Hurricane Irene, which walloped the East Coast over the weekend causing as much as $13 billion in damage, may be a timely wake-up call on the need to reform the nation’s bankrupt National Flood Insurance Program, but is unlikely to lead to meaningful results before the steeply-subsidized government program expires at the end of September, analysts said.
Congress has not yet returned from its August recess but already the fight over whether additional disaster relief should be offset by other spending cuts has erupted into a political spectacle with House Majority Leader Eric Cantor, R-Va., catching flak from the White House for even suggesting it. That debate is only likely to intensify next week when lawmakers return. Sen. Mary Landrieu, D-La., who chairs the Senate Homeland Security Appropriations Subcommittee, plans to hold a vote on legislation when Congress resumes on Sept. 6 to provide the Federal Emergency Management Agency, which administers flood assistance, with “significant additional funding for disaster relief.”
But economists, analysts, and former regulators interviewed on Tuesday said disaster victims will not be overlooked and predicted any additional aid needed would somehow be provided. Still, they cautioned that lawmakers caught up in the politics of the relatively minor costs of cleaning up the immediate damage are missing the bigger picture. They argued the cost of any disaster relief (FEMA has not said whether or how much additional disaster funding it will need) is a sideshow, and that fixing the flailing government flood insurance program is of much more lasting financial consequence for taxpayers and for future real estate development.
The 2005 hurricanes, Katrina and Rita, were more severe than the typical storms that the National Flood Insurance Program was built to handle, leaving it roughly $18 billion in debt. They also brought to light some inherent weaknesses in the program's administration, such as artificially low premiums for insuring risky coastal properties. Although Congress has debated reform bills ever since that would update FEMA’s flood-mapping, bring premiums closer to market rates, and improve policy enforcement, lawmakers keep failing to come to an agreement, and settle for short-term extensions that keep the existing program running without improvements.
Analysts said they expect that pattern to repeat itself again this year. The House has already passed a bill that would take steps to reform the flood program and although the Senate Banking Committee is aiming to take up a similar bill early in September, most analysts and lobbyists tracking the debate said they do not expect the two chambers to hammer out a deal by Sept. 30 when the current program expires.
“It is amazing, somehow the NFIP has escaped really serious consideration in terms of reform for a variety of reasons,” said Joe Engelhard, a partner with Capital Alpha Partners.
The focus on reducing the deficit is likely to give the debate a boost but probably not enough momentum for an immediate result, he added. “The current dynamic makes it very difficult where there is not a lot of agreement between the House and the Senate. I think the best chance will be the next Congress,” he said.
Flood insurance policies are required for homes or businesses with federally-backed mortgages in the one-in-100-year flood plain. Many private insurance companies and independent agents sell the policies to consumers and collect fees for doing so, but the risk is borne by the government.
Critics of all stripes argue the NFIP is plagued with outdated maps, which has enabled development in flood-prone areas. Lax enforcement has allowed more than half of property owners who are required to have flood insurance policies, to skirt them, raising the costs for all taxpayers.
But many critics argue even the proposed fixes being considered by Congress are too weak. The House bill, for instance, would allow local community officials to question updated flood maps and potentially delay their implementation for several years through a lengthy appeals process.
“There is this dichotomy. Congress does have two minds on this. Behind the scenes is not what you hear publicly,” said Bob Hunter, who administered the National Flood Insurance Program shortly after its inception in the 1970s and is now the insurance director for the Consumer Federation of America. “When they are talking theoretically they say, ‘We have to do the right thing and get the maps updated,’ and then they put pressure on the [NFIP] administrator not to update the map in their community.... After an event they will obviously give disaster relief because they have to at that point. Before the event they say, ‘Oh we’ll be tough.’”
Hunter said the flood program has run counter to its original mission of essentially becoming self-sustaining where government disaster relief provided for flood assistance is an anomaly reserved for rare, severe storms.
He estimated that probably only somewhere between 10 percent and 25 percent of property owners affected by Hurricane Irene who were required to have flood policies had them, and said the program should be reevaluated to see whether it can be put back on track and if not, responsibly phased out.
“If you can’t make the program work, if Congress is going to play a double game like that, you are going to have to at least consider ending the program and try to consider a more privatized system where the private sector writes the policies with some government support,” Hunter added.