Some congressional Democrats might actually be having second thoughts about creating new spending programs. Last week, the House demonstrated unusual restraint in declining to put taxpayers on the hook for yet another government-backed insurance scheme. Unfortunately, the reluctance may turn out to be only a temporary delay.
On July 22, the House voted 228-183 to set the terms of floor debate on Rep. Gene Taylor’s proposal to have taxpayers around the country pick up the tab for wind damage caused by major hurricanes. The Mississippi Democrat wants to expand the National Flood Insurance Program (NFIP), through which the Federal Emergency Management Agency offers subsidized flood-disaster insurance, by adding coverage for wind damage from hurricanes. But the promised debate on his plan never happened. Embarrassed Democratic leaders were forced to pull the bill at the last minute as it became clear they did not have the votes for passage. Sources expect another try after Labor Day.
Over the August recess, members ought to ask their constituents about the wisdom of enlarging an expensive program that already has spun out of control. As the Government Accountability Office succinctly put it, “NFIP, by design, is not actuarially sound.” The government watchdog agency raised concerns in a series of reports, explaining that the insurance program’s subsidized rates did not reflect actual risk, that it had insufficient reserves and that it improperly forecast potential damage claims. Because congressional busybodies wrote the rules forcing acceptance of any insurance applicant - regardless of risk - the program has become a haven for owners of “repetitive loss properties.” That is, people who build in the depths of a flood plain can, instead of moving to higher ground, turn to Uncle Sam for a handsome payout when it rains. These properties represent 1 percent of insured structures, but account for 25 percent to 30 percent of all claims.
It’s no wonder this program is bankrupt. Although by law, insurance premiums are supposed to be high enough to cover loss claims, the rates in this “self-funding” program are too low. As a result, taxpayers were left holding a bill for $19 billion in the wake of Hurricane Katrina. Among the victims of that disaster was none other than Mr. Taylor, who hopes to become a beneficiary of the new coverage. The initiative’s intentions are questionable, considering the Democratic majority blocked consideration of an amendment by Rep. Jeb Hensarling, Texas Republican, to require the NFIP to repay its debts to taxpayers before making any new wind coverage available.
In effect, this is the insurance look-alike of the Fannie Mae and Freddie Mac housing debacle. Democrats who back the proposal want to provide a benefit to residents in vulnerable states, including Mr. Taylor’s Mississippi district, as well as important electoral battlegrounds like Florida. By seeking a short-term political advantage, they are placing the country at long-term financial risk. Those having second thoughts about this misguided spending spree shouldn’t be swayed by pressure from congressional leadership when the issue blows through town again.