Flood Insurance Changes Run Into Resistance

Just a year after Congress imposed significant changes in the government’s oft-criticized flood insurance program, howls of protest from homeowners facing higher premiums have coastal lawmakers pressing for delays that would preserve below-cost rates for hundreds of thousands of people in flood-risk areas.

The government can’t say how many people could confront higher premiums, but homeowners in places like Staten Island, N.Y., along the battered New Jersey coast and in low-lying areas of Louisiana, Florida and Texas face the prospect that new government surveys could produce flood insurance premium increases so big that they could be forced from their homes or see their market value plummet.

“That’s insane,” said Robert Taylor, a homeowner in Des Allemands, La. Taylor said the new law and flood survey would bump his premiums from $400 to more than $28,000 a year. “This community has been here since 1923 and has never, ever flooded. Ever.”

At issue is a premium spike driven by a new flood map from the Federal Emergency Management Agency that says Taylor’s home is 6 or 7 feet below flood stage. The map, however, doesn’t take into account a levee built 80 years ago by the local government that protected the community through hurricanes Katrina, Rita and Isaac.

The federal flood insurance debate is the intersection where efforts to root out waste and abuse run into real-world impacts on people. The aim is to end taxpayer bailouts of the flood insurance program, even if the overhaul forces people from their homes, reduces real estate values and alters the fabric of communities.

FEMA estimates that about 20 percent of its 5.5 million policyholders – about 1.1 million – receive subsidies. About 250,000 of them will see immediate increases: business owners, those owning second homes and people with frequently flooded properties. An additional 578,000 policyholders living in hazardous areas will retain their subsidies until they sell their homes or suffer severe, repeated flood losses. The same is true for people in condominiums.

The program, which has required $24 billion in bailouts since being established in 1968, had drawn withering criticism for its below-market insurance rates and the billions of dollars in losses from repeat claims on homes and businesses flooded every few years.

Last year’s revision of the program was one of the few things that virtually everyone from tea party Republicans to liberals like Rep. Maxine Waters, D-Calif., could agree on: It was time to bring soundness to the program by charging people insurance rates that reflect their risk of being flooded.

Now comes the implementation. Starting late next year, FEMA will no longer grandfather in below-market rates for people whose older homes were built to the flood code in previous years or decades ago but have been judged to be at greater risk under new flood maps.

Already, people are paying higher rates for second homes. In October, rates on businesses in flood zones and homes that have been severely or repeatedly flooded will go up 25 percent a year until the rates represent the “true risk” of flooding. And subsidized rates will lapse when a home is sold or flooded repeatedly.

The changes have sparked enormous controversy in places like Louisiana, New Jersey and Florida, where subsidized flood insurance has been a staple of the economy for decades. In some areas, home values have plummeted because of uncertainty over insurance rates. Home sales are falling through because subsidized rates can’t be passed on to the buyer. And some homeowners have learned that new flood maps will send their premiums skyrocketing.

In response to the firestorm, an unusual House coalition of Democrats and GOP conservatives teamed up on a 281-146 vote last month to delay some of the premium increases for a year. The measure, sponsored by Rep. Bill Cassidy, R-La., would block FEMA from implementing a provision of the law that phases out below-market, grandfathered premiums for homeowners whose flood risks are deemed higher under new maps, but it leaves in effect FEMA efforts to phase out direct subsidies of people living in flood zones.

Cassidy’s amendment was added to the spending bill that funds FEMA’s budget. Despite opposition from conservative groups like Heritage Action, many prominent conservatives voted for the amendment, including Reps. Paul Ryan, R-Wis., and Steve Scalise, R-La., chairman of the Republican Study Committee.

Cassidy is running to unseat Democratic Sen. Mary Landrieu, who, for her part, is aiming for broader legislation in the Senate from her perch atop the Appropriations subcommittee that writes FEMA’s budget. She hasn’t revealed her plans.

“What I’m talking about are the fishermen, the dock workers, the middle-class families that have lived on this coast and river for 300 years. And we’re literally pricing them out from a piece of geography that President Jefferson leveraged the entire federal Treasury to buy,” Landrieu, D-La., said. “On the heels of this recession, it’s just terribly cruel and harsh. And on the heels of the BP oil spill. And on the heels of Katrina and Rita, how much more can we take?”

Supporters of the changes roll their eyes. They say the law is, for the most part, being implemented as designed and that it’s just that people are upset by the higher insurance rates they are having to pay.

“This program was designed to bring some sanity to this flood program,” Rep. Mick Mulvaney, R-S.C., said during debate on delaying the new premiums. “These are the exact intended consequences … that we would simply charge folks who are in risky areas more.”

But FEMA’s critics say the agency is botching implementation of the law, for instance, failing to take into account nonfederal levees and flood mitigation factors like coastal restoration and pumping equipment when looking at flood risks.

David Miller, the FEMA official in charge of the program, acknowledges the agency has ignored nonfederal levees in determining flood risk but is rethinking the policy. “We’ve put all mapping of levees on hold until the new policy goes into effect” in a few weeks.

A bigger impact could be felt by people whose homes met previous building standards or were deemed at lower risk under previous flood maps but will face higher premiums soon. Under the old system, they could retain their old rates, since they followed the rules at the time they bought or built their home. The new law will phase out such grandfathered rates, starting late next year.

Lawmakers say this grandfathering change is the source of nightmare stories of homeowners who presently pay a few hundred dollars annually for their policy but face many-fold increases now. FEMA can’t tell policymakers how many people even benefit from grandfathered rates, much less predict how remapping will affect them.

For Louisiana homeowner Taylor, the possible effects are daunting – unless FEMA issues a reprieve by redrawing its new flood map.

“The worst part is my home was worth $230,000 this Jan. 1,” Taylor said. “As of right now, my tax assessor tells me because of this flood insurance issue my home is worth $35,000, basically the lot.”