RPT-INSIGHT-Flooded New York plans to tame the sea, but who pays?

* Flood defense plan could cost up to $29 billion

* May include barriers, levees and dikes

* Federal funding key, private financing unlikely

NEW YORK, Nov 4 (Reuters) - When Jeroen Aerts, a Dutchman

tasked with crafting a plan to defend New York City from

flooding, first looked at its coastline seven years ago, he was

taken aback by how vulnerable it was.

Unlike some of the other large cities around the world, such

as London and Amsterdam, that have comprehensive flood defense

systems with levees and storm surge barriers, New York was

completely at the mercy of the elements.

"I was looking at the water and wondering - where are the

levees?" said Aerts, a professor of environmental risk

management at the VU University in Amsterdam and an adviser to

New York City. "Nobody was doing anything on flood risk."

As the devastation after super storm Sandy this week made

all too clear, little progress has been made since Aerts first

looked at the Atlantic Ocean from New York's shores. The storm

caused widespread flooding, power outages, travel chaos and left

more than 40 people dead in New York City. Early estimates

predict it also caused up to $18 billion in economic losses in

New York state alone.

New York state and city officials have started talking about

the need for a comprehensive flood defense system, but many

obstacles remain. According to Aerts' top estimate, it could

cost as much as $29 billion to build and implement. The question

of who will pay for it remains unresolved.

Most comprehensive proposals for storm surge defenses

involve a system of two to four barriers, each spanning from a

third of a mile (.5 km) to six miles (9.6 km) and towering about

30 feet (9 metres) above sea level. This is to be supplemented

by levees, dikes, bulkheads and beach strengthening.

One of the most prominent plans calls for a 0.84-mile East

River storm surge barrier from Whitestone in Queens to Throgs

Neck Bridge in the Bronx, and a much longer 5.92-mile Outer

Harbor barrier linking Sandy Hook in New Jersey to the Rockaway

Peninsula in Long Island.

Aerts estimates storm surge barriers could cost between $10

billion to $17 billion, while additional defenses such as levees

and adding sand to eroding beaches could cost another $10

billion to $12 billion.

Even if the city were to find that kind of money, an

infrastructure project o n such a scale can take more than eight

years to build, which means New Yorkers would be exposed to the

fury of any such storm in the meantime.

As shown in the past week, the city's current strategy is to

take precautions - such as evacuations from areas that flood

easily - then take the hit and try to recover as best as it can.

"The city's approach is something that they call

'resilience'. If they are hit by a storm and they have flooding

there will be damage but after the storm they can clean up...

kind of repairing the damage after it's happening, bouncing

back," said Malcolm Bowman, an oceanography professor at Long

Island's Stony Brook University. "Obviously it is not enough."

New York City and state officials did not respond to a

request for comment on the question of flood barriers. A city

spokesperson also did not respond to a request to comment on the

significance of Aerts's role. The city will occasionally tap

advisers to carry out research.

WHO PAYS

To many New Yorkers, Sandy's destruction came as a shock.

But to scientists, engineers, environmentalists and public

officials, this was a tragedy waiting to happen. A 2007 study by

the Organization for Economic Co-operation and Development

ranked greater New York second among the world's large port

cities most exposed to coastal flooding based on the value of

their property.

"People have said for many years - specifically since

Hurricane Katrina hit New Orleans - that New York City was prone

to such a super storm," New York City Comptroller John Liu said

on Thursday.

Still it took Hurricane Irene in August last year for the

city to seriously start exploring a flood plan, according to

Aerts, who said the city asked him to develop a comprehensive

cost-benefit analysis for a flood strategy.

After Sandy, the momentum behind such a plan is set to

build. Andrew Cuomo, governor of New York state, said this week

that infrastructure will need to be re-examined and reinforced.

But it is not clear how New York will pay for it, and it may

well take an act of Congress to prevent the next act of God from

bringing the world's financial center to its knees again.

"We have to weigh our damages against the cost of building

such a levee system," said Liu.

On paper, New York City has the capacity to borrow more to

spend on infrastructure. The latest relevant report from

Comptroller Liu's office projects the city to be $18.28 billion

below its general debt limit by July 2013 and $18.74 billion by

July 2014.

"I don't see tight debt capacity as a hurdle down the road,"

said George Friedlander, chief municipal strategist at Citigroup

Inc.

But the city's government is likely to be loath to

jeopardize its strong credit in the municipal bond markets. It

will have to clinch a deal with the s t ate, the federal

government, as well as other states vested in this, particularly

New Jersey, at a time when relations between Democrats and

Republicans are highly polarized.

"When we saved New York City from bankruptcy thirty years

ago, Governor (Hugh) Carey got people together and made them

understand they were better off talking to each other," said

Wall Street veteran Felix Rohatyn, currently a special adviser

to Kenneth M. Jacobs, CEO at the Lazard investment bank.

"I'm worried this is something we cannot do today."

FEDERAL MONEY

Federal money may prove key to any major flood protection

program. This would mean negotiating funds with Congress rather

than relying on the Federal Emergency Management Agency, which

reimburses states and cities for recovery projects. And getting

that kind of money is going to be increasingly difficult given

the lack of consensus in Washington on how to handle the U.S.

government's large budget deficit and soaring debt.

"We have to get a long-term commitment from the federal

government to put money up, which can be contingent on the state

and local governments producing a significant match," said

former Pennsylvania Governor Ed Rendell.

Rendell, a major advocate of private sector involvement in

infrastructure finance, argued that public-private partnerships

could be part of the funding mix for such projects.

Even though something like levees would be not be

revenue-generating, private ownership or management was still an

option, said Raj Agrawal, head of infrastructure for North

America at investment firm KKR & Co LP.

"If you get this under private ownership or private

operation, you can certainly raise more capital than you could

in the bond market by getting a capital infusion of funds from a

private party," he said.

POLITICAL DECISIONS

In Europe, the Delta Works in the Netherlands, as well as

the Thames Barrier in Britain, were both kicked off after the

North Sea Flood of 1953 and are early examples of how major

storms can result in significant infrastructure investments.

The United States has not always been quick off the mark in

erecting such defenses. Storm surge barriers off Rhode Island,

Connecticut and Massachusetts were constructed in the 1960s as a

result of a hurricane in 1938, said Graeme Forsyth, a technical

director at engineering consultancy Halcrow.

"The design may take two years, the construction might take

six, and the rest of it is more to do with getting the ball

rolling politically, getting the funding in place and all that

kind of thing," said Forsyth, whose firm is behind a storm surge

barrier for St. Petersburg, Russia, that cost $6.9 billion.

Still, construction of the storm surge barrier in New

Orleans was completed in 2011 - just six years after Hurricane

Katrina devastated the city.

"My experience in other countries with this kind of project

is that these are political decisions. If the population is in

favor of it, then a politician will say we'll go for it. ... Now

we have momentum," said Aerts.

Some skeptics argue that barriers and other large-scale

infrastructure projects are not cost-effective because they

protect only specific areas.

"There is too much coastline. In a funny kind of way you can

protect one area at the expense of another. I don't think huge

capital infrastructure like that is going to be constructive,"

said Steven Cohen, a professor at Columbia University's School

of International and Public Affairs.

Aerts, though, says he is producing an estimate for the cost

of barriers to give to the city's government.

"In the short-term you can look at existing building codes

to make sure that they are maintained. In the longer term, the

barriers come into play," Aerts said.

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