After largely sitting out the pitched political battle that has been waged over flood insurance reform virtually since the moment the last long-term authorization of the National Flood Insurance Program was signed in 2004, the Federal Emergency Management Agency – the federal agency that actually administers the NFIP – has chosen to break its silence and actually weigh in.
To say that their comments are not particularly helpful would be a mammoth understatement.
Despite an overwhelming 406-22 U.S. House vote in July 2011 to pass a five-year NFIP reauthorization that includes substantial reforms; despite a unanimous vote by the Senate Banking Committee to report a very similar bill to the floor in September 2011; despite a bipartisan group of 41 senators signing a letter urging a Senate floor vote on the measure; despite even the support of the White House itself; FEMA has decided that – with the goal line in sight after nearly a decade of the painstaking work of building coalitions and finding appropriate compromises that serve to fix the program – the best thing to do right now would be to scrap all that and extend the existing, insolvent program for the next two years. As FEMA put it:
In recent years, a series of short-term reauthorizations and temporary suspensions of the NFIP have had a negative impact on the confidence in the program among citizens and stakeholders, including state governments, tribal governments, local communities, individual policyholders, mortgage lenders, and the private insurance industry. FEMA is asking Congress to support a two year reauthorization and affirm its commitment to citizens, communities, and private sector partners that the federal government will continue to support our nation’s efforts to manage flood risk.
Let’s grant this upfront: The current program is set to expire May 31 and another NFIP lapse would not benefit anyone. Ever since its last long-term authorization expired in September 2008, the program has been kept alive through a series of 12 short-term extensions (sometimes as part of a full Continuing Resolution, sometimes on its own) and there have been numerous lapses. The four lapses in 2010 alone amounted to 53 days that the NFIP could not write or renew policies.
So even though, in the long run, we at The Heartland Institute would like to see the NFIP privatized, we’re with David Miller, FEMA’s associate administrator for the Federal Insurance and Mitigation Administration, when he says “reauthorizing the National Flood Insurance Program is the prudent thing to do.”
The problem is that a so-called “clean” reauthorization of the program’s current structure would be anything but. It would, instead, be a perpetuation of an unsustainable program that is $18 billion in debt, that subsidizes development in risk-prone and environmentally sensitive floodplains, that massively underprices risk and that puts taxpayers on the hook. The reform efforts that have passed the House and the Senate Banking Committee don’t go far enough, by our measure, but they do certainly start moving the program in the right direction by phasing out premium subsidies, stepping up enforcement and providing authorization for FEMA to begin transferring risk to the private reinsurance and capital markets. That’s nothing to sneeze at.
Moreover, if the goal is providing the housing market with the certainty that a longer extension offers, then A) The five-year extension included in the reform bills provides more of that than a two-year extension would, and B) There is no reason whatsoever to suspect that a new, two-year reauthorization bill offers any more expedient path to passage than what’s already on the table. Indeed, one of the reasons the program has lapsed so often in the past is that it has proven extraordinarily difficult to get Congress to agree even to a six-month extension.
What’s especially strange about FEMA’s choice to speak out here is that it seems to mark a notable breach in the chain of command. FIMA Administrator Miller reports to FEMA Director W. Craig Fugate. Fugate reports to Department of Homeland Security Secretary Janet Napolitano. And Napolitano, of course, reports to President Barack Obama.
But the Obama White House has already made its position on flood insurance reform crystal clear – they’re for it. In a July 2011 Statement of Administration Policy, the White House voiced support for the House-passed H.R. 1309 and noted that it “looks forward to working with the Congress on further reform to strengthen the NFIP.”
The Administration is pleased that the bill would provide the Federal Emergency Management Agency (FEMA) with greater flexibility to set premium rates. The bill provides improved protection for American taxpayers by requiring FEMA to use actuarial principles in determining full flood risk rates for certain properties. The bill would also phase in changes to let policyholders and communities adjust. The bill would authorize studies and pilots to test alternative approaches to flood insurance that is sustainable and cost-effective.
That’s well-said and we couldn’t agree more. Now, if only someone at the White House would place a call to their subordinates at FEMA repeating that same message.