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For more than 50 years, homeowners and businesses hit by fires, floods or storms have had a federal program to help governments decide who pays for the cleanup. Climate change is exposing its weaknesses and renewing talk of big changes to come

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Canadian Forces members fill sandbags behind houses in Abbotsford, B.C., in November of 2021. Weeks earlier, an 'atmospheric river' of heavy rain inundated much of the B.C. Lower Mainland, leaving an estimated $3.5-billion in damage.Darryl Dyck/The Canadian Press

Disaster relief is an expensive business.

Consider the extensive flooding that struck British Columbia a year ago this week, with estimated recovery costs of $3.9-billion. Canadian taxpayers will pay nearly all of that amount ($3.5-billion) through an obscure program called the Disaster Financial Assistance Arrangements (DFAA). The same program has received aid requests from Nova Scotia, Prince Edward Island and Newfoundland and Labrador in the aftermath of Fiona, the post-tropical storm that struck the Maritimes in late September. (Official damage estimates from the provinces for Fiona are not yet available.)

Established in 1970 and overseen by the federal Public Safety Department, the DFAA is a mechanism through which provinces and the federal government funnel relief payments to homeowners, businesses and municipalities.

Those payments generally cover part of victims’ food, transportation and shelter costs due to evacuation, as well as damage to homes and furnishings. They also help local governments restore roads, bridges and other damaged infrastructure.

Federal data obtained by The Globe and Mail show the DFAA paid out after roughly 300 disasters since its inception in 1970 – mostly floods, but also wildfires, ice storms, hurricanes, earthquakes and even an encephalitis outbreak. But it has never endured anything like last year’s triple-whammy from B.C.: In addition to the November floods, the province submitted a separate claim for $956-million for floods earlier in 2021, and a $416-million claim for devastating summer wildfires. Advance payments totaling more than $1-billion have already been announced.

Well before this, federal officials (and more than a few of their provincial counterparts) had already begun to question this aid’s affordability in an era of climate change. Now, with a raft of related reports from task forces, auditors and advisory panels either in hand or imminent, major reforms seem likely. Documents obtained under the Access to Information Act show that one objective of these reforms will be to “reduce contingent liabilities.”

But it’s not just about money. The DFAA has been accused of shielding property owners, municipalities and provinces from the consequences of their own recklessness.

Even as Ottawa mulls changing the DFAA, it is simultaneously considering how to encourage more Canadians to buy private flood insurance, partly on the logic that insurance premiums will cajole people living in harm’s way to better protect themselves. Some provinces have already tweaked their own disaster assistance schemes to exclude residents to whom insurance is available.

“The way that they’re expecting homeowners to take on responsibility is by cutting back disaster financial assistance,” said Daniel Henstra, a professor of political science at the University of Waterloo. “If insurance is available, then you’re out of luck.

“This has all changed in the last five years or so. And no one knows it.”

Scenes from B.C.’s disasters of 2021: Flooded farmland in Abbotsford, the July Mountain wildfire south of Merritt and the charred remains of Lytton. Darryl Dyck/The Canadian Press

‘Your government is here for you’

Canada’s disaster financial assistance machine grinds into motion when provincial officials decide to activate their provincial program following widespread suffering and destruction. They identify eligible geographical areas and invite victims to apply. This presents an almost irresistible opportunity for political grandstanding; premiers and other officials often issue statements congratulating themselves for boldly riding to their constituents’ aid.

Inevitably, though, applicants learn the limitations of this aid as they read the fine print. For starters, not all events or areas are eligible. And these programs were intended to provide minimal relief.

Ontario’s program, Disaster Recovery Assistance for Ontarians (DRAO), pays toward a list of specific items such as a child’s bed (a maximum of $730), a kitchen table with four chairs ($410), television ($450) and a refrigerator ($940).

Denis Lavoie is president of Regroupement Sinistrés Entraide, a group that organized class-action lawsuits against municipalities following floods around Quebec City in 2005 and 2013. He said Quebec’s claims process was “very fair” following those events and most applicants were satisfied, provided they understood the program’s intent.

“Victims who thought they would get money for a second refrigerator or a home theatre were disappointed, that’s for sure,” he wrote in an e-mail to The Globe. However, he added that he knew of two homes that suffered significant damage to basement foundations or concrete floors; relief payments were “of extraordinary help” to the owners.

Many applicants are turned down, though. Alberta’s Flood Disaster Recovery Program received more than 1,400 requests for relief after floods struck Northern Alberta in 2020, but only 665 were deemed eligible. After extensive flooding along the Ottawa River in the spring of 2019, Ontario’s DRAO program received 197 applications. About a quarter were denied.

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For Krystine McInnes, floods on her B.C. farm have been a hard lesson in what kinds of repairs governments will and will not pay for.Nancy Macdonald/The Globe and Mail

Krystine McInnes is among the disappointed. Her organic farm in southern B.C., near the Canada-U.S. border, flooded in May, 2018. Her application was denied because the farm earned $50,000 more than a revenue threshold, she said.

“We thought the government had all these programs… but by September of that year, we realized we’re totally alone.”

Ms. McInnes’s farm flooded again in November, 2021, and by her reckoning, the repairs will cost more than $200,000. She applied for assistance within weeks, and the province dispatched a representative to assess the damages. A year later, she received a letter.

“They will only support a repair of the property ‘to the previous standard’ and stated that their engineer determined that amount is $30,000,” she said. She added that the repairs recommended by the province’s disaster financial assistance program would violate the province’s Water Sustainability Act. Unable to absorb the recovery costs, Ms. McInnes said her farm is teetering on bankruptcy.

Bryan Riddell has a unique vantage point of how disaster financial assistance performs. He’s chief executive of Team Rubicon Canada, a group that dispatches military veterans to assist recovery efforts. It sent volunteers in the wake of several events since 2018, including to Brantford and Ottawa in Ontario, Fort McMurray, Alta., Fredericton and the recent B.C. floods and wildfires.

He said the system’s intent is laudable, and he hopes governments will continue to administer it. But it “takes a long time” to deliver funds to people in need, he added, largely owing to the “cumbersome” bureaucratic processes.

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South African firefighters try to uproot a tree outside Fort McMurray, Alta., in June of 2016, after fire swept through the oil-sands city.Reuters

Settling accounts

Delays are even worse in the least visible part of Canada’s disaster-relief system: deciding who pays for what.

Typically a few weeks or months after a disaster, affected provinces send a letter asking the federal government to share the financial burden. Ottawa rarely refuses. A Globe analysis of federal data shows that of the roughly 300 requests received since 1970, only 10 were closed with no payments made; another 12 were withdrawn.

But it can take many years for the process to play out. (The federal government sometimes counteracts the DFAA’s inherent sluggishness by making advance payments: In July, it announced $870-million in DFAA payments to assist B.C.’s recovery efforts from last year’s flooding.)

The DFAA’s cost-sharing formula is structured such that if recovery costs amount to less than $3.38 a provincial resident, the province pays the entire balance. Above that amount, Ottawa begins shouldering more of the burden; when costs rise above $17 per capita, it covers 90 per cent. This means Ottawa pays the lion’s share for the most destructive events.

That’s becoming painfully expensive. As early as 2016, the Parliamentary Budget Officer projected the DFAA would continue to incur much higher average costs than it had in the past: $673-million annually from flooding, plus another $229-million for other forms of disaster. In retrospect, those projections understated what was to come.

Climate change is partly to blame. The PBO found that warming conditions were contributing to “persistent weather systems in the mid-latitudes as well as extreme weather events.”

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Yves Giroux, Canada's Parliamentary Budget Officer, says there are other factors beyond climate change in the rising cost of disaster recovery.Adrian Wyld/The Canadian Press

Yves Giroux, who became Parliamentary Budget Officer in 2018, noted that Canada’s rising population also contributes. He added: “The more you see inflation rising, the more expensive it is to repair real estate after a disaster.”

When DFAA costs exceed what Ottawa set aside in its budget, Mr. Giroux noted, the federal deficit increases. But he added that even in the context of deficits racked up prior to the COVID-19 pandemic, DFAA expenses were not especially large.

Nor are they huge in relation to major budget line items. In normal circumstances, he noted, the government pays out about $25-billion in Employment Insurance benefits each year, and $20-billion or more for national defence.

“In the grand scheme of things, having an unforeseen expense of a few hundred millions dollars under the DFAA is probably not sufficient to have a material impact on the deficit,” he said.

“An exceptional one-off $5-billion expenditure, it’s very significant, but it’s not something that will not have been seen before.”

But Ralph Pentland sees higher liabilities ahead. He is intimately familiar with the DFAA. He worked for the federal government for 30 years and managed the program from 1979 to 1991. Owing to climate change and “a lot of unwise development going on,” he said, “you probably have flood damages doubling every five years.”

The damage done by post-tropical storm Fiona: Machines clear debris in Burnt Island, N.L.; a fallen tree rests on a house in New Glasgow, N.S.; sheets of asphalt lie by a causeway in Nova Scotia's Pictou County. Frank Gunn and Darren Calabrese/The Canadian Press

Perverse incentives

The larger knock against the DFAA is that it has encouraged irresponsible behavior.

Critics allege that, over time, the DFAA devolved into a free insurance program that protects Canadians from the consequences of risky behaviour. The latest such critique comes from the Task Force on Flood Insurance and Relocation, whose final report was released in August. It concluded that Canada’s disaster-assistance programs contribute “to a moral hazard on multiple levels.” So long as this effectively free insurance remains available, homeowners have no motive to reduce the risk to their properties, and local governments have no reason to prevent development in areas exposed to flooding.

“The DFAA is the elephant in the room in a lot of the governance reform around flood management in Canada,” said Jason Thistlethwaite, a professor at the University of Waterloo’s environment school.

Much of the damage in B.C. last year resulted from dike failures, particularly around Abbotsford, B.C. Two decades ago, the B.C. government downloaded responsibility for maintaining those dikes to municipal governments. That decision is now widely acknowledged as a mistake, including by provincial officials; many municipalities couldn’t, or wouldn’t, maintain dikes properly. But owing to the DFAA’s cost-sharing formula, Canadian taxpayers will pay most of the resulting recovery costs.

The Parliamentary Budget Officer’s 2016 report observed that in Manitoba, municipalities were responsible for regulating building within floodplains, but rules and enforcement were “inconsistent.” In Saskatchewan, extensive drainage of wetlands seemed to be increasing flood risks. In Alberta, it noted widespread failure to deal with flooding caused by groundwater.

Such failures contribute powerfully to rapidly escalating disaster recovery costs. The flood insurance task force’s report found that nearly 90 per cent of the damages from major floods result from just 10 per cent of homes, those at the highest risk. Had municipalities and provinces prevented their construction, recovery costs would be dramatically reduced.

Ottawa tried to entice provinces to do better. In 2008, it amended the DFAA to allow them to receive an additional 15 per cent on top of their claims for repairs and rebuilding projects that reduced vulnerability to future emergencies. That didn’t work. A 2016 study by the Auditor General of Canada found the DFAA program “did little to encourage provinces and territories to invest in disaster mitigation.”

Tough talk followed. In 2019, Ralph Goodale, then the public safety minister, warned homeowners that if they built in flood zones, they might find themselves ineligible for disaster relief. But critics say there’s no mechanism for upholding such threats.

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Flooded homes along the Ottawa River in Gatineau, Que., in 2019. That year, federal officials began to take a tougher line in urging Canadians not to build on flood zones, or else they might not qualify for relief.Sean Kilpatrick/The Canadian Press

A test of resolve

Minor tweaks having failed, governments are now pursuing bolder reforms.

One way governments have already limited their liabilities is by capping payments. In B.C., there’s a per-claim limit of $300,000. Quebec introduced a lifetime maximum payment of $200,000 a house in 2019. Alberta imposed a $500,000 cap last year; what’s more, it declared that once a property has received a DFA payment in any amount, it becomes ineligible for future assistance – even after changing ownership.

“They basically said, yes, we will bail you out – but we’re not going to continue doing it forever,” said Craig Stewart, vice-president of federal affairs with the Insurance Bureau of Canada. “Alberta and Saskatchewan, in particular, have started to evolve their DFA programs to encourage those at high risk to get insurance, so that they’re less on the hook for those payments.”

A video from the Alberta government made its reasoning explicit: “These changes will increase awareness of risks for where you choose to live and do business, and will result in less development in high-risk areas,” the narrator said.

An even bigger change is that some provinces now warn that where flood insurance is available, government assistance won’t be, period.

This tough luck messaging contrasts starkly with the political grandstanding of past DFAA activations. But will tomorrow’s officials resist the temptation to ride to the rescue, even at the risk of sounding heartless?

There are reasons to doubt it.

Even as his government looks to reduce DFAA liabilities, Prime Minister Justin Trudeau announced a $300-million Hurricane Fiona Recovery Fund in October. It will cover costs over and above those already refundable through the DFAA.

This same impulse – to help people reeling from catastrophe – thwarted DFAA reform from the outset. Mr. Pentland pointed out that even decades ago, DFAA rules prohibited providing assistance for newly-constructed buildings within designated floodplains. But enforcement was lacking, he observed, “because governments just don’t know how to say ‘no.’ ”

Prime Minister Justin Trudeau in disaster zones over the years: A briefing in Fort McMurray after 2016's fire; a visit to B.C. Wildfire Service staff in Prince George in 2018; a tour of post-Fiona damage in Port-aux-Basques, N.L., this past September. Reuters; Darryl Dyck and Frank Gunn/The Canadian Press

An off-ramp to nowhere?

Even if they truly want to, governments are limited in how much disaster liability they can offload.

Overland flood insurance has become widely available to homeowners across Canada (four out of every five Canadians, according to the Insurance Bureau of Canada) since its introduction in 2015. But it’s still difficult to insure municipal and provincial infrastructure, which account for the greatest costs.

The DFAA “is probably always going to be there, because you’ll always have uninsurable mass damages that you will need the program for,” said Johanu Botha, Manitoba’s Assistant Deputy Minister for Emergency Management.

And then there’s the 10 per cent of Canadian homes deemed at “high risk.” They’ll likely never be commercially insurable. After the 2020 Northern Alberta floods, the provincial government “determined that overland insurance is not readily and reasonably available” in affected areas, it told The Globe in a statement. Saskatchewan, meanwhile, said overland flood insurance is not “reasonably available” to its residents. In contrast, New Brunswick said flood insurance “is available from most insurers in the province.”

With floods expected to become even more damaging in the decades ahead, it’s unclear how much risk the insurance industry will be willing to bear. What happens if the proportion of “uninsurable” homes rises to 20 per cent?

Team Rubicon’s Bryan Riddell has observed the insurance industry’s risk tolerance firsthand. In the two weeks following the 2019 floods along the Ottawa River, he said, many homeowners told his organization they’d received letters notifying them that their homes were henceforth ineligible for flood insurance.

“The unfortunate knock-on for DFAA is, as insurance companies continue to try to mitigate their losses and pull away, that means someone’s left with the bill,” he said.

Ms. McInnes has dealt with insurers and B.C.’s disaster-assistance program for flooding on her farm, and sees little difference between the two.

“Even if you do have flood insurance, you will be in a lawsuit to get that insurance policy paid out,” she said. “There’s no way that insurance companies are going to step in to fill the gap.”

History suggests even minor reductions in DFAA assistance will encounter resistance. In 2015, Ottawa announced what were described as “modest” adjustments to the cost-sharing formula – the first tweaks since the program’s introduction. Then Manitoba premier Greg Selinger noted that under the new rules, the federal government’s 90-per-cent threshold wouldn’t be reached until damages reached $20-million, roughly three times the old limit. He fretted about the impacts to rural and northern communities.

“With disaster assistance, the major barrier [to reform] is the provinces,” Dr. Thistlethwaite said.

It’s unclear how much opposition Ottawa might face this time around. Mr. Botha said Manitoba has plenty of common ground with Ottawa when it comes to reforming DFAA to encourage construction of more resilient infrastructure. Clearly, though, the province is not keen to see Ottawa pay less toward disaster recovery than it does today.

“Provinces would prefer to have a lower cost-sharing threshold,” he said. “It’s not a secret that provinces generally feel the federal government should be taking on a bit more of that cost sharing.”

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