Background on Mandatory Flood Insurance Requirement

There has been an ongoing effort by Congress and Federal agencies since 2005 to address the need to replenish FEMA disaster recovery funds in the National Flood Insurance Program (NFIP) that were drained by hurricanes such as Katrina as well as other disasters since 2005. As of June 2012, FEMA was in debt to the U.S. Treasury for approximately $18 billion for disaster funds.

One approach that has been considered by some members of Congress to address the funding issue is to require those who reside in flood plains or areas protected by levees, dams or other flood control systems to buy mandatory flood insurance with rates being arbitrarily determined by the FEMA Director. The cost of mandatory insurance could be significant for those who may have to buy the insurance at a yet to be determined rate.

A major point of contention by those residing in areas with well managed and locally funded flood control systems is that mandatory insurance with a “one size fits all” approach to rates and risks is unfair to well managed operations and actually results in double taxation because, while local programs financed with local taxes and fees may support sound flood control systems, additional and expensive mandatory insurance would make them subsidize other areas with unsound and underfunded flood control.

Congress Extends National Flood Insurance In 2012

After several years of effort, during which the NFIP was kept alive by multiple temporary Congressional actions since 2008, Congress finally passed and sent to the White House for signature a long term extension of the NFIP on June 29, 2012 reauthorizing the NFIP until September 30, 2017. The flood portion of the bill is Section 100203 Title II of H.R. 4348, the Surface Transportation Extension Act of 2012.

The House vote was 373-52 to pass the legislation and the Senate voted 74-19 to send the legislation to the President. In a bipartisan effort, Congressional leaders of the House and Senate reconciled Senate legislation with previously approved House legislation.

A critical element of the reconciliation action was stripping out Section 107 of the Senate’s version of the bill that included mandatory flood insurance language requiring homeowners who live behind levees and other flood control structures to buy flood insurance. This issue was hotly contested by proponents for and against mandatory flood insurance.

The final compromise allowed the Federal Emergency Management Agency to continue its ongoing analysis of how risk areas behind levees should be treated under the NFIP.

Other key elements of the legislation included allowing FEMA to raise rates a maximum of 20 percent annually, as compared to 10 percent annually under the previous program; mandating that rates for second homes, properties with repetitive flood claims and commercial properties will go up 20 percent over the next five years effective July 1, 2012; and giving FEMA authority to buy private reinsurance to back the program to hopefully reduce reliance on Treasury loans to fund the NFIP program.

The bill also authorizes FEMA and the Government Accountability Office to conduct a study on various options, methods, and strategies for privatizing the NFIP and requires lenders to accept non-NFIP backed flood-insurance coverage provided by a private entity if that coverage meets all the same requirements as NFIP-backed flood insurance.

FEMA Report on National Flood Insurance Program Initiatives

As part of FEMA’s Map Modernization Program, FEMA and Fort Bend County entered into a Cooperative Technical Partners Partnership Agreement to carry out a study to update the Brazos River flood elevations and to update the FIRMs for the County. FEMA began its study in 2005 and its preliminary findings were released in late 2006.

As a result of the preliminary study, Levee Districts in Fort Bend County were required to construct new levee systems and increase the height of existing levee systems by varying degrees, in some cases by as much as 2 feet, in a very brief period of time (less than 18 months) to maintain their accreditation by FEMA under the NFIP as providing 100-year flood protection on the new FIRMs.

Levee Districts in Fort Bend County recently completed a massive coordinated effort in which they spent almost $40 million in local funds to construct new levee segments and increase the height of existing levee segments to comply with FEMA’s new Brazos River models and FIRMs . Despite significant obstacles and a very small window of time, Levee Districts and Fort Bend County accomplished, in a little more than a year and a half, what could easily have taken 5 or more years.

During this process, Levee District and Fort Bend County representatives worked closely with FEMA to ensure that FEMA’s mapping and modeling efforts included (i) the most current data available on conditions in the County and the Brazos River and (ii) the results of the recently constructed and improved levee segments. Through their cooperative efforts, Levee District, Fort Bend County, and FEMA representatives ensured that the Brazos River modeling and mapping process was a joint success.

Fort Bend County Concerns with Mandatory Flood Insurance

The National Flood Insurance Program (NFIP) was created in 1968 to reduce future flood damage by identifying flood risks, encouraging sound community floodplain management practices, and providing citizens with affordable flood insurance.

Fort Bend County has participated in the NFIP almost since its inception. Fort Bend County and its Levee Districts understand the need to undertake sound floodplain management activities designed to reduce threats to lives and the potential for damages to property in flood-prone areas. They have protected their citizens and property for the last 30 years by constructing, operating, and maintaining first-class levee systems and other related flood control works, without any federal assistance. However, levee districts in Fort Bend County are opposed to mandatory flood insurance for property protected by levees, dams, and other man-made structures.

As currently conceived, the mandatory flood insurance proposal for property protected by levees, dams, and other man-made structures appears to allow a new form of taxation in the guise of arbitrary insurance fees levied for revenue, rather than actuarial purposes.

As such, residents may demand that Levee Districts, after satisfying their debt service obligations, cease levying appropriate operation and maintenance taxes and instead rely solely on the “protection” from flooding provided by the NFIP.

The logic might be “Why pay both a tax to maintain a levee system and other related flood control works, and a significantly high insurance premium to protect the residents and property from flooding?”

If there is no Levee District tax used to maintain the levees, the levee systems and other related flood control works would cease to serve their flood protection functions, thereby increasing the flood risk to protected property. Surely it is not the goal of the NFIP or Congress to increase the flood risk to citizens and property, or to discourage local communities from providing for the long term development, management and financing of a community’s flood protection needs.

Levee Districts in Fort Bend County understand that the flood and hurricane losses of 2004 and 2005 left the NFIP in a position where it cannot meet the claims of its policyholders nor pay back the debt incurred from the 2004 and 2005 claims. While they support efforts to reform and strengthen the NFIP, they are concerned with proposals that include provisions similar to those included in the version of HR 3121 passed by the Senate that would require homeowners and businesses situated on flood plains behind levees, damns, and other man-made structures to participate in the NFIP by purchasing expensive flood insurance.

Such a provision treats all levees around the country the same, and disregards efforts to build stronger levees systems and other related flood control works. In Fort Bend County, that means thrusting a huge expense onto homeowners and small businesses that have paid and continue to pay for the construction and upkeep of first-class levee systems and other related flood control works. Requiring mandatory flood insurance that is not actuarially based would result in a significant premiums that would be devastating to Fort Bend County by causing residents protected by Levee Districts to pay what is estimated to be more than $100,000,000 per year in premiums.

Even requiring mandatory flood insurance at preferred rates would still require Fort Bend County residents protected by Levee Districts to pay what is estimated to be more than $20,000,000 in premiums. In addition to the direct economic impact of such premiums, mandatory flood insurance that is not risk-based would most likely curb the housing market for new and existing homes in Fort Bend County.

The Levee Districts believe that further analysis is necessary before Congress approves such a far-reaching, one-size-fits-all approach to the NFIP. Levee Districts support Congress taking an approach to the reforming the NFIP that would instead direct the Government Accountability Office to comprehensively study and determine the impact on property owners of a mandatory flood insurance requirement for areas protected by levees, damns, and other man-made structures.

Such a study would evaluate, among other things, the long-term impact that the mandatory purchase requirement would have on local communities, their economy and on the cost of home ownership. This approach is consistent with an amendment that was introduced during Senate consideration of HR 3121 and supported by Texas Senators John Cornyn and Kay Bailey Hutchison, but ultimately defeated by a vote of 30-62.

If, after studying the matter, Congress sees fit to impose a mandatory flood insurance standard for areas protected by levees, Levee Districts in Fort Bend County believe that premiums for such coverage must be actuarially based on risk.

The Levee Districts understand that flood insurance provides very beneficial protection. Many of the residents that live behind levees in Fort Bend County have voluntarily purchased flood insurance. Due to the protection of living in a Levee District, these residents obtain flood insurance while paying a reasonable yearly premium.

This is a sound public policy, since these same residents are paying a Levee District tax. In essence, the resident is splitting their flood protection cost between a Levee District tax and a reasonable flood insurance premium. However, if the resident must pay a Levee District tax and a high insurance premium (which then ignores the fact the resident already has the first line of protection—a levee system and other related flood control works), the residents and property owners are unfairly prejudiced for living behind a levee.