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Golden Hammer: Federal flood program $24B in debt

Insurance subsidy fund faces major deficit

- The Washington Times - Thursday, January 23, 2014

As the federal flood insurance program drowns in billions of dollars worth of debt, Congress' top watchdog is proposing a novel solution: Have the private property owners — not taxpayers — foot the insurance bill.

The National Flood Insurance Program "has accrued $24 billion in debt, highlighting structural weaknesses in the program and increasing concerns about its burden on taxpayers," the Government Accountability Office said in a report released this week.

As a result, some analysts reached by the congressional watchdog agency called for greater involvement from the private sector and eliminating government subsidies "so individual property owners — not taxpayers — would pay for their risk of flood loss."

But Congress has been unable to act, drafting legislation that would put reforms on hold but doing little to stop the growing debt, now saddling the flood insurance program with a $24 billion deficit. In the meantime, leading lawmakers blame the Federal Emergency Management Agency for not providing accurate information on the effects of the cost increases.

"What Congress is trying to do right now is to undo some of the reforms, to actually delay the reforms that were adopted in July of 2012, which will actually accelerate insolvency of the program," said Steve Ellis, vice president of Taxpayers for Common Sense.

For failing to act to fix a program that is costing taxpayers billions of dollars, Congress and FEMA win this week's Golden Hammer, a distinction given by The Washington Times to examples of fiscal failings and abuse of taxpayer money.

Congress took action to reform the program in July 2012 by passing the Flood Insurance Reform Act, making property owners pay a larger share of the insurance costs and reducing government subsidies. The reform was led by Republican Rep. Judy Biggert, Illinois Republican, and Rep. Maxine Waters, California Democrat. FEMA said the change "will mean premium rate increases for some — but not all — policyholders over time."

Policyholders indeed saw their prices rise and complained to Congress.

Now lawmakers are working on legislation that would suspend the reforms and return the government payments to their previous levels.

But the GAO said that putting reforms on hold will do little to fix the long-term problems.

Instead, the GAO said there is a simple solution to reducing the debt and getting more private businesses involved in providing flood insurance: Lower the amount the government pays.

If the government raises premiums to be closer to market levels, private companies might be more willing to provide insurance. Or the government could subsidize the insurance for only the lowest-income individuals, leaving more well-off people to purchase their own coverage in flood-prone areas.

One of the lawmakers who helped lead the charge to reform the insurance program, Ms. Waters, now is trying to halt those reforms.

"FEMA's poor implementation, inaccurate mapping and incomplete data have led to unreasonable and unimaginable increases in premium," she said in a statement. "From the moment I learned of the unintended consequences of the Biggert-Waters legislation, I have made clear that I would lead the effort to resolve the problems that have resulted."

Ms. Waters, the top Democrat on the House Financial Services Committee, is leading a group of more than 100 lawmakers to pass legislation that would delay raising the percentage property owners pay while FEMA completes an "affordability study."

Rising costs of flood insurance could harm the housing market in coastal areas, some of the lawmakers argued, as people are less willing to pay the high premiums for a new home. Housing often is seen as a key indicator of overall economic health.

FEMA chief Craig Fugate pointed out that the program was "not actuarially sound" by design, with the government covering many costs to make insurance more affordable in flood-threatened areas. It was the series of devastating hurricanes, led by Katrina in 2006, that soon bankrupted the program.

He rebutted lawmaker complaints that his agency didn't properly map out the most dangerous flood areas.

"FEMA consistently releases new flood maps and data, giving communities across America access to helpful, authoritative data that they can use to make decisions about flood risk, enabling safer development and rebuilding following disasters," he said.

The agency estimates that 40 percent of the U.S. population lives in counties that border an ocean or the Great Lakes.

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