R Street deeply disappointed by House bill gutting flood insurance reform
Coming on the heels of Senate passage of a bill to delay adjustments to the National Flood Insurance Program’s rate maps for four years, the House bill would repeal entirely the section of the flood insurance reform law that calls on FEMA to update its maps. For most NFIP policyholders, both the House and Senate bills will result in higher rates than they would otherwise pay, as increases for remapped properties that were paying insufficient rates would be offset by reductions for other properties in the program.
The House bill also would undermine the current law’s goal of ending taxpayer subsidies for the roughly one-fifth of NFIP policyholders who receive them. It would extend into perpetuity subsidies for roughly 700,000 older primary homes, even if they are resold by the current owner. The measure also rolls back rate increases for properties that have been resold since the law was passed in mid-2012.
“This bill represents a fundamental betrayal of the free-market principles and fiscal responsibility the House leadership claims to embrace,” said R Street Senior Fellow R.J. Lehmann. “Less than two years after passing landmark reforms to fix the NFIP, which remains $25 billion in debt to American taxpayers, lawmakers appear poised to gut just about all of those reforms, all to score cheap political points.”
Lehmann added that the outcry to undo Biggert-Waters has been driven by wildly inaccurate or exaggerated claims about the impact of rate increases. For instance, the phase-out of subsidies for older properties — which see premium increases of 25 percent a year until they reach risk-based rates — currently only affects second homes, business properties and about 9,000 properties that have been completely destroyed more than once. It does not affect primary homes unless the owner resells the property or allows his or her policy to lapse.
In some cases, communities have reported higher flood insurance rates due to confusion over how properties that lie behind decertified levees would be treated. However, FEMA has worked to resolve those isolated cases, most recently extending accreditation to the New Orleans-area levee system.
Most of the dramatic increases reported in the press are alleged to be the result of FEMA’s remapping process. But FEMA has not yet formulated rates for remapped properties, providing only preliminary guidance about ranges of rates that ultimately depend on a given property’s elevation, risk zone, deductible and level of coverage. What’s more, the agency has made clear that it does not anticipate implementing any rate changes from that process until October 2015, at the earliest.
Moreover, according to FEMA data, as of July 31, 2013, 97.9 percent of the 5.6 million policies within the NFIP paid rates that were less than $5,000. Only seven properties in the entire United States had rates that were greater than $20,000.
“Against the backdrop of a long-term budgetary crisis, the Biggert-Waters Act represented a major step in the direction of fiscal responsibility by fixing a program that is tens of billions of dollars in debt. Against the backdrop of rising sea levels, it represented a step in the direction of environmental responsibility to stop subsidizing development in risk-prone flood zones,” Lehmann said. “What Congress is clearly demonstrating now is that neither party is ready to be quite that responsible.”