Relocation

Appeal Brief Appeal Letter Appeal Analysis

Appeal Brief

Desastre	4393
Applicant	Star Telephone Membership Corporation
Appeal Type	Second
PA ID#	163-UTEKR-00
PW ID#	GMP 73349
Date Signed	2022-12-21T17:00:00

Summary Paragraph

During the incident period, Hurricane Florence produced torrential rains which flooded the Star Telephone Corporation’s (Applicant) corporate office (Facility) located in Clinton, North Carolina.  The Applicant requested FEMA perform a 50 Percent Rule analysis, which resulted in FEMA finding Facility eligible for replacement.  The Applicant subsequently requested the Facility be considered eligible for relocation.  To buttress that request, it later asked FEMA to evaluate whether floodplain management regulations supported relocation—specifically, whether FEMA would be undertaking a “critical action” as defined under Title 44 of the Code of Federal Regulations (C.F.R.) § 9.4.  FEMA denied the relocation request, finding it not cost-effective.  FEMA also found the Facility was not considered to be among the types of facilities listed in 44 C.F.R. § 9.4’s “critical action” definition.  The Applicant filed a first appeal stating the means of estimating the costs and a Benefit-Cost Analysis (BCA) FEMA prepared misrepresented the actual costs and necessity of relocation.  FEMA issued a Request for Information asking for documentation supporting that the relocation was cost-effective.  The Applicant submitted additional BCAs suggesting the relocation was cost-effective.  FEMA denied the first appeal, identifying deficiencies in the Applicant BCAs and pointing to FEMA-prepared BCAs showing relocation was not cost-effective.  Furthermore, FEMA stated the Facility was not located in the 500-year floodplain and therefore did not implicate the 44 C.F.R. § 9.4 critical action criteria.  The Applicant filed a second appeal, reiterating its first appeal arguments regarding misrepresentation of costs, providing 10 additional BCAs, and stating that the Facility should also be considered for relocation under the floodplain management regulations. 

Authorities and Second Appeals

• 44 C.F.R. §§ 9.4, 9.5, 9.6, 206.226(f), 206.226(g)(1).
• PAPPG, at 103, 104.
• FEMA BCA Reference Guide, at iv, xiii, xvii-xviii, 2-2, 2-5.
• Santa Rosa, FEMA-4344-DR-CA, at 2.

Headnotes

• FEMA may approve funding for relocating a facility where: (1) the facility is and will be subject to repetitive heavy damage; (2) approval is not barred by other provisions of Title 44 C.F.R.; and (3) the overall project, including all costs, is cost effective. 
  • The Applicant failed to demonstrate that relocation of the Facility is cost-effective; correctly prepared FEMA cost-benefit analyses demonstrate that relocation is not cost-effective.
• FEMA must determine whether a proposed action will have an adverse impact on the 500-year floodplain, and a “critical action” is one in which even a slight chance of flooding is too great.
  • The Applicant’s Facility is not located within the 500-year floodplain.

Conclusion

Relocation of the Facility is not eligible for PA funding, as it is neither cost-effective nor is the damaged Facility located within the minimum floodplain of concern for the purported critical action.  This appeal is denied.

 

Appeal Letter

Appeal Analysis

Background

During the incident period, September 7-29, 2018, Hurricane Florence produced torrential rains which flooded the corporate office (Facility) of Star Telephone Membership Corporation (Applicant), a Private Nonprofit telecommunications service provider located in Clinton, North Carolina.[1]  FEMA prepared Grants Manager Project (GMP) 73349 to document the flood-related damages and reimburse costs for work to repair the Facility.  In a letter dated February 14, 2020, the Applicant requested FEMA perform an analysis to determine whether the Facility would be eligible for replacement.[2]  FEMA completed the analysis and determined the Facility was eligible for replacement and approved costs totaling $3,186,999.00. 

In a letter dated August 24, 2020, the Applicant requested approval for costs to relocate the Facility to higher ground.  The Applicant noted that the Facility also had been damaged by Hurricane Matthew in 2016, resulting in repair work (except for final flood mitigation measures) prior to Hurricane Florence.  The Applicant asserted that it would be more feasible to relocate its damaged Facility and avoid repeatedly funding repairs following flood events.  It also expressed concern about flood insurance coverage and redrawn Flood Insurance Rate Maps (FIRMs), stating that under a revised map its Facility might be included in the 100-year floodplain and that it was already “within the X zone, 500-year floodplain.”[3]  Based on these factors, the Applicant stated that a practical alternative was to relocate its Facility to another location away from any flood risk.  The Applicant provided an estimate indicating that its relocation option would cost $14,618,359.00 for uncompleted work, compared with its estimate of $12,867,055.00 in uncompleted work to reconstruct the Facility at its original location.[4]

FEMA issued a Determination Memorandum (DM) dated March 4, 2021 finding the Applicant’s requested relocation costs ineligible.  In reviewing the relocation request, FEMA completed a Benefit-Cost Analysis (BCA) to determine the cost-effectiveness of relocation, comparing the future benefits of a mitigation project to its cost.[5]  This involved calculating the project’s total net benefits, the numerator, divided by the total project cost, the denominator.[6]  The end result is a Benefit-Cost Ratio (BCR), a numeral expression of the cost effectiveness of a project.[7]  In the DM, FEMA found that the BCR equaled 0.12, well below the 1.0 threshold for relocation to be considered cost-effective.[8]  Consequently, FEMA found the Applicant did not demonstrate that relocation satisfied all the requirements of Title 44 of the Code of Federal Regulations (44 C.F.R.) § 206.226(g)(1).  FEMA also reviewed whether the Facility was among the types of facilities listed under 44 C.F.R. § 9.4 for which a proposed FEMA action constitutes a “critical action” that might require relocating a facility instead of funding its repair in its original location.  FEMA concluded that the Facility did not fall within the types of facilities listed in 44 C.F.R. § 9.4’s “critical action” definition but instead was an office building.[9]  Consequently, relocation was found to not be mandated and relocation costs were found to be ineligible.       

First Appeal

The Applicant filed a first appeal, in a letter dated April 16, 2021, to North Carolina Emergency Management (Recipient).[10]  The Applicant stated that FEMA did not consider several factors when analyzing its relocation request, such as prior damage from repetitive flooding and endangering critical utility systems, and did not accept cost estimates from the Applicant’s architect.  The Applicant referenced its previously provided estimate that indicated its relocation option would cost $14,618,359.00 in uncompleted work, compared with its previously provided estimate of $12,867,055.00 for uncompleted work to reconstruct the Facility at its original location.  The Applicant also stated that the BCA numerator FEMA utilized to determine cost effectiveness was inaccurate because it lacked: (1) current and historical costs from flooding events; (2) hazard mitigation costs; (3) green space costs; and (4) loss of public service benefits.  Regarding the floodplain management regulations, the Applicant asserted that the Facility needs to be re-located outside of a Zone X, critical action (500-year floodplain), and that, as the headquarters for a telecommunications company that serviced rural areas (and as the only service provider for many emergency services), the Facility served as much more than a simple office building.[11]  The Applicant asserted that FEMA funding for work on the Facility therefore constituted a “critical action” under the floodplain regulations requiring FEMA to follow the regulations’ eight-step process for avoiding adverse effects on floodplains, which includes considering alternatives such as relocation.[12]  The Recipient forwarded the Applicant’s first appeal in a letter dated May 11, 2021, in support of the Applicant’s position.

FEMA issued a Request for Information (RFI), in a letter dated September 28, 2021, which reiterated that the Applicant’s prior relocation request was denied based on the FEMA-prepared BCA that resulted in a BCR of less than 1.0, deeming the requested relocation not cost-effective.  FEMA requested documentation demonstrating that the relocation would nonetheless be a cost-effective mitigation measure.  The Applicant responded, in a letter dated October 21, 2021, by reasserting first appeal arguments that FEMA misapplied the BCA cost factors.  The Applicant included several documents in response to FEMA’s RFI, including five BCAs with various scenarios considered. 

FEMA’s Region IV Regional Administrator, in a letter dated May 16, 2022, denied the Applicant’s appeal.  FEMA found that the Applicant’s BCAs were deficient with respect to factors that applied to both the numerator and denominator.[13]  Notably, FEMA explained that the Applicant used an inaccurate PC,[14] denominator, of $1,751,304.00, which was the difference between the Applicant’s estimated costs of construction at the proposed new location ($14,618,359.00) and the Applicant’s estimated costs of construction at the Facility’s original location ($12,867,055.00).  FEMA stated that the correct PC, denominator, was the Applicant’s total estimated relocation costs that exceeded $14.6 million, as this represents the total cost of the mitigation project (not the difference between the relocation and the replacement costs).  As part of its appeal review, FEMA developed two additional BCAs.  It still applied the Applicant’s total requested relocation project costs as the PC (denominator), but increased the total mitigation project benefits (numerator) as a result of the Applicant’s arguments.  The greater BCR was 0.18, therefore, even with the additional factors accounted for, the BCR remained less than 1.0 and, consequently, relocation was not cost-effective.  

FEMA also found that the floodplain regulations were not a relevant factor in considering the Applicant’s relocation request as the applicable FIRM map showed the Facility was not in the 500-year floodplain.  Instead, it was located in an unshaded Zone X, an area of minimal flood hazard.  Because the Facility was not in the minimum floodplain of concern for critical actions, FEMA found that the issue of whether the Facility fell within the critical action criteria in 44 C.F.R. § 9.4 could not be used as a determining factor in the Applicant’s request for relocation.

Second Appeal

The Applicant filed a second appeal, in a letter dated June 14, 2022, stating that relocation is necessary due to repeated flooding; is not barred by any known regulation; is more beneficial than relocating the Facility to a higher elevation on the current property; and will reduce future disaster-funding needs by not building with a 500-year floodplain.  The Applicant asserts that its Facility rests within the 500-year floodplain and that, as a telecommunications service provider, its damaged corporate office is the type of facility contemplated in FEMA regulations for which even a slight chance of flooding is too great.  Thus, according to the Applicant, funding replacement of the Facility at its original location would constitute a critical action on FEMA’s part and would require its relocation.   

In support of its claim, the Applicant provides documentation including correspondence from various constituents attesting to the importance of services provided; 10 additional BCAs with various scenarios; and, reports from regulatory bodies on telecommunication infrastructure.  With the BCAs it provides, the Applicant again asserts that the PC should be $1,751,304.00 (the different between its estimated relocation and replacement costs).  The Recipient forwarded the Applicant’s appeal, in a letter dated June 17, 2022, supporting the Applicant’s position.

 

Discussion

Relocation

Under 44 C.F.R. § 206.226(g)(l), FEMA may approve funding for and require the restoration of a destroyed facility at a new location when: (1) the facility is and will be subject to repetitive heavy damage; (2) approval is not barred by other provisions of 44 C.F.R.; and (3) the overall project, including all costs, is cost-effective.[15]  All three elements must be satisfied.[16]  If the cost to relocate the facility is less than the eligible cost to replace the facility at its original location (the value of the land at the original site is not included as part of this evaluation) then the project is cost-effective.[17]  In instances where the cost of relocation exceeds the cost to replace the facility at its original location, FEMA may use its BCA process and software to determine cost-effectiveness.[18]  The result of the BCA—the BCR—is the present value of net project benefits divided by the project costs.[19]  A ratio of 1.0 or greater indicates the project is cost-effective; a ratio of less than 1.0 indicates the project is not cost-effective.[20]  If relocation is not cost-effective, the Applicant may request an improved or alternate project.[21]      

Here, the Applicant’s cost to relocate the Facility exceeds FEMA’s estimated cost to replace the Facility at its original location by more than $11 million.  Even relying on the Applicant’s estimates, its cost to relocate exceeds its cost to re-construct by more than $1 million.  Therefore, the next step is to evaluate cost-effectiveness using a BCA.  Although the Applicant subtracted its estimated replacement costs from its estimated relocation costs to calculate the total mitigation costs, the correct PC is the total cost of the project, $14,618,359.00.[22]  The PC (denominator) includes all project costs because all future benefits are counted in the numerator.[23]  The BCA relied on by FEMA during the initial eligibility determination and the two BCAs FEMA subsequently prepared on first appeal, all show that when the total estimated cost of relocation is used as the PC, a BCR of below 1.0 results—even when accounting for historic damage and Net Social Benefit amounts more favorable to the Applicant.  These FEMA-prepared BCAs, reviewed for accuracy by a FEMA BCA specialist as part of FEMA’s second appeal review, substantiate that the BCR for relocation is below 1.0.  Additionally, using the Applicant-provided BCA numerators with the correct PC still results in BCRs that are below 1.0.

As the Applicant did not show that relocation of the Facility is cost-effective, it has not demonstrated the relocation satisfies all elements of 44 C.F.R. § 206.226(g)(l).  The Applicant may request an improved or alternate project.                  

Floodplain Management

FEMA is responsible for determining whether a proposed PA project (e.g., replacing a damaged facility at its original location) will have an adverse impact on the 100-year floodplain (or 500-year floodplain for critical actions).[24]  It does so by following an eight-step decision-making process that first involves determining whether the proposed action is located in a wetland and/or the 100-year floodplain (or 500-year floodplain for critical actions) and has the potential to affect or be affected by a floodplain or wetland.[25]  FIRMs contain shaded and unshaded Zone X floodplain areas.[26]  Shaded Zone X are areas of moderate flood hazard usually depicted on FIRMs as floodplain areas between the limits of the 100- and 500-year floods.[27]  Unshaded Zone X are areas of minimal flood hazard usually depicted on FIRMs as areas above the 500-year flood level.[28]   

The FIRM the Applicant submitted shows that the Facility is located within an unshaded Zone X area, which signifies an area of minimal flood hazard that is outside even the 500-year floodplain.  The FIRM reflects data from a flood map effective June 20, 2018, three months before Hurricane Florence, and which has not been revised or amended since.  Therefore, the damaged Facility is not within the minimum floodplain of concern for the purported critical action.  

 

Conclusion

Relocation of the Facility is not eligible for PA funding, as it is neither cost-effective nor is the damaged Facility located within the minimum floodplain of concern for the purported critical action.  This appeal is denied.

 

[1] The President declared the event a major disaster on September 14, 2018.

[2] See generally, Title 44 of the Code of Federal Regulations (C.F.R.) § 206.226(f) (2017) (providing that a facility is considered repairable when disaster damages do not exceed 50 percent of the cost of replacing a facility and it is feasible to repair the facility so that it can perform the function for which it was being used as well as it did immediately prior to the disaster; otherwise, the costs to replace the facility may be eligible).

[3] Letter from Exec. Vice President and Gen. Manager, Star Telephone Membership Corporation, to Dir., N.C. Div. of Emergency Mgmt., and Reg’l Adm’r, FEMA Region IV, at 3 (Aug. 24, 2020) (referencing the Applicant-provided National Flood Hazard Layer FIRM map).  

[4] The total estimated costs associated with the requested relocation work amounts to $15,191,515.00, as this includes costs for already-completed work.

[5] See generally, FEMA BCA Reference Guide, at 2-5 (June 2009) [hereinafter BCA Guide].

[6] See id.

[7] Id.

[8] See generally, id. 

[9] Types of structures and facilities listed in 44 C.F.R. § 9.4 include hospitals and nursing homes, emergency operation centers, and generating plants, among others.  

[10] The Applicant also states that FEMA did not include all eligible costs (e.g., codes/standards upgrades) in its replacement cost estimate, but as this is not an issue on appeal, it is not addressed in this decision.

[11] Letter from Exec. Vice President and Chief Executive Officer, Star Telephone Membership Corporation, to Public Assistance Grants Manager, N.C. Div. of Emergency Mgmt., at 28-29 (April 16, 2021).

[12] See generally, 44 C.F.R. § 9.6.

[13] See FEMA First Appeal Analysis, Star Telephone Membership Corporation, FEMA-4393-DR-NC, at 4-5.  FEMA identified errors in the Applicant’s application of five factors that contribute to the numerator of the BCA: (1) Mitigation Action Type (listing this factor as “Other” instead of “Acquisition”); (2) Project Useful Life (submitting a PUL of 25 years instead of the standard FEMA value of 100 years for an acquisition); (3) Critical Facility Type (incorrectly identifying the building as a critical facility in two of the BCAs, with the correct input being “non-residential building”); (4) Expected Damages After Mitigation (listing in three BCAs $79,415.00 in expected damages, when there should not be any expected damage after relocation); and (5) Net Social Benefits (inputting “Ecosystem Service” as a social benefit—a use for the land after the Facility is removed—when the appropriate input is “100 percent green space” with a lower value of $49,848.00).

[14] Project Cost is defined as “[t]he total cost of a mitigation project, including an applicant’s share.  These costs include such items as land or right-of-way acquisitions, construction and materials, design, testing, permits, project management, and equipment.  In most [BCAs], all future benefits are counted, so all project costs should be counted as well.”  BCA Guide at xiii.  The project cost estimate should outline the costs for the development of the overall plan or project.  BCA Guide, at 2-2.

[15] 44 C.F.R. § 206.226(g)(1); see Public Assistance Program and Policy Guide, FP 104-009-2, at 103 (Apr. 2018) [hereinafter PAPPG].

[16] FEMA Second Appeal Analysis, Santa Rosa, FEMA-4344-DR-CA, at 2 (Feb. 3, 2021).

[17] PAPPG, at 103.

[18] Id.

[19] BCA Guide at iv.

[20] See id.

[21] PAPPG, at 103. 

[22] See BCA Guide, at xiii.

[23] Id.

[24] See 44 C.F.R. § 9.5(a)(2); PAPPG at 104.  The minimum floodplain of concern for critical actions is the 500-year floodplain.  44 C.F.R. § 9.4.  Critical actions include those that create or extend the useful life of structures or facilities, such as those which: (1) produce, store, or use various types of hazardous materials; (2) hospitals, nursing homes, or housing for the elderly; (3) emergency operations centers or data storage centers which contain records or services that may become lost or inoperative during disasters; and (4) generating plants and other principal points of utility lines.  See id.  To determine whether a proposed action is deemed a critical action, FEMA considers “[t]he potential for emergency services and utilities to become inoperative, or essential and irreplaceable records to be lost if a facility is flooded in a future incident.”  PAPPG, at 106.  However, the issue of whether the Facility is among the types of facilities listed in 44 C.F.R. § 9.4’s “critical action” definition is moot, as it is outside even the minimum floodplain of concern.

[25] 44 C.F.R. § 9.6(b); PAPPG at 104.

[26] BCA Guide, at xviii.

[27] Id. at xvii-xviii; see FEMA, Flood Zone, https://www.fema.gov/glossary/flood-zones (last visited Oct. 24, 2022).

[28] Id.; see FEMA, Zone C or X (Unshaded), https://www.fema.gov/glossary/zone-c-or-x-unshaded (last visited Oct. 24, 2022).