Short-sighted Senate bill is bad policy
- It will perpetuate a flood insurance system where coastal communities remain unaware of the true flood risks – until they get hit by costly damages from flooding.
- Without accurate information, homeowners and communities may fail to take cost effective, proactive steps to protect themselves from flooding. The NFIP offers a discount to those who invest in flood-proofing measures.
- Without the right incentives, coastal communities will continue to build and rebuild in high flood risk areas, putting more people and property in harm’s way. This is especially a problem along large stretches of the Eastern Seaboard where local sea level is rising higher and faster than the global average and worsening flood risks.
- Long-standing subsidies to some property owners (such as those with homes built in areas prior to flood risk maps being developed there, or where updated maps show a higher risk than when the property was first insured) are simply unfair to other policyholders and taxpayers, and must be phased out.
- The NFIP’s growing debt – currently more than $24 billion owed to the U.S. Treasury – may force questions about it very survival, at least in its current form (where no homeowner can be refused coverage as long as their community participates in the program). This could leave some homeowners without valuable protection. The Congressional Budget Office (CBO) recently scored the Senate bill and concluded that it would reduce the NFIP’s net income by $2.1 billion over ten years and that the NFIP would borrow and spend an additional $900 million over the 2014-2018 period.
- Taxpayers nationwide will continue to be on the hook for growing costs of flooding because the NFIP will not be collecting sufficient funds from premiums to cover those costs and because of growing disaster assistance costs. The Government Accountability Office (GAO) has long put the NFIP on its High Risk List because of “concerns about its long term financial solvency and related operational issues.” Many experts think the NFIP will never be able to pay off all its debt. The fact that the NFIP’s premiums do not accurately reflect the actual risks of flooding also increases the likelihood that it won’t be able to cover future losses, especially from catastrophic events. Those losses could well grow as coastal development continues to expand against a backdrop of rising sea levels and worsening storm surge, as this report commissioned by FEMA shows.
- Delaying Biggert-Waters by four years, as the Senate bill requires, could effectively render all its reforms moot. The bill was part of a five-year reauthorization of the NFIP, from 2012 through 2017. At this point a four-year delay could take it beyond 2017, meaning that Congress will likely have to pass a fresh bill with no certainty that these important reforms will be included. This runs completely contrary to the urgent imperative to make our local communities more safe in the face of the clear and growing risks associated with sea level rise.
Omnibus spending bill includes a delay in FEMA’s ability to implement part of the Biggert-Waters Act
How to fix the Biggert-Waters Act
- Address affordability concerns for low-income and fixed-income homeowners by setting up a means-tested voucher or rebate program. This can be implemented as a pilot program based on existing metrics of income cut-offs for other types of federal assistance. A National Academy of Sciences (NAS) affordability study, which could take up to two years to complete, can help inform a more long-term solution.
- Slow the phase-in period for insurance rate increases. Currently the law requires increases to reflect true flood risks to be phased in over four years. This could be increased to 10 years instead to make them more gradual. Alternatively, the maximum annual increases could be lowered from 25 percent (of the total increase) to 10 percent.
- Enforce requirements for the mandatory purchase of insurance in all high flood risk areas and strongly encourage it wherever risks are present.
- Strongly encourage communities to join the Community Rating System (CRS) program to help reduce rates for all of their residents.
- Offer increased access to public and private low-interest loans and grants to help homeowners and communities invest in flood-proofing measures.
- Offer increased availability of public funds for voluntary home buyout programs in high flood risk areas.
- Provide guidance and funding so FEMA can ensure the accuracy of flood risk maps, including taking into account sea level rise projections.
- Explore options to raise deductibles in return for lower premiums.
- Assess whether adjustments need to be made to lower the commissions collected by private insurers who issue NFIP policies. A report from the GAO has found that many of these companies are getting excessively compensated and the NFIP should improve its oversight of this.
- Use taxpayer-funded disaster assistance to rebuild in a more resilient way.