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As Hurricane Season Ramps Up, Flood Insurance Program Set to Expire

Owners of federally insured flood zone properties have plenty to be nervous about this summer.

As hurricane season heats up, threatening thousands of coastal properties with storm surges, homeowners should also mark July 31 as a day of reckoning.

That’s when the National Flood Insurance Program is set to expire unless lawmakers extend it for a seventh consecutive time since the end of fiscal 2017. In this polarized Congress, there are no guarantees that the cash-strapped program will get another reprieve.

At least two Senate bills have been introduced to extend the program through January, but neither has gained traction. Some experts suggest NFIP could get a shorter extension—perhaps three months—so that reform-minded GOP lawmakers can act before November’s elections.

Or the program could lapse, placing billions of dollars of real estate at risk.

“It’s not going to be easy, but as a general rule the party that’s in power wants to act on these things while they still have the gavel,” said R.J. Lehmann, director of finance, insurance and trade policy for the R Street Institute and a member of the NFIP-focused SmarterSafer coalition.

Yet as the deadline looms, the Senate Banking, Housing and Urban Affairs Committee, which has direct oversight of NFIP, has not taken up legislation to reauthorize the program. Meanwhile, a House measure that passed last November that included key reforms to the program has not been acted on by the Senate.

The House reforms, embedded in the “21st Century Flood Reform Act,” include provisions to bring more private companies into the flood insurance market, reduce costs associated with payouts to repetitive-loss properties and improve flood mapping to allow for more accurate assessments of at-risk properties. The House also embraced a schedule of premium increases for some properties but would also impose a cap on annual premium increases and surcharges.

Meanwhile, a six-month extension of NFIP, drafted by Louisiana Sen. John Kennedy (R), was included in the Senate version of the farm bill (H.R. 2), which passed the chamber on June 28. But it’s not certain a farm bill will pass the House this year or whether the NFIP provision would remain as the bill moves through a conference committee. As a backup, Kennedy also introduced stand-alone legislation (S. 3128) to extend NFIP through January 2019.

“In the absence of reauthorizing legislation, the National Flood Insurance Program will lapse, in the middle of hurricane season, leaving more than five million American families and businesses vulnerable,” Kennedy said in a statement. “We can’t allow the program to expire, and this may be the shortest way home. My colleagues shouldn’t play politics with the NFIP. It’s central to the stability and vitality of the American economy, whether you live in Plaquemines Parish or the Missouri floodplain.”

Lehmann of R Street said the most likely scenario before July 31 is the passage of another extension. It might last six months, as Kennedy proposed, or through October. That would give Congress another opportunity to make changes to the program.

But advocacy groups such as the SmarterSafer coalition, which has sought NFIP reforms for years, argue that another short-term extension does not provide homeowners with the long-term certainty they need to make decisions about properties that are at risk of flooding.

“Continuous short-term extensions do not provide the certainty or the reforms the program needs,” the coalition, comprising conservation groups, taxpayer advocates, insurance companies and housing advocates, said in a letter sent yesterday to Republican and Democratic Senate leaders.

While holders of existing flood insurance policies would be less affected by a temporary NFIP expiration, even a short lapse in the program could wreak havoc on the real estate industry and delay the closure of thousands of new mortgages, according to banking experts.

In addition to these risks, among the most persistent problems facing NFIP is a chronic shortage of cash to pay future claims and cover administrative costs for the program.

Revenue from premiums has long failed to cover the program’s costs. The Federal Emergency Management Agency last year used up all of its congressional borrowing authority, set at $30.4 billion, to pay for damages caused by Hurricanes Harvey, Irma and Maria. FEMA estimates that those storms alone caused nearly $10 billion in NFIP-insured property losses.

In response to the financial crisis, Congress last October voted to cancel $16 billion of NFIP’s outstanding debt to the Treasury to help keep the program solvent. Yet even with the debt forgiveness, FEMA borrowed an additional $6.1 billion in November to meet NFIP costs and projected future payouts associated with last year’s record hurricane season.

As of the first quarter of 2018, NFIP was $20.5 billion in debt and is expected to pay $375 million in interest during the current fiscal year, according to FEMA estimates. Roy Wright, the agency’s deputy associate administrator for insurance and mitigation, made clear in a recent report that under current conditions, NFIP “as currently designed… cannot repay this debt.”

Democrats, such as Rep. Maxine Waters of California, have also implored Congress to take proactive steps to help stabilize NFIP, though liberals have criticized the recent House reform bill as imposing excessive burdens on existing policyholders, including the poor and elderly.

“While Hurricanes Harvey, Irma, and Maria may be a distant memory for some, the road to recovery is just beginning for many in this country, and we are still learning about the depths of despair in Puerto Rico with no signs of leadership from the Trump administration,” Waters said last month.

Meanwhile, a new Congressional Research Service analysis determined that increasing private-sector participation in writing flood policies “could transfer more flood risk from policyholders to the private insurance sector, as opposed to transferring the risk to the federal government through the NFIP.”

In 2017, privately written policies accounted for roughly 15 percent of the flood insurance marketplace, according to experts, a substantial increase from 2016 but still far short of what reformers are seeking.

“There’s obviously a lot of risk out there that needs to be insured, and the federal government alone isn’t going to be able to do it,” Lehmann said.

Reprinted from Climatewire with permission from E&E News. E&E provides daily coverage of essential energy and environmental news at www.eenews.net.

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