Congress tried to cut subsidies for homes in flood zones. It was harder than they thought.

January 31

On Thursday, the Senate voted 67-32 to delay reforms to the national flood insurance program by four years. The delay still has to get past skeptical House Republicans. But if the new bill does pass, it would give hundreds of thousands of homeowners a break from higher flood insurance premiums.

Flooding during Superstorm Sandy in 2012 (The Washington Post)
Flooding during Superstorm Sandy in 2012 (The Washington Post)

So why is this fight so contentious? One essential question here is to what extent the government should subsidize homeowners living in flood zones — especially at a time when costs are soaring and sea levels are rising.

So below is an updated rundown of the situation:

Why Congress wanted to reform flood subsidies in 2012. Let's start with the history: Back in 1968, Congress first began subsidizing flood-insurance policies for homeowners across the nation. That change allowed more Americans to move into coastal areas and floodplains without paying full price for the risks involved.

By 2012, however, lawmakers were rethinking the whole scheme. The National Flood Insurance Program was subsidizing premiums for 1.1 million policies — fully one-fifth of all the policies it wrote — and was running a $17 billion deficit.

On top of that, scientists were predicting that sea-level rise would make flooding even more common in the years ahead. One recent Rutgers study, for instance, found that sea levels along the Jersey Shore could rise 1.5 feet by 2050. And the Federal Emergency Management Agency (FEMA) hadn't updated its flood maps since the 1970s. Environmentalists and fiscal conservatives alike argued that it made little sense to encourage building in high-risk areas.

So, in the summer of 2012, Congress voted to revamp the program.The Flood Insurance Reform Act of 2012 aimed to end subsidized rates for 438,000 insurance policies in flood zones — mainly second homes, businesses, and repeatedly flooded properties. Subsidies for the rest (about 715,000 properties) would get rolled back more gradually, once the homes got sold. A separate set of properties could also face premium hikes as FEMA revised its flood maps.

Why the reforms proved wildly unpopular. But fast forward to today, and Congress has discovered that scrapping those flood subsidies isn't so easy — even though the flood program is now running an even bigger, $24 billion deficit. Last fall, David Dayen had a nice report on some of the backlash to the reforms:

People across the country lost their subsidies, and saw their rates grow by 500 percent or more. One homeowner newly zoned into a flood area reported a $68,000 flood insurance bill. Real estate agents said the hikes were affecting home sales, because subsidized policyholders could not sell their properties to new purchasers who discovered huge rate increases.

Many of the properties affected were vacation homes and secondary residences. But poorer areas in Louisiana and places like Rockaway Beach in New York consist of modest, middle-class homes, and the residents could not afford the hefty increases. Protests broke out in these areas, and members of Congress, who casually passed Biggert-Waters as a fiscal and environmental imperative, took the message.

Some context here: Critics of the flood-insurance subsidies have pointed out that they disproportionately benefit wealthier homeowners. The libertarian R Street Institute, drawing on data from the GAO, has noted that "78.8 percent of subsidized policies are in counties that rank in the top 30 percent of home values, while less than 1 percent are in counties that rank in the bottom 30 percent." But a variety of communities are still affected, from Rhode Island to New Jersey to Louisiana. And the outcry turned out to be remarkably widespread.

Meanwhile, FEMA came under criticism for the way it handled the 2012 reforms. It still hadn't completed an "affordability study" that was mandated by law. And its newest flood maps have deemed some communities at risk even though they'd never been flooded. So, after widespread public protests, lawmakers scrambled to reconsider the reforms. 

How the Senate delayed the 2012 reforms: This week, the Senate voted 67 to 32 on a bill to delay for up to four years the premium increases that would have taken effect next year once FEMA updated its flood maps. Moreover, the Senate bill would allow people to pass on their subsidized flood-insurance policies when they sold their homes -- a practice that the 2012 bill ended.

Under the latest Senate bill, FEMA would also have to complete its affordability study and develop ideas for how to assist homeowners who can't afford higher premiums.

There were a few potential modifications that failed. For instance, Sen. Pat Toomey (R-Penn.) had his own bill that would have merely slowed the rate of premium increases each year to 25 percent of the previous year's rate. But that failed, 34-65.

It's unclear whether this new Senate bill will even become law. Some Republicans in the House are quite skeptical of any delay. The White House, for its part, expressed concerns about the Senate bill, saying that any delay in the premium increases "would further erode the financial position" of the National Flood Insurance Program. But a White House official told the Times-Picayune on Thursday that President Obama wouldn't veto the bill if it reached his desk.*

Criticisms of the Senate delay. Taxpayers for Common Sense argued that the new Senate bill would worsen the flood program's deficit by another $1 billion. The group also argued that the program only affects a minority of homeowners anyway: "In total, there are 5.6 million flood insurance policies nationwide. But there are 130 million housing units. Lawmakers have a responsibility to the vast majority of their constituents that are picking up the tab, not just the relative few that have chosen to live in harm’s way."

Still, supporters of the bill insisted that rapid premium increases were untenable. “These drastic increases will act as a de facto eviction notice for homeowners who have lived in their homes and played by the rules their entire lives,” said Sen. Bob Menendez, D-N.J., who supported the delay in the Senate. “That’s going to drive down property values as the housing market is struggling to recover.”

Update: Added the news that the White House has said it wouldn't veto.

Further reading:

-- Here's a long piece by Kate Sheppard on how Congress regularly pays billions to rebuild after natural disasters — but rarely considers policies to reduce the costs of the next disaster. The flood-insurance program gets plenty of discussion.

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