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Counting the hidden costs of North Bay, California wildfires on businesses, residents

Economic costs of wildfire

Cal Fire suppression: 2021: $1.3 billion; 1980: $11.9 million

Construction cost of The Oaks at Fountaingrove: Rebuild after Tubbs Fire: $60 million. Initial build: $18 million.

Average 50-plus-household HOA fire mitigation efforts at Oakmont: Almost $240,000 in two years

Current state budget for fire prevention and drought address: $2 billion

State prescribed burn emergency claims fund: $20 million

One Napa Valley winery’s firefighting equipment, labor and plan costs: $500,000

Visit Napa Valley 2017 tourism decline: 10%

Sonoma Co. sustained losses in 2019 in leisure/hospitality from Kincade Fire and PSPS: 38%

Sonoma Co. suffered $620 million in losses across all industries in 2019 from PSPS and Kincade Fire combined

Tubbs Fire: $7.5 billion-plus in losses

Camp Fire: $8.5 billion-plus in losses

Insurance company rate-increase requests: 29 in 2015; 95 in 2019

Wildfires are burning a hole in California’s wallet — and not just state government’s.

With no place in California immune to the increasing, raging infernos that barrel over communities, fires touch industry and peoples’ pocketbooks in dozens of ways, from insurance and tourism losses to home hardening and fire prevention costs.

First, there’s the obvious. Fire suppression costs for the state thus far this fiscal year have reached $1.3 billion in the 2021 fiscal year, the California Department of Forestry and Fire Protection reported this week. That’s more than $30 for every resident in the state.

In comparison, that expense 40 years ago was almost $12 million.

“This is only one aspect of fighting fire,” Cal Fire Deputy Director Nick Schuler told the Business Journal, referring to just the fire suppression costs.

One way people pay for fires is to make sure their homes and businesses don’t burn.

John Farrow’s Santa Rosa firm rebuilt The Oaks at Fountaingrove with all fire-resistant materials for the 2,000 units after the October 2017 Tubbs Fire. Rebuilding the 100,000-square-foot complex cost $60 million to erect, over three times its initial cost 20 years ago.

“It’s exponentially higher because of the cost of materials. With these new fire safe standards, The Oaks is just not going to burn down,” he said, adding the supply chain shortages as contributing to the additional expense. “I’d say materials have gone up 25 to 30% in the last five years and 100% in the last 30.”

With the Business Journal reporting lumber exceeding 400% in higher pricing, Farrow contends “the perfect storm” of events have played out to make improved construction an expensive firefighting tool. He listed a labor shortage and inflation coinciding with the high cost of materials.

“Well, at least lumber has gone down to being 70% higher (than pre-pandemic levels),” he said.

Strength in numbers

Oak Forest Homeowners Association’s 50-plus households have collectively spent about $240,000 in the last two years on fire abatement, including tree trimming and cutting as well as installing an irrigation system, mowing and clearing brush that serves as “ladder” fuels to larger fires that spread to trees. Oak Forest is a subset HOA to the 4,700-resident Oakmont development in Sonoma Valley.

Aside from Oak Forest’s landscaping efforts, most of the homeowners chipped in to “harden” their homes with clay tile roofs and small-hole exterior vents to guard against embers flying in — the main cause of structures burning down.

Sonoma County residents have seen the devastation firsthand.

Past Oak Forest HOA President Jane Garlinghouse remembers October 2017 like it was yesterday.

“You know, I looked out this deck one night and saw the Tubbs Fire on that ridge and Nuns burning over there and thought we’d better get out of here. My daughter was terrified,” she said.

Since then, the Oak Forest neighborhood has evacuated three times, with the latest threat being the Glass Fire that roared through the Napa Valley and over Hood Mountain into a regional park bordering Sonoma’s Wine Country.

One area hasn’t burned — the forest-lined neighborhood that butts up to Trione-Annadel State Park, where thick, overgrown brush has besieged the forest.

“They haven’t done a damn thing up there,” Garlinghouse said.

California State Parks District Superintendent Maria Mowrey admitted more could be done to the region’s parkland, in particular on Trione-Annadel’s 5,000-plus acres.

State Parks cut a firebreak on Bennett Ridge west of the park but warned embers can land from miles away. A tree-cutting project is also underway at Jack London Historic State Park, where a nonnative eucalyptus grove thrives near the entrance. The tree species will be removed from another site at the Trione-Annadel Lawndale Road entrance.

Along with a $2 billion budget line item the state has allocated for preventing wildfires and addressing drought, State Parks has spent $510,000 in the last two years on fire prevention methods, a big departure for an agency with a mission to refrain from clear cutting the environment in order to maintain habitat for wildlife and other species.

“We have to manage for biodiversity,” she said.

While State Parks officials wrestle with protecting species, lawmakers are covering liability issues that come up should prescribed burns get out of control.

Two California Senate bills, SB 332 introduced by Sen. Bill Dodd, D-Napa, and SB 170 from Sen. Nancy Skinner, D-Oakland, will establish a pilot program that essentially covers the liability of prescribed burns by setting aside $20 million in a fire claims fund as part of a wildfire resilience budget. They await Gov. Gavin Newsom’s signature.

Economic costs of wildfire

Cal Fire suppression: 2021: $1.3 billion; 1980: $11.9 million

Construction cost of The Oaks at Fountaingrove: Rebuild after Tubbs Fire: $60 million. Initial build: $18 million.

Average 50-plus-household HOA fire mitigation efforts at Oakmont: Almost $240,000 in two years

Current state budget for fire prevention and drought address: $2 billion

State prescribed burn emergency claims fund: $20 million

One Napa Valley winery’s firefighting equipment, labor and plan costs: $500,000

Visit Napa Valley 2017 tourism decline: 10%

Sonoma Co. sustained losses in 2019 in leisure/hospitality from Kincade Fire and PSPS: 38%

Sonoma Co. suffered $620 million in losses across all industries in 2019 from PSPS and Kincade Fire combined

Tubbs Fire: $7.5 billion-plus in losses

Camp Fire: $8.5 billion-plus in losses

Insurance company rate-increase requests: 29 in 2015; 95 in 2019

The passage of the pilot fund was applauded by officials with ecology and environmental groups.

“Lack of insurance has become increasingly limiting for prescribed fire in California, even while the state increases its prescribed fire commitments and investments,” said Lenya Quinn-Davidson, UC Cooperative Extension fire adviser and director of the Northern California Prescribed Fire Council.

Growing cooperation

For farming, wildfires have plagued communities.

“The economic costs of wildfire has taken its toll on our industry,” said Rob Spiegel, California Farm Bureau policy analyst.

Many of the Farm Bureau’s members including wineries have lost insurance because their properties are within regions of “great fire risk.” Some have accepted the FAIR Plan, the state’s insurance program of last resort — which traditionally comes with higher rates.

Some farms and wineries have taken matters into their own hands, investing in firefighting equipment through the bountiful wealth gained by their crops.

Take Rombauer Vineyards. The world-renowned winery operation has invested in 300-gallon water tanks and pumps to place in the back of their work trucks in case a wildfire breaks out on the property.

“Or our neighbors might need help,” KR Rombauer told the Business Journal.

The Napa Valley winery has also developed a multi-tier plan that outlines to company staff what to do in the event of a wildfire. The plan involves checking the grounds and picking up dry material before the threat of dry lightning storms emerge. Management also brings in grazing goats and sheep in the late winter to mow down overgrowth.

In addition, the winery ordered a trailer to be delivered next spring as a way of making firefighting efforts at the winery mobile. The spare-no-expense improvements are estimated to have cost the winery a total of about $500,000, president Bob Knebel confirmed.

But taking chances with the property is not the order of the day — especially following the major damage the Glass Fire imposed on the wine industry last fall.

“We have trees on three quarters of our property. Many of the oaks survived, but the pine and fir trees went up like matches,” Knebel said.

Overall, the Napa County Farm Bureau is urging supervisors to adopt an extensive plan for more prescribed burns and grazing.

“This is the one thing in the last four years the Napa County Farm Bureau has focused on. Fire suppression is important, but we need to also pay attention to mitigation,” bureau CEO Ryan Klobas said. “The program can’t be a one-time thing. It needs to be ongoing.”

Go big, or go home

Tourism is another factor of the economic cost of wildfire.

When the Caldor Fire roared through the west side of El Dorado County before nibbling at the heels of Lake Tahoe residential neighborhoods, an entire tourism destination was evacuated before a major holiday weekend.

In a land that can mushroom into 100,000 over a holiday, the entire population of almost 30,000 cleared out, as fire and sheriff’s officials took no chances with clogged roads caused by mass, panic-driven evacuations.

While the fire burned and threatened during a four-week snapshot view between August and September, the city of South Lake Tahoe faced losing an estimated $4.2 million in transient occupancy and sales taxes. Moreover, a whopping $40 million in revenue it would have gained from retail, restaurant and lodging dollars also disappeared.

Not calculated were the revenue losses for businesses offering activities and entertainment venues plus losses at other outlets on the Nevada side at Stateline where the casinos reside.

“We’re blessed we didn’t lose any structures,” Lake Tahoe Visitors Authority Executive Director Carol Chaplin told the Business Journal.

Closer to home, Visit Napa Valley President and CEO Linsey Gallagher has found the impacts of fire on tourism offer a mixed bag — not consistently great, but with better outcomes than expected in the face of disasters.

At some point, tourism has turned out to be quite the gutsy industry when considering the coronavirus crisis has occurred the same time as raging wildfires.

“Both influences have come into play,” she said.

From 2012 to 2017, the Valley saw “a steady increase” in visitation. But 2017’s wildfire-prone year brought about a decline of around 10%. The next two years presented a rebound. But by the time 2020 arrived, prospective guests were uncertain about the destination’s status.

“They wondered if we were open. And if so, was there a fire?” she said, adding that 2020 ended up at 65% of its revenue projections.

“Some communities hit by wildfires experience significant tourism losses in the short term,” California Tourism Bureau CEO Caroline Beteta told the Business Journal. “The good news is their travel economy recovers as infrastructure is rebuilt and an open-for-business message is shared.”

Powering down leads to business revenue drop

Lost business, due to wildfires or their cousin – the utility power shut off – is disproportionally shouldered by the hospitality business, according to studies.

And as a Moody’s Analytics study reviewing the economic impacts of Pacific Gas & Electric’s power shutoffs and the Kincade Fire of 2019 has shown, darkening the lives of Sonoma County visitors and residents has proven to have a direct connection to business revenue losses.

The Moody’s study commissioned by the Sonoma County Economic Development Board found that the majority of businesses affected by wildfire was classified in the accommodation and food services, a $2 billion-a-year industry.

Impact of public safety power shutoffs by industry

Agriculture: 25%

Goods production: 25%

Leisure/hospitality: 38%

Retail trade: 45%

Protection is job 1

Insurance represents a major component in gauging the economic costs of wildfire.

Estimates have shown the property damage of the northern Sonoma County fire encompassing 77,000 acres within the Windsor-Healdsburg region dwarfs the lost economic output from power shutoffs, maintaining the argument to keep the safety measure.

The Moody’s study estimates that of the $620 million total losses, $385 million of that figure was due to property damage from the Kincade Fire in 2019.

More damaging as pointed out in the study, the Tubbs Fire brought about more than $7.5 billion in losses, making it the costliest fire in California history at the time, the Insurance Information Institute reported. The fire was quickly surpassed by the Camp Fire that leveled the town of Paradise in the following year. Those losses for the Butte County fire amounted to about $1 billion more.

The concern lies in whether insurance rates — calculated by replacement cost, not market value — will catch up to the assessed or projected fire risk.

“Insurance rates haven’t kept up with the fire danger,” said Janet Ruiz, the Institute’s western chapter director. “The rates are artificially low in California.”

Insurance companies have shown signs of wanting to catch up to the risk assessment.

According to a California Department of Insurance 2020 report, insurance companies have more than tripled the number of rate increases requested to 95 in California between 2015 and 2019.

Insurance companies are required to file for increases involving public comment of over 7%. The majority of filings amounted to under that amount. One company filed six separate 6.9% rate increases in a 23-month period, according to the state insurance commission. The collective added up to 49.2% in a nearly two-year period.

Even the state’s FAIR Plan, designed as an alternative to traditional means, is not without rate hikes. Statewide, FAIR Plan policies have gained a collective rise of 35% since 2015. In the Sierra Nevada and Northern California, insureds have experienced a 182% increase on rates in the last six years. Among all policies, those same regions have seen skyrocketing non-renewals as insurance companies have decided to leave the markets. In 2019, more than 25,000 policies were not renewed.

“It’s a real crisis. There’s less availability — a supply and demand issue,” said John O’Neill, a property and casualty insurance broker at Risk Strategies of San Francisco.

All in all, wildfires come with multiplier effects that ebb and flow like peaks and valleys within an economy over years after the actual event, Sonoma State University Economics Professor Robert Eyler pointed out.

There’s the actual disaster, thwarted by fire suppression, Eyler outlined. Then comes the remediation and rebuilding costs offset by emergency benefits. The tourism industry affecting the broader economy may see a short-term gain from crews, with occupancy rates slightly spiking.

“They may be higher than we would think, but not the revenue goals,” he said.

In the rebuilding period, a construction boon may represent a boon to a region, but short-term costs like mitigation efforts business- and home- owners are having to dole out may offset those benefits.

If anything, the constant up-and-down shift of an economy in flux makes the case for local governments trying to maintain their towns’ status and solvency to set aside money for reserves, Eyler contends.

“It’s policy prudent to have that rainy day fund,” he said.

This is especially true if rainy days are are longer in between.

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