In this, the first of a three-part series, the Iconoclast examines the factors that make this country's infrastructure vulnerable to terrorist attacks, and what effect such attacks might have on the economy, in general, and the insurance industry, in particular.
With election time rolling around again, both sides (or if Ralph hasn't dropped out yet, perhaps we should say all sides) will be casting sound bites at each other over the television. Twelve years ago, the party of the donkey won over a "foreign-policy'd to death" public with its catch phrase, "It's the economy, stupid," while the party of the elephant pushed Reaganomics. This year, the economy again is big, but threats of terrorism are bigger — and both are more closely linked than we suspect.
Those of you who do occasionally read this column know that its writer is a transportation buff. For the past five years, he has traveled back and forth across the United States, coast to coast by road, rail, and air, observing every aspect of our highway, railway, shipping, and air services. They are deteriorating for lack of expensive maintenance. They are vulnerable to terrorism. Many highway bridges, rail lines, and tunnels are overworked and need replacement.
The situation reminds him of the story he wrote many years ago about a flood on the Connecticut River back in the 1920s: Two old Yankees were sitting on a porch in rocking chairs watching houses, town halls, covered bridges, and other debris floating down the rain-swollen river. One looked at the other and slowly said, "By golly, Fred, taxes are goin' to be high." Fred replied, "Yep."
Well, yep, if this nation is going to live up to 21st century expectations, taxes are going to be high, whether we pay them to Washington or pay them to our state and local governments. We probably pay enough now, but the problem is distribution. The things we want and need — better schools, safer bridges and highways, parks, fast local and regional transit, more efficient airline service — are largely local issues. When the federal government sops up the excess cash, however, local politicians get elected on a "no more taxes" platform, so kids go to classes in trailers, bridges collapse, parks grow weedy, transit grinds to a halt, and just forget that new runway at the airport.
According to statistics drawn from the U. S. Department of Transportation compiled by the Environmental Working Group, of every $1 in federal gas tax collected from drivers in 10 major metropolitan areas, an average of only 72.4 cents is returned to those cities in federal highway benefits. Those benefits cover not only highways and related infrastructure, but also support mass transit projects.
Federal law requires that states receive at least 90.5 percent of fuel tax money back, but it comes to the state, where state legislatures, dominated by rural interests, allocate the money. Those country tightwads certainly are not going to do much about urban gridlock, it's a good bet. Hence, I can drive a four-lane U.S. 19 through the cotton and peanut fields all the way from Griffin, Ga., to the Florida border and hardly see another vehicle, but, at times, cannot even get on the interstate highway Atlanta calls the Perimeter. Atlanta got $788 million less in federal funds between 1998 and 2003 than it paid in as gasoline taxes.
Los Angeles, where I frequently drive I-405, L.A. County's biggest parking lot, received $1.16 billion less than it paid in over that five year period, and Dallas-Ft. Worth, $1.1 billion less. The Tampa/ Orlando, Fla., areas, where I-4 is a zoo, got $895 million less. (Governors Bush, where were you guys when they needed you?) Meanwhile, Alaska gets two new bridges to practically nowhere, at a couple of billion bucks. Our cities sit in gridlock, transit systems — where they exist — battle for budget increases just to keep up maintenance, and urbanites subsidize rural roads. Not only London's bridge is falling down, highway bridges all over the nation are about to collapse.
Is It Security?
Perhaps the secret to this imbalance is that the money is going to pay for all the security needed for our infrastructure. After all, look how much rail line runs out there in the countryside, fully exposed to terrorist sabotage. Nope, that's a false clue. There is practically no expenditure for security on public transportation, except what agencies such as the commuter systems and subway/rapid transit lines in Boston, New York, Philadelphia, Washington, Miami, and other cities provide from their own tight budgets.
With the exception of the Northeast high-speed line from Washington to Boston, all rail lines in America are privately owned, maintained, and guarded. Unlike our government-owned and maintained port facilities, airports, and highways, the railroads have to pay for their own security and safety systems; plus they pay state, local, and federal taxes, in addition to those fuel taxes. In April, the federal government advised that it would allocate $1 billion for transit security. Urban areas should not hold their collective breaths awaiting that distribution.
The 2003 U.S. budget allocation for Amtrak, our nation's rail passenger system, was $1.2 billion, $600 million less than what was needed just to keep the system operating at full efficiency, without much security. Meanwhile, we spent $1.3 billion on rail, highways, and airports in Iraq. And that was just 2003.
Amtrak wants more so that it can repair bridges on its Acela line, fix wheels on passenger cars, repair wrecked cars, and overhaul locomotives. Why have a high-speed line if you cannot safely run at high speed?
According to Trains' May issue, however, "Rep. Ernest Istook (R-Okla.), chairman of the House Appropriations Subcommittee controlling Amtrak funding, charges that [Amtrak President David] Gunn's request lacks credibility, since Amtrak survived on about $1.2 billion each of the last two years." It's the old budget game: ask for far more than you need, but be sure to spend whatever you get, or you won't get more next time around.
Amtrak already has been the target of a terrorist attack. About 10 years ago, terrorists of the domestic variety damaged the track southwest of Phoenix, derailing the Sunset Limited and injuring more than 100 passengers. In March, we saw what happened when terrorists blew up trains in Spain. Within weeks, railways in France and Germany had been attacked by terrorists. One of the most deadly terrorist attacks ever took place in a Tokyo subway, with the release of poison gas. A similar terrorist attack was recently planned for London's Underground.
How long do we think it will be until al Qaeda decides to set off some horrendous weapon of mass destruction in the Times Square shuttle, the MTA, WMATA, BART, MARTA, or SEPTA? Meanwhile, of course, the TSA (federal Transportation Security Agency) is holding up airline traffic while they sniff our shoes and X-ray our dirty laundry.
When Against All Enemies, Richard Clarke's expos? of anti-terrorism planning in four presidential administrations, hit the stands, the politicians had a ball pointing fingers. We all were very kind to the politicians, however. How could they have known that somebody might hijack an airliner and fly it into the World Trade Center?
Hadn't some nut already crashed a plane into the White House during the Clinton presidency? They could have known because someone had hijacked an airliner in 1974, at the Baltimore-Washington Airport, with the intent of flying it into the White House. You probably did not hear about it because the media was too busy telling you about Richard Nixon's Watergate troubles.
The hijacker shot an astute Maryland transportation cop who had tried to stop him, then stormed the cockpit with a gun and a gasoline bomb. He shot both pilots when they refused to take off, killing one. He commandeered a pilot passenger to fly the plane, but was shot by a second policeman through the cockpit window. The hijacker then killed himself with his gun. Wow! Who could have guessed in 2001 that someone might hijack an airliner?
Addressing Insurance Risks
The link between all this and the insurance industry ought to be obvious. Whether the World Trade Center disaster turns out to be one or two separate occurrences is less important than trying to prevent what will come next. My humble guess is that it likely will be an infrastructure attack rather than on commerce. If I were an insurance underwriter what risks would I consider as terrorist targets, and what would I advise my loss engineers to address?
First, we can see from what has happened overseas that targets will most likely be large collections of people. Where would we find such collections? Perhaps a place like Penn Station in New York City, where Amtrak, New Jersey Transit, Metro's Long Island lines, and at least six different subway lines converge. And what sits directly above it? Madison Square Garden, where the GOP will be holding its 2004 convention. Should we surcharge all attending Republicans an extra 50 percent on their life insurance this year? I do not think that the insurers would get very far with that suggestion. Fingers also would point to the Democrat's own convention in Boston, atop two major subway lines.
Where else might a terrorist attack? The terrorist wants to destroy lots of lives as well as property, with as much press coverage as he can get. Blowing the tunnels to New York or the bridges over the Mississippi or the San Francisco or Chesapeake Bays would take out a few lives and tie up traffic for months. That probably would not give close to the bang for the buck that the Oklahoma City federal building or the World Trade Center attacks garnered, however.
What would? Considering how another terrorist attack might affect the outcome of the November elections, how about a major city stadium hosting a World Series baseball game? Lots of folks there, and a dirty bomb, while not doing much visible damage, could contaminate – for decades – a large part of a major city. Stadiums in many cities, such as Atlanta, Cleveland, Chicago, St. Louis, and Los Angeles, are right downtown.
"There is a distinct difference between a nuclear bomb and a dirty bomb," wrote James P. Smith, deputy chief of the Philadelphia Fire Department and an instructor at the National Fire Academy, in his article, "Dirty Bombs: Command Considerations" (Firehouse, April 2004, page 20). "A dirty bomb is a 'homemade' bomb that uses conventional explosives and contains radioactive material that is intended to be dispersed as the bomb explodes. The intent is to cause damages from the explosive force of the bomb that can cause injury and death to those in the immediate area, and to expose people to radioactive material."
It can be like a pipe bomb, Smith said, "constructed from a paint can, or a large bomb that is assembled in a truck." He also warned that another way a terrorist might spread radioactivity is by placing a bomb on a vehicle or truck hauling radioactive material. Trainloads of radioactive waste from nuclear energy plants pass through a city near you quite frequently.
How about blasting some high tech research center smack dab in the middle of a university campus or hospital complex? Lots of folks there, plus all that exotic research blowing around in the wind. As an underwriter, I would not jump on insuring those risks. We know that Los Angeles International Airport already was an al Qaeda target, but that, perhaps, was poor planning by the terrorists. Like so many major airports today, LAX is spread out with multiple terminal buildings and no central area. Multiple attacks on the FAA's control centers would create much more terror; it would leave hundreds of planes in the sky nearly blind and without communication to the ground. Most are located outside cities in remote rural areas easily invaded by commando-type terrorists.
If terrorists want economic damage, targets would be things like big oil refineries or the power grid. Consider what one tree limb in Ohio did to the entire Northeast last August. If they want only human fatalities, the subways of our major cities are perfect targets. If they want expensive damage, the bridges and tunnels will go. An even better target might be our water supply. Every city has one, and every city is vulnerable. Blow the dams on some vital rivers and the big cities will wither away, or wash away as the water rushes out to sea. It's all a delightful scenario of terror.
Who is guarding these places? That is an interesting question, as so many of our police and firemen also are active military reservists. Just when we need them the most, they are being called up and sent to duty in Iraq or Afghanistan. Somehow that seems not to have been a very smart move.
Next month, we will take a look at how we might better protect our infrastructure.
Ken Brownlee, CPCU, is a former adjuster and risk manager, based in Atlanta. He now authors and edits claim adjusting textbooks.
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