[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
THE NATIONAL FLOOD INSURANCE PROGRAM AND REPETITIVE LOSS PROPERTIES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
JULY 19, 2001
__________
Printed for the use of the Committee on Financial Services
Serial No. 107-36
U.S. GOVERNMENT PRINTING OFFICE
74-194 WASHINGTON : 2002
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice BARNEY FRANK, Massachusetts
Chair PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska MAXINE WATERS, California
RICHARD H. BAKER, Louisiana CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma KEN BENTSEN, Texas
ROBERT W. NEY, Ohio JAMES H. MALONEY, Connecticut
BOB BARR, Georgia DARLENE HOOLEY, Oregon
SUE W. KELLY, New York JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio MAX SANDLIN, Texas
CHRISTOPHER COX, California GREGORY W. MEEKS, New York
DAVE WELDON, Florida BARBARA LEE, California
JIM RYUN, Kansas FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina CHARLES A. GONZALEZ, Texas
DOUG OSE, California STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York JOSEPH CROWLEY, New York
GARY G. MILLER, California WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania
SHELLEY MOORE CAPITO, West Virginia BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
Terry Haines, Chief Counsel and Staff Director
Subcommittee on Housing and Community Opportunity
MARGE ROUKEMA, New Jersey, Chair
MARK GREEN, Wisconsin, Vice BARNEY FRANK, Massachusetts
Chairman NYDIA M. VELAZQUEZ, New York
DOUG BEREUTER, Nebraska JULIA CARSON, Indiana
SPENCER BACHUS, Alabama BARBARA LEE, California
PETER T. KING, New York JANICE D. SCHAKOWSKY, Illinois
ROBERT W. NEY, Ohio STEPHANIE TUBBS JONES, Ohio
BOB BARR, Georgia MICHAEL E. CAPUANO, Massachusetts
SUE W. KELLY, New York MAXINE WATERS, California
BOB RILEY, Alabama BERNARD SANDERS, Vermont
GARY G. MILLER, California MELVIN L. WATT, North Carolina
ERIC CANTOR, Virginia WILLIAM LACY CLAY, Missouri
FELIX J. GRUCCI, Jr, New York STEVE ISRAEL, New York
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio
C O N T E N T S
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Page
Hearing held on:
July 19, 2001................................................ 1
Appendix:
July 19, 2001................................................ 43
WITNESSES
Thursday, July 19, 2001
Baker, Hon. Richard H., a Member of Congress from the State of
Louisiana...................................................... 5
Bentsen, Hon. Ken, a Member of Congress from the State of Texas.. 7
Bereuter, Hon. Doug, a Member of Congress from the State of
Nebraska....................................................... 3
Blumenauer, Hon. Earl, a Member of Congress from the State of
Oregon......................................................... 9
Conrad, David R., Water Resources Specialist, Office of Federal
and International Affairs, National Wildlife Federation........ 35
Czerwinski, Stanley J., Director, Physical Infrastructure Issues,
U.S. General Accounting Office, accompanied by Bob Procaccini,
Associate Director............................................. 20
Quinn, Rebecca, ASFPM Legislative Officer, Association of State
Floodplain Managers, Inc....................................... 22
Richards, Timothy, President, New Jersey Association of Realtors,
on behalf of the National Association of Realtors.............. 30
Shea, Robert F. Jr., Acting Administrator, Federal Insurance and
Mitigation Administration, Federal Emergency Management Agency,
accompanied by Howard Leikin, Deputy Administrator for
Insurance...................................................... 19
Willey, Fletcher, Government Affairs Committee, Independent
Insurance Agents of America.................................... 33
APPENDIX
Prepared statements:
Roukema, Hon. Marge.......................................... 44
Oxley, Hon. Michael G........................................ 46
Baker, Hon. Richard H........................................ 50
Bentson, Hon. Ken............................................ 65
Bereuter, Hon. Doug.......................................... 69
Blumenauer, Hon. Earl........................................ 73
Carson, Hon. Julia........................................... 47
Kelly, Hon. Sue W............................................ 48
Conrad, David R.............................................. 123
Czerwinski, Stanley J........................................ 89
Quinn, Rebecca............................................... 103
Richards, Timothy............................................ 112
Shea, Robert F............................................... 75
Willey, Fletcher............................................. 118
Additional Material Submitted for the Record
Page
Baker, Hon. Richard H.:
East Baton Rouge Parish, Office of Emergency Preparedness
letter, July 9, 2001....................................... 63
Policy Statistics Country-Wide Year End Results.............. 61
Bereuter, Hon. Doug:
Comparison of Repetitive Loss Property Proposals............. 72
Shea, Robert F.:
Written reply to a request from Hon. Marge Roukema........... 87
Shipley, Dale W., Chairman, Legislative Committee, National
Emergency Management Association; Executive Director, Ohio
Emergency Management Agency, prepared statement................ 134
THE NATIONAL FLOOD INSURANCE PROGRAM AND REPETITIVE LOSS PROPERTIES
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THURSDAY, JULY 19, 2001
U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 10:23 a.m., in
room 2128, Rayburn House Office Building, Hon. Marge Roukema,
[chairwoman of the subcommittee], presiding.
Present: Chairwoman Roukema; Representatives Bereuter,
Barr, Kelly, Oxley, Miller, Grucci, Tiberi, Carson and Israel.
Chairwoman Roukema. This hearing on the Subcommittee on
Housing and Community Opportunity will come to order.
Officially we are now in session. Without objection, all
Members' opening statements will be part of the record, and if
Members do have opening statements, they may have 3 minutes in
which to speak. And also, and I believe that our panelists know
this, but I would like to repeat it, that without objection,
all the written statements, full written statements of
panelists on each of the panels will be made part of the
record, but we should try to limit our statements to a 5-minute
summary of the testimony, and we will have to try to be aware
of that 5-minute restriction because we want to get through
this hearing today before we get interrupted over and over
again with the voting session on the floor.
So with that as the opening, we hope that Mr. Frank or
other Members of the minority will be here shortly. But in any
case, we will continue now with our hearing or begin our
hearing. And I'd like to say that this certainly is an
important hearing, and I appreciate our witnesses providing all
the information for us, because this is a very complex issue
and one that has been around for quite some time, National
Flood Insurance, and specifically the issues regarding
repetitive loss properties.
The floods have been and continue to be one of the most
destructive natural hazards in terms of economic loss, but also
emotion loss and in many cases the health and safety of people
throughout the Nation. The National Flood Insurance Program is
a valuable tool in addressing the losses that are incurred,
because it assures that businesses and families have access to
afford flood insurance that would otherwise be unavailable on
the open market.
The National Flood Insurance Program has been of
immeasurable help to families, not only in New Jersey, but
certainly in every State across the country. And it's an
integral part of the question of the American Dream and owning
one's own home and how we balance these competing needs.
The National Flood Insurance Program was created in 1968.
Prior to that time, insurance companies generally did not offer
coverage for flood disasters, because obviously the high risks
involved. National Flood Insurance is now available in more
than 19,000, almost 20,000 communities across the United
States. In order to participate in the program, communities
must agree to abide by certain hazard mitigation provisions.
And these provisions include adopting building codes that
require new floodplain structures to be protected against
flooding or elevated above the 100-year floodplain.
New Jersey, of course, is no stranger to the floods, and we
have over 400 communities that have partnered with FEMA to
provide policies that would give $239 million in property loss
coverage. That in a small State like New Jersey, and you can
expand it into what the costs are across the country.
Clearly, that is why we need to take steps to reform the
National Flood Insurance Program, and today we have not only
our panelists of Members here, but others who are knowledgeable
on the program and certainly the GAO today will testify that
the program and the questions of actuarial soundness, and we
know that is a growing issue.
Clearly, repetitive loss properties are a main drain on the
current system. FEMA defines repetitive losses as two or more
losses greater than $1,000, each within a 10-year period. About
38 percent of all program claims are repetitive losses, and
currently about 45,000 properties nationwide have been flooded
on more than one occasion and have received payments of $1,000
or more.
I won't go into any more of the numbers and the statistics
on this, except that it is known that this is a huge and costly
and growing problem. The repetitive loss structure is not only
a serious drain on the program, but the high cost of multiple
loss properties leads to increased premiums for all
policyholders. And I believe that's what our Members, our
colleagues here on the first panel have recognized, and that is
one of the motivating forces for them taking action to deal
with this long overdue reform that is necessary. Whether or not
we're going to be able to come to that reform in the very near
future, we shall see. But certainly I appreciate Congressmen
Bereuter, Bentsen and Blumenauer for being here today to help
us direct our focus on this issue. And I do believe that
Congressman Baker will be joining us at this time as well, and
he is a Member of this subcommittee as well.
So I welcome you and recognize that our time is limited, so
without further questions or further comments, having outlined
the dimensions of the problem, I will introduce Congressman
Bereuter, who was the one person who first came to me,
enlightened me on the subject and has introduced his own
legislation. And so we recognize him as the first Member of our
first panel. Mr. Bereuter from Nebraska.
STATEMENT OF HON. DOUG BEREUTER, A MEMBER OF CONGRESS FROM THE
STATE OF NEBRASKA
Mr. Bereuter. Good morning. Thank you, Madam Chairwoman,
Members of the subcommittee. Thank you for holding this
hearing. Mr. Blumenauer of Oregon and I reintroduced
legislation we introduced in the previous Congress, and we had
the assistance and support of former FEMA Director James Lee
Witt. Before this in previous Congresses, I worked with
Congressman Joseph Kennedy, a former Member of this
subcommittee, on legislation. And I want to thank Congressmen
Bentsen and Baker for their interest and concern for the
functioning of the NFIP as well.
If enacted, the Two Floods and You're Out of the Taxpayers'
Pocket Act will help turn the tide against the huge costs
associated with repetitive loss properties. Right now, people
who own, sell or construct these repetitive loss structures
want us to turn our back on the loss to the taxpayers and the
huge cost shifting that goes on among premium payers, but we
ought to address it. We should have addressed it many years
ago, either that or the Federal Government should get out of
the business altogether.
The policyholders of many of these repetitive loss
properties are currently not being charged anything close to
actuarially sound rates under the NFIP. The legislation
addresses repetitive loss properties in a simple,
straightforward manner. The owner of a repetitive loss property
will be charged the actuarial risk-based rates for the National
Flood Insurance policy if two conditions are met. First, two or
more NFIP claims must have been paid on an individual property,
which is thereby defined as a repetitive loss property. Second,
the policyholder of the property has refused a buyout,
elevation or other flood mitigation measure funded by FEMA.
Today I'd like to use this opportunity to explain in
greater detail, but in the very limited amount of time, the
five reasons for my support of H.R. 1428.
First I support the legislation due to the widespread abuse
among some policyholders who own repetitive loss properties who
are not paying the actuarial rate for their flood insurance.
FEMA has identified over 45,500 insured properties nationwide
under NFIP which would be categorized as repetitive loss
properties using FEMA's definition of two or more flood
insurance losses of $1,000 or more within any 10-year period.
Of these 45,000-plus properties, approximately 10,000 have
experienced either four or more flood losses or two to three
flood losses that cumulatively exceed the value of the
property. This subset of properties is costing the NFIP over
$80 million annually, and the average payout is $200 million
overall for repetitive loss structures.
Under NFIP, a regional cross subsidy is flowing from the
policyholders in non-repetitive loss areas of the country to
those policyholders in repetitive loss areas of the country. In
FEMA's defense, it does not have the Congressionally mandated
tools to address the cost of repetitive loss. The Two Floods
and You're Out of the Taxpayers' Pocket Act will give FEMA the
authoritative tools to reduce repetitive loss and to stop this
Federal handout and cost shifting to other NFIP policyholders.
Second, this legislation will save Federal taxpayers by
reducing the NFIP unpaid debt to the Treasury. They pay it
periodically, as they recently have. Since 1994, FEMA has been
forced to borrow over $2 billion from the U.S. Treasury to
cover NFIP claims and operating expenses.
I certainly know of no private insurance company that can
long stay in business if it disregards good actuarial
practices. American taxpayers are paying the cost for those
individuals who choose to live in higher flood risk areas and
who fail to make the prudent mitigation actions.
This bill will help to ensure the future solvency of the
NFIP and to reduce the need for NFIP to borrow from the
Treasury. Moreover, the bill would also save substantial
taxpayer money the cost of Federal disaster relief assistance
as many properties will be bought out and removed from Federal
disaster aid-prone areas.
In addition, the legislation explicitly provides that many
types of Federal disaster relief assistance will be not given
to the owners of repetitive loss properties if they refuse to
accept mitigation assistance.
Third, the legislation is based on the fact that NFIP gives
subsidized flood insurance to disaster-prone areas. The Federal
Government is encouraging development in these areas. The
question needs to be asked whether rebuilding is merited in
repetitive loss high-risk areas. I certainly believe in many
cases the answer is no.
Fourth, because of a predicted future change in weather
patterns, this legislation should be enacted. Dr. William Gray,
a highly respected Professor of Atmospheric Science at Colorado
State University, for example, one of many respected
climatologists, predicts that over the next decades, the East
and Gulf Coast States will be subject to more frequent and
forceful tropical storms, including hurricanes.
Due to the number of repetitive loss properties on the
coast, additional hurricanes will result in huge numbers and
amounts of additional claims against the NFIP. It is imperative
that the NFIP is changed before the eye of yet another
hurricane is upon us.
Lastly, the demographic reality is that millions of
Americans are living closer to the ocean, closer than ever
before in numbers and in percentage. According to the Census
Bureau, within the next 10 years, 75 percent of the U.S.
population will live within 100 miles of the U.S. coastline.
Due to this demographic factor, the time is ripe to change the
structure of the NFIP and the way it works.
In summary, this legislation is needed. It will stop
treading through waters of repetitive loss after repetitive
loss. This legislation is the right thing to do at this time. I
look forward to the hearing and the hearing of the others of my
colleagues and others who will testify here today, and I pledge
to try to work with you, Madam Chairwoman, and the subcommittee
of which I am Member to craft legislation to address these
problems.
Thank you.
[The prepared statement of Hon. Doug Bereuter can be found
on page 69 in the appendix.]
Chairwoman Roukema. I thank you, Mr. Bereuter.
I do want to acknowledge the fact that the Chairman of the
full Committee, Mr. Oxley, has arrived. Do you just have an
opening minute or so statement, Mr. Oxley?
Mr. Oxley. That's correct, Madam Chairwoman.
Chairwoman Roukema. Pardon me?
Mr. Oxley. That is correct.
Chairwoman Roukema. Thank you. Go ahead.
Mr. Oxley.. It's good to be here, and thank you for your
leadership on this issue. And let me commend my colleagues for
their interest in this very important issue. And I'm sorry that
the Emergency Management Director from Ohio called, but
ironically, he couldn't be here, because he's with the governor
looking at the flood damage in Hamilton County along the Ohio
River. So this is indeed timely in that respect.
For sheer inventiveness, I have to congratulate the authors
of H.R. 1428. ``The Two Flood Insurance and You're Out of the
Taxpayers' Pocket Act of 2001.'' I've been around here 20 years
next week, and that will be one of the most inventive titles
for a piece legislation. So, Mr. Bereuter and Mr. Blumenauer,
you are to be congratulated on that as well.
This subcommittee will take a serious look at both pieces
of legislation and the overall effect this has not only on the
taxpayers, as Congressman Bereuter pointed out, but also the
effect it has on people and their lives. This is something that
I've had an interest in for a number of years. We've had some
flooding in my district for a number of years, and the farther
south you get, the worse it gets in Ohio and certainly Northern
Kentucky.
So my hat's off to the Chairwoman for her leadership and
also to my colleagues for what I think will be an excellent
hearing and an opportunity to explore some of these issues that
we've grappled with in the past. And I think if you look at the
graph that Congressman Bereuter passed out, it gives a pretty
stark appraisal of where we have been the last few years
resulting in appropriations and the need for FEMA to borrow
substantial amounts of money.
So with that, Madam Chairwoman, I would ask unanimous
consent to make my full statement part of the record. Thank
you.
Chairwoman Roukema. Thank you. Yes, unanimous consent is
there for all Members of the subcommittee.
And with that, we will now recognize Congressman Richard
Baker from Louisiana, also an active Member of this
subcommittee.
STATEMENT OF THE HON. RICHARD H. BAKER, A MEMBER OF CONGRESS
FROM THE STATE OF LOUISIANA
Mr. Baker. Thank you, Madam Chairwoman and Members of the
subcommittee. Madam Chairwoman, I have some additional
addendums I would like to include with my written testimony for
inclusion in the record.
Chairwoman Roukema. Without exception, so moved.
Mr. Baker. Thank you, Madam Chairwoman. Often, and far too
often, the refrain is heard in Louisiana, we're a State that's
either underwater or under indictment.
[Laughter.]
Mr. Baker. And I appear here today, Madam Chairwoman, as an
expert on any subject the subcommittee wishes to pursue.
First I'd like to tell you that I have never met anyone in
my State who likes to flood. Now I'm sure there are some who
profit from repetitive loss activities, and that's regrettable.
But most folks I visit with during the floodwater's
encroachment are very pained and angered by their circumstance.
They don't care if it's local water, State water or Federal
water, all they know is they've got water in the bedroom, and
they're not happy.
Second, floods are dynamic events. They're like animals.
They change from day to day. Depending on wind, tide and moon,
we have varying circumstances resulting from the same amount of
rainfall, also where the water comes down to a large extent
determines where the damage occurs. A property which is not
flooded today has no assurance it won't flood in the future as
new developments continue, as local governments fail to
maintain appropriate drainage standards, circumstances are
often very unpredictable.
Third, significant efforts are being made in some
jurisdictions to mitigate losses and to make changes. For
example, the Congress and the State together have appropriated
funds necessary to construct a $150 million drainage canal in
my district, the most important aspect of which is local folks
who are very tax averse voted a property tax on themselves to
provide the local share of construction cost. We're making
effort.
So, what's the problem? When you begin to look at the
nature of the repetitive loss properties, FEMA knows who they
are. To a large extent, I know who they are in Louisiana. We
know where they are. We know what the claims amount to, and we
could buy them out. I suggest we could take that line of credit
we now have for FEMA, extend it to identifiable repetitive loss
properties, buy them off and get them off the list.
As you will note, over the line of the program, it is a
line of credit. No other natural disaster is treated similarly.
The premiums, in fact, pay off the debt. Today if you look at
the status of the fund, there is a surplus of money in the
fund. Now we have a contingent liability we've all identified
known as Tropical Storm Allison, which will easily eat through
that collective body of money. But over the near term, the
premium flow will greatly diminish the losses incurred. So it's
a line of credit extended by some States to other States, which
is then paid off by those who benefit from the program.
I reference, in fact, year-end results, the chart which has
been included in the record, which shows since 1994 when a
structural change was made where no more Congressional
appropriations are utilized to pay off flood loss mitigation
and where premium dollars pay off the borrowed funds, and today
we have a small fund balance.
Second, there are a number of ways to solve the problem of
repetitive loss properties and those who engage in abusive
practices. One, as my friend from Nebraska has suggested, is to
cut people off who flood repetitively. The problem with that
can be best exemplified by a member of my own staff, a young
lady recently married with children decided to buy their first
home. I can tell you, they went through extraordinary due
diligence. They did everything one could reasonably expect to
be done in order to determine if the property they were
acquiring was subject to flooding.
Two months after occupying the house, it was the only
house, but the house that flooded in a very recent storm. They
moved out. Damages were paid. The house was renovated. Two
weeks after moving back in, Tropical Storm Allison came through
and they were again the only house to flood within the
subdivision. Were they in bad faith? They did not exercise good
judgment? They certainly bought flood insurance. They paid the
premium. Should we now tell this young family whose value of
the house has fallen below the mortgage they owe that we are
going to be out of the program and have to sustain repetitive
loss, can't sell the property for now what they owe on it? I
don't think that's fair, and I don't think that's what most
Members of this subcommittee would like to see happen to their
constituents.
There is another remedy. And let's look at the premium
flow. Where does the money come from to now pay off the losses
we incur? It comes from people paying the premium. Let's talk
to FEMA. What's the percentage in your State of people subject
to high-risk flooding hazard that actually paid premium to the
program? My State is one of the best in the country.
For example, not to pick on my colleague from Texas, but
just by way of example--we share the same view on this matter--
when you look at the relative size and relative value of
property in Texas as contrasted with Louisiana and then look at
the premium dollars currently in effect, in Louisiana we have
$140,398,000 worth of premium in effect. Texas, by contrast,
has $127,620,000. We have $20 million more premium being paid
by our State than those in the State of Texas, which has a
similar concern about the proposal.
What we should do is condition I think participation levels
by a State with identifiable flood problems to a certain level
so that we have more premium flow. My concern, however, is when
we get to the 50 percent level that Louisiana now enjoys, for
example, we will have significant funds in the pot, which then
may be subject to interest by others for other purposes.
This is a problem which can be fixed. I simply call on the
subcommittee to exercise great caution, not to move quickly.
The value of this program to the people who suffer the ravages
of flooding is immeasurable. And the losses to unreasonable or
arbitrary constraints and denying people access to this help I
think would be regrettable.
Madam Chairwoman, I appreciate your courtesy and this
opportunity to participate.
[The prepared statement of Hon. Richard H. Baker can be
found on page 50 in the appendix.]
Chairwoman Roukema. I thank you, Mr. Baker.
Congressman Bentsen from Texas. Already been referenced.
Would you like to explain your legislation?
STATEMENT OF HON. KEN BENTSEN, A MEMBER OF CONGRESS FROM THE
STATE OF TEXAS
Mr. Bentsen. Thank you, Madam Chairwoman. And I appreciate
the subcommittee holding this hearing. As with Mr. Bereuter and
Mr. Blumenauer, I also reintroduced the bill that I had
introduced in the last Congress to reform the National Flood
Insurance Program as it relates to repetitive loss properties.
And I am hopeful that the subcommittee will be able to come up
with a bill this year.
We in the last Congress tried to work to resolve the
differences between our bill. We got close. We didn't quite get
there. And I hope that we can and take into account the
information that Mr. Baker brought as well.
Since the last time I testified on this bill, my district
and the districts around my district have suffered a storm of
severe proportions that is estimated to be somewhere about a
500-year event, a storm that has flooded, I believe at last
count, around 70,000 homes. There have been about 90,000 claims
made to FEMA. FEMA estimates that their obligation at this
point is about $2.4 billion, and the property assessors assume
that the total damage is close to $5 billion.
Included in that are a large number of people who are in
the Flood Insurance Program, and it's estimated that overall,
the number of claims that will be made to the NFIP as a result
of Tropical Storm Allison will be about 25,000 when it's all
said and done. That being the case, it puts me a little bit
awkward situation to talk about reforming the NFIP program when
I have so many constituents who have just been affected by this
terrible tropical storm. But in fact, I think that that is
something that we ought to do, and I think those of us who
represent constituents who participate in the program should be
at the forefront of trying to protect this program.
Because I do not believe that the NFIP program for the vast
majority of American homeowners who use it is a boondoggle. The
vast majority, in fact, all of my constituents who use the NFIP
program, and it's 30,000 or more, don't live in fancy beach
houses along the Gulf Coast, they live in suburban
neighborhoods along watershed, some that are undergoing flood
control projects, some that are projects that have been
authorized for 40 years, but Congress hasn't funded.
Some of the worst abusers of the repetitive loss program
are, in fact, in my district, and I think we ought to work to
buy those out. But I also have a number of constituents who
went through flooding in 1994 and went through flooding in 1978
and 1976 and were told that they might be bought out. But as it
turned out, there wasn't enough money for the buyout. So all we
could do was repair their homes and let them get flooded again.
I talked to a woman the Sunday after the flood who was flooded
seven times. Actually, she flooded eight times, because she
flooded twice during this last storm. But she holds on. She's a
cancer survivor, and she raised eight kids in that house, and
she said she's prepared to go back if we're not going to be
there to buy her out.
I have a constituent of mine, Mayor Wayne Riddle of Deer
Park, who is an insurance man who was about to give up his
flood insurance, but chose to keep it because he wanted to
practice what he preached, and he was glad he had it, because
he hadn't flooded in 20 years.
Madam Chairwoman, the difference between the bills are
this. Both of us believe that we should put money in for
mitigation and put money in for buyouts. And Congress has been
deficient in the past of giving FEMA the funds they need to do
it. Both of us believe that the most repetitive properties
ought to be bought out. But where we have a disagreement is how
you define a repetitive loss property. In my bill, I think that
we should tie that definition to the value of the house.
I don't think that we should define it to the number of
times that you are flooded, because as I read Mr. Bereuter and
Mr. Blumenauer's bill, you could be flooded twice in a period
20 years or 30 years and file two claims totaling as little as
a couple of thousand dollars and FEMA could decide that they
want to buy you out. I think that's too broad of a targeting.
I think that we should focus on the worst abusers of the
system, not the American people who have paid in thousands of
dollars of premium to this program only to be caught up in
trying to clear the watershed.
The other thing I would tell you is this. The statistics
show that 96 percent of the repetitive loss properties are what
are called pre-FIRM properties. These are before FEMA went in
and began mapping the floodplain. So a lot of people are in the
floodplain that didn't realize they were getting into it in the
first place that are being caught up in the repetitive loss
property.
And we also know that the floodplain moves. FEMA went
through a remapping of some of the major watersheds in the
Greater Houston area last year and the previous couple of
years. I had 9,000 constituents who prior to that time were not
in the floodplain who are now in the floodplain and are now
subject in many cases to having to get flood insurance.
So I think we have to be careful who we think the culprits
are here. And I don't think it's the majority of the people who
are in the program, and I think we also have to be careful
about what we do to this program that will affect the property
value of these homeowners going forward. It is a program that
we need to fix. I think we can get there and fix it, but we
need to keep into consideration the homeowner's property
rights, who the culprits are in this. And I would hope that we
would keep in mind that the NFIP program is a good program,
because the private market does not write this insurance. And
when you flood, you have nowhere else to turn.
I appreciate the gentlelady for having these hearings.
[The prepared statement of Hon. Ken Bentsen can be found on
page 65 in the appendix.]
Chairwoman Roukema. All right. Thank you, Congressman
Bentsen.
Now we welcome Congressman Blumenauer to the panel.
STATEMENT OF HON. EARL BLUMENAUER, A MEMBER OF CONGRESS FROM
THE STATE OF OREGON
Mr. Blumenauer. Thank you, Madam Chairwoman. I was
heartened by Chairman Oxley's comments, and I deeply appreciate
your leadership in allowing this hearing to move forward.
As was referenced, I have been working for the last couple
of years with Congressman Bereuter on this legislation. My goal
in Congress is for the Federal Government to be a better
partner, promoting the livability of our communities. And it's
hard to imagine a simple, direct step that can have more impact
on more people, and on improving the environment and quality of
life, than moving forward with meaningful reform of the Flood
Insurance Program.
I won't repeat the details. My colleague, Mr. Bereuter laid
them out more clearly than I. I have a statement that I have
submitted for your record.
I would make a couple of points if I may. One is that this
legislation is not designed to force anybody to do anything.
FEMA has had excellent leadership with Mr. Witt previously and
Mr. Allbaugh, who I think has been an excellent appointment by
this Administration. FEMA is doing a good job, but they need
more tools to help move people out of harm's way.
I think we do people no benefit by enabling repetitive
flood loss, having people in harm's way. And I think the thrust
of the legislation is not a situation where we're going to move
people who had de minimis losses. You will hear from people at
FEMA that this is not the intent. But the broader definition is
important to be able to move forward when you have a number of
properties and you need to be able to have funds available.
FEMA wants to concentrate on the areas with the greatest
impact. We have used as a poster child one property in Houston
that in less than 20 years has had over $800,000 worth of
repetitive flood loss for a home that is valued at less than
$115,000. I haven't seen the results since the last flood, but
it's very likely that that total has been boosted.
But it's not just a case of the loss of money, although the
Bush Administration has estimated that they could gain $10
million in budget savings and are supporting something similar
in this area.
There is another important advantage, and that is improving
the environment. If we encourage people to live in areas that
are repeatedly flooded, it is harder to move forward with
mitigation that FEMA has done with spectacular success moving
people out of harm's way and site hardening their locations.
This legislation would simply require that people pay full
freight or they accept funding to move or to harden the site.
And if we do that, it's going to make flooding over the long
haul less damaging, because we will have people moved out of
harm's way. We'll be able to allow that land to be used as
nature had intended, to be able to absorb flood damage. So
rather than contributing to stormwater runoff in the future, it
will actually make future flood losses less, reducing the
demands on the program.
And last, but not least, I want to talk about the human
impact, because I agree with, although I haven't had a
devastating situation in my State as Congressman Bentsen has
experienced, that we do people no favors to subsidize their
continuing to be in harm's way. In the last session of Congress
I think all our hearts were touched by the people in North
Carolina and the devastation there.
Americans are instinctively I think heroic. They look out
for their neighbors. And it isn't just a case of somebody
deciding to live in a home where they've raised their kids. We
saw in North Carolina where people died trying to save their
neighbors, or in Houston just last month, there was a man
electrocuted by his television, and his mother moved forward to
try and help him and lost her life. If we have a Federal
program that is not an efficient use of tax dollars, that's
subsidizing people living in harm's way, that is encouraging
more flooding over time and is encouraging people to put not
only their own life at risk, but that of others, I think it's
time for us to take a hard look, step back, approve reasonable
reforms that have been supported by this Administration, by
prior Administrations, and most importantly I think, be able to
give the tools to the dedicated men and women who are trying to
solve a problem.
I deeply appreciate your courtesy in allowing this hearing.
And I think that with the help of this subcommittee, we can
make whatever fine-tuning is necessary as far as definitions
are concerned. But we can make sure that we make this program
work better over time, improve the environment, save money, and
save lives.
Thank you very much.
[The prepared statement of Hon. Earl Blumenauer can be
found on page 73 in the appendix.]
Chairwoman Roukema. I thank you, Congressman Blumenauer. I
will make the point and I suppose we have some questions for
our panelists before we get on to our next panel. But I would
simply say that at this point, as you probably know, I am a
strong supporter and co-sponsor of Mr. Bereuter's bill. I've
heard and I associate myself with his comments regarding the
Federal handout with respect to cross-subsidies.
But I have heard your other comments. I don't know that
I've heard anything that can help us reach an accommodation to
balance out these cross purposes here or the individual needs
of States like Louisiana and Texas. But as opposed to
constituents who are cross-subsidizing and paying much higher
premiums. But we'll go into those questions with our later
panelists and certainly work with all four of you to see if we
can come to an accommodation on this or some sort of a
compromise. And with that, I'll call on Mrs. Kelly if she has
questions. Yes?
Mrs. Kelly. Thank you, Madam Chairwoman. I've looked at
both your bills. My area has experienced tremendous storm
damage a couple of times, and the latest was Hurricane Floyd
where we had severe losses.
I am interested, Mr. Bentsen, in your definition. I have
some concern about where your definition defines three or more
losses with cumulative damages equal to 125 percent of the
market value of the structure. I'd like a little more
explanation of that. Because after you've been flooded out a
couple of times, there's not a whole lot of market value for
your home.
What I'm really kind of finding out is this a kind of a
sleight of hand here so the Government's not going to pay these
people? Or is that the original mortgage on the house? How are
you going to define what the market value of the structure is?
Mr. Bentsen. Mrs. Kelly, that's a good question. The way
that that's determined, and we crafted this in working with
FEMA and working with other State emergency people, buyouts
occur already under the program. It's a voluntary system. The
way they determine market value is they look at pre-event
market value of the property. That's how they determine market
value. In Houston right now they're looking to buy out 2,000
homes if they have the money. But that's how you determine it.
It's an established mechanism with which you do it.
Mrs. Kelly. Excuse me, but I want to follow up on that just
a minute. Pre-which event? The first event, the second event,
or the third event?
Mr. Bentsen. They would look at the claims that were filed
and paid and compare that with the market value of the house
after the third event.
Mrs. Kelly. After the first event?
Mr. Bentsen. After the third event.
Mrs. Kelly. After the third event?
Mr. Bentsen. Yes.
Mrs. Kelly. So they would look at the claims and compare on
a lowered market value, if I understand you correctly?
Mr. Bentsen. The market value depends on many factors, as
you know, but market values fluctuate in every part of the
Nation. So they would just look at--I mean, market value,
basically you go and look at what the appraisal district or
whoever the entity is. In our case it's an appraisal district,
determines what your property value is for property tax
purposes.
Mrs. Kelly. I don't want to belabor this, but on the other
hand, it seems to me you pointed out exactly what I was trying
to drive at, is market values do fluctuate. You could have a
home for $150,000. It gets flooded once. It's now worth a lot
less than $150,000. The second time it gets flooded, everybody
in the neighborhood, everybody in that community, everybody in
that town knows that house got flooded.
Just take the example that Mr. Baker brought up. That one
individual house. That couple now lives in a house that does
not have any market value compared to what they owe on the
original mortgage.
You're talking about a third flood, and they only get 125
percent of what their market value would be after that third
flood. I submit to you that that's not going to be enough to
help this poor couple.
Mr. Bentsen. Well, Mrs. Kelly, two points I would make. I
don't necessarily agree that market values continue to decline
as a result of flooding events. It may be in some cases true
and not in others. But second of all, the buyouts are already
determined,that are conducted by FEMA through the States, are
already determined on what the prior event market value is,
regardless of whether we pass a bill or not. That's just the
way they run the program.
And the third point I would make is this. For those who
might feel that having three events within a 5-year period--and
I'm very flexible in the definition. I just think it should be
tied to the market value and not just any de minimis value. If
it's a decline in value, it would make it more likely that you
would breach the threshold under that scenario than the
reverse, which would be property values continue to rise as
they rise in the entire geographic area.
Mrs. Kelly. Mr. Baker, do you want to follow up on that for
a minute?
Mr. Baker. I just want to emphasize the point that there
are two cures possible. One, as Mr. Bentsen and Mr. Bereuter
and Blumenauer have pointed out, is on the payment end and the
repetitive loss end. I hope the subcommittee will examine the
front end. In private life, if you don't have car insurance and
you're in a wreck, you not only lose the value of your car, you
may go to jail in some States.
If you don't have flood insurance, you can have two events
at least, maybe more depending on FEMA's judgment, you still
get coverage. If you look at the percentage of people who have
exposure to flood events who do not have insurance and force
those individuals into the pool to pay the premium in advance,
you will have more than adequate resources to pay off losses.
By virtue of explanation, New York has $55 million worth of
premium in force as contrasted with Louisiana at $140 million.
No other insurance program I know of says we will pay your
damages. And by the way, you could start paying premium in 2
years. If you don't pay the premium, you don't get coverage.
Now that's a very stringent requirement, but that's how life
works in all other cases. No other natural disaster is treated
the way the Flood Insurance Program is paid. A line of credit,
which is repaid with premium. You have more premium, we don't
have to worry about it, and we will have the cash that FEMA
needs to buy out repetitive loss properties. Baton Rouge has
279. FEMA has money to buy 50.
Give us the money. We'll get rid of those properties. We
protect the environment. We get those people out of harm's way
at true market value, not subsequent to the loss. I thank you.
Mr. Bereuter. Mrs. Kelly, may I respond?
Chairwoman Roukema. I'm going to let Mr. Bereuter respond,
but I do want you to know that we've gone well over the 5-
minute period.
Mr. Bereuter. Mrs. Kelly, Members of the subcommittee, the
market loss criteria creates all kind of difficulties. You
pointed out one. The legislation that we have, on the other
hand, continues to permit the property owner, that is a
repetitive loss property owner, to buy insurance, to pay the
premiums. And they don't even have to go to actuarial rates
after the second flood if the other condition isn't met. We
don't force anybody out of their homes. We're simply saying, if
FEMA comes along, offers a buyout, an elevation or other kind
of mitigation and the property owner refuses, then, in fact,
and only then do they begin to pay actuarial rates.
Mr. Bentsen has $100 million authorization for
appropriation for this mitigation fund. They need more money,
obviously. We have $120 million, by $70 million transferred
into $50 million. But I think that the market value criteria
actually is tougher in some cases on the property owner than
ours which requires two conditions to be met.
Chairwoman Roukema. Thank you all very much.
Next we have Congresswoman Carson.
Ms. Carson. Thank you very much, Madam Chairwoman. You have
probably answered this question three different ways, and I
still don't get it. An analogy would be when the highway
program first originated, they would give homeowners
replacement value. And when they tried to get moved, they would
find that inflation had, in fact, spiraled and had not met the
actual cost of their places of abode. In Princeville, those
homes were absolutely worthless to everybody but the people
that owned them. They had historic value, significance and
that. And when you put a price tag on replacement value, the
people in Princeville are out to lunch. I mean, they don't get
anything, because according to the appraisers, the property was
worth nothing. But it was worth something. But in terms of the
dollar application to the property, it was nothing.
How then do these measures undergird those kind of
circumstances to ensure that the homeowners are not abandoned
if you will, because their properties, according to appraisers,
were worthless? You know what I'm saying? I don't care who
answers, Madam Chairwoman.
Mr. Bereuter. May I respond first briefly, and that is----
Chairwoman Roukema. And we'll be very mindful of the fact
that we have only 3 minutes left.
Mr. Bereuter.
Mr. Bereuter. First of all, of course, the value of the
property in a buyout by private sector, whoever, will never be
enough to satisfy the owner, because they're looking at their
original investment in most cases. But in most cases, when
there is a buyout, FEMA is the most generous purchaser of that
property, because it's been subject to flood. So their best
option usually is a FEMA buyout.
Mr. Bentsen. If I can just add very quickly, we're not
talking about what the buyout price is. There is existing law
that covers that and property values. What our difference is is
when do you give FEMA the authority to raise the premiums? Both
of us have a condition that if you don't accept a buyout or
mitigation, then they can raise your premiums. We have
different standards of when they can do that based upon what
you define as a repetitive loss property. And in my case, I use
based upon the claims paid out against the value of the
property. They use the number of claims that are paid out.
Mr. Baker. Mrs. Carson, if I might jump in real quickly, I
would refer you to the Corps of Engineers Acquisition and
Replacement Methodology when you're building a construction
project. The Corps goes in and not only provides you with
actual replacement value, they help you with packing costs,
moving costs, if there's special considerations. There's a
gentleman who is handicapped who has a home built entirely
around his particular need. Those assets have no value to
anybody else but him. But the Corps, because of the
construction project, is going to rebuild a replica of his
house.
Now there would be no way on an appraisal basis for him to
be made whole. This is a separate methodology than what is in
the National Flood Insurance Program. And I recommend to you
the Corps' process is very fair and equitable as compared to
what is being proposed.
Ms. Carson. So you gentlemen are dealing strictly with the
flood insurance and the premiums?
Chairwoman Roukema. Yes. All right. Thank you. Mr. Grucci,
do you have a question? No question? Mr. Quinn? I'm sorry. I
didn't mean Mr. Quinn. I meant Mr. Miller.
Mr. Miller. Thank you, Madam Chairwoman. One of you
mentioned a 500-year flood. Where was that at?
Mr. Bereuter. Houston.
Mr. Miller. Houston? I know most communities if they have a
100-year preparation they're happy, and if they have 200 years,
they take a lapel and fluff it, because they're kings. I can't
imagine what in the world you could do to prevent a 500-year
flood.
Mr. Baker. Move.
Mr. Miller. I mean, that is an incredible flood.
Now FEMA is talking about requesting $1 billion for new
mapping basically is what they--and the Administration has got
$17 million proposed or something. I don't know what city
they're going to map for $17 million, but obviously, we're
short.
One of you had mentioned that we should acquire the
property based on property values rather than the amount of
losses that a property has incurred. And one of you said that
the National Flood Insurance Program--NFIP--is not a productive
use of dollars, and I kind of agree in some form. I have a
question that relates the following scenario: Someone owns a
home, and because of climatic changes or whatever, topographic
changes that might have occurred, ends up in a flood hazard
area that they have to buy insurance through the NFIP. It was
something they could not have known about going into it, but
they buy flood insurance from NFIP that will cover it, because
nobody in the private sector is going to write them a policy
knowing that they're most likely going to lose money in writing
them a policy.
My question is, how do we deal with the individuals who go
into an area that is prone to risks like this and still buy the
house, and we sell them a policy? Is there anything being done
about that?
Mr. Baker. Let me jump in because, again, it's repetitive.
Mr. Miller. And this is the question.
Mr. Baker. There are people who get benefits today who do
not pay premium. That doesn't happen anywhere else. If you
require the person to pay a premium to get a benefit, much of
this goes away.
Second, the chart shows that although there are years where
you run an excess draw on our line of credit, the line of
credit is repaid entirely with premiums. Since 1994, that's the
way this program works.
Mr. Miller. You're saying if you don't pay the premiums,
you don't get the benefit?
Mr. Baker. That's the way life works everywhere else.
Mr. Miller. I like that.
Mr. Baker. Well, my answer is on the front end of the
problem, not the back end. Rather than identify--now, we should
get the repetitive abusers out.
Mr. Miller. Yes.
Mr. Baker. Once that's gone, which is a relatively small
pool--that's roughly $200 million a year of repetitive annual
losses--take them out of the program, require people to pay a
premium, and let a good program work. Don't pay people a
benefit if they're not participating voluntarily and paying a
premium.
Mr. Miller. I can't agree with you more. In my home area,
we don't have flooding as a rule. I mean, occasionally, some
minor thing happens that usually the Government has not
provided flood control channels to accommodate it because of
growth in areas. But currently, are we selling insurance
premiums to people who are buying in an area that is prone to
floods already?
Mr. Bentsen. Yes.
Mr. Bereuter. Yes.
Mr. Miller. Does your bill address that?
Chairwoman Roukema. Excuse me. Excuse me, Mr. Bereuter, I
didn't hear what you said. You said yes, but in response to
what?
Mr. Bereuter. Yes. Several of us said yes.
Chairwoman Roukema. In response to what? Yes, what?
Mr. Bereuter. That, in fact, they are buying flood
insurance. It's available to them.
Mr. Miller. We have areas that we know are likely to flood.
We know that we're likely to be put in the position to have to
buy that home back if we have a fault, and we're selling
policies in those high-risk areas today, putting ourself in the
situation?
Mr. Bentsen. If I might answer, Mr. Miller, I'm from
Houston, Texas. It's the fourth largest city in the United
States. It's the third largest county in the United States. In
my district alone, there are about 30,000 people who are within
the floodplain. And we sell insurance to them.
The law says that if you have a mortgage through a
federally insured institution you have to have flood insurance,
or if you've ever received any assistance or have an
outstanding SBA loan through disaster assistance. But the point
is, if we were to stop selling insurance to people in what are
called pre-FIRM, the homes that were built before the
floodplains were mapped--and the floodplains change because of
upstream development and other things like that--you would have
to go through, say, Southwest Houston and wipe out entire
neighborhoods. I don't think the Federal Government is prepared
to underwrite the cost of doing that.
Mr. Miller. Are we still building new homes in these
floodplain areas and then selling those insurance policies to
those people in those areas?
Mr. Bentsen. You're not allowed to--FEMA has agreements
with--and they'll talk to this point. But they have agreements.
In fact, we're going through this in Houston right now, where
when cities and counties came into the Flood Insurance Program,
they had to agree on plotting land and elevation requirements
and the like, mitigation requirements, once they figured out
where the floodplains were.
Mr. Baker. It's extensive. You can drive through a city
street, see one house that's 10 years old sitting on the
ground, and you can drive right next to it, a new construction,
it's five feet in the air. Those are all results of the FEMA
requirements.
Mr. Miller. So the new homes are in compliance?
Mr. Baker. Built above what they believe to be is a
floodplain.
Mr. Miller. I'm familiar with flood hazard areas, but I
know in your specific communities, it's a real problem because
it encompasses a huge area, and I'm not even implying that we
should not provide that insurance. Are we still allowing homes
to be built that are going to be in these risk areas that
we're--the Federal Government--are likely to suffer a loss, but
we nonetheless provide the homeowners' NFIP policies?
Mr. Blumenauer. And if I may?
Chairwoman Roukema. Yes, Mr. Blumenauer.
Mr. Blumenauer. You started by talking about an
unimaginable 500-year event. You've seen in Northern
California, since I've been in Congress, I think there have
been three floods of the century in a decade.
The impact of unplanned growth, paving wetlands, and global
climate change suggests that what we have seen now is the tip
of the iceberg. And if we don't get this program right, we're
going to find that FEMA and this Congress is contending with
paying for it in disaster relief, more people in harm's way,
and it's going to be more serious over time. I mean, look what
happened in West Virginia two weeks ago. There's something
going on here, and if we don't give them the tools to start
getting ahead of the program, it's going to eat us alive. And
flood insurance actually would be just a small part of the
problem.
Mr. Miller. Thank you, Madam Chairwoman.
Chairwoman Roukema. All right. Thank you.
Mr. Israel.
Mr. Israel. Thank you, Madam Chairwoman. I appreciate your
leadership and the leadership of our colleagues on this issue.
FEMA reports that New York State has experienced about
7,600 floods since 1978; 2,886 of those are repetitive loss
properties. Last Monday I stood in my district on something
called the Ocean Parkway, which was aptly named, because the
parkway almost fell into the ocean 10 years ago during severe
flooding. It came within 15 feet. And a breach of the Barrier
Islands in my district would cause dramatic surges of flooding
on Long Island's mainland, threatening thousands of homes,
businesses, even a hospital.
I believe that the homeowners and businesses there have a
reasonable right to protect their investments, but that that
protection should be fair and should not be abusive. And I
agree with Chairman Baker when he says that we have to act in a
responsible and fair manner to solve repetitive loss problems.
My question is to Congressman Blumenauer who is a champion
of sustainable living and sustainable growth in this House.
Separate and apart from H.R. 1428, are there sustainable growth
strategies that attempt to strike a reasonable balance between
those who are living in coastal areas and natural flooding
conditions? What should we be doing separate and apart from
this legislation in order to try and strike that balance?
Mr. Blumenauer. I would hope, Congressman Israel, that we
can use the attention that's being focused on your work here
and the problems that have resulted to look at other areas
where we're investing in infrastructure, in water resources,
working with the Corps of Engineers to help encourage simple,
common sense steps like removing people who are on the water
side of dikes and levies. And Congress has not enabled the
Corps to remove them, for instance.
It would seem to me that we ought to have a broader view of
this as being a larger picture. And the men and women who are
going to be testifying after us have chapter and verse in terms
of things that they're trying to do on the ground. We're seeing
tremendous leadership on the State and local level where people
are trying to move ahead of it, and I would just hope that
Congress in our funding programs, in terms of disaster relief,
in terms of infrastructure investment, and encouraging
communities to plan on a regional basis, that we can be a full
partner with them. Right now I feel Congress is a little bit
missing in action.
Mr. Israel. Are there sufficient funding programs at the
Federal level to encourage partnerships with local governments
and State governments for voluntary acquisition programs and
property buyback programs?
Mr. Blumenauer. I think all of us agree we need to be
putting more money into that. It's seriously underfunded.
Mr. Bentsen. If I might, Mr. Israel, there are a couple of
programs. One is Project Impact which the Administration chose
not to fund, and FEMA is relooking at how they're doing that.
It's a pre-disaster mitigation program both for flooding,
earthquakes and the like. And we've used that in my district. I
got a grant for an area in my district to buy out 20 homes in
the area of Cresthaven that had been flooded repetitively, and
the people wanted to be bought out.
And as I stated in my testimony, a lot of times what
happens is there are people who want to be bought out, but we
don't have enough money. Because the way the law is written is
15 percent of the total disaster assistance--there's money
appropriated equal to 15 percent of the total disaster
assistance for a federally declared disaster area that can be
used by FEMA and their State partners for buyout in other
mitigation.
In Harris County, as I said, they're looking to buy out
2,000 homes out of this program, but they're probably not going
to be able to get there, because they may not have enough money
to do it. So Congress really does need to step up to the plate
where people do want to be bought out. But the only difference
between us is we have to be careful in how much authority we
give to FEMA and the Federal Government in determining where
they want to buy out--the most repetitive, the worst abusers,
or the houses that have flooded the most versus whether we want
to give the Federal Government broad authority to clear the
floodplain, and I think we have to think very carefully about
how we want to do that.
Mr. Israel. Thank you.
Chairwoman Roukema. All right. Thank you. I thank the
panel. Certainly as I said in my opening statement, there are a
lot of complexities to this subject, and you've outlined them
very well, and we shall see if we can come to an accommodation.
This dialogue has even added more questions in my own mind.
But we'll work with you. And certainly we will--I'm sure
that you have raised a number of issues that the next panelists
with their experience in the field will be able to help give us
some relief and direction and counsel on. Thank you very much.
Will the second panel please come forward? All right. I
would like to welcome you here today and thank you for your
participation. I would note for all here in attendance that we
have a panel of three members who will be speaking accompanied
by assistants. But the three who are speaking have considerable
experience in the field, and we're very grateful for you being
here to not speak necessarily in abstractions, but attending to
principles as well as experience that you've had.
And with that, I will introduce you as you speak. The first
one will be Mr. Robert Shea, who is accompanied by an
assistant, Mr. Howard Leikin. Mr. Shea is the Director of the
Federal Emergency Management Agency as of June of this year. Is
that correct, Mr. Shea?
Mr. Shea. Actually, the Director is Joe Allbaugh, Madam
Chairwoman. I'm the Acting----
Chairwoman Roukema. Oh, I'm sorry. Deputy Administrator.
I'm sorry. I'm sorry. Deputy Administrator for Mitigation.
Mr. Shea. That's correct, Madam Chairwoman.
Chairwoman Roukema. Federal Insurance Administration. But
the point is, of course, that you have not just come to this
department, but you've had nearly 25 years of emergency
management experience serving in various capacities in FEMA.
And for that, we are most grateful for you being here and
giving us your advice and counsel. And you are accompanied by
your Deputy Administrator who will not be speaking formally,
but will be adding his supplementary understanding when
necessary. Mr. Shea.
STATEMENT OF ROBERT F. SHEA, JR., ACTING ADMINISTRATOR, FEDERAL
INSURANCE AND MITIGATION ADMINISTRATION, FEMA
Mr. Shea. Thank you very much, Madam Chairwoman. And thank
you, Members of the subcommittee. As Madam Chairwoman said, my
name is Bob Shea.
Chairwoman Roukema. Excuse me. I think you're going to have
to pull those microphones closer. I don't quite know what the
problem is with these microphones, but you have to speak
directly into them and very close up. Thank you.
Mr. Shea. Thank you. I am the Acting Administrator of the
Federal Insurance and Mitigation Administration. And as you
indicated, joining me today is Howard Leikin. Howard is the
Deputy Administrator for Insurance. I have been in my job for
about 30 days, as you indicated, but I have extensive
background in mitigation. Howard, however, is a wealth of
information on Federal insurance issues.
I appreciate the fact that you are willing to put our
testimony in the record, and I wonder if I might just make a
few brief opening comments, Madam Chairwoman.
Chairwoman Roukema. Please. You have 4 minutes left. Thank
you. Of your time.
Mr. Shea. Well, it won't take me anywhere near that long.
So we'll speed this along. I would really like to thank the
subcommittee, Chairwoman Roukema, and particularly
Representatives Bereuter, Blumenauer and Bentsen and now
Representative Baker for addressing an issue of importance not
only to the health of the National Flood Insurance Program, but
to the many citizens living in flood-prone areas.
Congress and the Executive Branch have built an enviable
arsenal of tools to respond to disasters, both pre-disaster and
post-disaster. But one of the primary tools, the National Flood
Insurance Program, is seriously challenged by the subject of
this hearing. That is, repetitive loss or multiple loss
properties. These properties have a disproportionate impact on
the National Flood Insurance Fund. Thirty-eight percent of our
losses are associated with just 15 percent of the insured
properties that have had any loss at all, a very small
percentage. Not to mention, of course, the impact on human
lives.
FEMA has done much to counteract the impact of these
properties on people and Government. The implementation of a
repetitive loss strategy, including the identification of the
10,000 most egregious cases, and frankly, the enforcement in a
pre-disaster setting of National Flood Insurance building
standards. These building standards alone save us as much as $1
billion annually.
We have also developed very effective tools in a post-
disaster environment to acquire, elevate or relocate these
properties. But we do that really in partnership with State and
local government. They are an integral part of how we operate.
We know that these tools work, and we also know that they
are cost effective. But the job is immense, as has been
indicated here earlier this morning. We have paid out in excess
of $900 million in claims for these 10,000 properties, and
frankly, while they continue to drain our resources, we can
never achieve the vision that we jointly hold of a self-
supporting National Flood Insurance Program that is the
cornerstone of the Federal response to flooding.
Just as an anecdote, in Houston, as was indicated earlier,
we are moving ahead more forcefully and more aggressively than
we ever have. We have just announced a buyout of 200 properties
in Friendswood, Texas. Of those 200, 122 are in the repetitive
loss family. So we can make some progress. But I have to say
that the job is so overwhelming that really we can't do it
without your help.
So we are grateful for your time and your efforts and your
support, and Howard and I stand ready to answer your questions.
Thank you, Madam Chairwoman.
[The prepared statement of Robert F. Shea can be found on
page 75 in the appendix.]
Chairwoman Roukema. I thank you.
And now second we have Mr. Czerwinski. Mr. Czerwinski is
the Director for Housing at the GAO, U.S. General Accounting
Office. And Mr. Czerwinski, I understand that you have been
with the GAO for approximately 21 years, and so you must be
able to give us some perspective over time as to how we've
effectively been dealing with the Flood Insurance Program. And
I believe you've had a direct connection with that program
since 1999 and have your experience.
But I would appreciate it if you would give us the benefit
of that experience and help us with your assistant, Mr. Bob
Procaccini and help us understand in context repetitive loss
strategies. And maybe you can help us with the reference to
what the previous speaker has said about building standards. I
don't know if that's part of your testimony or not. Mr.
Czerwinski.
STATEMENT OF STANLEY J. CZERWINSKI, DIRECTOR, PHYSICAL
INFRASTRUCTURE ISSUES, U.S. GENERAL ACCOUNTING OFFICE
Mr. Czerwinski. Thank you, Madam Chairwoman. I very much
appreciate the kind comments. And perhaps the toughest part of
our hearing today is going to be trying to pronounce Bob's and
my names.
[Laughter.]
Mr. Czerwinski. We had the opportunity to testify before
this subcommittee in the last session of Congress, so we would
like to commend you for revisiting what we consider to be a
very important issue. And you just heard Members Baker,
Blumenauer, Bentsen and Bereuter, as well as FEMA talk about
some proposals for curbing repetitive losses.
We agree that repetitive losses are an important issue and
we back the principles behind those proposals. What I would
like to do first, though, is take a step back and provide a
broader perspective in the Flood Insurance Program. There are
three issues I would like to address today. First is the
soundness of the fund. Second is repetitive losses,
specifically some of the proposals we heard about, and third is
some of the implementation issues, such as building standards,
that these proposals raise.
The Flood Insurance Program is not actuarially sound, and
this is by design. As the chart on your left shows, this
program has suffered losses of up to $600 million in a given
year. This is primarily because, as Mr. Bentsen mentioned,
there had been a large number of properties that were
grandfathered into the program, and many of these properties
are substandard. These properties, which are substandard,
represent about 30 percent of the portfolio, and as such, there
is an $800 million subsidy that goes to them. These
grandfathered properties pay about twice the normal premium,
but that premium is still only about one-third of what is
actually needed to cover the costs.
The question is if we were to raise the premiums, could
those owners pay the higher premium? Would they pay, and what
will we do if they don't? These questions also apply to
repetitive losses. Repetitive losses comprise about 1 to 2
percent of the portfolio, yet they represent about 38 percent
of the claims--a $200 million annual loss to the Federal
Insurance Program. So you can see why we agree with the
proposals. And targeting repetitive loss is essential for the
subcommittee to consider.
The proposals we talked about today essentially have two
parts. I consider them to be a carrot and a stick. The carrot
is mitigation. And mitigation, simply put, is getting the
properties out of harm's way. You may either want to move the
property off the floodplain or elevate it above the flood
level.
The stick is, if properties are not mitigated, then you
raise the premiums so that they cover the costs. But what if
the people with higher premiums can't or won't pay? Do we have
the will, do we have the discipline, is it appropriate for us
to deny any types of assistance? This raises several
implementation issues.
Mitigation is neither simple nor cheap nor quick. At the
funding levels for the proposals we've heard today it would
take about 25 to 50 years to mitigate all repetitive loss
properties. As such, that places a premium on having the worst
properties mitigated first. This makes it very important that
we have the information needed to do so. Essentially, you want
to identify the worst properties. You also want to determine
who is in them. Because who is in them affects their ability to
pay.
FEMA is taking the first steps toward gathering this
information, but there's still a long way to go. So if the
carrot fails, what about the stick. Typically, repetitive loss
properties belong to the poorest homeowners. So it is a
legitimate question as to whether they can pay the higher
premiums or not. If they don't, can we deny them disaster
assistance, and will we do that?
The 1994 Act gives us an indication. That Act contains a
provision that would deny disaster assistance to those who did
not get required flood insurance. We've had a number of floods
since 1994. There have been a large number, as we know, of
homeowners who haven't had the required insurance, yet I don't
know of any examples of us denying assistance to them.
What this points out is that flood insurance is not
separate from the rest of the disaster assistance framework. It
also means that repetitive losses by themselves cannot correct
all the flood insurance challenges. But repetitive losses is
certainly a good place to start. Taken together with repetitive
losses, if we address such structural problems as those
properties that were grandfathered in at subsidized rates, we
will go a long way toward reducing the problems faced on a
financial level by the Flood Insurance Program. It will also
help us make disaster costs more manageable.
That concludes my statement, Madam Chairwoman. I would be
glad to respond to any questions that you or the subcommittee
Members may have.
[The prepared statement of Stanley J. Czerwinski can be
found on page 89 in the appendix.]
Chairwoman Roukema. Thank you. Thank you very much.
And now we have our final panelist is Rebecca Quinn. Ms.
Quinn is President of R.C. Quinn Consulting Incorporated, which
is a specialized program that deals with floodplain management
and mitigation. I guess she has been a volunteer for many years
and has put her volunteer experience into dealing specifically
with floodplain management and has had extensive experience in
Maryland, as I understand it.
Thank you very much. And Ms. Quinn, we're ready to hear
you.
STATEMENT OF REBECCA QUINN, LEGISLATIVE OFFICER, ASSOCIATION OF
STATE FLOODPLAIN MANAGERS, INC.
Ms. Quinn. Thank you, Madam Chairwoman. I certainly have a
challenge to rise to since my colleagues here all finished
under 5 minutes.
As you indicated, I am the volunteer legislative officer
for the Association of State Floodplain Managers. Including our
14 chapters, we represent over 4,500 State and local officials
and other professionals engaged in all aspects of floodplain
management and hazard mitigation.
I'll just jump right into it. We believe that there are
some fundamental premises that any strategy to deal with
repetitive losses should address. The details are in our
written statement. I'll touch on six elements quickly.
As other witnesses have indicated, a strategy must be
considered cost containment for the NFIP. This is not an
entitlement program, it's not an enrichment program, it is a
cost containment for the current policyholders and all future
policyholders.
A program to mitigate less than 1 percent of the insured
properties could save millions of policyholders hundreds of
millions of dollars each year if the rates don't have to
increase to continue to cover repetitive losses. Plus, more
people will actually choose to buy flood insurance if the cost
of insurance becomes more in line with their perception of
risk.
The repetitive loss strategy should address cost-effective
projects that are in the best interests of the NFIP. These are
not arbitrary terms. They are defined. FEMA has some rather
extraordinary tests one has to go through to determine whether
a project is cost beneficial.
We also think it's important to realize that not all
repetitive loss properties will fall into the group targeted
for mitigation, especially those that get low-level, low dollar
value damage. In those cases, we believe the best protection is
continued purchase of flood insurance. It provides financial
protection, although not property protection.
People who buy flood insurance don't usually qualify for
various forms of Federal disaster assistance, including
subsidized loans, nor do they usually claim the casualty loss
deduction on their Federal income taxes. Because the repetitive
loss strategy will ultimately save tax dollars, we believe it
is appropriate to be supported by new general funds.
A strategy must encourage local planning for comprehensive,
community-based solutions. Mandating only acquisition or
projects that only deal with repetitive losses is too narrow.
We support focusing on projects that primarily address
repetitive losses, but let's not cut the community out of the
planning cycle. When you increase funding for projects, we urge
a commensurate increase in funding for planning and technical
assistance.
Existing insurance-based mechanisms need to be used
effectively. The NFIP is, of course, an insurance program. Most
flood insurance policies include coverage called Increased Cost
of Compliance--ICC--that, in certain qualifying circumstances,
helps to pay for mitigation using premium dollars.
We know FEMA is doing several things to make significant
progress to make the ICC mechanism work more effectively, and
we believe it is time for FEMA to exercise some authority
granted to it in 1994 to allow the director to focus this
mechanism on repetitive loss properties. If there are obstacles
to implementation, we would urge that the subcommittee request
a report so that you can determine what resolution might be
appropriate.
Canceling flood insurance on certain repetitive loss
properties is short-sighted. We have serious concerns with that
approach and would much rather see an increase in premiums to
actuarial rates if an owner declines a reasonable offer.
The subcommittee asked for several other topics to be
addressed. One is the effectiveness of the NFIP. Where do I
start? Our members definitely believe the NFIP is an effective
program. No program is ever perfect. But clearly, without it,
we would have more homes built flat on the ground rather than
elevated to the current building standards.
We look forward to a comprehensive evaluation of the
program that FEMA will be initiating shortly.
The current Flood Mitigation Assistance Program we believe
is effective, although somewhat hampered by limited funding
that is distributed to all States. Sometimes, because of the
funding limitation, some of the quantities are rather small to
deal with, but it is an important program and does foster local
planning.
Mitigation of repetitive loss properties can be
accomplished under existing authorities with some
modifications, and we do support some elements of H.R. 1428,
particularly the addition of new funds and the focus on
repetitive losses.
I would like to end with a comment about flood hazard maps,
a critical component of an effective repetitive loss strategy.
The best mitigation is to ``build it right'' the first time.
You asked for an additional comment on the building standards.
The floodplain used for regulatory purposes is the 1 percent
annual chance, commonly known as the 100-year. It is not all
flooding. If we build to the minimum standard required, then in
the long run, it is a cost effective construction standard.
But we do need to recognize that most flood maps only
reflect current conditions, or, in fact, a large percentage of
them are 15 to 30 years old. Good maps are important for
mitigation projects, as well. If you're going to elevate a
home, you need to know that the elevation you're raising the
house to is the proper elevation. So we do urge support for the
Administration's map modernization program which does identify
a significant funding need over the next 6 to 7 years.
I look forward to any questions you may have.
[The prepared statement of Rebecca Quinn can be found on
page 103 in the appendix.]
Chairwoman Roukema. All right. Thank you. I'm going to
limit my own time hopefully. But I'll tell you, I haven't been
clear about what you have stated.
Let me ask whether it's Mr. Shea or Mr. Czerwinski who
wants to answer first. We talked about the building standards,
and Ms. Quinn has referenced that, and we should have firmer
building standards. But given the present circumstances, why
can we not be actuarially sound and make that our goal? I
didn't get the feeling that Mr. Shea agreed with that. Maybe
I'm wrong. And Mr. Czerwinski indicated that it's by design
that it's not actuarially sound? Can you help us deal with
that, and if we can't--because I think that is an absolute
standard for myself. Would the two of you please comment
further on that?
Mr. Shea. Let me begin, if I can, Madam Chairwoman, and
then I'm going to ask my colleague here, Mr. Leikin, to also
address this issue. But the fact of the matter is, when the
Congress passed the National Flood Insurance Act, it did not
envision a program which would be actuarially sound. In other
words, they always envisioned a program which would be required
to provide subsidies to certain types of construction. Those
are buildings that were built over the last 20 or 30 years that
may have been built prior to the implementation of our flood
mapping program or to the implementation of building----
Chairwoman Roukema. You haven't done that component of it?
Mr. Shea. Right.
Chairwoman Roukema. All right. Continue.
Mr. Shea. Let me turn it over to my colleague, Mr. Leikin.
Chairwoman Roukema. All right. Yes, Mr. Leikin.
Mr. Leikin. As Mr. Shea just mentioned, the program was
implemented as really a three-pronged effort. There is risk
identification to let people know what the risk zones are and
how they can build to avoid losses. It was a floodplain
management program to effect better construction than had
occurred prior to the program through lack of knowledge of the
risk, and also to provide insurance.
We provide insurance really two basic ways. For structures
that were built prior to the implementation of the National
Flood Insurance Program, insurance was, in fact, made available
at less-than-full-risk premiums. This was a tradeoff for
communities joining the program.
Chairwoman Roukema. Excuse me, Mr. Leikin, I'm sorry. I
think we understand the past history. I'm trying to focus now
on the future and how we get to reaching the future, whether
it's actuarially sound, what the building standards are, and
how we, in my mind, correct the mistakes or the growing
mistakes, the growing body. We didn't realize, I don't believe
we realized how large this problem was becoming until recent
years. So I want to focus on what we do, and I think we should
have the nerve or the desire or the intensity to raise the
premiums to the point of where we may have to deny assistance
otherwise.
Mr. Czerwinski, please.
Mr. Czerwinski. Madam Chairwoman, I think there are three
parts to the question you ask. The first one is for newer
properties, we want to definitely, as you point out, enforce
building standards and sound location. Now there's a lot of
properties that are already out there. We can't enforce
building standards on the properties that are out there or
change the location except through mitigation. And that's where
mitigation comes into call. You move the property to a safer
location, or you change the standard of the property by
elevating it above floodplain.
Also, as you point out, properties that aren't mitigated
bear a higher risk. Therefore, that calls for a higher premium.
That becomes an issue of our discipline to enforce that,
especially in the case of low-income homeowners. There also may
be some type of program you might want to set up to assist
those who can't afford higher premiums, but that's a separate
issue.
The third part is how we set the rates right now, which is
based on historical experience. It does not include a component
for reserves. If there is a particularly catastrophic year, the
program will go into the red, so we would need to set premiums
also with reserves.
So, it's a matter of new building standards, dealing with
the buildings that already are substandard, and building in
adequate reserves for the program.
Chairwoman Roukema. Thank you. My time is just about up,
and I'm going to yield to my colleague, Mr. Bereuter, because
he can take my time as well as his own, because he is the
primary sponsor of the most outstanding bill that we have on
the table here.
Mr. Bereuter. Thank you very much, Madam Chairwoman. Thank
you very much for the testimony, gentlemen. Mr. Czerwinski, in
the GAO report it indicates that currently Administration
officials estimate total premiums income from unsubsidized
policyholders is currently about $500 million less than it
would be if the rates had been actuarially based and
participation had remained the same.
And then looking at the chart that shows the money coming
in and money going out of the NFIP, Mr. Baker referenced that
perhaps it was his handout, should I draw the conclusion--I'll
let any of you respond to this--that many premium payers across
the country are subsidizing others that are not paying
actuarially sound rates, and that by making up this perhaps
$500 million difference, they are also, by paying the higher
rate, not contributing to the reserves that you mentioned are
not being accumulated for the catastrophic events. Isn't cross-
subsidization a significant burden on many taxpayers and many
premium payers around the country that really shouldn't be
paying as high a premiums as they are?
Mr. Leikin. May I respond to that please? There are two
pieces of the program. New construction is charged premiums
that are actuarially sound, and they're based on the long-term
expectations of the losses.
The shortfall that you refer to, the $500 million, in fact,
it's somewhat larger today. Our recent estimates would place
that at $780 million. That shortfall is attributed to the older
construction, the so-called ``pre-FIRM'' construction. Pre-FIRM
policyholders are paying substantial premiums, an average of
$610 per year, but they're inadequate for that risk for these
older properties, not having been built to the program
standards.
Mr. Bereuter. Would you say that's true across the whole
country?
Mr. Leikin. For those older properties, it's true that
they're all paying approximately 35 to 40 percent of what their
true full risk premiums should be.
There's no charge built into the new construction to
subsidize those properties. We have, in fact, a premium
shortfall. And the impact of that premium shortfall is that the
program will go into borrowing more often. It impedes our
ability to build up the reserves that Mr. Czerwinski mentioned,
and it impedes our ability to repay borrowing. It's that
shortfall that we can make great inroads in by addressing these
most egregious properties that are these so-called repetitive
loss properties. Of that shortfall, $200 million essentially is
going to very few properties per year. That represents--well,
even a smaller subset of that, the 10,000 that we would like to
particularly target, represent approximately 15 to 20 percent
of the premiums that the rest of the pre-FIRM policyholders are
paying just to cover those properties.
So, there is certainly within that class of older
structures, a fair amount of this subsidy, cross-subsidization
to those who are having the most losses.
Mr. Bereuter. Thank you very much. The bells are ringing.
I'll ask just one more question, but it's a very basic one, and
it's for you, Mr. Shea, or perhaps Mr. Leikin. What is FEMA
looking for in repetitive loss legislation?
Mr. Shea. Thank you, Mr. Bereuter. One thing I should note
for the record initially is that both bills that are being
considered by this subcommittee right now do contain additional
resources. We think that would be clearly necessary in order to
address this problem.
Second, we would appreciate flexibility in being able to
determine the composition of repetitive loss properties.
Third, mitigation offers are to be made only when we know
that funding is available. The offers should not be automatic
based on a loss occurrence.
Fourth, we would use the existing mitigation program, that
is, the Flood Mitigation Assistance Program, as the vehicle to
carry this out.
Fifth, some limited non-cost-shared mitigation grant
capability would be critical for us to have in order to target
what we would think of as orphaned properties, where the
community itself or the State would not particularly be
interested in providing the cost share match for that.
Sixth, we need flexibility in defining the target group of
properties. We need broad definition in the statutes, and we
can refine that through regulation.
Seventh, we think it is preferable that if the mitigation
offer is refused to go to full actuarial rates rather than some
other more onerous measure.
Eighth, FEMA should not at any time really take ownership
of properties. Our strength, the strength of our program, is
built on our relationship with State and local governments, and
that's where that should take place.
Let me observe as well if I can, for just one second, that
both bills have laudable features to them. But we believe that
the Bereuter-Blumenauer bill contains most of these features
that we're looking for in terms of trying to administer this
program.
Mr. Bereuter. Thank you, Madam Chairwoman. Thank you, Mr.
Shea.
Chairwoman Roukema. Oh, I'm sorry. We have two votes on the
floor, so I think we're going to have to recess for a period of
20 minutes at least. So if our panelists will be patient, we
will return in approximately 20 minutes for continuing
questions, and we will continue with Mrs. Kelly when we return.
[Recess.]
Chairwoman Roukema. If the panel will take their seats,
let's get started again with Congresswoman Kelly.
All right. We appreciate it. I am sorry 5 minutes later
than I thought we'd be in returning.
Congresswoman Kelly.
Mrs. Kelly. Thank you, very much, Madam Chairwoman.
Mr. Shea, I'm going to cut right to the chase on the
mitigation situation, because I think mitigation offers a great
opportunity.
Just how much does FEMA need to be adequately funded for
mitigation opportunities?
Mr. Shea. Well, Congresswoman Kelly, the bills provide
somewhere between $100-$120 million annually. We think that
would be necessary for a 4- to 5-year period in order to fully
address all of the ten thousand most egregious cases.
Mrs. Kelly. So you believe that the bill has enough money
in it to adequately address all of the mitigation that you feel
is necessary?
Mr. Shea. Yes. When you take these bills in combination
with the other tools Congress and the Executive Branch have, we
believe the answer is yes.
There is also the Hazard Mitigation Grant program, which is
obviously driven by disasters but does provide some
opportunity, as well, and that averages around $250 million a
year. So the combination of resources really is going to get us
there.
The importance of these bills, however, is that they are
specific and targeted toward the area that we're trying to go
after, and so they provide us the flexibility we need in terms
of administering a program to address them.
Mrs. Kelly. I want to go on. There are a couple of things.
During Hurricane Floyd, I learned a lot from some really
wonderful FEMA people who came into my area. We were really
heavily devastated. They came in and they taught me a lot of
things. I think they taught a number of other people in the
area what FEMA can and can't do and it raised my awareness of
the need for education.
I am wondering about what you have been doing to amplify,
and what you see we need to do to amplify people's awareness of
flood insurance, its availability, how it works for.
Mr. Shea. If I can, Congresswoman Kelly, I'll start on that
question, then ask my colleague, Mr. Leikin also to fill in a
little bit.
In general, one of the things that we've done recently,
through Director Joe Allbaugh, is we have realigned, and we
have now brought mitigation and insurance together in one
house. That was a major step forward for us.
Part of that reorganization was recognizing the importance
of educating everybody at all levels of Government and the
population at large about what needs to be done in this area.
In many respects, my belief is that we're somewhat like
environmental awareness was about 30 years ago. Thirty years
ago, I didn't have much of an understanding of tin cans, but
now my daughters teach me the importance of recycling is just
the normal course of business. So we hope at some point in
history, that we will be able to imbue a lot of the American
public with that kind of understanding of risks in areas that
they are living in, and how they can combat them.
The fact of the matter is, and I'm sure sensitive to this,
when we understand the risks that we face, we can do something
about them. That gives us control over our own lives and it's a
very nice position to be in.
We also think that some of the other initiatives that the
Agency's undertaken over time have been very beneficial. Our
previous work in Project Impact, Joe Allbaugh's interest in
supporting that and moving it to the next level, as you know,
we are examining that, but that was a wonderful mechanism to
educate people in general. And I think we are going to be able
to build on the success of that initiative.
Mrs. Kelly. Thank you very much.
The only other thing I wanted to ask you very quickly about
is whether or not you feel that we have adequate mapping. I'm
beginning to believe that we need to readdress the whole issue
of mapping and remapping.
For instance, there are people in my area, because as you
know we live in a semi-mountainous area, the people who live on
the mountain tops, because they are classified on maps as
living in floodplains, are having to pick up the insurance,
when I don't think you live on a mountain top and there's no
possibility that your house is going to be flooded, I'm not
quite sure why they should be assessed this, and perhaps you
could address that for me.
Mr. Shea. Yes. I mean certainly there are cases like where
the maps show individuals being in the floodplain that are so
clearly outside, and of course we have processes to deal with
that, administrative processes to deal with that. Generally
speaking, the maps that we have in this country from a flood
standpoint are really egregiously out of date and I think we're
all aware of that.
We've talked about our map modernization program and we
are, we believe, beginning to make some progress in that area,
but again I think funding is a major consideration in terms of
an ability to bring our mapping in this area and all over the
country up to a point where it becomes a real useful tool on a
daily basis.
Mrs. Kelly. Madam Chairwoman, I would like to ask one
follow-up question here. And that is whether or not there are
any plans for cost-sharing with other agencies who would use
the new maps?
Mr. Shea. Yes, Congresswoman Kelly. We are investigating
mapping across the entire Federal spectrum, and we are looking
at the possibility of new technologies maybe playing a role in
this. There are some exciting developments in that area. I
think we need to investigate them, assess them, and make sure
that we're comfortable, and they'll bring us to the level of
information that we all need to have to work with.
But it's really a constant effort on our part to reach out
to the U.S. Geological Survey and some of the other mapping
agencies in the Federal Government, to make sure we and they
are in lock-step. Of course, we also have mapping going on or
mapping capability going on through satellite imagery and we're
working in that arena as well.
Mrs. Kelly. Thank you very much.
Thank you, Madam Chairwoman.
Chairwoman Roukema. Thank you, Congresswoman. I did
appreciate your question on cost-sharing and that does open up
a very intelligent component of this discussion that we should
all be paying some attention to.
I'm not going to take any more time with this panel. We do
have to get on to the third panel. But I would throw out to you
a question that I have that if you choose to put in writing an
answer to it for me directly, and I guess that's because I come
from a State like New Jersey where zoning is very much a State
and local prerogative, and I guess that is true across the
country.
But I'm deeply concerned that local zoning and State zoning
ordinance have not dealt intelligently or responsibly with this
question. Why do we permit such, you know, and recommit to such
flagrant violations of sensible zoning in the floodplain.
And if you could please give me some advice and counsel on
that subject, and how we can deal with it, because after all,
they are pushing up to the Federal level and other people, the
cost, and the cost sharing for their own irresponsible actions.
And that's like putting a tax on all the rest of us rather
than taxing those that have been responsible for the problem.
So if you could give me some advice and counsel on that aspect
of the question, I'd appreciate it. But we certainly appreciate
your attendance here today and your patience, and I can
guarantee you that all of this information in your testimony
will be quickly distributed to the Members of the subcommittee.
Mr. Shea. Thank you again for your interest and support.
Chairwoman Roukema. Hopefully we can get some action
quickly.
Mr. Shea. We would appreciate it.
[The information referred to can be found on page 87 in the
appendix.]
Chairwoman Roukema. If the next panel, Panel 3, will come
forward please.
[Pause.]
Chairwoman Roukema. All right, thank you. Thank you very
much. I'm very pleased to welcome here today one of New
Jersey's own, Mr. Tim Richards, who is President of the New
Jersey Association of Realtors, and he has been active in
realty functions for many years and has received recognition
all over the State, particularly in Cape May, identified as the
realtor of the year. Mr. Richards, I believe, can give us a
perspective from the realtor's point of view on this subject,
and I hope my statement just previously made to the previous
panel about the indicting local zoning ordinances, perhaps you
would like to counter that inference, or at least give your own
perspective, Mr. Richards. You don't have to be limited by that
question of mine. But you know the legislation that's before
us, please give us your evaluation.
Thank you.
STATEMENT OF TIMOTHY RICHARDS, PRESIDENT, NEW JERSEY
ASSOCIATION OF REALTORS, ON BEHALF OF THE NATIONAL ASSOCIATION
OF REALTORS
Mr. Richards. Thank you for those kind remarks, Madam
Chairwoman. Thank you for the opportunity to present the views
of the National Association of Realtors on H.R. 1428, the Two
Strikes You're Out of the Taxpayers' Pocket Act, and H.R. 1551,
the Repetitive Flood Loss Reduction Act.
I'm Timothy Richards, a realtor from Ocean City, New
Jersey, and the current President of the New Jersey Association
of Realtors.
I own a full service residential real estate company and
have been a real estate professional for many years. I wish to
thank Chairwoman Marge Roukema and Ranking Member Barney Frank
for holding a hearing on an issue that is of great concern to
the realtors.
I would also like to thank Representatives Doug Bereuter,
Earl Blumenauer, and Ken Bentsen for introducing legislation
that would reform the Nation's current repetitive loss policy.
It is often said, and I agree, that realtors don't sell
homes, we sell communities. The 760,000 members of the National
Association of Realtors are concerned and active members of our
communities. When a flood strikes, our members are on the front
lines to help our neighbors put back their lives.
Realtors care about flood insurance issues for a number of
reasons. For realtors who sell houses in a floodplain, the cost
of flood insurance is a critical part of the transaction. For
low or middle income purchasers, it may even determine whether
or not they can purchase the home.
For repetitive loss properties, realtors have a keen
interest in having the appropriate information on the flood
losses for disclosure purposes, making sure that flood
insurance is accessible for those properties and keeping the
costs of the premium as low as possible.
I would like to briefly discuss three issues with you
today. First, the importance of the National Flood Insurance
Program in protecting our homes and communities; second, NAR's
perspectives on the concept of repetitive loss; and finally the
issue that ties many of these matters together-the floodplain
maps developed by the Federal Emergency Management Agency
[FEMA] and how to update and modernize them.
The National Flood Insurance Program currently operated by
FEMA partners with 19,000 communities nationwide and holds four
million policies and provides approximately $5 billion in
property loss coverage.
In my home State of New Jersey, some 546 communities of a
total of 567 communities, partners with FEMA and there are over
175,000 policies in force that provide over $239 million in
property loss coverage.
As realtors, we benefit from this program because it allows
people to buy homes that are safe from flooding through flood
mitigation activities taken by the participating community, and
further protects that investment by providing access to
affordable flood insurance that would otherwise be unavailable
on the open market.
The strength of the National Flood Insurance Program in my
State has allowed many people of all incomes to own a piece of
the American dream. Unfortunately, owning a home in a
floodplain can sometimes be a nightmare. This occurs when a
property is subject to multiple floods and must dip into the
National Flood Insurance Program more than once.
Currently, 45,000 properties nationwide have incurred two
or more losses over a 10-year period. These properties cost the
flood insurance program over $200 million annually. The top
10,000 structures alone cost the program over $80 million
annually.
In New Jersey, over 5000 properties are considered
repetitive loss properties with total payments of over $174
million. These multiple loss properties inflict serious
economic harm to the flood insurance program by driving up the
premiums for all policyholders and by allowing the entire
system to rest upon an unsustainable actuarial foundation.
These properties are not paying a premium that adequately
reflects the risks they incur by residing in a floodplain.
NAR believes that the repetitive loss issue must be
resolved and the flood insurance program be placed on firmer
financial ground. However, we do not agree with the
Administration's proposal to terminate flood insurance coverage
for repetitive loss properties. By terminating a property's
participation in the flood insurance program, it would be
difficult for the owner to find affordable flood insurance on
the open market. This draconian measure would result in a
significant decrease in the value of the property and wipe out
any previous investment the owner may have in that property.
NAR supports an approach to the repetitive loss issue that
has three components. First the property is kept in the NFIP
with access to flood insurance. Second, incentives to
participate in flood mitigation measures or accept a buyout at
fair market value or higher for the worst repetitive loss
properties; and third, if both the buyout or the offer of
mitigation is refused, the owner will be required to pay the
highest premiums allowable.
This win/win approach allows the owner to stay in the
property while paying a premium that reflects the risk of
living in the floodplain. This approach will also reduce the
Federal disaster assistance over long term by getting the worst
repetitive loss properties either properly mitigated or bought
out by FEMA.
A comprehensive reform of the current repetitive loss
property must also reflect three additional issues that are of
importance to realtors. First, some properties may experience
repetitive losses as a result of upstream or downstream
development that occurred after the properties were purchased
or constructed. Some exception should be made for floods that
were caused due to development activities.
Second, once a buyout has been completed, NAR has concerns
about the use and ownership of the acquired floodplain
property. We would encourage flexibility in determining how
these properties are being used and maintained so that they do
not become eyesores in the community and decrease the value of
adjacent properties.
Finally, NAR would encourage the use of local appraisers
and others who have knowledge of the local real estate market
in determining fair market value for buyouts.
In addition to FEMA's proposal to the repetitive loss
issue, NAR also has concerns regarding their proposal to
increase flood insurance premiums on second homes and vacation
homes. We would be troubled if these homes were denied access
to flood insurance as well.
The last issue I want to discuss is the issue of FEMA's
Flood Insurance Rate Maps, the well-known and much maligned
``floodplain maps.'' Accurate floodplain maps are crucial
during a real estate transaction in determining whether or not
a property is in a floodplain, which in turn determines whether
or not the owner will require flood insurance. NAR is concerned
that sufficient budgetary resources are not being identified
for FEMA to improve these maps, although we are pleased at the
recent action of the House Appropriations Committee to provide
FEMA with an additional $50 million to improve these maps. NAR
supports all full funding for modernization of the Nation's
flood hazard mapping program.
I would like to thank you for allowing the National
Association of Realtors to comment on these critical flood
insurance issues and repetitive loss challenges. We encourage
the Members of this subcommittee to fashion a workable,
bipartisan approach to resolving these issues, and we stand
ready to work with you to get an equitable and cost effective
law passed that would financially strengthen the National Flood
Insurance Program and further protect all of our citizens from
the ravages of flooding.
And I thank you very much.
[The prepared statement of Timothy Richards can be found on
page 112 in the appendix.]
Chairwoman Roukema. I thank you. I was generous with your
time, but I hope that we'll have time before the next vote for
everyone to be heard on this panel.
Mr. Fletcher.
Mr. Willey. Willey.
Chairwoman Roukema. Willey, all right, thank you. Mr.
Willey has been in the insurance business in North Carolina for
many years since 1974. He's a member of the Board of Directors
of the North Carolina Insurance Underwriting Association and
the North Carolina Joint Underwriting Association.
Certainly he has extensive experience in this area, and we
look forward to your advice and counsel.
STATEMENT OF FLETCHER J. WILLEY, GOVERNMENT AFFAIRS COMMITTEE,
INDEPENDENT INSURANCE AGENTS OF AMERICA
Mr. Willey. Thank you, Chairperson Roukema and Members of
the subcommittee.
My name is Fletcher Willey, and I'm pleased to have the
opportunity this afternoon to give you the views of the
Independent Insurance Agents of America on the National Flood
Insurance Program. I am the Chairman of the Flood Insurance
Task Force of the IIAA.
Let me begin by thanking Chairwoman Roukema, along with
Chairman Baker, Chairman Bereuter, and Congressman Bentsen,
along with Congressman Blumenauer for taking a lead on this
very important issue.
I want to clearly state that IIAA supports the NFIP. The
NFIP provides an important service to people and places that
have been hit by a natural disaster. The private insurance
industry has been almost entirely unwilling to underwrite flood
insurance because of the catastrophic nature of these
disasters.
Therefore, the NFIP is virtually the only way for people to
protect themselves against the loss of their home or business
by flooding. The NFIP has saved disaster assistance money and
provided a reliable system of payments for people whose
properties have suffered flood damage. We want this program to
continue and we hope it will get stronger.
Our members, independent insurance agents, play a vital
role in the delivery system for flood insurance. This system
operates well and does not need revision. IIAA has not taken a
position on these two bills yet. It is clear, however, that
reforms in the program are necessary--I was referring to the
delivery system, Chairwoman--necessary to address operating
losses to make the NFIP actuarilly sound.
We support the intent of these bills and believe that
introducing them is a step in the right direction. The GAO has
pointed out that cumulative operating losses of the program
totaled $1.56 billion from 1993 through 1998.
According to the GAO, multiple loss properties account for
$200 million in claims per year and about 36 percent of all
claims paid on an historical basis. We support the NFIP and we
hope we will be able to work with this subcommittee as you
evaluate the different proposals for reform to meet the fiscal
goals of the program with the least disruption in the people's
lives as possible.
Our members have significant experience with the NFIP and
with the people who will be directly affected by reform: the
flood insurance policyholders.
In fact, this is not just a professional matter for me. I
live on Roanoke Island on the Outer Banks of North Carolina,
and many of my neighbors suffered through the flooding of
Floyd. So I have a degree of personal experience and personal
investment in this issue.
What I would like to do this morning is to describe for you
the five principles that IIAA believe to be essential to this
needed reform.
First, strengthen building regulations. These regulations
require communities to ensure that any new construction in the
floodplain is built above elevation.
Second, any substantial improvement of existing structures
is built with similar safeguards. Experience with the program
demonstrates that building regulations work. In fact, only four
percent of repetitive loss properties were built after 1974. In
fact, damages to structures built to the current elevation
standards are 40 percent less per claim than damages to older
structures.
Second, increase compliance with the mandatory purchase
requirements. FEMA has found that fewer than 25 percent of the
buildings in some of the areas with mandatory purchase
requirement are actually covered by flood insurance.
Third, the NFIP should have additional funding to provide
resources for buyouts and mitigation grants. Buyouts allow
residents to escape the cycle of damage and repair and damage
and repair and the repetitive losses that we've heard discussed
today. We should avoid creating new problems by pushing
residents out of their homes without sufficient resources to
relocate.
As long as the program is sensitive to the potential
dangers of buyouts, buyouts can be a beneficial tool to improve
the financial state of the NFIP. Former FEMA Director James Lee
Witt has estimated that there will be a two dollar return on
every dollar spent on buyouts of repetitive loss properties.
Experience with building standards has shown that many
owners can elevate their homes and effectively mitigate their
flood risk. In some cases, modifying the current property is
less expensive and almost as effective as buyout. This option
can help to preserve communities to the fullest extent
possible. NFIP needs the authority and the resources to help
property owners improve their properties before additional
losses are incurred.
Fourth, we must stop abuse of the program through multiple
claims. Some individuals have bought property in flood zones in
order to take advantage of repeat payments from the NFIP. While
this is a small subset, we must take action to have them out of
the program or paying actuarial rates.
We need to also recognize that all repeat claimants are not
abusing the system. There are some people who bought property
without full knowledge of the flood exposure, and we must help
those people.
Fifth and last, one of the best ways to avoid future
problems with the NFIP is to give people full information about
flood risk. As I said before, many people originally bought
their properties without knowledge of the risk of flood.
Therefore, reform of the NFIP needs to include mandatory
disclosures of the flood claim history of the property so that
buyers can make an informed choice on their purchases and so
that they can properly value the home.
To make mandatory disclosure effective, we should create an
accessible electronic database of flood losses.
Thank you for giving me the opportunity to express the
views of the Independent Insurance Agents of America. We look
forward to working with the subcommittee on this issue, and
I'll be happy to take any questions that you might have.
[The prepared statement of Fletcher J. Willey can be found
on page 118 in the appendix.]
Chairwoman Roukema. Thank you very much.
And now our final witness is Mr. David Conrad, who is a
water resources specialist for the National Wildlife
Federation. Certainly we all know that Federation as one of the
largest conservation organizations in the country.
And it is my understanding--well, of course, you've had
extensive experience over the years--but it is my understanding
that you have recently been the author of a report called
``Higher Ground.'' A report, and there we have it and you're
going to insert that into the record, I'm sure, a report on
voluntary buyouts in the Nation's floodplains, a common ground
solution serving people at risk, taxpayers and the environment.
And I hope we are able to have some communication here
between yourself and the insurance and real estate people that
we have.
Mr. Conrad.
STATEMENT OF DAVID R. CONRAD, WATER RESOURCES SPECIALIST,
OFFICE OF FEDERAL AND INTERNATIONAL AFFAIRS, NATIONAL WILDLIFE
FEDERATION
Mr. Conrad. Thank you, Madam Chair. I do think from what we
have just heard that we do have a lot of common ground on the
issue of how to deal or work on repetitive losses as a problem
and the National Flood Insurance Program.
Again, my name is David Conrad. I am water resources
specialists for the National Wildlife Federation, and I am very
pleased to present the Federation's views on the National Flood
Insurance Program.
I also wish again to thank Representatives Bereuter,
Blumenauer, and Bentsen for continuing their efforts to focus
the Nation's attention on these problems, and thank Madam
Chairwoman for holding these hearings.
Our written testimony includes quite a bit of material that
came from our report that was issued in July of 1998, and I
think I will dispense with going through a lot of the
statistics that we have there, because I think a number of the
facts that we found have been reflected in previous testimony.
But I would want to comment on maybe one issue that I heard
in the last panel to start with that we found also that the
National Flood Insurance Program was not actuarially sound.
That has been verified by other witnesses. But I think an
important thing to focus on was that while it may have been
originally recognized that that was the case when the program
was originally designed, I think it was always intended that it
be moving toward actuarial soundness over time.
And that we found that progress has been greatly hampered
by the way we have implemented the program. So that's really
what the issue of this legislation is partly about, trying to
get back to the progress toward an actuarially sound approach
for the program.
I would like to focus I think the rest of my attention in
this short time on the value of non-structural approaches and
that are represented by the ideas behind these bills, and also
our thoughts about the bills.
Madam Chairwoman, primarily since the 1993 midwest flood,
FEMA reports that approximately 27,000 properties have been
voluntarily purchased and removed from the Nation's floodplains
and another 2800 damaged properties have been elevated or
flood-proofed largely after flood disasters. Hundreds of
communities across the Nation have begun to utilize voluntary
buyouts as a cost effective alternative means of reducing flood
damages, and often, at the same time, restoring environmental
health to streams and coast lines through establishment of open
space, greenways, bike ways, parks, buffer zones, wildlife
habitat areas and other such uses.
But in light of the NFIP's repetitive loss history, there
is a strong need for additional funding that can be used for
pre-disaster mitigation efforts that can save enormous private
and public sums in the long run.
The National Wildlife Federation urges strong support for
particularly H.R. 1428, because we believe the legislation
provides the best framework for FEMA and NFIP participating
communities to address a full range of problems associated with
repetitive losses.
H.R. 1428 clearly addresses the need for increased funding
for pre-disaster repetitive loss mitigation. The bill would
fully engage States and communities in developing and
implementing hazard mitigation plans, particularly by using the
existing Flood Mitigation Assistance Program approach, and it
is critical for the financial health and safety of the Flood
Insurance Fund that owners of repetitive loss properties would
pay rates that reflect the true risk associated with their
properties especially if reasonable mitigation plans are
offered and are refused.
We might add the following suggestions though that maybe
could possibly improve this legislation. We would urge that the
director and communities be given sufficient flexibility to
address not only or not just repetitive loss structures, but
also other structures or properties close by in the vicinity
that are flood prone. This is the idea that flexibility may be
needed to help communities establish cohesive plans for wide
use of floodplains and sensible public infrastructure
development.
We also would urge that new funds be made available for
planning hazard mitigation projects. We would urge that
mechanisms be established to assure that reasonable hazard
mitigation offers would not cause severe hardship for owners
and occupants of modest means particularly.
Successful hazard mitigation should include plans for
adequate and affordable relocation opportunities for any
residents involved.
As a means of addressing those concerns, we urge that FEMA
be directed, to the maximum extent practicable, to coordinate
efforts with Federal housing, disaster relief, and natural
resource management agencies to help State and local agencies
in developing mitigation plans.
We would also say while we fully agree with the objectives
of H.R. 1551, it would require development of a wholly new
program that we don't believe is actually necessary, given the
success of Section 1366. The proposal of the Administration to
cut off availability of flood insurance to repetitive loss
properties after one additional claim would address the
enormous financial strain these properties represent for the
NFIP, but this approach would not guarantee that there would be
action to remove high risk properties from harm's way.
We do support, however, the Administration's proposal to
phaseout subsidized flood insurance rates for certain vacation
homes and rental properties. Such subsidies can ultimately
result in high cost to taxpayers, and much greater effort
should be made to establish this program on an actuarially
sound basis.
The last thing I would like to mention is just the map
modernization program also. We strongly support the FEMA
efforts to modernize the flood insurance maps. It is clear that
many of these maps are reaching an antiquated age and no longer
really reflect the risk involved. And, because the maps
constitute basic planning documents for the Nation's urban and
rural areas, they need to be accurate and updated.
They are of such fundamental importance to community
development that it would be entirely justifiable, we think, to
finance their updating with considerable general taxpayer funds
and with appropriate fees and other contributions.
We strongly urge the subcommittee to identify and support
approaches to provide the necessary funds for map
modernization.
Again, on behalf of the National Wildlife Federation, I
wish to thank the Chairwoman and other Members of the
subcommittee for the opportunity to present our views, and
would be happy to respond to your questions.
Thank you.
[The prepared statement of David R. Conrad can be found on
page 123 in the appendix.]
Chairwoman Roukema. Thank you.
I don't really know where to or how to question on this.
The complexity of it has now been clearly identified here
between what this panel is saying and what the previous panel
has said except for, well, even Mr. Conrad, actually you have
quite an overlay with both the insurance people and the
realtors.
But I've got to say, and I think Mr. Bereuter, before he
returned here, I had made the point that there have to be
incentives for State and locals to have proper zoning, and I
firmly believe that.
And I've got to say that we've got to recognize that the
cost of flood insurance--and I'm very sensitive to the
realtors, I'm very sensitive--but I cannot continue to let the
subsidies, what we're doing to absorb the costs of these
things, the cost of the insurance for people continuing in the
floodplain, and with their multiple numbers of repetitive
losses, we cannot continue to let them drive up the cost for
all, and that to me is unsustainable.
I don't want to terminate flood insurance, I'm not yet at
the point, unless Mr. Bereuter can convince me otherwise, to
have FEMA absorb the costs of these buyouts, of all these
buyouts. I don't know how we're going to deal with that.
But I do again, coming from New Jersey, where I have great
belief in local zoning, that the local zoners are going to have
to have the responsibility and recognize that the Federal
Government should not be continuing to subsidize and sustain
it.
I don't know if anyone wants to come back to me on that
before I turn it over to Mr. Bereuter for his questioning. I
don't have the whole answer, but I'm trying to integrate.
Yes, Mr. Conrad.
Mr. Conrad. I see. Yes. Well, when we did our major study,
and we spent a lot of hours thinking--days, weeks, months--
thinking about these problems, I think our view is that the
programs for buyouts and elevation, floodproofing, and so
forth, probably should be considered a temporary or sort of
transition program to deal particularly with existing problems
that a lot of communities have.
But I think behind that needs to be a renewed focus on
working with communities to properly grow and to take full
awareness of the risks of locating in high hazard areas, such
as floodplains, so that's my answer to your question, if that
helps.
In other words, this shouldn't be a permanent situation.
Chairwoman Roukema. You don't want to zone out?
Mr. Conrad. I think that most communities should be using
zoning to identify or to locate homes and businesses away from
high hazard areas, yes. And that is really part of the Flood
Insurance Program.
There were two parts, the provision of insurance and the
guiding development away from harmful or----
Chairwoman Roukema. But that hasn't really been in action.
Mr. Conrad. I don't think we've had enough attention put to
that.
Chairwoman Roukema. That's what I'm saying.
Anyone else?
Yes, Mr. Richards, my friend from New Jersey.
Mr. Richards. Concerning the zoning issue, in some parts of
the country, I think it could be done, and I think it could be
done very successfully.
In the very dense population areas, and New Jersey is
certainly considered one of those where the horse is already
out of the barn, and the majority of the land is already owned
by someone, a rezoning that dramatically devalues a property
can very easily be construed as a taking. And without some type
of compensation, either from local zoning board, local
community, Federal Government, State government, whatever, it
could be a very, very difficult situation.
So I don't know that zoning will solve the problem
overnight.
Chairwoman Roukema. Excuse me, but this is done regularly
across the country and certainly in New Jersey, this is done on
a regular basis. Is there any legislation, whether it's for
flood control or whatever, about rezoning and compensation? I
don't think so, or is there?
Mr. Richards. There are issues that surround that, yes.
Chairwoman Roukema. No, there are issues that surround it,
but there's no legislation that requires compensation, is
there?
Mr. Richards. Not that I'm aware of.
Chairwoman Roukema. For flooding or for other reasons,
rezoning for other reasons, not that I was aware of either.
All right, I'm sorry, I interrupted you. Do you want to add
something?
Mr. Richards. There was other point made about the
taxpayers subsidizing all flood insurance and to me, there may
be a perception that flood insurance is something for more
expensive housing. And I think one of the areas that we've got
to be ever aware of are the gentlemen from Louisiana and Texas,
West Virginia, and areas that, you know, are not necessarily
real expensive homes, but yet these are valuable family estates
that have got to be maintained.
Chairwoman Roukema. Someone else on the panel had made that
point as well.
All right, thank you.
Mr. Bereuter.
Mr. Bereuter. Thank you very much, Madam Chairwoman.
Gentlemen, I'm sorry I missed the first part of your
presentations. I've been reading your testimony and I think
I've caught up with those elements of testimony that you
presented orally here or in writing.
And I must say, I thank you for a very positive set of
testimony. Mr. Richards, I think in particular, if I might say
so, the National Association of Realtors, in your testimony has
been a very positive approach in looking for a win/win
situation to protect your own customers.
The items that you go through, on page five, for example,
are principles and concerns that are exactly those that I
share. And so I appreciate the very positive and constructive
tone of your testimony.
Mr. Conrad, I thank you for your support for the
legislation offered by Mr. Blumenauer and myself. I certainly
share your concerns about the need for a map modernization
program that's accelerated. Many communities are waiting so
long for the kind of modernization of their floodplain zoning
areas, and in the meantime things have changed, and we provided
some flood control protection which should exempt property
owners from being required to have flood insurance, and that
just is not reflected in many cases.
In other cases unfortunately the floodplain has expanded,
and we need to have an indication of what really the flood
hazards are in a community.
I followed Chairwoman Roukema's comments about zoning, and
having written a lot of zoning ordinance myself, before I was
elected to Congress, I'm certainly very much supportive of the
need to avoid flood losses through the zoning ordinance.
Generally, it is problem avoidance, and we're stuck, as one of
you pointed out, with areas that have many, many nonconforming
uses. Most of those repetitive loss structures are
nonconforming uses that were built many years ago, especially
in the older cities in this country, and so it's a big problem.
Earlier on, we had comments about Project Impact, which is,
as I understand it, is not proposed for funding under fiscal
year 2001 budget recommendation of the Administration. I must
say I think that's a mistake. I know Project Impact has had a
good impact within my own State and it's been used as a model
for other communities to emulate, and so I think it's a big and
very positive step forward.
One of you gentlemen, I think Mr. Willey, it was you, who
cited former FEMA Director James Lee Witt as suggesting that
for every two dollars spent in buyout or mitigation, every one
dollar spent provides two dollars in return. And I suspect
that's true, and I think that's something that needs to be
emphasized.
When you referred in your testimony, Mr. Willey, to the
athletic director of your local high school, that of course
brings it down to a personal kind of note. And I think what
we're looking for is a program to accelerate the mitigation and
buyout circumstances that give him an alternative.
Right now, he would, as you suggest, be happy to have a
solution, but, in fact, the Government is not there for a
buyout program or a mitigation program. Though both Mr.
Bentsen's and my bill attempts to deal with that by additional
resources for FEMA for that purpose.
Let me ask you a couple of general questions--well, not so
general, specific questions perhaps with respect to a
comparison of the Administration's approach, which is only
identified through their budget proposal at this point and, for
example, the bill that Congressman Blumenauer and I offered.
Their definition of a repetitive loss structure would be
properties with two or more losses of a thousand dollars in
greater than a 10-year period, whereas ours are property at two
or more NFIP claims have been paid.
So the burden is, the definition for the Administration is
much more comprehensive in its impact, it seems to me. And then
they lose their policy after the first flood.
Do you want to make a comment about the Bentsen, the
Bereuter/Blumenauer versus the Administration's definitions on
repetitive loss.
I saw your hand, Mr. Willey. I'm not sure if you want to
address that or not, but I'd welcome you.
Mr. Willey. Yes, sir. Thank you for that opportunity. I
think that's a crucial question, sir. People that have been hit
by Floyd, which was supposedly a 1,000-year storm, and then one
other $100 claim, or $250 claim, are, quote, ``out of the
program,'' by one standard.
We would support a standard that would be broader than
that. By that I mean perhaps four claims of at least $1,000
dollars or more, or the standard that would be based on the
value of the building.
We believe that it is important to keep people in the
program, because once they're out of the Federal flood program,
they have no incentive to build at proper elevations.
We would like to see as many people included in the
National Flood Insurance Program an early strikeout, if you
will. An early cancellation of the citizen's availability to
participate in the National Flood Insurance Program, we think
could result in some areas that would go downhill quickly. We
would like to see people striving for elevation and striving
for mitigation, but just to kick them out of the program would
be tough to enforce.
Mr. Bereuter. Do you think it's fair----
May I continue? I know I'm beyond my time here.
Chairwoman Roukema. Yes, please another minute or two. Yes,
two more minutes.
Mr. Bereuter. Thank you very much.
Is it fair in your judgment, I would ask the two of you
that represent the business-related associations, for example,
for actuarial rates to be paid by a property owner that has had
two NFIP claims paid if, in fact, they have turned down
mitigation or buyout assistance?
Mr. Richards. If I understand your question, that they
would have a much higher premium to pay if they elected not to
do one of the other two things. That was a recommendation that
we had made in our remarks believing that we are providing
something for that homeowner. If they are kicked out of the
program, we also have a mortgaging issue, which could create
some economic difficulty down the line.
Mr. Bereuter. I don't see how we can kick them out of the
program if we're not willing to buy them out. You know they
have no alternative. In some cases, this is a desperate
situation, as Ms. Carson raised the question, for example, well
what's the real value of that home if we do get to a buyout
stage.
Mr. Willey. We would support the actuarial rate
availability and the fair determination of an actuarial rate
from an insurance perspective. We have to support actuarial
soundness, otherwise the system doesn't work.
I would point out very quickly, if I may, Madam Chairwoman,
that we recognize that many, many, I think 96 percent or so of
the repetitive loss properties are those properties that were
built before we knew anything about the science of elevations.
These were places, my athletic director example, the house
was built before 1972. Other houses surrounding that house are
properly elevated and haven't suffered that same flood
recurrence. So there is a great deal of value in the elevation
requirements of the program, and offers for mitigation or
buyout, and then an actuarial rate are the way to go.
Mr. Bereuter. And actually the newer homes may have caused
additional flooding for the original home that was built pre-
FIRM?
Mr. Willey. I've seen that happen, yes, sir, but not in
this case.
Mr. Bereuter. Yes. I wonder if you have any comments about
the desirability of the 125 percent figure that Mr. Bentsen
uses? He's indicating property in three or more flood related
damages with a cumulative cost of repairs equal or greater to
125 percent of the structure's fair market value would be
considered a repetitive loss structure.
Mr. Willey. Yes, sir, I've looked at that. And I think it's
important to determine whether or not we're talking about 125
percent of the market value after it's flooded three times, or
before it had flooded three times.
Mr. Bereuter. We got a response, by the way, from behind us
when we were testifying in response to Ms. Carson's questions,
and I might say it here for the record. FEMA said that they go
back to the pre-flood valuation. However, if there are several
floods, they don't go back to the first flood, they go back to
the pre-most recent flood basis. So that's the calculation they
use on the buyouts.
Anybody else have a comment regarding 125 percent element?
Mr. Richards. I do it find difficult to put a blanket on
any type of valuation, because community after community is
completely different, different market areas, different
localities, all carry different ways of establishing value, and
I really don't know that you can put a blanket on that type of
situation.
Mr. Bereuter. Thanks to all of you, including you, Mr.
Conrad, and Madam Chairwoman, I want to express my sincere
appreciation for the fact that you've held this hearing and
that we've had excellent panels of witnesses.
Thank you very much.
Chairwoman Roukema. Well I thank you for your cooperation
and your leadership, not only cooperation, but it's your
leadership that really motivated the subcommittee to have this
hearing and hopefully we can all move together and get
something expedited for consideration in this Congress.
I would also point out, as I think I made reference to in
my opening statement, the fact that Mr. Dale Shipley, the
Executive Director of the Ohio Emergency Management Agency was
not able to be with us today. He was to have served on this
panel, and I would ask unanimous consent to insert into the
record his prepared statement for this hearing. The irony of it
is that he is not here because he is attending to needed
flooding concerns in Ohio that have been afflicting southern
Ohio, so he's out there taking care of flooding problems in
Ohio. Perhaps he'll come back and put in an addendum to his
testimony based on his experience this week. I thank you very
much.
[The prepared statement Dale W. Shipley can be found on
page 134 in the appendix.]
Mr. Bereuter. Madam Chairwoman.
Chairwoman Roukema. Yes.
Mr. Bereuter. I would ask unanimous consent to include the
appendix prepared by staff, a Comparison of Repetitive Loss
Property Proposals.
Chairwoman Roukema. Yes, that will be included. Thank you
again and we look forward to working with you and hoping that
we can expedite something for this Congress.
[Whereupon, at 1:20 p.m., the hearing was adjourned.]
A P P E N D I X
July 19, 2001
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