CASE STUDY RESEARCH PAPER- REPORT ( 48 Hours - A+ Score Required)

CON E 430

FALL 2016

CASE STUDY

Professor Hossein Hemati

Summer R Mutawe

Class ID # 62

11/30/2016

Case Study 23: Washing Away

1 Background

Seaview is a small resort community on the Gulf of Mexico. Blessed with nice beaches and a good location, Seaview has grown rapidly over the last decade. Although the community’s growth has not been explosive, it still exceeded the expected growth of 1% (4% annual growth). The community is protected by a seawall that was designed to withstand a 50-year storm with an additional cushion through safety factors. Now and after 20 years, the community was hit by Hurricane Harvey (40 years storm). Although the seawall withstood the onslaught, the biggest concern was that the seawall could become vulnerable the next hurricane season.

This case study goal is to prepare a report of the findings while putting emphasizes the economic analysis and considering the political factors that may dominate the economics.

2 Description of Present Situation after Hurricane Harvey

Seaview is a small resort community was hit by Hurricane Harvey last year. Ramon, Seaview's city engineer, vowed to analyze the city's vulnerability along the seawall before the next hurricane season. He gathered the data, and he is now ready to begin the analysis.

The seawall was designed to withstand a 50-year storm however; the analysis has shown that Harvey was a 40-year storm. Although the seawall seems likely to last for another century or two, the 4% annual growth of the community has increased the consequences of a large storm in the future (more to lose if a future storm occurs). As a result, the 50-year standard has become inadequate in the face of the larger consequences.

Ramon has identified three types of alternatives for the city.

3 Proposed Solutions

Alternative 1) Restricting development along the seawall (this could include condemnation of existing buildings and purchase by the city).

The condemnation alternative is politically and financially difficult because:

· Most owners would not want to sell their property and government cannot force them to do so.

· Very expensive (The city cannot afford it) when compared to tax return. The appraised value of the buildings and lands is $290 million in property provides only 15% of the property tax revenue.

Although buying out the residence can be very expensive, the city has the option of waiting for the wall to fail and then buying only the land from the residence after the disaster. There is still two problems attached to this option. They are:

· It is immoral.

· It would still cost the city severely compared to just strengthening the wall or even rebuild a new seawall to protect the community.

Alternative 2) Mitigating the financial consequences through insurance (The city could require that property owners be insured for hurricane damage).

The head of the city's legal department responded positively to Ramon's query about the city's ability to require "hurricane" insurance. So Ramon conducted a small survey of building owners along the beachfront to check their insurance coverage. After conducting interviews, he discovered that:

· All of the buildings are insured, but not one policy allows for failure of the seawall. "At least Seaview can't be sued if the seawall fails."

· Buying insurance to cover the damages for these extreme floods would cost 50% more than the expected level of damages.

· Since the option is available and because owner opted from upgrading to the more extensive coverage, the owners cannot sue the city if the seawall fails. However, the city could require the owners to insure their properties and act as a central coordinator in obtaining coverage.

Alternative 3) Increasing the level of protection by strengthening the existing seawall.

Since the community depends in its protection on the seawall, the strengthening the seawall was his "natural" first choice solution to the problem. Ramon plans to use an 8% interest rate in the evaluation. He is planning on using a long horizon, at least 100 years (this seawall will have a longer life and even longer return interval with a higher severity storms).

The seawall's size and cost increase with the severity of the storm that it is designed to withstand (look at the following table).

The table below summarizes the translation of return intervals into probabilities that Ramon plans to use.

The expected damages depend on the difference between the storm's severity and the design standard (interval) used.

4 Cost of Proposal

Since the community depends in its protection on the seawall, the strengthening the seawall was his "natural" first choice solution to the problem. Ramos is planning on using a long horizon, at least 100 years seawall. From the previous statement, it is understood that either the engineer is looking into strengthening the current wall to a 100 or more years. First, take a look back at the calculate of the first cost needed to strengthen or rebuild the wall:

First Cost calculations:

Looking at this, we can see that strengthening the seawall instead of total rebuild will cost much less. However, what option is going to be more suited for this case is going to depend on the probability of the storm and the damage that can be caused if it happens.

Looking at the calculation, we can see that the cheapest option is to strengthen for 100 years. On the other hand, the current seawall could still last for another century or two, if we assume that the seawall will last for another 20 years before they will need to replace it, the City and residence will have enough time to rethink more options.

5 Other Considerations

It is very clear that the community will benefit from the strengthening of the current seawall for a long time for that reason it is a sound decision for them to invest in the project. Since the current paid tax is being used on other projects, the city should consider a new real-estate and property tax to pay for the cost of this new, very important project.

Since it was considered to strengthen the wall to a 100 year the cost that the city should consider is the cost of total replacement of the new wall which is 7.15M$.

A = .0715M$/year

Total property and land worth = 290M$

Annual Interest on properties worth = .25% (in addition to the current tax)

CONCLUSION

After reviewing the analysis, the calculations clearly show that strengthening the current seawall is the best option. Although the city have many options to choose from the recommendation is to choose a 100 year design for the new project. This new stronger seawall will not just have a longer life but it will also have longer return interval with a higher severity future storms the community might face.

The cost of the new stronger seawall can be paid for by introducing a new tax on the owners of the properties who will benefit from the project.

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