’s minds,” says Mike Vaughn, president of the National Storm Shelter Association, referring to devastating tornadoes that swept through both cities last year. He added, “$5,000 isn’t much to save your family’s life,” a reference to the approximate cost of a storm shelter.
Mr. Vaughn owns a company, too, which makes concrete storm shelters for protection against tornadoes, and he says business has grown about 30 percent in recent years. Talk to him and it’s clear that he isn’t a doommonger. Yet the members of his association market their products aggressively, warning about the dangers from tornadoes and hurricanes and telling how their products can save lives.
“Nature is strong,” says the Web site for Vaughn Concrete Products, Mr. Vaughn’s company. “Our shelters are stronger.”
That sort of disaster marketing is all over the place, in the hope that the memory of a nasty storm will persuade consumers to plan ahead and, of course, spend some money.
It’s hard to define the overall market for disaster supplies. For one thing, many products that are useful in emergencies — flashlights, batteries, duct tape and extension cords, to name a few — are also handy for everyday chores. And other products, like “bugout bags,” packs holding enough gear to survive a disaster for a few days, continue to be marketed to a small, but apparently growing, niche of survivalists.
But there’s little question that the market is in the multiple billions of dollars. The size of the generator market in the United States, including residential, commercial and industrial models, is roughly $3 billion. Trying to nail down a figure for survival supplies is a much more dicey exercise, given the fuzzy parameters of the market.
Jonathan Dick, director of sales and marketing for the Ready Store, whose slogan is “where America goes to get ready,” estimates that the market for disaster supplies like freeze-dried food, flashlights and radios was $500 million for consumers, but several billion dollars when sales to businesses and government agencies are folded in.
“The industry is very event-driven,” he says. “When there is a hurricane like this, or the stock market crashes, we’ll see crazy increases in demand.”
Mr. Dick says the core customer for his company, which is based in Draper, Utah, and includes retail and online sales, remains “conservative, gun-toting Republicans.” But he says the industry is steadily attracting a broader audience. And major retailers have taken note.
Both Walmart and Costco now sell a year’s supply of food, much of it freeze-dried. Costco’s offering is 120 gallon-size cans of food for $1,499.99. Sears offers emergency/survival rations for dogs. And the National Geographic Channel has a reality series called “Doomsday Preppers,” which “explores the lives of otherwise ordinary Americans who are preparing for the end of the world as we know it.”
David Lyle, the chief executive of the National Geographic Channel, said the program was a breakout hit in its first season. The second season will begin on Tuesday.
“You start by thinking, ‘Wow, these people are odd.’ Then there is this creeping realization: Who is crazy now?” says Mr. Lyle, who notes that other shows like “The Walking Dead” and “Revolution” deal with similar themes, like living off the grid (albeit with zombies). “How interesting that some of them believe that the oil supply will run out and that will result in civil unrest. And now with Sandy, you see people having brawls in gas lines.”
IF there were a headquarters for the emergency preparedness market, one candidate would be Wisconsin, the center of residential generator manufacturing. Generac’s two biggest competitors, Briggs & Stratton and Kohler, are also in the Badger State.
That may be no coincidence. The German immigrants who flocked to the state were particularly skilled in manufacturing engines, in addition to beer and bratwurst.
The founder of Generac, however, was an Iowa transplant and an engineer, Robert Kern, who found a way to make generators so they were more affordable for home use. The time was 1959, during the cold war, when Waukesha had its own missile silo, on the east side of town.
People scarcely seem to remember all of that — and the missile silo is now a park. But that period may have been the beginning of a survivalist economy, the early shoots of Mad Max capitalism.
It has grown ever since, through recessions and wars, Y2K and 9/11, tornadoes and hurricanes.
So has Generac, with a 15 percent compound annual growth rate since 2000. In 2012, with a big boost from Sandy, the company expects shipments of residential products, which account for 60 percent of its business, to increase nearly 40 percent.
At the company’s plant in Whitewater, Wis., about 30 miles southwest of Waukesha, employees have worked three shifts, six days a week, since Hurricane Sandy increased demand. The plant makes residential generators and power washers. Inside, wires and cranes dangle above a bustling factory floor where workers, many in Green Bay Packers garb, assemble the parts. Air hoses hiss, drills drone and carts beep to alert unhurried visitors and keep them from being run over. At a 200,000-square foot distribution warehouse across a parking lot, oversize boxes of generators are stacked high, awaiting shipment.
“Everything in this building, except for the power washers, is sold and then some,” says Russ Minick, Generac’s executive vice president for residential products. “The metrics on this storm have been nothing like we have ever seen. Compared to Hurricane Isaac, this is five times bigger.”
At the company’s newly rehabilitated headquarters in Waukesha, Aaron P. Jagdfeld, the youthful and enthusiastic chief executive, says major storms typically create an immediate demand for portable generators — and the demand from Sandy was unprecedented.
But while his company has sold tens of thousands of portable generators in recent weeks, Mr. Jagdfeld gets more excited talking about the longer-term possibilities: the sale of more permanent, and more expensive, “standby” generators that can be hooked into a house’s natural gas line and that turn on immediately when the power goes off.
He explains that standby generators for homes were once considered appropriate for only the largest estates. But the worries of Y2K — the idea that computers would stop functioning in the new millennium — made the company realize that it could sell standby computers to a broader market if it could bring down the price, he says.
He now envisions a day when standby generators, which start around $4,500, fully installed, are as common as central air-conditioning, a goal that is a long way off but one helped immeasurably by Hurricane Sandy. Standby generators are in roughly 2.5 percent of stand-alone single-family homes, he said.
“No one knows about it,” Mr. Jagdfeld says, but he adds, “It is the next must-have appliance.”
He later tempers his enthusiasm. “We don’t want to appear we are profit-mongering,” he says. “This is a horrible situation. It’s really, really tough, the marketing around that.”
For now, at least, with tens of thousands still without power and millions of others harboring grim memories, a chimpanzee could sell generators by the truckload. Like Generac, Briggs & Stratton and Kohler say they, too, are swamped by demand.
“People are really starting to understand the impact of what a power outage means to them, and it is changing their behavior,” says Melanie Tydrich, a senior manager at Kohler, which sells kitchen and bath appliances and standby generators, among other things. “It’s just not something they want to live through again.”
LAURA GIANGERUSO, the mother of two girls, 4 weeks old and 7 years old, certainly fits that description.
In the wake of the storm, Ms. Giangeruso, who is 42 and lives in Glen Ridge, N.J., spent nine of 10 nights living with relatives because her house had no power. With a newborn, she says, she had little choice but to leave. But she says the solution became obvious during a visit with her sister, who lives nearby.
“It was like a miracle,” she says. “The power went out, and then in like 30 seconds, I heard this hum.” She lifts her hands from her hips upward, along her sides. “And then the power came on.”
So now she is leading an electrical contractor through her home’s cold and dark basement, pointing out the electric box and meter, all so she can get an estimate on a standby generator of her own. A neighbor, Chris Nehrbauer, tags along, partly to be neighborly but partly because he is getting an estimate next.
Jack Lamb, the contractor, who works for Bloomfield Cooling, Heating and Electric, says he has been working nonstop since the storm, providing estimates. When he shows up for an estimate, often four or five neighbors are waiting, he says, adding that he is booked through Jan. 8.
Ms. Giangeruso, who notes that last year, after the “Snowtober storm” on Halloween, her house was powerless for six days. “If we are talking in the neighborhood of $6,000, it is worth every dollar. If I could get it right now, I’d write a check,” she says. “The wives in this area don’t want jewelry for Christmas. They want generators.”
http://www.nytimes.com/pages/business/index.html
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