Despite the success of recent reforms, legislators are now considering undermining positive flood insurance reforms by extending wasteful flood insurance subsidies in response to complaints from homeowners in high risk areas. A group of free market and taxpayer protection groups sent a letter to Congress opposing these extensions, arguing that extending these subsidies undermines the reforms and allows the chronically in debt National Flood Insurance Program to continue to pose a significant liability on taxpayers.
“Last year’s overhaul of the National Flood Insurance Program, the Biggert-Waters Flood Insurance Reform Act of 2012, included important changes to the program’s structure to reduce costs to taxpayers and risks to homeowners. The crux of that reform, a phase-out of subsidies to transition more participants to risk-based rates, was a necessary improvement to a troubled program in massive debt to taxpayers. Efforts to delay these changes must be resisted.”
The National Flood Insurance Program is broken. Rather than encouraging risk-based, environmentally sensitive planning and reducing flood risk, NFIP has served to subsidize unwise construction and the destruction of wetlands. To make matters worse, NFIP currently owes the taxpayers more than $28 billion and has no practical way to pay it back.
Last year, Congress passed the first real positive reform package in decades, reforms designed to reduce costs for taxpayers and move NFIP policyholders towards policies with rates based on real world risk, not politics. These reforms, the Biggert-Waters Flood Insurance Reform Act of 2012 are a welcome step away from government-centered flood insurance and poorly administered and a move towards responsible risk based rates.
The letter also addresses many of the key problems with the NFIP as it is currently constructed, pointing out that many of the properties receiving the subsidies are in affluent areas or areas posing significant flood risks.
“29 percent of the properties located where NFIP operates are in counties with the highest 10 percent of income, and 43 percent of subsidized properties are in counties in the top 10 percent of all home values. Extending subsidies to these homes for an additional year is simply not justifiable.”
Increases in flood insurance rates due to new NFIP flood maps are another hot point issue. Homeowners facing significant hikes have been pressuring officials to delay or stop the hikes altogether. The letter to Congress points out that the areas facing significant hikes are doing so for a reason, they face a heightened flood risk and must charge rates commensurate to this risk.
“Finally, the recently released flood maps from the Federal Emergency Management Agency cast doubt on some of the wilder claims of massive rate increases. The universe of homes facing large hikes is very small and consists mostly of areas with extraordinary risk resulting in a total loss roughly once every ten years, properties for which mitigation or buyouts might be appropriate.”
The letter concludes that extending the flood insurance subsidies would gut the best reforms of Biggert-Waters while placing a greater burden on taxpayers.
“Passage of Biggert-Waters last year was a step in the right direction of a freer flood insurance market that is not built on payouts from taxpayers. Gutting that reform by eliminating its central component of phased-out subsidies for one year would undo that progress and put taxpayers on the hook for billions more in NFIP costs.”