No easy fixes for National Flood Insurance Program

No easy fixes for National Flood Insurance Program's $19 billion debt

By Sean Reilly

April 22, 2010, 8:01AM

WASHINGTON -- Amid public fury over government bailouts, there's one rescue effort that Gulf Coast property owners would likely welcome: a write-off of the National Flood Insurance Program's almost $19 billion debt to the federal treasury.

Many observers view that step as inevitable at some point, given that the alternative could be a politically unpopular premium increase. But as a Wednesday congressional hearing again showed, fixing the beleaguered flood program will take more than mopping up its red ink.

"Our challenges are daunting," Federal Emergency Management Agency Administrator Craig Fugate told lawmakers at the meeting of the House Financial Services Subcommittee on Housing and Community Opportunity.

Four-and-a-half-years after losses from Hurricanes Katrina and Rita pushed the program into virtual bankruptcy, however, Congress has done little to confront them.

"This is almost like the never-ending story," said the subcommittee's top Republican, Rep. Shelley Moore Capito of West Virginia.

Besides the debt, which Fugate pegged at about $18.7 billion, he noted that many property owners pay underpriced premiums that don't fully reflect their actual flooding risk.

Another witness, Mississippi Rep. Gene Taylor, D-Bay St. Louis, again singled out the "inherent conflict of interest" when private insurers are responsible for adjusting claims that may involve both wind and water damage. And David Conrad of the National Wildlife Federation objected that the availability of government-backed flood insurance encourages risky development in environmentally sensitive areas.

Twice in the last two months, lawmakers have allowed the program to lapse. The latest gap lasted more than two weeks and left many homebuyers facing delayed or canceled closings because they couldn't get the flood insurance needed for a mortgage, according to a National Association of Home Builders representative who testified Wednesday.

Although Congress approved an extension last week, it will last only through next month, potentially leaving the program in limbo after that.

Created in 1968 because private insurers were reluctant to cover water damage, the flood program now has some 5.6 million policies nationwide, according to the most recent available statistics. Of those, some 56,300 are in Alabama, with almost 76,500 in Mississippi, In both states, the bulk of policyholders are concentrated in coastal counties.

Next Tuesday, the full financial services committee is scheduled to take up two separate flood insurance bills. One, introduced by Taylor -- and co-sponsored by Alabama Reps. Jo Bonner, R-Mobile, and Artur Davis, D-Birmingham -- would allow the government to offer optional windstorm coverage.

The other, introduced by the housing subcommittee's chairwoman, Rep. Maxine Waters, D-Calif., would extend the flood program through 2015, but would also allow property owners to put off buying flood policies for five years when updated flood maps show they are in the 100-year flood plain.

Both measures face uncertain odds. In the past, for example, Taylor's approach has been opposed by Sen. Richard Shelby, R-Tuscaloosa, on the grounds that it would add to taxpayers' possible liabilities.

And while supporters of Waters' bill said Wednesday that an economic downturn is not the time to push people to begin buying flood policies, Conrad saw her tack as dangerous because it would leave property owners in flood-prone areas at risk of major losses, with only limited government aid as a backup.


-TIG Congressman Taylor has been fantastic in Ms. However, while we can learn quite a bit from his bill proposal, the government should NEVER be in the business of business. Once our Federal government can show any successful program that it has maintained, then we should reconsider. However, I dont know of a single program (welfare) that has been profitable, or even broken even.