Measuring the economic consequences of the 2008 Iowa floods requires careful consideration of what exactly is to be counted as an economic outcome. Property losses and damaged infrastructure mark reductions in overall private and public assets. Ruined or slowed businesses result in constrained productivity. Workers get laid off and household incomes decline. Alternatively, natural disasters require a tremendous amount of recovery spending which stimulates economic activity. This brief report looks at the scope of economic consequences and describes the kinds of economic impacts that might be anticipated in Iowa.

Eathington, Liesl

O'Brien, Meghan

Swenson, David A.

English

Research Papers in Economics

 
claims adjustors, or members 
of the news media in describ-
ing the same event. 
This brief guide addresses is-
sues and considerations in 
measuring the economic im-
pact of the floods.  It is in-
tended to provide a framework 
for discussion as communities 
struggle to comprehend this 
event in economic terms. 
Images from the Floods of 
2008 vividly portray the extent 
of physical damage to homes, 
agricultural crops, commercial 
property, and public infrastruc-
ture. 
Less clear are the longer-term 
economic impacts of this event 
on Iowa’s communities.  How 
will the flood-related losses 
work their way through our 
local economies, and who will 
be most affected? 
There is a growing demand to 
place a dollar value on the 
losses even as damage reports 
continue to filter in.  After the 
floodwaters recede, a swirl of 
numbers will likely take their 
place.   
−  Thousands of households 
displaced by flooding... 
−  Millions of cropland acres 
damaged or destroyed... 
−  Billions of dollars in damage 
to personal and commercial 
property. 
Which of these statements 
describes the economic impact 
of the Floods of 2008? The 
answer is none, at least not yet, 
and not in terms of traditional 
regional economic impact as-
sessment. 
Evaluating the impact of a 
natural disaster on a local or 
state economy requires differ-
ent words and methods than 
might be used by homeowners, 
local merchants, insurance 
How Will the Floods of  2008 Affect Local Economies in Iowa? 
Where Do The Economic Losses Accumulate? 
 An important first step in as-
sessing local and statewide 
economic impacts is identifying 
how and where flood-related 
losses are likely to accumulate. 
To Households. Urban flooding 
impacts households primarily.  
The losses to households in-
clude personal items, house-
hold goods, vehicles, homes, 
and in some cases, lost wages 
or even lost jobs. 
Whether renters or owners, a 
very small fraction of house-
holds have flood insurance.  
Homeowners in active flood 
plains may have obtained flood 
insurance as a part of home 
financing, but the floods in 
Cedar Rapids, for example, 
were beyond any historic meas-
ure. 
To Farmers. Currently, accord-
ing to the USDA, nine percent 
of corn acres have been 
flooded, and eight percent of 
soybeans. If we assume that 
half of that land is still able to 
be planted or replanted into 
soybeans, then the change in 
anticipated gross sales for 
Iowa’s crop farmers might be 
$1.2 to $1.5 billion less than it 
otherwise could have been 
were this a normal growing 
year.  For those replanting, 
there will be increased costs. 
Ninety percent of Iowa farmers 
have crop insurance, but not all 
farmers have flood insurance. 
Most of the damaged farmland, 
however, was not in an active 
flood plain, so we have a ways 
to go before we know the ex-
tent of actual flood damage 
versus other crop damage. 
As corn and soybean prices 
have shot up strongly on the 
heels of the flood there will be 
strongly increased costs to 
animal feeders in Iowa and 
other places. This will stress 
those operations and further 
reduce already strained mar-
gins. 
To Businesses. Local busi-
nesses may experience lost 
inventory, lost sales, and lost 
productivity and profits. Even 
firms not directly affected by 
flooding might lose sales if they 
were suppliers of goods and 
services to affected businesses 
or households. 
As with households, many busi-
Economic Impacts of the 2008 Floods in Iowa 
Special points of 
interest: 
•  Local productivity 
loss is a better 
measure of eco-
nomic impact than 
the value of lost 
assets or lost sales. 
•  Recovery efforts 
may actually stimu-
late the local econ-
omy and partially 
offset some of the 
losses. 
•  Unfortunately, the 
flood-related gains 
are unlikely to ac-
crue to those most 
affected by the dis-
aster. 
Iowa State University Extension  June, 2008 
Inside: 
Where Do Losses 
Accumulate? 
1 
Do These Losses 
Translate Into Eco-
nomic Impacts? 
2 
Will Disaster Assis-
tance Payments 
Offset the Impacts 
of flooding? 
2 
How Will Recon-
struction Efforts 
Affect the Local 
Economy? 
3 
What Are The Pros-
pects for Commu-
nity Recovery? 
4 
Conclusions and 
Evidence from Past 
Floods 
4 
Image Source:   
Iowa Public Television  
 1 / 5 
nesses are not insured for 
losses due to flooding. We sus-
pect that there will be many 
business failures and job 
losses, especially since we are 
already experiencing a national 
economic slow-down. 
To Communities. The general-
ized social costs of the flood 
are substantial. All aspects of 
public service delivery are af-
fected.  In some communities, 
waste water and fresh water 
facilities are compromised and 
must be restored.  Cities will 
need to repair roads and 
bridges, public lighting, public 
parks, and public buildings. 
Cities will also be the primary 
source of clean-up activities.  
They will need to create addi-
tional solid and hazardous 
waste disposal facilities. 
The community fiscal effects of 
infrastructure losses will de-
pend primarily on the amount 
of federal and state disaster 
assistance they obtain and 
their abilities to either borrow 
funds or re-direct spending in 
support of flood recovery. 
Local property tax revenues 
may decline if properties re-
main vacant or property values 
decline.  Local option sales tax 
revenues may drop, depending 
on the types of retail establish-
ments that were lost.  Too, in 
many smaller towns, we can 
expect shifts in sales to re-
gional trade centers, especially 
for household refurbishing ex-
penditures. 
Intangible community assets 
may also be lost. These include 
the breakup of established 
neighborhoods and the loss of 
iconic stores or other institu-
tions that provided local color 
and character.  Not to be for-
gotten, floods destroy or mar 
public spaces. Most greenways, 
parks, and community recrea-
tion facilities are located in 
flood plains. 
(continued from previous page)  
Do These Losses Translate Into Economic Impacts? 
Some of the more frequently-
cited measures are discussed 
below. 
Assets.  The economic impacts 
of lost assets are not measured 
by their purchase price, their 
assessed value, or their re-
placement cost.  Instead, we 
measure the value of an asset 
by its annual contribution to 
area productivity — in other 
words, its annual “use” value.  
For example, the annual use 
value of housing stock trans-
lates roughly into an imputed 
rental value of the homes. 
The destruction of personal, 
business, and public assets 
does indeed reduce regional 
wealth and well-being. These 
kinds of losses are tangible and 
important, but should not be 
confused with changes in over-
all economic activity attribut-
able to a natural disaster. Over 
time these losses are offset as 
allowable offsets to state and 
federal tax liability, to the ex-
tent that those suffering the 
losses are able to itemize their 
taxes. 
Sales.  Although businesses 
may “lose” sales due to flood-
ing, lost sales are not an appro-
priate economic impact meas-
ure.  The dollar value of lost 
sales overstates impacts be-
cause it fails to include offsets 
for any associated costs that 
were not incurred.  From an 
economic impact perspective, 
net operating losses provide a 
better measure. 
Net Operating Losses.  Local 
businesses may experience 
operating losses either as a 
direct or indirect result of the 
flooding.  Operating losses may 
be caused by a variety of fac-
tors including reduced reve-
nues, inventory losses, produc-
tion delays due to damaged 
plant and equipment, transpor-
tation or logistics problems, 
lower employee productivity 
due to absence or stress, or 
other disruptions to normal 
business operation.  Whatever 
The scope of losses sustained 
by households, farmers, busi-
nesses, and communities sug-
gests dire economic conse-
quences.  However, not all of 
the losses translate into eco-
nomic impacts on the overall 
local or state economy. 
Economies are measured by 
the annual productivity of busi-
ness and the distribution of 
business proceeds.  When an 
economy is “impacted”, we 
want to know the degree to 
which changes in local indus-
trial activity affect payments 
made to workers, owners, and 
investors.  Ultimately, all eco-
nomic activity finds its way into 
personal income, so loss in 
personal income is an alterna-
tive measure of economic im-
pacts. 
Many people are prone to use 
other types of losses to de-
scribe economic impacts.  
Some are more appropriate for 
determining final economic 
impacts on a regional economy.    
Page 2  Economic Impacts of the 2008 Floods in Iowa 
In the 1993 
floods, real 
nonfarm GDP 
in Iowa 
actually posted 
a 2.7 percent 
gain.  
 
Source:  U.S. 
Bureau of 
Economic Analysis 
Image Source:   
USDA-NRCS 
In 2007, there 
were 10,649 
National Flood 
Insurance 
Program 
policies in 
force in Iowa. 
 
 Source:  Federal 
Emergency 
Management 
Administration 
 2 / 5 
Federal and state disaster as-
sistance, charitable donations, 
and social assistance programs 
will partially offset some of the 
productivity losses to the re-
gion. 
The federal and state disaster 
assistance programs take the 
form of direct payments, grants, 
and no-interest or low-interest 
loans to individuals, busi-
nesses, and communities. 
Social assistance programs 
may also provide an infusion of 
cash to local households.  
These programs include Food 
Stamps, unemployment insur-
ance compensation, and oth-
ers.  In addition, FEMA may 
provide housing vouchers and 
other forms of assistance to aid 
households 
All of these transfers represent 
income to the region, and they 
result in an economic impact to 
the extent that they are spent 
locally or they sustain local 
workers and productivity. 
The length of time it will take 
for these transfers to impact 
the local economy will vary.  
Federal disaster assistance 
may begin to flow within weeks.  
Small business loans may take 
longer.  Infrastructure rebuild-
ing might be meted out over 
several months and years.. 
Will Disaster Assistance Payments Offset the Economic Impacts of 
Flooding? 
How Will Reconstruction Efforts Affect the Local Economy? 
local and state economy; how-
ever, these gains will be short-
term, highly localized regionally, 
and within specific industrial 
categories.   
Types of businesses that might 
experience a boost include 
cleaning services, demolition 
and waste services; the con-
struction sector; skilled trades 
(electrical, plumbing, dry-
walling, painting); building ma-
terials suppliers; and general 
merchandise and appliance 
stores. 
Some of these increased sales 
may be captured by local mer-
chants and tradespersons, but 
not all. 
 
 
During the recovery, homes will 
be refurbished and refurnished,   
businesses will restore their 
facilities, and governments will 
supervise the repair and recon-
struction of public roads, 
bridges, water, and waste treat-
ment facilities.   
The spending related to recon-
struction efforts may actually 
stimulate some sectors of the 
Find information 
about various 
disaster assistance 
programs at the 
State of Iowa’s Flood 
Resource Center, on 
the Web at the 
following link: 
www.flood2008.iowa.gov 
Image Source: 
USDA-NRCS 
Image Source:   
University of Iowa  
Page 3 
the cause, the operating losses 
reduce regional income. 
Wages. Some employees may 
be unable to work, either be-
cause they must attend to their 
household recovery efforts or 
their employers have shut 
down. Their lost wages repre-
sent a direct reduction to local 
household income, which has 
multiplier effects upon the local 
economy. These losses may be 
mitigated strongly by disaster 
assistance, cash grants, and 
other forms of social assis-
tance.  
Crop Prices.  The gainers and 
losers in the farm sector are 
difficult to measure.  Higher 
prices due to flooding will yield 
profit windfalls to the many 
farmers who will likely produce 
reasonably good crops.  On the 
flip side, higher prices will lower 
the margins for animal feeders. 
Insurance and other forms of 
assistance will mitigate some of 
the losses. 
Public Sector Infrastructure 
Costs. Some of the most expen-
sive flood recovery activity will 
occur in the public sector.  
Those costs will be borne in the 
main by federal aid and will be 
in the hundreds of millions of 
dollars.  But local and state 
governments will have to in-
crease own source revenues to 
cover portions of the costs or 
reduce services in other areas.  
Either response has an impact 
on the economy and on the 
recipients of public services. 
Other Income Losses. Other 
categories of loss that result in 
a local economic impact in-
clude rental income and other 
investment income losses by 
local property owners and in-
vestors.  These losses will pri-
marily be felt as reductions in 
unearned incomes to house-
holds owning those assets. 
 (continued from previous page) 
 3 / 5 
 
 
 
Conclusions and Evidence From Past Floods 
 
housing in the area.  As a result of these 
accumulated pressures, many communi-
ties, especially smaller ones, face the risk 
of losing residents.  
Traditional downtown business districts 
face challenges as well.  For example, 
much of modern retail development in 
Iowa’s communities has occurred outside 
of the traditional downtown districts.  Many 
of these retail developments, with their big 
box stores, may have escaped the damage 
sustained in the older, downtown areas.   
In smaller communities, commercial dis-
tricts were already experiencing stress due 
to sales leakage to larger regional trade 
centers.  These shifts in the location of 
spending could accelerate due to disrup-
tions caused by the flooding. 
 
The prospects for local neighborhoods and 
business districts to recover depends in 
large part on their relative health before 
the flooding.   
Many households were already experienc-
ing economic stress due to high energy 
and food prices and fallout from the mort-
gage crisis.  These losses may accelerate a 
decline in homeownership in some areas.  
Local residents who were commuting long 
distances to work may decide that now is 
the time to move closer to their jobs as 
floods seriously disrupt travel routes. 
Additionally and importantly, the persons 
who tend to live in flood prone areas have 
lower than average incomes and much 
fewer resources to aid in their recovery. 
Those displaced by the flooding may have 
difficulty finding affordable replacement 
Some businesses will fare better than 
others.  For example, businesses owned or 
operated by large chains, such as the ho-
tels and restaurants that were flooded in 
Coralville, have a greater likelihood of sur-
viving than your typical sole proprietorship. 
Independent and locally owned businesses 
have a two-fold challenge of maintaining 
their contacts and business base as peo-
ple attend to their own flood-related is-
sues, while simultaneously rebuilding with-
out the support of a larger network of 
stores or businesses to help absorb the 
loss. 
For service based businesses that are less 
reliant on inventory or specialized equip-
ment, their strengths are in their human 
capital.  In those cases, recovery might be 
quicker. 
What Are The Prospects for Community Recovery? 
. .. and justice for all 
 
The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, na-
tional origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases 
apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimina-
tion, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC 
20250-9410 or call 202-720-5964. 
 
Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of 
Agriculture. Jack M. Payne, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. 
Please contact the authors for 
more information: 
Dave Swenson 
Liesl Eathington 
Meghan O’Brien 
 
impacts were distributed along the Mis-
sissippi River and from Des Moines 
southward along the Des Moines River. 
In every disaster there is a flurry of recov-
ery activity and spending.  This activity 
boosts state and regional accounts, yet 
masks the magnitude of losses.  For 
example, the flood-induced run-up on 
crop prices will yield windfall profits for 
unaffected farmers. 
Gains to one part of the economy or to 
one region do not come near offsetting 
the sum of all losses to homeowners, 
Past  experience tells us that during the 
recovery there will be positive economic 
growth in some areas.  As insurance and 
disaster assistance flows into flood im-
pacted regions to houses, businesses 
and governments, and as public entities 
shift public spending to restore neces-
sary infrastructure, there will be strong 
increases in commercial activity and 
construction. 
In the 1993 floods, real nonfarm GDP in 
Iowa actually posted a 2.7 percent gain.  
Most of that reconstruction and those 
flooded out farmers, or businesses.  
Despite any apparent gains in the aggre-
gate economy, there will be strong pock-
ets of loss. 
Many households will not be made 
whole.  Many governments will lose and 
not be able to replace important infra-
structure or amenities.  Many communi-
ties will lose part of their character or 
cohesion.  And many people will be fed 
up and relocate. 
Regional Capacity Analysis Program 
17 East Hall, Iowa State University 
Ames, Iowa 50011 
Phone: (515) 294-9903 
recap@iastate.edu 
 4 / 5 
Iowa State University does not discriminate on the basis of race, color, age, religion, national 
origin,  sexual orientation, gender  identity, sex, marital  status, disability, or status  as  a  U.S. 
veteran.  Inquiries can  be directed to the Director  of Equal Opportunity  and Diversity, 3680 
Beardshear Hall, (515) 294-7612. 
 5 / 5

Economic Impacts of the 2008 Floods in Iowa

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Economic Impacts of the 2008 Floods in Iowa

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Research Papers in Economics