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Thirty-eight years ago this week, the most devastating coastal storm in New Jersey history inundated Long Beach Island, drowning seven people, uprooting 600 houses, and tearing the slender barrier island into six pieces.

Along the Eastern Seaboard, from North Carolina to New York, the great Ash Wednesday Storm of 1962 killed 22 people, pounded 50,000 houses, and left $1.3 billion in damage.

So shocking was the destruction that state and federal officials suggested the unthinkable: restoring the vulnerable shoreline to its natural state - a buffer zone off-limits to risky development.

But no one listened.

Aided by generous disaster dollars, federal loans, and a grab bag of other taxpayer subsidies, beach towns built back bigger and closer than ever before.

Instead of a natural buffer, a barricade of pricey real estate now lines the nation's endangered coasts.

Today, Long Beach Island is crowded from dune to bay with vacation homes and investment properties worth nearly $5 billion. It is one piece of a building boom that has transformed the nation's shoreline from seaside hamlets to exclusive resorts worth an estimated $2 trillion.

The unchecked development of America's fragile coasts in the last half-century, a frenzy of building with little national forethought, has come at a hefty price.

The American dream of a house at the beach has turned into a taxpayer nightmare: billions of federal dollars to repair resorts damaged again and again. Billions more to monitor and fix environmental problems - water pollution, unchecked runoff, leaky sewers, vanishing wetlands. And still billions more in decades to come in an endless struggle to guard beachfront real estate from rising seas and inevitable storms.

"These are not random acts of God," said Gregory E. van der Vink, who teaches a course on disasters at Princeton University. "It's only when people build in dangerous places that it becomes a natural disaster. "

To accommodate this risky development, the government has been forced into odd and costly roles: The nation's disaster agency sells flood insurance. The Army pumps sand on beaches. Through such policies, Washington lawmakers have painted themselves and the nation's taxpayers into an increasingly costly corner.

In New Jersey, where $34 billion of property lines the eroding coast from Sea Bright to Cape May Point, some state officials concede that efforts to control building have failed. "We had sprawl, sprawl, sprawl all over the place. There was no planning, really," said Judy Jengo, deputy commissioner for the Department of Environmental Protection.

To defend all this investment, state and local officials have erected a Maginot Line of seawalls, groins, jetties, sandbags and underwater reefs extending the entire 109 miles of developed coast. It is the state's counterattack against erosion and the natural migration of barrier islands. Before development took hold, these vulnerable sandbars were reshaped and re-formed by storms and rising seas, without economic consequence.

New Jersey also is home to the nation's most expensive beachfill, a $1.5 billion federally funded project - and officials in New Jersey and other states are lobbying for billions more for other shore projects.

Despite these costly and extraordinary efforts, taxpayer-funded disaster spending in coastal states is increasing dramatically. In the 1990s alone, more than $9 billion in federal disaster aid went to coastal areas, along with billions more in taxpayer-subsidized loans, flood payments and other assistance.

Often, the beneficiaries are seasonal vacation resorts where storms and flooding are as common as snow in Buffalo. Yet under the government's generous rules, man-made disasters are treated the same as natural disasters such as Hurricane Floyd that devastate inland towns where people live and work year-round.

Even modest storms can unleash a flood tide of taxpayer relief. The government has committed billions for roads, utilities, water systems, business loans, landscaping, ball fields, golf courses, marinas and Christmas decorations. It also picks up part of the bill when coastal resorts are forced to evacuate - whether a storm hits or not.

More than ever, the densely developed U.S. coastline stands at risk from rising sea levels, eroding beaches, and a growing number of destructive hurricanes and coastal storms.

For as busy as the 1999 hurricane season was, it did not produce the cataclysmic storm that weather experts say is all but inevitable. A major hurricane striking Miami or New Orleans would cost upward of $100 billion, with taxpayers shouldering much of the cost.

Over the next six days, The Inquirer will examine how government policies have encouraged and subsidized hazardous development at the coast, insulating resorts from the consequences of their risky building, and exposing the U.S. Treasury to huge losses for decades to come.

Item: An unparalleled building boom has placed billions in coastal property in harm's way.

Florida is especially vulnerable, with more than a half-trillion dollars of property and a population that has increased fivefold since 1950 - adding 4,000 people a week. All of this building occurred in one of the quietest hurricane periods in history. Florida has not suffered a catastrophic Category 5 hurricane in 64 years.

"We've got a policy in the state that says we won't encourage development in hazardous areas," says Ralph Cantral, director of Florida's coastal management program. "There's obviously a problem with the nomenclature, because most of the coast of Florida is a hazard. "

Item: The United States has spent $140 billion on all forms of disaster assistance since 1950. Disaster spending by the Federal Emergency Management Agency alone has jumped 72-fold since the 1950s, adjusted for inflation. One hurricane, Georges in 1998, has cost taxpayers $2 billion. In the previous four decades, only one hurricane cost $500 million. Often, aid goes for cosmetic repairs, from street signs to tennis courts.

Item: The government's grab bag of subsidies has fostered an entitlement mentality among many beachfront investors, who often want the government off their backs - except when disaster strikes. The National Flood Insurance Program subsidizes the riskiest beachfront properties. Yet Congress has stopped the program from charging the owners of those properties a fair premium or building adequate reserves, relying instead on the U.S. Treasury.

Item: Investors building along vulnerable coastlines benefit from generous tax breaks. Heading the list: property-tax and mortgage-interest deductions for vacation homes. Owners of rental properties may deduct up to $25,000 in business expenses, from painting to landscaping to utility bills. And if they drive to the beach to check on their property, that's deductible, too.

By comparison, families paying college tuition bills or raising chronically ill children are allowed only modest deductions, with strict income limits. And if you drive to visit a prospective college, sorry, no deduction.

Item: These subsidies help prop up towns dominated by vacation homes, not towns where people live and work year-round. Many beach towns in New Jersey are empty eight months of the year, ghost towns that turn off the traffic lights after Labor Day.

In some towns, the already-tiny year-round populations are being driven out by soaring land values and larger and more lavish resorts. This trend toward upscale building is transforming the character and landscape of the coast from Nantucket to Key West to Seattle, pricing out middle-class Americans.

Competing interests

Many coastal-management agencies, issuing thousands of building permits, are virtually powerless to stop risky building and overdevelopment. That's because land-use decisions are made locally, and that authority is jealously guarded.

"I can tell you without a doubt that several developments we approved make no sense whatsoever," said Courtney Hackney, a member of North Carolina's Coastal Resources Commission, a rule-making body.

North Carolina and New Jersey have issued tens of thousands of coastal building permits since the mid-1970s, yet still cannot say how many beachfront houses line their shores, let alone the effect of all that building. "It would be something that would be useful to know," said Jengo of the Environmental Protection Department.

Regulators struggling to manage coastal development are hamstrung by weak and contradictory rules, legal decisions favoring property owners, and a nearly total breakdown in oversight. The federal Coastal Zone Management program, for example, has spent $1.2 billion since 1972 to help states, yet officials who run it say they have no data to measure its effect.

Today, many coastal programs are stalled in a regulatory gridlock of competing interests among local politicians, developers, environmentalists and state bureaucrats.

South Carolina adopted strict controls on beachfront building in 1988. A developer sued, contending that the rules prevented him from selling two lots on Isle of Palms, a resort near Charleston. The U.S. Supreme Court agreed, and the state had to pay the developer $1.6 million for the lots. The regulators then sold the same lots to builders to recoup their costs - in effect becoming developers.

A loophole in New Jersey's coastal management act allowed thousands of beach houses to be built without permits. In 1993, legislators narrowed the loophole, which had allowed developments of 24 or fewer units to escape scrutiny. However, they added a loophole: exempting storm-damaged houses from review if owners rebuilt.

That year, legislators ordered the Department of Environmental Protection to adopt stricter controls over coastal development. Seven years later, the agency introduced its rules, which were immediately attacked both by builders and environmentalists.

Jengo said rules eventually should do a better job of checking growth along the back bays. As for the barrier islands? It's too late. "They're already built out," she said.

New Jersey has a policy that it will not force property owners to move back as its beaches erode. "It's too late to retreat," says James Mancini, mayor of Long Beach Township for 35 years, and a former developer. "It's a pipe dream of these pseudo-environmentalists. "

The coast has been built out, and is too valuable an investment to abandon. The government is stuck. Policies that helped spur development now serve to protect it.

To retreat, or rebuild?

The 1962 Ash Wednesday Storm was a defining moment in the history of coastal development. The nation had a unique opportunity to pull back from the dangerous shoreline. But instead of retreating, beach towns rebuilt. Ironically, storms offered a form of urban renewal, a pattern that was repeated with Hurricane Frederic in 1979; Hugo in 1989; Andrew in 1992; Opal in 1995; and Georges in 1998.

"The building and construction industry loves it," said Miles Lawrence, a 33-year veteran of the National Hurricane Center in Miami. "Let the hurricane tear it up. We'll rebuild it. "

On Long Beach Island, the Ash Wednesday Storm did kill the real estate market - for all of three months.

"We wondered how we would sell another house on the island," recalled Herbert Shapiro, one of the island's pioneer developers. But by June of that year, speculators and prospective homeowners returned, looking for bargains.

Today, Long Beach Island is one of the country's most densely developed barrier islands, with shoulder-to-shoulder beach crowds and weekend traffic jams. Most of the $5 billion worth of property is owned by out-of-towners, many of whom were not around for the Ash Wednesday nor'easter.

One who was there was Joe Veitch, a 27-year-old first aid volunteer in 1962. On the morning of March 7, he watched as surging waves severed the island, trapping and drowning two elderly couples. "If we ever got another one like that, I don't think this island could take it," he said.

In the tightly packed village of Harvey Cedars, where the ocean poured into the bay in four places, the front line of 112 beach houses alone is now worth $59 million. That's more than the value of the entire town in 1962, adjusted for inflation.

In 1962, 18-mile Long Beach Island had $136 million of resort property. Today, the 1,064 houses lining the beach alone are worth $566 million. Long Beach Township had property worth $335 million in 1962; today, it's worth $2.2 billion. That's a gain of $944,000 a week for the last 38 years.

"These are just getting to be numbers anymore," says Janet Ford, who works in the Long Beach Township tax office. "It's not real. "

Rising land values have made the Beach Haven bungalow owned by Joe Sprague, who has lived on Long Beach Island most of his 98 years, an endangered species - and also quite an investment.

Sprague bought his cottage a half-century ago for $350. Today, if a buyer were to erect a house on the land, the property would be worth at least $400,000 - a 1,143-fold increase.

Stunning recoveries

Like Long Beach Island, Sea Isle City was decimated by the Ash Wednesday Storm. It took out 30 blocks of beachfront homes and 10 percent of the tax base.

Like Long Beach Island, Sea Isle recovered. And then some.

In 1999, the town's assessed value was $1 billion - 42 times as much as in 1962.

The whine of circular saws and pounding hammers fills the air as the island reshapes itself from modest beach town to increasingly pricey resort.

"Sea Isle is hot," boasts Mayor Leonard Desiderio. "Sea Isle is on a roll. "

That's a refrain heard again and again traveling the nation's fragile shoreline, as the equivalent of an economic trifecta - a surging economy, a robust stock market, and a tide of disposable income - combine to fuel an extraordinary building boom.

It is a remarkable, if uncharted, shift that takes many forms:

Nags Head, N.C.: In a town hammered by Tropical Storm Dennis in August, Malcolm Fearing, a developer, talks about a new generation of cottage. "I had one cottage that I rented for $600 a week. We tore it down and are building a new house with 5,200 square [foot] space, nine bedrooms, and we will rent it for $5,500 to $6,000 a week. " He whistles for emphasis. "I don't know why they call it a cottage. It's a damn motel. It's just a pure, doggone investment. "

Wrightsville Beach, N.C.: Real estate in the once-quaint family retreat there is worth $1.4 billion, more than double its value only eight years ago. "Wrightsville used to be a working-class beach town; people actually lived there," said North Carolina's Hackney. "Now [houses in] developments cost $500,000 to $1 million and nobody can afford to live there. "

Folly Beach, S.C.: Property owners say Hurricane Hugo was the best thing that ever happened to the slender barrier island. The 1989 hurricane tore apart old homes and freed up disaster aid, sparking an economic rally. Says town building inspector Tom Hall: "Now it's almost impossible to find a vacant beachfront lot. "

Destin, Fla.: Property values are rising so quickly that city employees cannot afford to live there anymore. Only a decade ago, Destin was a fishing village best known for pompano, mackerel, and the cobia run in the spring. Now, millionaire investors jet into a local airport and stay in gated villas. "Here, there are no architectural guidelines," says Robert P. Franke, the city's planner. "You have Federalist, Mediterranean and Cracker. . . . The state's mandate to cut back on sprawl, it's not taking hold here. "

In Florida, coastal towns have to submit land-use plans to the state, but they are not models of restraint, said Cantral, the state coastal management director. Were all the planned development to occur, the coastal population would swell tenfold - to 90 million people, Cantral said.

Some resort towns now are as densely built as the nation's largest cities. Census data show that Wildwood is more densely developed than Baltimore; Margate than Newark; Surf City than Camden.

Houses are getting bigger, gobbling up more square feet than ever before and rising higher into the air. In many shore towns, it is nearly impossible to see the ocean, beach or bay because of the walls of buildings.

"Ocean City used to be a family resort," said Tom Cleary, who has lived on a modest rancher on Mariana Lane for 22 years. "People could come down here and buy a small home. "

Now, developers are tearing down those homes and putting up duplexes, he said. Now, it's noisier and more crowded. Cars jam the streets. There's no place to park.

"Basically, it ceases to be a family town," he said. "It becomes a greed town. It's strictly greed, greed, greed. "

Building bigger

One of the first things Dave Owens did when he went to work for North Carolina as a coastal regulator 20 years ago was take a ride on the beach. Owens, a lawyer and planner, was assigned to sort out development plans for the Currituck Outer Banks, then one of the country's most coveted stretches of virgin barrier island.

For more than a century, the unspoiled stretch of wild dunes, maritime forest and salt marshes had dodged development pressures that had overwhelmed such nearby towns as Kitty Hawk, Kill Devil Hills, and Nags Head. As recently as 1980, only a hundred or so people lived on the 23-mile barrier strip.

Owens faced a unique challenge: How to preserve the distinctive character of the Currituck Banks without closing the door on development for the cash-starved rural county that extends across the shallow sound.

On the makeshift beach road from Virginia to the Dare County border, Owens recalls, "I could drive at 30 m.p.h. and count every house. "

Today, there are more than 2,500 houses on the Currituck Banks, 83 times the number two decades ago. Almost all are rental properties and second homes, some worth millions. The barrier island accounts for 62 percent - or more than $1 billion - of Dare County's tax base, but less than 5 percent of its full-time population. At 65 cents per $100 of assessed value, the county has one of the country's lower tax rates.

In summer, the population swells to 30,000 from 500 - even though developers, under pressure from environmentalists and state regulators, agreed to scale back densities. And Route 12, a winding, two-lane blacktop, can barely contain all the Range Rovers, Volvos and minivans carrying vacationers from a half-dozen states.

The county projects that by 2020 the number of houses on the Currituck Banks will more than double, to 6,000. The summer population is projected to swell to 70,000.

Developments such as Pine Island, an old hunting club on an isolated strip of wild dunes, now offer massive oceanfront houses that sleep up to five families and rent for $12,000 a week. Catalogs tout them as perfect for wedding receptions and corporate meetings.

"It used to be people would put a cottage down on the beach, even a nice one," said Currituck County Tax Assessor Tracy Sample. "Now they put down a mansion costing $1 million. It's crazy. "

With land prices soaring, owners feel compelled to build bigger to justify their investments, especially if it's a rental property. And, says Bill Hollan, a Pine Island developer, "Part of it is just keeping up with the Joneses. "

For planners, the boom has created a new wave of pressures. Route 12 is choked with traffic, as are rural highways carrying vacationers from the Virginia line to the Outer Banks' Wright Memorial Bridge.

In August 1998, when the county ordered an evacuation for Hurricane Bonnie, it took vacationers five hours to drive 12 miles from the county line to the bridge. "People were getting frustrated and driving on the shoulder. People were throwing rocks at them," says Jack Simoneau, the county planning director.

Rapid development may also be outstripping the area's water supply, a thin lens of freshwater that sits atop a lake of saltwater. Some private wells in the older Whalehead Division already have run dry or have suffered saltwater intrusion. The county plans to spend millions to build a desalinization plant, similar to one in the nearby Nags Head area.

Norris Austin, a lifelong resident, watches the breakneck development with a sense of irony. "They come from New York, New Jersey, and they say they like the remoteness of the area," he says. "But then they want to put a 7-Eleven on every corner. "

Growing battle-weary

As development has exploded up and down North Carolina's barrier islands, from Currituck to Calabash, so has the toll of storm damage. In August, Tropical Storm Dennis tore up Hatteras Island, Nags Head, and other towns on the Outer Banks, undermining or destroying scores of houses and causing millions in losses.

Two weeks later, Hurricane Floyd damaged 600 homes on Emerald Isle, where property values had more than doubled in a decade. It took out 100 beach homes worth $27 million on Oak Island. And it exposed septic tanks and the stench of raw sewage at Holden Beach.

For battle-weary officials of North Topsail Beach, Floyd was yet another reminder of their vulnerability. The barrier island is a veritable punching bag for hurricanes, and is viewed by some as a national symbol of the futile fight against nature.

In 1996, it was slammed by Hurricanes Bertha and Fran, which washed away half the town's dunes, eroded 50 feet of shoreline, rendered 350 beachfront lots unbuildable, and erased $72 million of the resort's tax base.

More than $6 million in federal disaster aid poured in to rebuild dunes, roads, sewers, and damaged public buildings. The town spent $127,000 planting beach grass in an effort to reestablish its building line.

Two years later, Hurricane Bonnie washed away half of the rebuilt dune and beach grass. Last summer, Floyd finished the job. The storm surge overwhelmed the remaining dunes, cut channels across the island, sent waves crashing into condominiums, toppled mobile homes, and crumpled foundations of beachfront properties.

For town officials, the timing could not have been worse. That August they had informed owners of 30 oceanfront properties that they could rebuild on lots taken by the earlier storms. "Now they're probably unbuildable again," said Town Manager Charles A. Hammond.

In a Sisyphean effort, the town is rebuilding its dunes, and looking to the federal government for financial help. The locals vigorously defend the effort.

"This is a great place," said Scott Murray, a developer in North Topsail. "We just had a little setback. "

Inquirer researcher Frank Donahue contributed to this article.