Flood Zone Foolishness

Politicians from disaster-prone states lead the fight against real disaster reforms.

An emergency responder helps evacuate two people with a boat, after their neighborhood experienced flooding due to Hurricane Sandy, on October 30, 2012, in Little Ferry, New Jersey.
An emergency responder helps evacuate two people with a boat, after their neighborhood experienced flooding due to Hurricane Sandy, on Oct. 30, 2012, in Little Ferry, N.J.

Photo by Andrew Burton/Getty Images

The billion-dollar storm is the new normal. Eight of the 10 costliest hurricanes in U.S. history have occurred in the past decade, adjusting for inflation, at a staggering toll of more than $200 billion in losses. Sea level rise along the eastern seaboard is happening at the fastest rate in the world. Disaster experts have plenty of good ideas for ways to prepare for the unfolding crisis, but it’s hard to find legislators willing to think long-term. Welcome to disaster politics in the 21st century.

Lawmakers continually prepare for the previous disaster. Witness the overhaul of nuclear power regulation after Three Mile Island or overwhelming reforms to counterterrorism after Sept. 11, 2001. Similarly, it was only in the wake of Hurricane Katrina that lawmakers began to discuss serious reforms to the bankrupt National Flood Insurance Program, a government-backed system created in 1968 for homeowners living in flood-prone areas. It took until the summer of 2012 for Congress to pass the bipartisan Biggert-Waters Flood Insurance Reform Act, a bill aimed at restoring the NFIP to solid financial health. Just a few months later Hurricane Sandy, with its tens of thousands of under-insured victims, made Biggert-Waters look like visionary legislation.

Last week, however, lawmakers reversed themselves—and now the future of flood insurance in America is again uncertain. Running a perpetual debt leaves the NFIP and its 5.5 million policyholders prey to both the forces of nature and the whims of politics. To protect them and to make U.S. flood planning rational and solvent, President Obama should refuse to sign the weakened bill. (Update, March 24, 8:45 a.m.: Obama signed the bill.)

After devastating floods in the 1920s, the private insurance industry refused to write flood policies. Rapid postwar development in suburban floodplains and coastal zones placed homeowners at heightened risk, a reality driven home by disasters such as Hurricane Betsy in 1965, the nation’s first billion-dollar hurricane. NFIP presented a solution: In exchange for government-subsidized insurance, communities would undertake and maintain serious commitments to restricting development in low-lying areas. Government scientists would provide the detailed floodplain maps necessary to judge where to build or not.

The NFIP took two of the major policy concerns of the 1960s—social welfare and environmental conservation—and braided them into one piece of legislation. The program gained momentum in the early 1970s when its coverage became a requirement for gaining a federally backed mortgage. The Federal Emergency Management Agency managed the program starting in 1979 and it hummed along pretty quietly until 2005, when Hurricane Katrina left NFIP bankrupt. Turns out that the NFIP had not been policing its coverage requirements, and the mapping enterprise—the scientific foundation of sensible zoning—was underfunded and antiquated.

Enter the 2012 Biggert-Waters law. Its stipulations were firm: Properties built before the NFIP were no longer grandfathered into the program; homes that flood repeatedly (“Repetitive Loss Properties”) were denied coverage; and insurance premiums would be recalculated to accurately reflect real actuarial risk. The law further mandated the formation of a Technical Mapping Advisory Council, a body of experts empowered to advise FEMA on best practices in floodplain mapping. Biggert-Waters marked a rare moment in American disaster politics: enlightenment. Local interests were sacrificed for something bigger—preparing the nation for the storms on the horizon. And therein was the problem.

Even before Biggert-Waters passed, Louisiana Sen. Mary Landrieu began a crusade to “repeal it, radically amend it, or delay” the law. She claimed the bill would make insurance premiums unaffordable and chastised FEMA for not conducting an effective assessment of the law’s impact on consumers. The construction-lending-real estate complex, led by the National Association of Home Builders also came out strongly against the law, citing possible negative impacts on home sales and housing starts. Even California Rep. Maxine Waters, the co-sponsor and namesake of the law, turned on it, lamenting its “unintended consequences.”

A 2013 GAO study indicated that only about 8 percent of policyholders would see immediate rate increases with Biggert-Waters in effect, and among these were the most heavily subsidized policies. Experts showed how straightforward fixes—means-tested vouchers for lower income homeowners, for example—could easily be implemented to save the larger achievements of Biggert-Waters. However, the slowness and complexity of settling flood claims post-Sandy gave opponents another way to bash the bill and FEMA, perhaps the easiest target in the federal government.

Legislators wanted significant amendments. Under the direction of New Jersey Sen. Robert Menendez and New York Rep. Michael Grimm, the Homeowner Flood Insurance Affordability Act (HR 3370) started moving through Congress early this year. This reform to the Biggert-Waters law rolls back the expiration of grandfathered policies and delays the more dramatic premium increases, at least until FEMA completes an affordability study—a process that will take a while. It also puts an annual cap on premiums that has analysts very concerned that the NFIP will never regain or sustain fiscal balance.

This reform-of-the-reform does not entirely gut the bill, but it eliminates the toughest provisions—and it calls a time-out while lawmakers argue over affordability criteria. For its part, FEMA, having seen plenty of partisan combat since Katrina, is trying to remain more or less neutral, accepting the logic of reform put forward by Biggert-Waters while also agreeing that premium increases should not unduly harm homeowners.

While legislators tinkered, strange bedfellows rose in opposition. Free-market mavens, environmental activists, and a big contingent of the insurance industry all urged a no vote on the Homeowner Flood Insurance Affordability Act. The Club for Growth called it “hostile to liberty and limited government,” while the Natural Resources Defense Council insisted it was blind to the threat of climate change and would “keep people and properties in harm’s way.” Neither argument proved effective—the bill passed by a handy margin of 306-91 in the House on March 4 and by 72 to 22 in the Senate on March 13.

It was a victory for a bipartisan coalition who want to slow flood policy reforms that seemed unstoppable just two years ago. Ironically, many of the politicians who pushed for the weakened bill represent hurricane states. Their constituents are at the greatest risk of suffering from catastrophic floods and would reap the greatest long-term benefits from major reform of the NFIP.

Fiscal conservatives’ primary critique of NFIP is that it constitutes a “moral hazard.” People never would have flocked to the Jersey shore or Florida coast, this argument goes, had the government not offered the phony protection of subsidized flood insurance. While tempting, this logic falls apart when you look closely at the demographic patterns. The exodus to the coast was well underway before the NFIP was up and running. Furthermore, much to the concern of NFIP advocates, the rate at which consumers renew their flood insurance policies is dangerously low. In other words, it’s not just insurance that is drawing people to the coast or keeping them there.

Still, the chance to reform a government entitlement program was too good to pass up, and Club for Growth, the Heritage Foundation, and conservative lawmakers defended the risk-based premiums and a greater role for the private insurance industry promised by Biggert-Waters.

For advocates of sustainable development, Biggert-Waters held out the hope that the longstanding promise of the NFIP—controls over rampant real estate development in hazardous terrains—could at last be realized. Intense lobbying by homebuilders at the state level has a long history of thwarting local zoning restrictions. And many governors and local officials were eager to hand out relief checks and spur a return to the shore after a flood rather than waiting for impact studies that might restrict post-disaster reconstruction. The weakened act is much less likely to slow down coastal development in flood zones, and that’s bad news for advocates of an aggressive climate change policy.

Predictably, rebuilding has become a partisan issue. Democratic Gov. Andrew Cuomo in New York is pushing a “retreat from the coast” philosophy, with state funds for relocation of flood victims. Meanwhile, Republican Gov. Chris Christie in New Jersey has jumped aboard the bandwagon against the NFIP and against FEMA, assailing them at town hall meetings as agents of sloth and caution in a moment of urgent citizen need.

Environmental conservation, though, is about the long game. That game started in the 1960s when the NFIP was first passed. The original program simply could not keep up with the amnesiac forces of coastal development. Unbuilding hazardous shoreline communities is now a fantasy—but rebuilding over and again is madness. A serious NFIP provides one pathway to sustainable development along the nation’s hazardous shoreline. But it will only work if the program is strong and solvent.

President Obama strongly supported Biggert-Waters. He indicated in a January statement that he was opposed to reforming the law for fear it would “erode the financial position of the NFIP.” Now, though, given the momentum in Congress, he will certainly sign the Homeowner Flood Insurance Affordability Act. In this context Sen. Landrieu—locked in a tough re-election fight this year—and politicians on both sides of the aisle have played perhaps the most practical and smartest game of all. Short-sighted as it is, they have deferred real disaster policy reform until after the next storm.