Q&A – Who Will Pay for Rebuilding the Francis Scott Key Bridge?
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Social: @brianmuddradio
iHeartRadio: Use the Talkback feature – the microphone button on our station’s page in the iHeart app.
Today’s Entry: I heard President Biden state that the Federal government was going to pay the full cost of rebuilding the bridge. Being very simple minded, I thought, why wouldn't they? Isn't the bridge part of Interstate 695? Isn't the interstate system run by the federal government? If you "own" something, and it breaks, isn't it your responsibility?
Also, wouldn't insurance come into play? Chubb apparently has the property insurance on the bridge, according to this article.
Bottom Line: The answer to your four questions are yes, no, yes and yes – which also has me thinking that you’re not necessarily so simple minded. You’ve asked good questions, and your instincts are right about most of them. Yes, the former Francis Scott Key bridge is part of Interstate 695. No, the interstate system isn’t run by the federal government. Yes, principally if you own something (which effectively the federal government does “own” the interstate system) it’s your responsibility to take the lead on the project. Yes, insurance will come into play and in a very big way.
The tragic collapse of the Francis Scott Key bridge which has resulted in the death of at least six people, will involve all stake holders having to come together to first clean up the disaster and to clear the area of debris and then to begin the effort to build a new bridge which some experts have claimed could take up to ten years. I’ll break down what happens next and who's responsible for each step – starting with how the interstate system works.
The interstate system is funded through the U.S. Department of Transportation under the direction of the Federal Highway Administration. The role the DOT and FHWA play in the establishment and maintenance of federal highways is a limited one, however. The federal government’s role is that of general oversight. As explained by the FHWA:
- The Federal Highway Administration (FHWA) is an agency within the U.S. Department of Transportation that supports State and local governments in the design, construction, and maintenance of the Nation’s highway system (Federal Aid Highway Program) and various federally and tribal owned lands (Federal Lands Highway Program). Through financial and technical assistance to State and local governments, the Federal Highway Administration is responsible for ensuring that America’s roads and highways continue to be among the safest and most technologically sound in the world.
So, the federal government’s role is to identify needs and opportunities and to work with state and local governments to carry out the construction and maintenance of highways like the Francis Scott Key Bridge through federal funding. Once highways are established, state and local governments are responsible for their operation. In the instance of the Key Bridge, which was a toll bridge, the Maryland Transportation Authority had oversight. You might recall hearing that once the mayday call came in from the incapacitated cargo ship transit workers acted quickly to restrict access to the bridge and to attempt to clear automobiles on it off. As for who pays for what from here...
There are four big cost buckets to account for in this process.
- Costs to clear damage and debris
- Costs for the ship and its cargo
- Costs to rebuild
- Costs of lives lost, business loss, job loss, revenue, loss etc.
The immediate costs to clear damage and debris are currently spread across local, state and federal governments involved. In time it’s likely much of that expense will be passed on to the insurer – which by far has the largest share of the liability here. More on what that looks like in a minute. The costs for the ship and its cargo will be split between the companies that had cargo on the ship. Maritime law is unique. Liability for maritime issues in container ships is decided through a process called ‘general average’. General average dictates that every company which had a container on that ship is responsible for liability costs equal to the percentage of containers they had on the ship. There were 330 containers on the ship and its currently unclear exactly how many different companies had containers on the ship. However, it is known that at least one company had as few as two containers on it. In other words, there potentially could be many companies which must account for their share of the incident. As for the costs of the rebuild...
As mentioned, President Biden said the federal government (aka you and me) would pick up the cost for the rebuilding of the bridge and that is most likely to be the case via federal funding through the DOT. Experts have estimated the cost to rebuild a similar style bridge would be approximately $600 million. It’s obviously too early to know if the plan will be to rebuild a similar style bridge. What can be reasonably assumed is that it’ll have significantly enhanced reinforcement barriers protecting the supports. The most expensive aspect of the tragedy is the fourth bucket. The loss of life, the loss of business for the port and the lost revenue for the state of Maryland for tolls. These costs will be assumed by the insurer.
Morningstar’s initial estimate for these “impact” costs is a minimum of $2 billion with the potential for the costs to reach $4 billion which would make this the most expensive maritime disaster on record. There are numerous insurance policies and underwriting insurance companies involved in these claims. It’ll impact the entire maritime insurance industry – which will likely have the effect of raising the cost of shipping. That’s something no one wants to hear with inflation already having been at historically high levels.
One the dust settles the total cost for the disaster, including the bridge rebuild, appears to be a minimum of about $3 billion with the potential for costs to rise above $5 billion on the high side. For perspective on how that compares... The total cost of the impact of Hurricane Idalia last year is estimated at $3.6 billion. So effectively the impact of the collapse of the Francis Scott Key bridge is similar to that of the impact of a major hurricane.