April 29, 2011 / 8:56 PM / 8 years ago

Tornadoes maul South, but federal aid will help

ATLANTA (Reuters) - The devastating tornadoes and storms that killed more than 300 people in the South this week will complicate efforts by southern states and municipalities to stabilize their finances, but federal assistance should blunt the disaster’s economic impact.

The deadly tornadoes hit Alabama hardest, killing 228 people there alone, and while the cost of damage is yet to be estimated they struck as the state struggles to balance its $19 billion budget in the face of falling revenues.

Mississippi, Georgia, Louisiana, Arkansas and Tennessee suffered a less severe human and economic toll but those states are also making cuts and spending less to close budget gaps.

The U.S. Deep South as a whole has suffered some heavy blows from Nature and man in recent years, such as the Gulf of Mexico oil spill last year and Hurricane Katrina in 2005.

In Alabama in the short term, income loss, business loss, property damage and loss of sales tax revenue resulting from the destructive tornadoes will all hurt that state’s revenue, analysts said.

“It’s going to be a very significant negative for at least two or three quarters, if not more, for the whole state,” said Jennings Marshall, economics professor at Samford University in Birmingham.

“Since the economy’s already been struggling, if you just take 3-4 percentage points from the state that’s a big impact at the margin,” he told Reuters.

President Barack Obama promised strong federal aid on Friday when he visited Alabama to see for himself the havoc wrought by the violent storms, which shut or damaged businesses from coal plants to jeans manufacturers.

But many of the damaged businesses were insured so when payments kick in it will spark a mini boom that will help state finances, not least by providing employment, analysts said.

“Natural disasters often bring economic positives,” said Richard Lehmann, editor of the Distressed Debt Securities newsletter.


In the disaster’s wake, Alabama was focused on rescue and recovery, said Governor Robert Bentley and he welcomed President Obama’s promise of federal disaster assistance.

“While I am asking for federal money, the federal government could benefit from our fiscal example,” Bentley told Reuters in a reference to the state’s efforts to cut costs.

Bentley announced deep cuts in March to education and other spending programs and the state may lay off 1,000 state employees. While its unemployment fell to 9.2 percent in March, it is still above the national average.

Nowhere are municipal finances in the state more precarious than in Jefferson County, which is struggling to avoid what would be the largest municipal bankruptcy in U.S. history over a $3.2 billion sewer bond debt.

The county could also run out of operating funds in July due to a shortfall in its general fund. The tornadoes, which killed 19 Jefferson residents, caused serious property damage and gave county commission leaders an extra headache.

Even so, federal assistance money will offset storm costs so the direct financial impact on the county will be minimal, said county commission president David Carrington.

The sewer debt can only be paid through revenue generated by rates, so federal disaster funds would not apply and conversely storm damage will likely not slow rate revenue generation, the analysts said.


The Deep South’s experience of recovery from past disasters provides clues as to what could happen after the tornadoes.

Last year, millions of gallons of oil leaked from a BP well into the Gulf of Mexico in the biggest offshore oil spill in U.S. history.

The spill threatened the coastal economies of Alabama, Mississippi and particularly Louisiana, slowing tax receipts in coastal municipalities, forcing businesses to close and scaring away tourists at the height of the season.

One year on, Gulf coast officials and business leaders say recovery is mixed, but the initial dire forecasts of economic and environmental Armageddon are now seen as too gloomy.

In 2005, Hurricane Katrina flooded New Orleans and caused tens of billions of dollars of damage to Gulf coast economies.

The region is still recovering economically. Analysts said one determinant of financial impact was the extent to which the damaged area was locked into the state’s overall economy.

“Value is more than price or cost. No matter how much you restore everything, there is value in the things that have been lost,” said Sam Addy, director of the business and research institute at the University of Alabama at Birmingham. (Additional reporting by Kevin Gray in Miami, Lisa Lambert in Washington and Verna Gates in Tuscaloosa, editing by Pascal Fletcher and Chizu Nomiyama)

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