Restore Louisiana, a state program funded through the U.S Department of Housing and Urban Development, is offering to pay up to $200,000 apiece to purchase homes from people living in areas that have been repeatedly flooded.
The homes Restore Louisiana buys are to be demolished and the properties converted to green space, meaning there will be no significant structures left on the land.
Subsidizing Property Insurance
The National Flood Insurance Program (NFIP), managed by the Federal Emergency Management Agency (FEMA), offers insurance to people who own homes in floodplains in communities that adopt and enforce floodplain management criteria.
Under NFIP, FEMA is responsible for identifying local flood-hazard areas, mapping out these regions, designating the risk based on factors such as historic flooding and presence of levees, and setting actuarial rates. In the first few years after establishment of NFIP in 1968, relatively few properties were enrolled in the program. To increase enrollment, the federal government began to subsidize people’s premiums.
Since 1968, NFIP has paid out more than $1 billion for more than 10,000 properties that have experienced two or more losses with cumulative claims exceeding the value of the property. NFIP pays claims averaging more than $200 million per year for about 40,000 repeatedly flooded properties.
Encouraging Costly Risks
NFIP creates perverse incentives for people to build homes in locations likely to flood, says Daniel Sutter, Ph.D., a professor of economics at Troy University.
“If you’re behind a levee rated to protect against the hundred-year flood, then you’re not actually considered [to be] in a floodplain, according to how the NFIP designates things, which means you don’t have to buy flood insurance,” Sutter said. “This shows one of the weaknesses of the NFIP, because the perception of flood risk seems to tie into whether people are legally required to buy flood insurance or not.
“A lot of people are at risk of flooding, but under the NFIP, with everything being fixed in terms of whether you legally have to buy flood insurance based on FEMA’s flood maps, it distorts how average Americans perceive flood risk,” said Sutter.
In addition, FEMA routinely provides disaster relief to homeowners and businesses that could purchase flood insurance but do not do so, even though such properties are supposed to be denied those funds. As a result, federal taxpayers have been forced to provide millions of dollars in disaster relief for those who chose not to purchase flood insurance, over the years of the program’s existence.
Creating Problems for Others
Building homes in flood-prone areas presents additional dangers to houses and businesses built along waterways, from debris moving downstream during and after flood events, says Sutter.
“The difference in the Louisiana case is these are floodways and not just floodplains, meaning the water is moving through the area and not just standing,” Sutter said.
“Since it’s in an area where the water is moving, those structures are likely to not just get flooded, inundated, and ruined, but they can also get knocked down, creating debris that causes damage to other properties,” Sutter said.
Congress established a similar buyout program at FEMA and NFIP in NFIP’s 2004 reauthorization, but the authorities allowed property owners to rebuild on land that was supposed to be converted to green space, says R. J. Lehman, director of the Finance, Insurance, and Trade program at the R Street Institute.
“The idea there was the ‘three strikes and you’re out’ bill, where if you had three major losses from the national flood insurance program, you would have to accept either a grant to mitigate your home, which mostly meant raising it [above the expected flood level], or accept a buyout,” Lehman said.
“One thing that happened with the FEMA program was as some time passed, the land that was supposed to be converted to just open space was seen as valuable by developers who wanted to rebuild on it, and they lobbied the government for that ability, and they got approval to build again,” Lehman said.
This started the cycle over again, says Lehman.
Despite the benefits to properties downstream from these floodways and the offers of up to $200,000 for resettlement in the case of the Restore Louisiana program, some people and local governments may not be on board with the policy, Lehman says.
“The biggest problem with implementing these programs is there’s going to be local resistance because some people won’t want to move, and cities and counties—in Louisiana’s case, parishes—are not thrilled about properties being taken off the tax rolls,” said Lehman.
The only way for the policy to be really cost-effective for localities is if entire neighborhoods are bought out and removed and thus no longer need municipal services, Lehman says.
“It’s nice a property is no longer going to be getting subsidies and disaster assistance and so forth, but the real savings would come when an entire flood-prone neighborhood no longer needs to be serviced—you don’t have to pick up the trash, worry about the power lines, etc.—[and] the whole neighborhood gets knocked down in a coordinated fashion,” Lehman said.
“In general, while we [R Street] support this policy, you really need to pay attention to the particulars of how it’s being implemented, because there is a lot that can go wrong,” Lehman said.
Linnea Lueken ([email protected]) writes from South Carolina.