The Economic Impacts of Extreme Weather: Tucson and Southern Arizona's Current Risks and Future Opportunities

Author(s):
Laura A. Bakkensen, Ph.D. Assistant Professor, School of Government and Public Policy, University of Arizona College of Social and Behavioral Sciences
Riana D. Johnson, Master of Public Policy Student, School of Government and Public Policy, University of Arizona College of Social and Behavioral Sciences
Published:
02-02-2017

Executive Summary

Extreme weather impacts the economy of cities across the Western United States in many ways. Since 2010, the state of Arizona has lost more than $3 billion in direct damages from extreme weather. Averaging $500 million per year, losses equal more than 5% of the state government’s annual operating budget. However, extreme weather losses vary greatly in magnitude across major Western U.S. cities, due in part to differences in underlying frequency of weather extremes as well as differences in economic sector composition. It is therefore essential to understand the current risks posed by weather extremes as well as strategies and opportunities to cope with them.

This white paper analyzes Tucson’s economy and extreme weather. We compare the story in Tucson with that of other Metropolitan Statistical Areas (MSAs) across the Western United States. We find that Tucson has a strong economy, with major sectors including government, trade, professional services, and construction. However, Tucson also suffers large losses from extreme weather. Thunderstorms and flooding dominate Tucson’s extreme weather losses, accounting for an average of 84 percent of all extreme weather events and 96 percent of all property losses. Extreme weather losses across Tucson and surrounding Pima County average $9,449,667 per year (real 2009 $USD) in direct reported property damages, including wildfire damage. Tucson is also an outlier in the frequency of events. At 47 events per year, Tucson averages the highest yearly extreme storm count across major MSAs in the Western United States. The figure below illustrates the type of extreme weather events that occurred in select Western Metropolitan Statistical Areas between 1996 and 2016. Weather events can be disruptive to Tucson’s economic activity, with flash flooding creating hazards for transportation, heat extremes impacting outdoor worker productivity, and hail destroying crops. Note that we do not address long term extreme weather such as drought in this white paper. However, Tucson’s weather also provides opportunities for economic activity, including a vibrant winter tourism economy and growing solar industry across Southern Arizona.

Figure 1: Extreme Weather Event Types from 1996 to 2016 by MSA (% of Total Storms)             Click the legend to highlight specific weather events.

While extreme weather risks are detrimental, many strategies from the academic and policy literature provide innovative solutions. We review three important strategies: information, adaptation, and insurance. Information, such as the Arizona Department of Transportation’s “Pull Aside Stay Alive” campaign to prevent traffic accidents and fatalities in dust storms, is a critical resource to combat extreme weather losses. While information does not reduce damages directly, it allows for better decision making that will reduce destruction and save lives, often at low cost. Thus, it is essential for businesses to stay up to date on current weather information relevant to their industries. Adaptation, such as valuable large scale infrastructure projects to reduce flash flooding, directly lowers disaster losses. However, care must be taken to balance the costs of adaptation with the benefits for each specific project. It may be prohibitively costly to reduce damages to zero. Lastly, insurance can be beneficial because it smooths extreme weather costs over time. Instead of a business suffering large losses in any given year, it can, instead, pay a known annual premium and have losses covered if an extreme event hits. Many extreme weather insurance products exist, including flood insurance, through the National Flood Insurance Program.

Tucson’s economy is always changing and extreme weather will continue to affect Tucson and Southern Arizona’s business sectors in a variety of ways. Thus, it is important for individuals, businesses, and policy makers to consider the risks of extreme weather in everyday decisions as well as take proactive steps to mitigate future impacts in order to allow Tucson and Southern Arizona’s economy to continue to thrive.

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