R Street warns Congress not to gut crucial flood insurance reforms

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WASHINGTON (Oct. 28, 2013) – Legislation set to be introduced by House Financial Services Committee Ranking Member Maxine Waters, D-Calif., would gut crucial reforms passed by Congress last year to stabilize the 45-year-old National Flood Insurance Program.

The NFIP, which provides flood coverage to roughly 5.6 million Americans, is nearly $28 billion in debt to U.S. taxpayers and hasn’t repaid any principal on its loans since 2010.  By overwhelming margins, Congress passed reforms to fix some of the program’s glaring defects, including the incentives it provides to drain environmentally sensitive wetlands and develop coastal barrier islands.

But Waters, who had been co-sponsor of the Biggert-Waters Flood Insurance Reform Act of 2012, is now calling for a four-year delay to any rate increases called for under the law. Because the bill will expire in 2017, a four-year delay would effectively render the law moot. Sen. Bob Menendez, D-N.J., also is preparing to introduce a Senate version of the legislation.

Among the changes Waters’ legislation would delay is a scheduled phase-out of premium subsidies, which historically have disproportionately benefited upper-income policyholders. According to the non-partisan Government Accountability Office, 78.8 percent of subsidized policies are in counties that rank in the top 30 percent of home values, while less than 1 percent are in counties that rank in the bottom 30 percent.

“Delaying the scheduled phase-out of flood insurance premium subsidies amounts to a gift to mostly wealthy homeowners who get to enjoy cheap insurance on their beach homes thanks to taxpayer support,” said R Street Senior Fellow R.J. Lehmann.

Under terms of the bill, subsidies are being phased out over a four-year period for 345,000 second homes, 87,000 business properties and 9,000 repetitive loss properties. The phase-out for second homes started in January, while the phase-outs for commercial repeat loss properties took effect in October. The remaining 715,000 properties that have enjoyed subsidized rates will see those end when the properties are resold, suffer a complete loss or if the policy is allowed to lapse.

A separate group of policies may see rate increases as a result of updates to the Federal Emergency Management Agency’s flood insurance rate maps. Under Biggert-Waters, properties newly mapped into special flood hazard zones or those that have been reclassified into higher-risk zones will see higher rates phased in over a five-year period, beginning when FEMA completes its remapping project.

“It’s important that flood map designations reflect the risk on the ground as accurately as possible, and to that end, we think it is important that FEMA’s maps account for all flood protection systems, including those state and local levees that have not been certified by the Army Corps of Engineers,” Lehmann said.

“To the extent that FEMA remapping may result in genuine affordability problems for some homeowners, Congress should look to target those individuals specifically with limited, means-tested support. However, an across-the-board delay in new maps taking effect will only further imperil the program’s solvency, while also robbing those policyholders whose remapped properties show a reduced risk of flooding the opportunity to enjoy the lower rates they deserve,” he added.

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