After hurricanes, Congress ponders future of flood insurance program

WASHINGTON - The devastating hit Houston took from Hurricane Harvey has exacerbated — and highlighted — the enormous financial jam facing the National Flood Insurance Program.

Thanks to the recent onslaught of hurricanes hitting Texas, Florida and Puerto Rico, there has never been a greater need for the program. But that need has also set off a new round of calls to dramatically overhaul a program that hasn't been able to sustain itself without major subsidies from the U.S. Treasury. 

Republican U.S. Rep. Pete Olson's Sugar Land-based district suffered some of the most intensive flooding in the state. He said he is open to some changes, but not if it risks payouts on Harvey claims his constituents are filing. He is quick to underscore the desperation in his suburban Houston district and doesn't want changes to make things worse.

"It should be part of the package but not a do-all, end-all," Olson said of any potential overhaul.

Established in 1968 to help homeowners living in flood-prone areas that private insurers wouldn't cover, the program has never been on steady financial footing, and continued construction in low-lying areas — as well as more frequent and powerful storms attributed to climate change — have put the NFIP deeply in the red.

As a result, Congress repeatedly finds itself re-authorizing new money to support the program. Even before Hurricanes Harvey and Irma, the program was set to expire on Sept. 30, and no new insurance policies can be written until it's re-authorized again. 

Few home insurance policies cover flood damage, and nearly all U.S. flood insurance policies are issued through the program. To qualify for national flood insurance, a home must be in a community that has agreed to adopt and enforce various policies to reduce flooding risk. The program has more than 584,000 active policies in Texas, more than any state but Florida. 

It's hard to find a member of Congress who will call for an outright abolition of the program, which would likely destabilize real estate markets and property tax bases in those areas. So the aim among some legislators is to pass laws that will encourage homeowners to move into the private market.

One option is to raise the premiums for government insurance to help sustain the program, discourage new construction in high-risk areas and hope that as rates rise, more private companies will enter the flood insurance market.

The fear of many lawmakers who represent these homeowners is that a substantial rise in rates will be more than some can afford. 

The issue had the potential to become a crisis as congressional insiders worried that re-authorizing the program could get tangled up in fights over raising the debt ceiling and funding the government. But to the surprise of nearly everyone, President Trump cut a deal with Democratic leaders to re-authorize the program for the short-term and push all of those big decisions into December. 

Now, activists and member of Congress who want to overhaul the flood insurance program have an opportunity to make their case over the next couple of months.

They argue that government-subsidized insurance encourages more people to build in flood-prone areas — which then forces the government to rebuild their homes after every flood at taxpayer expense.

"We keep rebuilding areas that are at a very expensive cost to taxpayers," said U.S. Rep. Vicente Gonzalez, D-McAllen.

Those advocating an overhaul include taxpayer watchdogs, environmentalists, insurance companies and members of Congress who oppose bailing out areas that allowed building in flood-prone areas. They're pushing for legislation that requires better flood plain mapping that takes climate change into account, stricter building regulations requiring measures like elevating homes and buildings to reduce flood risk, and setting sustainable insurance rates that won't shock the market.

A powerful trifecta of interests groups comprised of bankers, real estate agents and home construction companies have fought these efforts. 

Back in 2012, former President Obama signed into law a major Congressional overhaul of the flood insurance program. Among the changes: eliminating subsidies for homes that are repeatedly damaged by flooding. 

But some homeowners and their representatives in Congress protested the steep price increase. In early 2014, Congress and Obama reversed course, passing into law a cap that would limit premium increases and mostly unwound the 2012 efforts. 

Now, many House members are pushing to let the private market take over the job of insuring properties in flood zones.

Gonzalez serves on the U.S. House Financial Services Committee, which oversees flood insurance. A former attorney, he is no fan of what he describes as the program's drawn-out claims process. 

"I think government shouldn't, probably, be in the business of insurance," he said.

U.S. Rep. Jeb Hensarling, R-Dallas and chair of the House Financial Services Committee, is a key player in this debate. He has pushed for reauthorization of the program, but wants to raise the premiums for government-sponsored policies to encourage homeowners to seek private insurance. 

“As unfortunately the NFIP faces an uncertain future, we must ensure people have more affordable flood insurance options as they begin to rebuild," he said last week. 

The first stab at changes came last week when two Floridians in Congress, U.S. Reps. Kathy Castor, a Democrat, and Dennis Ross, a Republican, attached legislation to an unrelated bill that would allow mortgage lenders to accept homeowners' use of private flood insurance instead of government insurance.

The Castor-Ross measure passed the U.S. House, but the Senate quickly axed it out of the bill. That drew a rebuke from Hensarling, who said the Senate was "letting an opportunity slip through its fingers to give flood victims and homeowners better and more affordable flood insurance options." 

Supporters of the legislation in the House say they are undeterred, believing it's the most popular proposal for changing the program and will inevitably pass.

For now, no one on Capitol Hill seems inclined to increase the misery of those affected in Houston by drastically changing the flood insurance program for those who are currently filing claims. And the Florida and Texas delegations have vowed to combine their legislative firepower to protect their constituencies — members from both parties say protecting the program is a key priority.

"We've got to fix it because it's going bankrupt," said Olson, the congressman from Sugar Land. "People depend on it."

This story was produced in partnership with the Ravitch Fiscal Reporting Program at the CUNY Graduate School of Journalism.