Senate Should Act on Flood Insurance Reform

Published February 1, 2012

On issues ranging from heath care to financial regulation, Democrats and Republicans in Congress have almost nothing in common. And since most Americans want their political leaders to work together regardless of political party, their failure to cooperate on even the most trivial issues has sent Congress’s approval rating to all-time lows. In this context, it’s mystifying that one of the few major pieces of legislation with genuine bipartisan support remains stuck in the Senate’s legislative limbo.

The bill in question, a series of reforms to the National Flood Insurance Program, would save money, help protect the environment, and bring economic benefits to Mississippi. It’s something that should move forward sooner rather than later.

Since 1968, the federally backed National Flood Insurance Program (NFIP) has provided nearly all U.S. flood insurance. Although it has a de facto monopoly, NFIP hasn’t been an enormous business success. Its creators promised it would break even in the long run, but the program currently owes the United States Treasury more than $18 billion and has no practical way to pay it back. Likewise, although intended to discourage building in flood-prone areas, NFIP has actually encouraged it. Finally, because it’s difficult to finalize real estate transactions without flood insurance, periodic lapses as a result of Congress’s failure to act have wreaked havoc in the real estate markets all along the Gulf Coast.

For all of these problems, however, years of work in Congress have resulted in a common-ground set of solutions that passed the House of Representatives and an important Senate committee by enormous margins.

The bill would save money by limiting subsidies for people who own, build, or rebuild in the most flood-prone parts of the country. A large part of the flood program’s costs stem from subsidies provided to areas such as South Florida that experience hurricane strikes and flooding as many years as not. Raising premiums for those currently getting subsidies would put the program on more solid ground while imposing little or no consequences for most people in areas like Mississippi with real but less frequent hurricane risks.

Proposed restrictions on providing flood insurance for new construction as well as improved efforts to map the areas likely to flood also will help the environment. The current flood insurance program tacitly provides subsidies to builders who destroy wetlands, ravage wildlife habitat, and damage sensitive coasts. The proposed reforms don’t limit owners’ ability to use their own property as they see fit; they just end this taxpayer subsidy for irresponsible development.

Finally, and most importantly for the economy of the Gulf Coast, the passage of comprehensive reforms to the flood insurance program would end the continuing series of flood insurance lapses that make it difficult to close real estate transactions. This series of non-renewals, which has continued for half a decade, does enormous harm to a real estate market still struggling to recover.

The proposed national flood insurance reform bill offers something for almost everyone: It saves money for taxpayers, protects the environment, and would help local economies in the affected areas. If Congress wants to prove it can accomplish something good for the American people, the Senate should bring the bill up for a vote as soon as it possibly can. The nation as a whole–and the Gulf Coast in particular–can’t afford any more dilly-dallying. The Senate leadership of both parties needs to act.

Eli Lehrer ([email protected]) is vice president of Washington, DC operations for The Heartland Institute and national director of its Center on Finance, Insurance, and Real Estate.