After Katrina, Congress Still Keeps Extending Flood Insurance

The federal flood insurance program may be going broke after incurring $20 billion in debt from recent storms like Hurricane Katrina. But that hasn’t stopped politicians from trying to extend the taxpayer-subsidized coverage for some of the riskiest — and potentially most valuable — properties in the country.

For all it didn’t accomplish this year, Congress passed two bills carving out exceptions to a law passed years ago to phase out federal spending that might encourage development in environmentally sensitive and disaster-prone areas.

One of the bills benefited Jekyll Island, a vacation spot off Georgia’s coast that is poised for redevelopment, while the other helped a mostly undeveloped 10-lot subdivision on Florida’s Gulf Coast.

A handful of similar proposals are pending. And after seeing the success of the Georgia and Florida bills this year, property owners in Alabama, Texas and elsewhere are lobbying for their own continued coverage.

“You only have to look at 300 miles of Katrina and Rita wasteland to see that bankrolling federal flood insurance in high-risk areas is just asking the American taxpayer to flush money down the toilet,” said Oliver Houck, director of the environmental law program at Tulane University in New Orleans. “If people want to build out there, that’s one thing. But to build out there with federal support is insane.”

The debate involves a Reagan-era environmental law called the Coastal Barrier Resources Act that was hailed as a free-market approach to conservation. Instead of restricting where private landowners could build, the law, nicknamed COBRA, mandated that the government would not subsidize such construction, whether through flood insurance, roads or otherwise.

However, as people flock to the coasts, Congress has repeatedly chipped away at the covered territory. Often responding to wealthy property owners who argue they were mistakenly included, lawmakers have redrawn COBRA maps more than 40 times in the past 15 years, according to the U.S. Fish and Wildlife Service, which oversees the maps.

At least four other bills stalled this year, and Fish and Wildlife officials say they have received more than 20 other requests for changes.

Even critics concede that mapping corrections are sometimes warranted and that the two exemptions approved this year are hardly a blip in the federal flood portfolio, which carries 5.4 million policies and recently eclipsed $1 trillion in coverage.

But they say Congress’ continued willingness to extend coverage is alarming, particularly in the hindsight of Katrina.

“The underlying principle is that every time COBRA runs up against individual interests, it’s always COBRA that loses,” said Steve Ellis, vice president of the watchdog group Taxpayers for Common Sense. “These are clearly areas where there’s a lot of development pressure and COBRA’s having an impact in denying that.”

Despite anecdotes that private flood insurance is unavailable, industry officials say it is for sale, just without the government subsidies.

It’s those subsidies that have put the federal system in need of a taxpayer bailout. The program owes the Treasury $20 billion. It takes in just $2 billion a year in premiums. More than a third of that — nearly $720 million a year — is now eaten up by debt interest.

Congress has wrestled with reforming the system by raising premiums and placing new requirements on homeowners. But lawmakers adjourned again this year without acting.

Instead, in the two COBRA bills, they added hundreds of high-risk properties and paved the way for new construction on vulnerable land.

Six of the 10 lots exempted in the Grayton Beach, Fla., bill are vacant, owned by out-of-state investors. About two-thirds of the 600-plus houses on Jekyll Island are vacation homes. State officials are reviewing sweeping proposals for new construction on the island, which is a state park that’s about one-third developed.

In both cases, owners insist their properties were mistakenly included in COBRA maps after being mixed up with adjacent or overlapping state parks. Many argued that their houses were built well before COBRA was enacted, and they point out that neighboring communities — sometimes just blocks away — are free of COBRA restrictions.

In April, Grayton Beach resident Cynthia Turner told a congressional panel that she and her fellow property owners could go “permanently homeless” if the insurance stopped.

“It is an outrage … all because they erroneously said this was part of Grayton Beach State Park?” she said in an interview. “I’m a middle-class homeowner.”

However, COBRA backers point out that the structures were readily visible on the maps that Congress adopted, suggesting that lawmakers knew the houses would be included. Under COBRA, such homeowners are entitled to keep federal insurance unless they file claims costing more than 50 percent of the property value or if they substantially improve or expand their homes.

Critics question whether “middle-class” homeowners are in jeopardy. For example, one Memphis, Tenn., family that owns three of the vacant lots covered by the Grayton Beach bill also owns millions of dollars in nearby property. As for Turner, besides her house she and her husband own a vacant lot about a half mile away valued at $675,000 by the county tax office.

Home prices on Jekyll Island, meanwhile, are increasingly approaching $1 million.

“In the galaxy of federal subsidies, I don’t think there’s one that is so pointedly subsidizing wealthy people,” Houck said. “What happened to getting the government out of the hair of the private economy and letting the market work?”

Rep. Jack Kingston, a Republican from Savannah who sponsored the Jekyll Island bill, agreed that it raises valid questions about the system. But he said he took up the cause because he believed his constituents were being unfairly harmed by a map error.

And, he added, “it’s better to have people insured than to have to pay the money out in the wake of a disaster like Katrina.”

Some of Kingston’s constituents question that logic, arguing that the insurance coverage will help clear the way for a makeover of Jekyll Island, including scores of new houses and condominiums.

“A hurricane could easily hit here and destroy everything … and federal taxpayers could be on the hook for at least several hundred million dollars,” said Ed Boshears, a former state legislator who sits on a state board that oversees the island and who is critical of plans for further development. “In my view, the existing houses should have been protected, but when you start talking about new houses, that’s a totally different question.”