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Deep in the red, flood insurance program needs action by Congress

This article first appeared in the St. Louis Beacon, Sept. 6, 2011 - WASHINGTON - Maps, money and subsidies are the major issues in the debate over renewing the nation's troubled flood insurance program, which is inundated by $18 billion in red ink and needs congressional action by month's end to stay afloat.

While Hurricane Irene has focused attention on how many homes and businesses in the eastern seaboard lacked adequate flood insurance, St. Louis' Metro East area has emerged as a prime example of how -- without delays and exemptions -- revised FEMA flood maps could lead to higher insurance rates under the program.

This summer, the House approved a bill to revamp the flood insurance program -- and gradually increase rates -- but it also granted delays in areas such as Metro East. A provision backed by U.S. Reps. Jerry Costello, D-Belleville, and John Shimkus, R-Collinsville, would delay requirements for mandatory flood insurance in newly mapped areas by five years -- an extension from the previous three years.

The delay was a response to concerns in Metro East and elsewhere about FEMA's flood remapping process -- with many residents in new FEMA-mapped areas worrying they would get hit with expensive flood-insurance premiums if levees are not certified. Levees in Metro East are being upgraded under a plan that awaits Corps of Engineers approval.

"In the Metro East, local leaders have moved quickly to secure financing to take on this work, and these efforts should be recognized and assisted at the federal level," Costello said in a statement.

In the Senate, Sen. Dick Durbin, D-Ill., has asked the Banking Committee -- which is expected to work on its version of flood-insurance legislation starting this week -- to take a similar approach. "I support a requirement that FEMA delay the flood insurance purchase requirement if a community is working toward improvement of its flood control infrastructure," Durbin said in late July.

Such initiatives may make sense in Metro East, critics say, but they will make it tougher for Congress to find a way to restore the fiscal integrity of the flood insurance program. In June, the U.S. Government Accountability Office (GAO) reported that nearly one in four policyholders paid a subsidized rate that doesn't reflect the full risk of flooding. Nationwide, about 5.6 million homes and businesses have flood-insurance policies, with average premiums of about $600 a year.

Those flood-insurance rates are not now high enough to keep the program solvent, but members of Congress are debating how much -- and how quickly -- the rates should be allowed to increase. For the moment, every time floods inundate areas, taxpayers end up subsidizing the insurance payouts.

Senate Expected to Take Action This Month

The House approved its flood insurance revamp in July by a 406-22 vote, making several changes in the program and allowing some flood-insurance premiums to rise as much as 20 percent a year, with exceptions in areas such as Metro East. A Senate bill would allow a 15 percent annual hike in rates and would -- unlike the House bill -- forgive its debt.

An outside expert told the Beacon that a short-term extension is likely for the flood-insurance program because of disagreements between the House and Senate on a longer-term solution. Since 2008, the program has been continued by a series of temporary fixes that reflect lawmakers' inability to agree on how quickly rates should be raised, whether all or part of the program's debt should be forgiven, and whether areas such as Metro East should be granted delays in mandatory insurance requirements related to new FEMA flood mapping.

The Senate Banking panel's chair, Sen. Tim Johnson, D-S.D., has said he wants to move forward soon on a bipartisan bill. A committee spokesman said Johnson was committed to moving forward on such legislation, especially in light of the damage caused by Hurricane Irene last month to many structures without flood insurance.

In general, the nation's private insurers want Congress to put the flood program under a sounder financial footing. That's partly because, if the program is cancelled at some point for cost reasons, state regulators could pressure private firms to offer the risky coverage.

One key provision of the House bill would allow the flood-insurance program to buy "reinsurance," giving it a mechanism similar to that used by private insurance markets to share the burden where there is large-scale flooding. The bill has many exemptions and delays but aims to move many holders of flood insurance to "risk-based" insurance rates that would not require massive government subsidies.

Meanwhile, floodplain managers and some environmental groups complain that the current artificially low rates give too many people incentives to continue to live in flood-prone areas, rather than move elsewhere and help clear the floodplains.

Joshua Saks, an expert on water legislation at the National Wildlife Federation, said in a statement that the House bill has some good points, but that "additional reforms are needed to make sure the program is fiscally and environmentally sound." For example, he said the flood-insurance program should do a better job of providing incentives for "better land use planning" that would clear some floodplains in favor of wetlands.

Taking a similar approach is the Association of State Floodplain Managers, whose executive director, Larry A. Larson, told the Beacon that the flood-insurance system needed reform. He provided an analysis of the House bill contending that "the main positives are raising the cap on annual rate increases from 10 percent to 20 percent, and moving subsidized rates for commercial and vacation home properties" toward more realistic, risk-based rates.

But the association's analysis said the House-approved delays related to the FEMA flood maps and the related mandatory purchase requirements for flood insurance "adds delays to the implementation of new and updated maps, undercuts some key values of the [FEMA map] program, and will make updating the maps a much more lengthy, cumbersome and contentious process."

Hurricane Irene, which caused well over $10 billion in damage from the Carolinas to Vermont, showed the current gaps in flood insurance in many areas, and for that reason is raising pressure on Congress to revamp the program -- or at least approve a short-term extension -- before it is set to expire on Sept. 30.

Most of the red ink in the program results from payouts related to two devastating 2005 hurricanes, Katrina and Rita, which were much more extensive than what the program had been designed to handle. Those storms showed that premiums for risky coastal properties were too low, and the program was not administered efficiently.

Bob Hunter, the insurance director for the Consumer Federation of Americaand a former administrator of the national flood-insurance program, said recently that the program had failed to reach its original goal of become self-sustaining, in part because members of Congress had played politics with FEMA maps and delays in raising insurance rates.

"If you can't make the program work, if Congress is going to play a double game like that," he told the Wall Street Journal, "you are going to have to at least consider ... a more privatized system where the private sector writes the policies with some government support."

Rob Koenig is an award-winning journalist and author. He worked at the STL Beacon until 2013.

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