Congress is considering dramatic changes to the National Flood Insurance Program, which has a $25 billion debt that its director says cannot be repaid.
But as a Sept. 30 deadline looms for the program to be renewed, disagreements remain over how much homeowners should be forced to pay for flood insurance to make the program more solvent.
If Congress can't reach an agreement, a lapse in the Federal Emergency Management Agency's legal authority to write new policies could disrupt real estate sales in flood-prone areas around the country.
Republican Sen. Bill Cassidy of Louisiana and Democratic Sen. Kirsten Gillibrand of New York are circulating draft legislation to renew the program, but it contains provisions — such as vouchers to help low-income homeowners keep the cost of premiums and fees from getting too high — that are not in a draft that Republicans on the House Financial Services Committee plan to release this week.
Disputes also remain over how to address wrongdoing by insurance companies and affiliated contractors in the wake of Superstorm Sandy and last year's floods in Louisiana, and whether older properties that flood repeatedly should still receive discounts. Many in Congress also want to encourage more private insurers to enter the market, but some warn the government could be left with only the riskiest properties.
Support historically bipartisan
Created in the 1970s, when the private insurance industry largely stopped covering floods, the national program tried to get property owners in flood zones to pay premiums that could be pooled to cover disasters and fund mitigation programs and mapping to spur smarter land development.
Support for the program has been based more on geography than party politics, and the 10 states that are home to 80 percent of policyholders are represented in the Senate by 11 Republicans and nine Democrats. Despite bipartisan support, action to renew the law has slowed this spring, and while Sept. 30 may seem a long way off, Congress is only due to be in session 51 days before the law expires.
"The Senate was originally waiting for the House to move, but given the time line, members are now looking to get issues out there with introduction of individual bills in the hope they'll be part of larger package," said Laura Lightbody, director of the Flood-Prepared Communities Project at the Pew Charitable Trusts.
Cassidy said his office has been working with stakeholders, and there are plans for the staffs of lawmakers from the Gulf Coast and the Atlantic Coast to meet.
“We have to get it out there to kind of socialize the ideas first,” he said earlier this month. “We have some new concepts and we need feedback.”
Sens. Marco Rubio and Bill Nelson, the Republican and Democrat representing Florida, joined three colleagues in sending a letter April 20 urging Senate leaders to set aside time to debate a renewal of the law.
If the Sept. 30 deadline does pass without a new law — which has happened in the past — the nearly 5 million existing policies would remain in effect, but new ones could not be issued. That could disrupt home sales in flood-prone areas around the country, because flood insurance is mandatory for properties in high-risk zones bought with federally backed mortgages.
"There is a struggle here for the future of flood insurance," Rep. Tom MacArthur, a New Jersey Republican on the House Financial Services Committee, said after a hearing in March. "There are those who want to put it on a path to extinction."
Massive debt a stumbling block
Run by the Federal Emergency Management Agency, the program owes the U.S. Treasury nearly $25 billion, most of it borrowed to pay claims from Hurricanes Katrina and Rita in 2005 and Superstorm Sandy in 2012. Interest now costs $400 million a year, or about 11 percent of all the premium dollars paid, and heavy floods in the South and Midwest last year necessitated borrowing an extra $20 million in January just to meet interest payments in March.
Budget hawks, some of whom question why the government is in the insurance business at all, say the program needs to be more "self-sustaining." An outline of key provisions of the House bill released last week calls on FEMA to "strengthen taxpayer protections," in part by charging policyholders more to build a reserve fund.
At the same time, many representatives of flood-prone areas say the next law has to include a formula requiring policies to be "affordable."
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“If it’s not affordable, it won’t be available and it will be devastating to coastal communities and any communities that are near or on the water across not just my district, but across the United States,” said Rep. Steven Palazzo, R-Miss., vice chairman of the Home Protection Caucus, a bipartisan group formed in 2013 to respond to steep premium increases resulting from a 2012 renewal of the program.
FEMA's top flood insurance official, Roy E. Wright, told a House committee in March that the debt is partly the result of discounts for policies that Congress mandated over the years, and existing policyholders cannot be expected to repay it.
"There is no practical way for us to pay nearly $25 billion in debt. Full stop," Wright told a the Senate banking committee in March.
Sen. Bob Menendez, D-N.J., argued $10 billion of the debt could be blamed on the Army Corps of Engineers for not maintaining levees that failed during Katrina.