[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
THE NATIONAL FLOOD
INSURANCE PROGRAM:
REVIEW AND REAUTHORIZATION
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
APRIL 1, 2003
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-17
89-082 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice JULIA CARSON, Indiana
Chairman BRAD SHERMAN, California
RON PAUL, Texas GREGORY W. MEEKS, New York
PAUL E. GILLMOR, Ohio BARBARA LEE, California
JIM RYUN, Kansas JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois CHARLES A. GONZALEZ, Texas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey
TIM MURPHY, Pennsylvania BERNARD SANDERS, Vermont
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Housing and Community Opportunity
ROBERT W. NEY, Ohio, Chairman
MARK GREEN, Wisconsin, Vice MAXINE WATERS, California
Chairman NYDIA M. VELAZQUEZ, New York
DOUG BEREUTER, Nebraska JULIA CARSON, Indiana
RICHARD H. BAKER, Louisiana BARBARA LEE, California
PETER T. KING, New York MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North BERNARD SANDERS, Vermont
Carolina MELVIN L. WATT, North Carolina
DOUG OSE, California WM. LACY CLAY, Missouri
PATRICK J. TOOMEY, Pennsylvania STEPHEN F. LYNCH, Massachusetts
CHRISTOPHER SHAYS, Connecticut BRAD MILLER, North Carolina
GARY G. MILLER, California DAVID SCOTT, Georgia
MELISSA A. HART, Pennsylvania ARTUR DAVIS, Alabama
PATRICK J. TIBERI, Ohio
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
C O N T E N T S
----------
Page
Hearing held on:
April 1, 2003................................................ 1
Appendix:
April 1, 2003................................................ 33
WITNESSES
Tuesday, April 1, 2003
Baker, Hon. Richard, A Representative in Congress from the State
of Louisiana................................................... 4
Bereuter, Hon. Doug, A Representative in Congress from the State
of Nebraska.................................................... 6
Blumenauer, Hon. Earl, A Representative in Congress from the
State of Oregon................................................ 10
Berginnis, Chad, Vice Chair, Association of State Flood Plain
Managers....................................................... 21
Lowe, Anthony, Mitigation Division Director and Flood Insurance
Administrator, Emergency Preparedness and Response Directorate,
Department of Homeland Security................................ 13
Nielsen, Gerald, Nielsen Law Firm, Metairie, LA.................. 23
Willetts, Frederick III, President and CEO, Cooperative Bank,
Wilmington, NC on behalf of America's Community Bankers........ 25
Willey, Fletcher J., Government Affairs Committee Flood Insurance
Task Force Chair, Independent Insurance Agents and Brokers of
America........................................................ 24
APPENDIX
Prepared statements:
Oxley, Hon. Michael G........................................ 34
Baker, Hon. Richard H........................................ 35
Bereuter, Hon. Doug.......................................... 44
Blumenauer, Hon. Earl........................................ 45
Clay, Hon. Wm. Lacy.......................................... 48
Berginnis, Chad.............................................. 49
Lowe, Anthony................................................ 60
Nielsen, Gerald.............................................. 69
Willetts, Frederick III...................................... 98
Willey, Fletcher............................................. 103
Additional Material Submitted for the Record
Mortgage Bankers Association of America, prepared statement...... 108
National Association of Professional Insurance Agents, prepared
statement...................................................... 116
National Association of Realtors, prepared statement............. 122
Taxpayers for Common Sense Action, prepared statement............ 130
U.S. General Accounting Office, prepared statement............... 131
THE NATIONAL FLOOD
INSURANCE PROGRAM:
REVIEW AND REAUTHORIZATION
----------
Tuesday, April 1, 2003
U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 2:06 p.m., in
Room 2128, Rayburn House Office Building, Hon. Robert Ney
[chairman of the subcommittee] presiding.
Present: Representatives Ney, Baker, Bereuter, Jones,
Miller of California, Tiberi, Harris, Watt, Clay, Miller of
North Carolina, and Scott.
Chairman Ney. [Presiding.] This hearing of the Housing and
Community Opportunity Subcommittee will come to order. We are
here to hear testimony on the National Flood Insurance Program.
Also I thank our witnesses obviously for being here today. I
know you traveled a long distance to arrive here. This is an
important hearing and your testimony will assist us in
determining how best to go about reforming and reauthorizing
the National Flood Insurance Program.
Floods have been and continue to be one of the most
destructive and costly natural hazards to our nation. The
National Flood Insurance Program is a valuable tool in
addressing the losses incurred throughout this country due to
floods. It assures that businesses and families have access to
affordable flood insurance that would not be available on the
open market. The National Flood Insurance Program was
established in 1968 with the passage of the National Flood
Insurance Act. Prior to that time, insurance companies
generally did not offer coverage for flood disasters because of
the high risks that would be involved. Today, almost 20,000
communities participate in the National Flood Insurance
Program. More than 90 insurance companies sell and service
flood policies. There are approximately 4.4 million policies
covering a total of $620 billion.
In order to participate in the program, communities must
agree to abide by certain hazard mitigation provisions such as
adopting building codes that require new flood plain structures
to be protected against flooding or elevated above the 100-year
flood plain. As many of you are aware, the NFIP reauthorization
was due to expire December 31, 2002. Unfortunately, Congress
adjourned without extending the program. This situation was
quickly remedied in the 108th Congress on January 13 of this
year. President Bush signed into law a bill to reauthorize the
program for one year, retroactive to January 1, 2003. This one-
year reauthorization will give us the time necessary to
determine how best to go about reforming the existing program.
We are fortunate to have three of our more distinguished
members of Congress on our first panel to discuss the proposals
they have introduced. Congressmen Bereuter and Blumenauer have
introduced H.R. 253, Two Floods And You Are Out Of The
Taxpayer's Pocket Act, which authorizes the program until 2007
and makes changes to the program as it relates to repetitive
loss properties. Congressmen Bereuter and Blumenauer have a
keen interest in reforming this program and we look forward to
hearing about their legislation.
Congressman Baker has introduced H.R. 670, the Flood Loss
Mitigation Act of 2003, to provide for identification,
mitigation and purchase of properties insured under the
National Flood Insurance Program that suffer repetitive losses.
As a representative from Louisiana, we know that our chairman,
Mr. Baker, is no stranger to the issue and we look forward to
hearing about the details of his legislation.
I would also like to welcome Anthony Lowe, the
administrator of the flood insurance program and Director of
the Mitigation Division, along with our other witnesses. We do
look forward to your insight and expertise. I would let you
know that our ranking member, Ms. Waters, has notified us she
will not be able to be with us today. However, without
objection, her statement and that of any member will be
included in the record. Hearing no objections, it will be
included.
With that, I will turn to the gentleman, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman.
Ms. Waters asked me to be here, because I had asked
somebody to substitute for me at a 10 o'clock hearing on a
subcommittee that I was the ranking member of, and that person
had agreed to do it. I felt like I at least ought to return the
favor to somebody. So I am here. She asked me also to be here
because she knows that North Carolina has a dog in this fight,
and she probably figured I was going to be here listening to
the testimony anyway. North Carolina, I think, is maybe the
fifth most impacted state by what we are here to deal with
today.
I have a statement from Ms. Waters which I will not read,
in the interest of time, but will submit for the record under
the chairman's unanimous consent request. I look forward to
hearing the witnesses, both my colleagues and the witnesses on
subsequent panels. I yield back in the interest of time.
Chairman Ney. I thank the gentleman for yielding back.
Other opening statements?
Mr. Clay. Mr. Chairman?
Chairman Ney. Mr. Clay.
Mr. Clay. I appreciate that the committee will hold
hearings on a subject so important to my district and the State
of Missouri. My district is in an area that is the watershed of
both the Missouri and the Mississippi Rivers, two of the
largest river systems in the United States. Congress passed a
the National Flood Insurance Act to identify flood-prone areas,
make flood insurance available to property owners and
communities enrolled in the program, and to assist and
encourage floodplain management and ultimately reduce federal
spending for disaster assistance.
In 1993, one of the worst years in the history of Midwest
floods, my district suffered from floods both in the city and
in the county areas of St. Louis. There was no one left
untouched by the devastation that took place. It would be hard
to anyone to contemplate what would have happened were not the
National Flood Insurance Program already in place. There is a
tremendous need for the reauthorization of this program. It is
the key to survival of many Missouri businesses and families.
One of the largest issues of this reauthorization is
addressing the issue of repetitive lost property--those
properties that have experienced two or more losses greater
than $1,000 each within a 10-year period. FEMA has identified
over 48,000 properties insured under the national flood
insurance plan that meet the definition of a repetitive loss
property. Of that number, over 10,000 have had flood losses
that total over $80 million annually.
Mr. Chairman, I look forward to the discussion of these
issues today and I ask unanimous consent to submit my statement
to the record.
[The prepared statement of Hon. Wm. Lacy Clay can be found
on page 48 in the appendix.]
Chairman Ney. Without objection. I thank the gentleman for
his statement.
The gentleman from Georgia, Mr. Scott?
Mr. Scott. Chairman Ney, I want to thank you and certainly
Ranking Member Waters and Ranking Member Watt, who has so
dutifully taken her place. I want to thank you for holding this
important hearing today regarding the National Flood Insurance
Program. I represent the State of Georgia. We have had one very
impactful area in my state recently, and that is in the Albany-
Southwest Georgia area, with the Flint River; and also down in
the central part of our state with the Ocmulgee River. We have
had some very catastrophic situations that took place there.
I want to thank the distinguished panel of witnesses and my
colleagues who are working very feverishly on this issue. I
certainly support the National Flood Insurance Program because
I believe that it provides an important service to people who
have had property hit by a natural disaster. However, I
recognize that an exceptional group of repetitive loss
properties have cost the program a significant share of annual
funds. With the budget battles that are currently being waged
in the House, we certainly need to find the best ways to target
these scarce federal funds. I certainly look forward to hearing
about H.R. 253 and H.R. 670 and other recommendations for the
reform of the program.
As we move forward, there are some specific issues that I
certainly hope we will cover. I am very much concerned about
those that are at the lower end of the economic pole, the
lower-income occupants in repetitive loss properties, that do
not have the ability to just move anywhere or pay for
mitigation measures. It is important to find out what can you
assure the low-income owner or renter of properties in regards
to these reforms to the program, and what protections can be
offered to them. I am also concerned that in some cases
mitigation purchase offers may be insufficient to pay off an
outstanding balance on mortgages secured by these targeted
properties. Is there an appeal? What appeal or what option
would a homeowner have to address this inequity?
We are dealing with the most important asset that any
family can have, and that is their home. I recognize the
importance of that and I also recognize the importance of the
budget shortfall we are faced with. This is our challenge.
Thank you, Mr. Chairman. I appreciate it.
Chairman Ney. I thank the gentleman from Georgia.
With that, we will begin with Mr. Baker.
STATEMENT OF HON. RICHARD H. BAKER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF LOUISIANA
Mr. Baker. Thank you, Mr. Chairman. I appreciate your
courtesy in calling this hearing and offering me an opportunity
to participate.
This is an unusual issue in that in the former Congress,
former member Bentsen, myself, Baker, my good friend from
Nebraska, Mr. Bereuter, and Mr. Blumenauer were all active on
this subject. It seems the letter ``B'' and hot water sort of
go together, hand in hand. I have not figured it out yet.
We also have quite different perspectives about the
validity of the program and its usefulness to the American
people. The first thing I would like to address is the question
of taxpayer bailout and the access to taxpayer funds in order
to make this program operational. We have plotted and make
available to the committee a chart which shows over time the
line of credit which is utilized by the program to meet needs
of those who fall victim to a flooding event. As you may know,
we assess a participant in the program a premium. The premium
goes into a fund, and depending on the cycle of weather and
flooding and events, we can either have a surplus or a deficit
in that fund. There is no question that in given years, we have
dipped significantly into that line of credit and have in
essence a loan from the American taxpayer. To date, this chart
goes through the end of 2001, showing about a $700 million
surplus on hand in that fund. All funds advanced for the
purpose of flood insurance program payments have been repaid
with interest. This is one of those rare occasions, as opposed
to being a run on the line of taxpayer credit, it actually is a
program which has returned money to the program from which it
was intended.
It is my judgment that we need to frame the argument in
proper perspective. It really is not a run on taxpayer money.
However, if we choose to contrast that with the Federal
Emergency Management Administration's general disaster relief
program, in the year 2001, for example, $3 billion of taxpayer-
appropriated dollars were paid out. Now, we all find those
appropriations and activities meritorious. No one here is
suggesting we do away with FEMA disaster assistance, but keep
in mind the flood insurance program has generated repayment of
all advances with interest and currently have a surplus. It
certainly will run deficits again, as disasters take their
toll, as contrasted with the FEMA appropriations which
literally spend billions of dollars from the taxpayer's pocket.
Then when we began to look state by state, I think many
would find this of interest--taking, for example, the state of
California as one example of participation in the program. They
have insurance in force covering about $45 billion in assets.
The premiums they collect to cover that $45 billion exposure is
$134 million a year--$45 billion coverage; $134 million in
premium. The state of Louisiana, by example, has $45 billion of
policy in force. We pay $151 million in flood insurance
premium. The small state of Louisiana pays $20 million more a
year in flood insurance premium than the great state of
California, with the same exposure to the fund.
What does this mean? It means we are perhaps more likely to
have a flooding event, but we are paying our portion of our
risk. If you look to the numbers of individuals who are covered
by the program--and just a brief word how it works. Each state
has a 100-year flood survey. If you fall within that 100-year
plain, you are supposed to be enrolled in the program paying
premium appropriate to your flood risk. That is not the case.
Of the areas identified within the 100-year flood plain
nationally, approximately one-half of the individual properties
are enrolled in the flood insurance program. So on its face
there appears to me a very readily acceptable solution. Those
who are in a flood-prone area should simply pay the premium. On
the other hand, if you were involved in an automobile accident
more than once, even if you paid your premium, we do not say to
you, we are going to take away your car insurance. Neither
should we say in the case of a repetitive flood loss, because
you flooded more than once, you should lose your coverage.
Why? Well, if I lived downstream in South Louisiana, and I
encourage all of you to come because if you have not been down
to the great port of Baton Rouge or New Orleans, about two-
thirds of this wonderful nation's water goes right by my house.
It is a magnificent thing to see. But in most developments, if
you buy in a nice dry subdivision, minding your own business,
you can live there for a number of years and because of
upstream development, either the municipality, the parish or
county as you call it, other developers, can change drainage
patterns. You have an on-shore wind, a hurricane brewing, a
full moon--that has an affect--and you have an upstream
development that changes flood patterns, all of a sudden you
find yourself with water in your home where it never occurred
before. That was not in bad faith. It was by the actions of
upstream development over which you have no control.
So what can we do about this? Well, it just so happens I
have a bill, as referenced by the chairman, H.R. 670. This
establishes a process which I think Mr. Scott in his opening
statement would find interesting. It does not say we are going
to pass one standard--repetitive loss, dollars lost. It is
going to say that when FEMA identifies you as a problem, they
have an obligation to notify you and say you are a problem.
Then you have a right to a hearing and offers of mitigation.
Under the Bereuter proposal, it is two offers of mitigation you
must refuse before you are booted out. Under our proposal, it
is one. If you refuse mitigation one time, and it is a
responsible solution to your problem, you are out of the
program. It does not refer or relate, however, to the number of
losses for which you may claim. You can have one bedroom in the
house get the carpet wet, and it is a $1,000 event. You could
have one event and be $100,000 event. It gives FEMA the
responsibility and the authority to do a case-by-case
assessment and places within their hands the responsibility to
protect the integrity of the program. To me, that makes a great
deal of sense.
You are absolutely correct. In many cases, people who live
in low-lying areas are not living in the expensive houses.
There are people who may have significant debt. There are
people who are going to have alternatives to go out or perhaps
even enjoy the benefit of home ownership. They may be renters.
The devastation is no less. In South Louisiana, we have a
rather direct way of saying it: Do not throw Bubba out with the
bathwater. We have working families who are paying their flood
insurance premiums, who by no fault of their own find
themselves in circumstances not of their own choosing.
There is a way to remedy this program. One is to get all
who benefit from it paying premiums as we do in Louisiana, and
two, is to give FEMA the discretionary authority to get rid of
the multiple offenders who are violating the principles on
which the program was built, and I support that. Lastly, as Mr.
Blumenauer's interest has expressed repeatedly over time, we
need to do more in the way of local initiatives and greening
the results of a flood mishap. Where we have a property we have
identified, let it not go back into commerce. Turn it into
green space so we do not repeat the same problems we are
correcting.
Finally, communities should be given credit for their own
initiatives to reduce flooding where possible. In my own
district, we just passed a property tax in some very
conservative territory, as a local match with state dollars to
build a $160 million drainage structure which is to lower flood
elevations in our community by two to six feet, depending on
where you live. Where a community is taxing itself to make
changes, that ought to be given credit by FEMA.
Thank you, Mr. Chairman, for this time.
[The prepared statement of Hon. Richard H. Baker can be
found on page 35 in the appendix.]
Chairman Ney. I thank the gentleman for his testimony.
The gentleman from Nebraska, Mr. Bereuter.
STATEMENT OF HON. DOUG BEREUTER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF NEBRASKA
Mr. Bereuter. Good afternoon, members of the subcommittee.
Mr. Chairman, thank you very much for holding this hearing
today on this important subject.
In January of this year, Congressman Earl Blumenauer and I
introduced the Two Floods And You Are Out Of The Taxpayer's
Pocket Act. We introduced similar legislation in both the 106th
and 107th Congress, and I have been active with former
Congressman Joseph Kennedy since practically my first service
on his subcommittee and committee. This bill represents, then,
a continuation of a long-term interest in our effort to reduce
the extraordinary cost of repetitive losses from the NFIP as
administered by FEMA.
At the outset, I would like to thank Mr. Blumenauer for his
dedication and devotion to the principles and details of this
legislative effort. I also note that during the 106th Congress,
FEMA, under the direction of James Lee Witt, was involved in
assisting us in drafting our legislation and was supportive of
it. Furthermore, I would like to thank my colleague, Richard
Baker, who has, of course, just testified, for his effort and
concern about the functioning of the NFIP. He brings up a
number of good points. We are proud in fact to take into
account certain of his concerns, and there are others that
should be. I look forward to working with him.
This legislation is very important because, of course, the
authorization expires on December 31 of this year. Our
legislation would extend the authorization until 2007 and make
essential changes to the program as it relates to repetitive
loss properties. According to FEMA, as of January 31 of this
year, the NFIP program insured over 48,000 repetitive loss
properties. Repetitive loss properties are those which have two
or more NFIP claims each over $1,000 within a 10-year period,
as we are using that term. These properties represent 1 percent
of the properties that are currently insured by the NFIP, but
in an average loss year they counted for 25 percent of the NFIP
flood claim dollars. The NFIP pays out on average more than
$200 million annually to address repetitive loss properties.
If enacted, this legislation we offer I think will help
turn the tide against the huge costs associated with repetitive
loss properties. Twenty-five percent of all current NFIP
policies are subsidized by other premium payers, and thus do
not pay actuarially sound rates for their coverage. I agree
with Mr. Baker that all properties located within the 100-year
flood plain should be required to have national flood
insurance. However, they should also pay actuarially sound
rates, I would contend. A significant number of those
subsidized policies are for repetitive loss properties.
Moreover, the NFIP has had the unintended effect of helping
people stay in areas that are repeatedly flooded, when it would
be in their best interest and those of FEMA and other
policyholders of NFIP to mitigate the flood vulnerability of
these properties, or to move elsewhere.
The legislation authorizes a $400 million increase in the
FEMA mitigation grant assistance program over four years, to be
used to relocate or elevate properties that have sustained the
most repetitive loss flood damage. Furthermore, the legislation
addresses the repetitive loss properties in a simple,
straightforward manner. The owner of repetitive loss property
will be charged the actuarially sound risk-based rate for their
national flood insurance policy, if both of two conditions
prevail. The first condition is that two or more NFIP claims
must have been paid on an individual property, each over
$1,000, within a 10-year period of time. By the way, we
certainly will look for discussion and consideration of an
amount different, higher than $1,000 if that is in fact too
low. The definition is different than the one used in our
legislation in the 106 and 107th Congress, which included flood
insurance claims under that figure, within the definition of a
repetitive loss property. This was a response to the concerns
brought to us by various members and interests.
Second, the owner of the property must have refused a
federally funded buyout or federally funded mitigation measure
such as an elevation of the structure or property. Of course,
mitigation offers would be made only when there is a cost
effective mitigation option for the property. FEMA has
testified in the past that properties which have suffered more
repetitive NFIP claims and/or losses will in general be those
which are more cost-effective to mitigate. I think it is
important to note that this Act will not in any manner deny
flood insurance coverage to any interested owner, renter or
occupant of a property. That is not the case, but they must pay
realistic actuarially sound rates under this legislation.
I co-authored this legislation for numerous reasons.
However, the following four reasons are the most significant
grounds, I think, for this legislative initiative. First, some
policyholders of repetitive loss properties are able to take
advantage of and abuse the NFIP by making claim after claim on
the same flood-prone properties. Number two, federal taxpayer
money will be saved under H.R. 253. Yes, I know that there is a
return on it under most conditions, and eventually that may
always be the case. That is uncertain. Three, through the
policies and practices of the currently constituted NFIP, the
Federal government is encouraging development by giving the
subsidized flood insurance to these high-risk areas through the
excess insurance premiums and costs to other policyholders. And
fourth and finally, there is a demographic trend of far more,
and a higher percentage of Americans living closer to the
United States coastlines and rivers which will, in the absence
of reform legislation, result in a greater number of repetitive
loss claims.
So laying a few facts on each of these four, I would say
the following. According to FEMA, there is a category of 10,000
repetitive loss target properties which meet one of the two
definitions. These target properties either have four or more
total NFIP losses no matter what their value, or they have had
two or three losses, or the cumulative NFIP payments are equal
to or greater than the buildings' value. For example, one of
the most egregious examples among a great many examples of
abuse of the NFIP was a home in Houston, Texas which was valued
at $114,480, yet it received $806,591 in flood insurance
payments over the last 18 years. These property owners did not
do anything wrong. They just exploited the current situation
that is there in our flood insurance program.
I think it is important to note that some NFIP repetitive
loss policyholders are not intending to abuse the NFIP, but
instead are trapped in a cycle of loss after loss, and
mitigation is their only solution for their property. In fact,
in some repetitive loss properties, the value of a person's
home is now less than their mortgage. It is important to note
that FEMA is the only willing buyer of many repetitive loss
properties. Furthermore, under the NFIP a very large regional
cross-shifting of the cost of flood insurance is occurring. The
policyholders in non-repetitive loss areas of the country by
their higher than appropriate premiums are subsidizing the
policyholders in repetitive loss areas of the country. In
FEMA's defense, it does not have the congressionally mandated
tools to address the costs and the cost shifting caused by
these repetitive loss properties, and we attempt to give them
those tools in this legislation.
Second, the legislation will save federal taxpayer dollars.
According to FEMA, $1.2 billion of the over $12 billion in past
NFIP losses have been funded by general taxpayer funds. While
this money has finally been repaid by FEMA to the Department of
Treasury--and my colleague points out, with interest--I
certainly know of no private insurance company that can long
stay in business if it disregards good actuarial practices.
American NFIP policyholders and taxpayers are paying the costs
for those individuals who choose to live or who have perhaps no
option but to live in high flood risk areas and who fail to
take prudent mitigation actions. In some cases, they do not
have the resources for mitigation. This bill will help to
ensure the future solvency of the NFIP, even when the prospect
that we are going to have, according to climatologists, many
more hurricanes in the upcoming years.
Moreover, this bill will also save substantial taxpayer
money in the cost of federal disaster relief assistance, as
many properties will be bought out and removed from federal
disaster area-prone areas. This bill explicitly provides that
many types of federal disaster relief assistance will be not
given to the owners of repetitive loss properties, but only if
they refuse to accept the mitigation assistance. Third, my
support for the legislation is based on the fact that NFIP
gives subsidized flood insurance to disaster-prone areas. Many
interests, including taxpayers organizations, flood plain
managers, and environmental groups, have argued that the NFIP
encourages people to live in repeatedly flooding areas. The
question needs to be asked whether rebuilding in repetitive
loss, high-risk areas is a sensible and economically justified
policy. I believe in many cases the answer certainly would be
no. The Federal government should not encourage development in
even more repetitive loss properties.
Fourth and lastly, the demographic reality is that more and
more Americans each year have residential properties along our
coasts and rivers. For example, according to the U.S. Census
Bureau, within the next 10 years 75 percent of the United
States' population will live within 100 miles of the U.S.
coastline. Due to this demographic trend, the time is certainly
upon us when Congress should change the structure of the NFIP
and encourage proper mitigation action. To further illustrate
this point, I support this legislation because of a predicted
future change in weather patterns. Dr. William Gray, a highly
respected professor of atmospheric science at Colorado State
University, predicted that over the next few decades the East
Coast and the Gulf Coast will be subjected 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 of additional claims
under NFIP, and of course disaster relief. It is imperative, I
think, that the NFIP is changed before the eye of yet another
hurricane is upon us.
In summary, I think we need to stop treading through water
of repetitive loss after repetitive loss. Passing legislation
is the right thing to do at this time. In fact, Congress has
delayed far too long in making some obvious reforms to NFIP. We
look forward to working with you, Mr. Chairman and members of
the subcommittee and the committee, including especially Mr.
Baker, in attempting to craft legislation which will serve the
purposes of the NFIP, the taxpayers, and will not result in
undue hardship for people that happen to be living in
repetitive loss structures.
Thank you very much.
[The prepared statement of Hon. Doug Bereuter can be found
on page 41 in the appendix.]
Chairman Ney. I thank the gentleman.
The gentleman, Mr. Blumenauer from Oregon.
STATEMENT OF HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF OREGON
Mr. Blumenauer. Thank you, Mr. Chairman and members. We
deeply appreciate the opportunity to testify here today on this
critical issue.
I will not bore you with repeating what my colleagues have
mentioned. I just want to be clear that I deeply appreciate the
leadership that Mr. Bereuter has demonstrated. I feel like I
have learned a lot in having a chance to work with him on this
legislation. I am intrigued with a number of the points that
our colleague Mr. Baker has focused on in terms of some of the
unique circumstances that have occurred over time. We must be
broad-minded and flexible in dealing with them.
My focus is making sure that the Federal government is a
better partner in making our communities more livable, making
families safe, healthy and more economically secure, and
dealing meaningfully with the water cycle is an important way
to meet that responsibility. For too long, the Federal
government has tended to treat our precious water resources as
if they were mere engineering projects, machines we could
adjust, channel, narrow and accelerate without consequence. The
results, frankly, have been little short of disastrous. The
flood insurance program is an important element that has
developed to try and ameliorate this situation. It is a good
example of how the Federal government can work with local
communities to lessen the impacts that disasters have on
people's lives and property.
As we move toward the reauthorization process, it is time
for the Federal government to provide better incentives for all
involved--individuals, communities and states--to deal in a
comprehensive fashion. Part of the problem is that the way the
federal flood insurance program is currently constituted
actually encourages flood plain development by, reducing the
economic risks of living near the water. We have stimulated
some of the things that Congressman Baker talks about that
actually make the problem worse over time. The administration,
to its credit, has identified an important environmental and
economic priority to reform the flood insurance program, and
they did that from the first day they started work. The 2003
budget aimed to, ``reform the National Flood Insurance Program
to improve financial performance and transfer greater financial
responsibilities to individuals who build in flood-prone
areas.''
The OMB has argued that for too many years the program has
put expenses greater than revenue from insurance premiums that
prevent building the long-term reserves necessary for a
rational insurance program. As has been mentioned by my
colleague Mr. Bereuter, we are facing, no pun intended, the eye
of the storm in the future--demographic changes, change in
weather patterns because of global climate change, and changes
in development patterns. We are going to see greater and
greater catastrophic loss. Already, we have talked about the
$1.2 billion that was necessary to shift because there was a
shortfall. But there is a greater problem over time. We are
dealing with expenses for disaster relief that the Federal
government has to pay that are far in excess of that--over $3
billion extra in a typical year. There are other experts here
that will talk in terms of how it is actually greater.
We have seen that our specific target properties take too
much of the premium dollar. We subsidize people to live in
repetitively flooded areas. In order for them to do so, not
only does it drain more resources from the program, but
everybody else pays a higher insurance premium than would be
necessary. Now, Congressman Baker points out, and I agree with
him, that you should not take away somebody's car insurance
because they have an accident. But the current situation is
analogous to taking that proverbial little old lady who drives
her car once a week to church without incident, and making her
pay more because somebody who is repeatedly in auto accidents
actually pays far less--not taking insurance away, but they
actually pay less than they should.
Our Act would correct that. It would not deny insurance to
anybody, but it would force them to make a choice after
repetitive flood loss. They either move, mitigate or ``pay the
freight.'' I would suggest that this will save billions of
dollars in avoided disaster relief that we have seen every year
in the eight years that I have been in Congress. We have had to
shell out more money than was budgeted. But it also will
protect the people who live in harm's way. We do not do anybody
a favor keeping them in the path of repeated floods. Members of
this committee know examples in their own states--in Georgia,
in North Carolina, in Ohio, in Louisiana, in Texas--where we
have seen people die because they live in places where God has
repeatedly shown that he does not want them. We do not do them
any favors. I am very interested in the suggestions that are
being offered by Mr. Baker for ways to provide appeals, to deal
with areas of low income and historic districts. I think we can
work that problem through, but we do them no favor keeping them
in harm's way.
I have seen the example in my own community. In 1996, we
had one of the worst floods in the last half-century. I used to
be the Portland public works commissioner and was out there in
the morning where there was national television coverage as we
were trying to sandbag to prevent flooding in our downtown. We
had at least three people die. We had 23,000 people in our
state that had to be relocated. We had an estimated more than
$250 million of loss, not just from flood insurance, but from
disaster relief that the Congress voted to provide. After this
experience, our community secured a Project Impact designation
and leveraged federal money to create more disaster-resistant
communities. Our city applied for a community rating system
rating, and in 2001 got a class six rating, what was than the
seventh-best rating in the country. Since then, our flood plain
residents have seen 20 percent reduction in their insurance
premiums, and we have seen much less damage from subsequent
events.
I look forward to working with you to save taxpayer money,
to save lives, improve the environment and deal with people who
have legitimate needs. I appreciate your courtesy.
[The prepared statement of Hon. Earl Blumenauer can be
found on page 45 in the appendix.]
Chairman Ney. I thank all three members for testifying. I
would be curious, and will work with Congressman Baker, with
your office--a very fascinating chart of the year-end results,
I would like to see some of the analysis of how this happened
and how the flow went up and down. It would be interesting.
I do not have any questions. I just have a comment. We had
an interesting situation occur, and I think it just fits in
with how you craft a bill, how it is carried out--whatever bill
it is. But in Powhattan Point, Ohio we had floods down in an
area I used to represent in the old district. What ended up
happening was the people would move the trailers off when the
flood was coming, and then they would move the trailers back--
for years. Well, they moved the trailers off one time, and all
of a sudden FEMA said you cannot move them back now until you
build a 40-foot tall block wall and put the trailers on top of
it. I am not talking manufactured housing. I am talking about
25-year-old trailers.
So you have to step in with caution, and say wait a minute.
You could kind of look at it technically that those people were
twice or ten-times went into a flood area, but actually--this
is a unique thing, I know--but still FEMA came in an said, no
you cannot do that--build a 40-foot tall structure, put the
trailer on top of it. I think there are cases, when you deal
with any of this, you have to really think it through. I know
this is one isolated case. There are a lot of situations, I
think, that cause a lot of interesting debate on how you craft
this to work.
Mr. Baker. Mr. Chairman, I want to take recognition of some
of the points my colleagues have made, and say that the example
you have just given is the exact opposite of what I am
concerned about, where people go buy a trailer before the
flood; they wait until it is starting to flood; move the
trailer into the flood plain; make the claim and move back out
after the water is gone. I think in the example that Mr.
Blumenauer gave of the little old lady and the repetitive
speeder, I would in this case give FEMA the right to be the cop
and not wait on hearings, not wait on offers, not wait on
mitigation turn-downs, but empower FEMA to go get the bad guys
and throw them out the next morning.
We are not really that far apart. I think the only
difference is how we get at the problem people and who has the
authority to make those determinations. I just thank the
Chairman for his willingness to give us this opportunity.
Chairman Ney. Thank you. I want to thank the members for
their testimony.
Mr. Bereuter. Mr. Chairman, I would ask unanimous consent,
as a member of the subcommittee if I may, that Mr. Blumenauer
be allowed to come up front and listen to the other testimony
under such conditions as you would lay down.
Chairman Ney. Without objection.
Mr. Bereuter. Thank you.
Chairman Ney. As long as he walks up and does not ride a
bicycle up to the front, but that is okay.
[Laughter.]
I support his bicycling efforts, too, by the way.
I call panel two. I want to welcome Mr. Anthony Lowe. Mr.
Lowe has been appointed Director of the Mitigation Division of
the Emergency Preparedness and Response Directorate in the
newly created Department of Homeland Security. He continues to
serve as a Federal Insurance Administrator responsible for
overseeing the National Flood Insurance Program.
With that, we welcome you, Mr. Lowe.
STATEMENT OF ANTHONY LOWE, MITIGATION DIVISION DIRECTOR AND
FEDERAL FLOOD INSURANCE ADMINISTRATOR, EMERGENCY PREPAREDNESS
AND RESPONSE DIRECTORATE, DEPARTMENT OF HOMELAND SECURITY
Mr. Lowe. Thank you. Thank you very much, Chairman Ney,
Ranking Member Waters, in her absence, Mr. Watt, members of the
subcommittee. I am Anthony Lowe, Federal Insurance
Administrator and Director of the Mitigation Division of the
Emergency Preparedness and Response Directorate of the
Department of Homeland Security.
On behalf of the National Flood Insurance Program, the
NFIP, we appreciate the invitation to appear today before the
Subcommittee on Housing and Community Opportunity. This summer
marks the 35th year since Congress first authorized the
National Flood Insurance Program. After humble beginnings, the
NFIP now stands as the largest single-line property insurer in
the United States, with 4.4 million policies in force and $637
billion in insurance coverage. Nearly 20,000 participating
communities are managing their flood risk and reducing
America's flood damages by an estimated $1 billion each year.
Floods are still, however, the most frequent and costly hazard
in the nation. So our mission to save lives and property in
America continues. It is our goal to make the NFIP a
performance-driven, results-oriented program to improve the
delivery of hazard identification, mitigation, and flood
insurance services across the United States.
In line with the President's management agenda, we are
managing the NFIP, as well as all of our mitigation programs,
to achieve real results that reduce the risk and provide
greater protection. By the end of this fiscal year, our
performance objective is that 5,000 more people, 2,200 more
structures, and 150 more community infrastructures will be
better protected. Toward this end, we are moving to an e-
commerce model that will automate the NFIP's business processes
to improve delivery of services, while decreasing the total
cost to the program along the entire value chain.
In addition, critical to achieving program results is
accurate flood-risk information. Accurate flood-hazard data
saves money. More importantly, accurate flood-hazard data saves
lives. We appreciate Congress appropriating $150 million this
fiscal year to help us update and digitize the NFIP flood maps.
We are leveraging that investment with our State and local
partners to earn even greater value.
Our mitigation programs are also paying off. For example,
among our Flood Mitigation Assistance, FMA, projects completed
between 1997 and 2002, we found that for every dollar we
invested in mitigation, the taxpayer received savings of $2.62
in avoided flood damages. During this period, we leveraged $170
million for federal dollars, and $60 million in State and local
cost-shares to return an overall savings to the American
taxpayer of $440 million. We cannot put a price tag on what
this means in human terms, however--only that our mitigation
projects have made thousands of citizens safer from floods and
the misery they cause.
Mr. Chairman, besides the obvious success of the program, I
am also happy to report that the NFIP is once again debt-free.
In June, 2001, Tropical Storm Alison became the program's first
$1 billion storm. We had to borrow $660 million from the
Treasury to pay for losses that exceeded our reserves. We
repaid that debt with interest in October, 2002. Again, our
greatest achievement continues to be in the lives we save and
in the communities that are safer from flood losses. However,
the NFIP has its challenges. Everyone recognizes that
repetitive flood loss properties are a national problem. We are
paying far too much in claims for just a handful of properties,
and there is a painful human face to this problem as well. Far
too many people are caught in a desperate cycle of damage-
repair-damage with few options for escape. To a degree, the
problem of repetitive flood loss properties is an inherited
one. Congress structured the NFIP as an agreement between the
Federal government and local communities, communities that
would adopt and enforce mitigation standards for new
construction in their high-risk flood plains. In return, all
property owners could purchase flood insurance.
This program was designed so that the owners of existing
properties would pay discounted premium rates that do not
reflect the full actuarial risk, so as not to be penalized for
buying or building in a flood plain before full knowledge of
the flood risk was known. Today, we find that almost all
repetitive flood loss properties were built before the
availability of detailed flood-risk information. Of course, two
bills are being considered today by this committee to address
the problem of repetitive flood loss properties. I commend the
sponsors for their leadership in focusing attention on this
national problem and in proposing remedies for people caught in
a desperate cycle of repetitive flood losses. While the
administration has not taken a position on these bills, we
would like to share with the Subcommittee our thoughts on the
necessary tools to address the problem of repetitive flood
losses in America.
The NFIP's broad definition of two or more flood losses of
$1,000 or more helps us identify for analysis our entire
universe of insured repetitive flood loss properties--some
48,000 properties. From this broad category, we would like to
first target 10,000 of these insured repetitive loss properties
for mitigation, relocation, elevation, or acquisition. This
target group of properties has four or more flood losses or two
or three losses that cumulatively exceed the value of the
building. We have paid close to $1 billion in flood insurance
claims on these properties since 1980. We need a full set of
tools to address this problem. In this connection, resources
are clearly necessary. Flexibility is also key in determining
the composition of repetitive loss projects and in defining our
highest priority properties. On average, the program identifies
500 to 750 new repetitive flood loss properties each year.
There should also be some consequence for a property owner who
refuses a mitigation offer to remove himself from harm's way.
An actuarial premium or sufficient deductible is in keeping
with the intent of this program.
However, we are also cognizant that some property owners do
not accept mitigation assistance, especially buyout offers
because they cannot afford the cost share. In other cases,
there are few alternative living sites in that area. So again,
we need flexibility and often creativity to deal with this
unique circumstance. Let me give you one example of that
creativity. We are piloting a project in Louisiana that
involves the demolition and rebuilding or elevation of six
severely flood-damaged properties on the repetitive target
list. This will give the owner a new home at the cost of an
elevation project. A similar pilot is also occurring in
Florida. That cost-share in Louisiana is being borne by the
State and the parish. In addition, we also need the involvement
of State and local governments in the disposition of these
properties so that the Federal government does not become the
owner of these properties. With these tools, we can achieve the
results that are good for the community, the individual
property owner, and the NFIP.
Chairman Ney. I want to note the time has expired.
Mr. Lowe. Thank you.
For us to continue to be effective, however, the
authorization of the NFIP is important. We appreciate the
actions of this committee to reauthorize this program when we
had that lapse back in December. Needless to say, the program
and its stakeholders would also be happy with the multi-year
authorization that has been discussed by one of the bill
sponsors.
Again, thank you for the opportunity to testify on behalf
of the program and the Department of Homeland Security.
[The prepared statement of Anthony Lowe can be found on
page 60 in the appendix.]
Chairman Ney. Thank you, Mr. Lowe. On FEMA's description of
repetitive loss properties, there is a threshold of two or more
$1,000 events in a 10-year period.
Mr. Lowe. Correct.
Chairman Ney. How was that definition of repetitive loss
arrived at?
Mr. Lowe. What we were trying to do was to really define
the entire universe of repetitive loss properties so we could
further analyze those properties and try to determine what, if
anything, we should do. Obviously, we know that we have 48,000
of those properties from that definition. We were also able to
determine that $200 million annually was being spent on these
properties. Similarly, with the 10,000 properties that we
boiled down from the total to develop our repetitive loss
target strategy, we know there is an annual loss of $80
million. Again, that comes from our definition. Because we add
to those properties every year from 500 to 750, it means we
need a flexible definition that will allow us the opportunity
to adjust that target group.
There is also another aspect that I am just going to
mention very quickly, simply because I have read the
transcripts from last year's hearing--excuse me, the year
before last. There are many instances where there is a property
on the target list in the community, but there may be other
nearby properties that are repetitive loss, but maybe have not
had many losses. The community or the State decides, we need to
do something about the whole flood plain, and we do not want
the blight of a checkerboard effect of both mitigated and
unmitigated properties. Therefore, the State or community
proposes to actually address the whole area or the whole number
of properties in that community. In that instance, again, we
want to have the flexibility to be able to meet their need.
Chairman Ney. If you need the flexibility, but the desire
to have the $1,000 in the statute, is that correct?
Mr. Lowe. Frankly, I do not think we would at all be
opposed to simply publishing a rule as to what the target group
would be in any given year.
Chairman Ney. Instead of----
Mr. Lowe. Instead of any particular dollar amount or any
particular number. I say that because the flood plain is always
changing and that number will always be changing. We are going
to learn as we begin to mitigate more and more of these
properties as well.
Chairman Ney. The GAO report--I am not sure when it came
out--but it identified improving the financial condition of the
flood insurance program and it said that it would be a major
management challenge to do that, to improve the financial
condition. Do you think there are structural changes needed
within FEMA in response to the GAO report?
Mr. Lowe. Again, personally, I would disagree with that
report. I think the fact that this program has existed as long
as it has, and since 1986 has consistently repaid the treasury
what it borrowed with interest after certain disasters--I think
that indicates in fact a certain amount of actuarial soundness
of the program. By the same token, I think we can do a
tremendous amount to strengthen this program by dealing with
these repetitive loss properties. The older, so-called pr-FIRM
properties account for basically a premium shortfall in the
program of about $700 million annually. So when you look at
that figure, it means we almost never build up a reserve. Our
reserve right now is about $112 million. I wish it were the
$700 million that one of the congressmen mentioned, but right
now it is not. Again, addressing the repetitive loss problem
would very significantly help us to increase our reserves and
strengthen the soundness of the National Flood Insurance
Program.
Chairman Ney. Right now you are free of debt to the U.S.
Treasury.
Mr. Lowe. That is correct.
Chairman Ney. This is probably something you cannot
predict, but do you have people looking at future trends, and
would you anticipate having to come back for appropriations?
Mr. Lowe. Again, we have not had to come back for an
appropriation since 1986. I certainly cannot predict the trend,
but an average loss year for the NFIP is from about $750
million to about $850 million, which basically means the
program can handle that. When losses exceed that amount then
the program runs into problems and we have to go to the
Treasury to borrow.
Chairman Ney. Questions from the gentleman, Mr. Watt?
Mr. Watt. You obviously want the flood insurance program
reauthorized, but I am not clear on what terms you would have
it reauthorized. Is the Administration planning to take a
position on the bills that have been introduced? And if so,
when? And if not, is the Administration planning to come
forward with a proposal itself under which it would like this
reauthorization to take place?
Mr. Lowe. I appreciate that. The Administration, as I
understand it, does not normally take a position on a bill
until after it has been reported out of committee. In this
instance, what I have tried to do is to highlight for you,
really in looking at both of the bills, the tools that we
believe are necessary. Certainly, as I mentioned earlier, the
multi-year authorization is important, but so are the
flexibility in terms of definition and the understanding both
bills seem to exemplify as it pertains to the cost share. Those
of you who are concerned about people who may not be able to
afford to either take advantage of a mitigation offer or to
perhaps move elsewhere, this helps address that situation. So I
commend the sponsors of both pieces of legislation. In the
past, as has been mentioned, we have assisted, for example
Congressman Bereuter, in developing that bill.
Mr. Watt. But both of the bills, it seems to me, the
central focus of both of the bills is to eliminate repeat
users, either through mitigation or through getting them out of
the ability to be in the program. What is your attitude toward
that?
Mr. Lowe. Again, as I testified, I really believe that much
of what we are trying to do is really quite the same. I think
we want to get people out of harm's way. I think that is what
our mission is. I think that is the purpose of both bills. In
that connection, I think that both dealing with actuarial
premiums and/or even deductibles in a more realistic way will
help provide us the opportunity, whether someone mitigates or
not, to be able to address this problem to some extent.
Obviously, I have heard a couple of times that somehow this
program encourages people to live in the special flood hazard
areas, and I am not convinced that is the case. But
nevertheless, the purpose of this program, when it was
authorized, was that it would in fact offer insurance to
anyone. So the only question that we really have is upon what
terms.
Mr. Watt. Let me ask this question a little bit more
directly, then. Would the Adminstration be happy with a
reauthorization either single or multiple years that does not
change the program?
Mr. Lowe. Again, we are hopeful in the program end, and I
think the administration might have a position later more
directly on the tools that are necessary. The history that I
understand that this program has had with Congress, has been
one of trying to look at this program over many years, to
determine the policy tools that are necessary.
Mr. Watt. I do not think you are being responsive to my
question, Mr. Lowe.
Mr. Lowe. I know what you are trying to say, but I----
Mr. Watt. I am trying to find out if you want this program
changed or not. I guess that is the bottom line. Would you be
satisfied with a reauthorization that does not do anything
other than reauthorize the existing program, I guess is the
question.
Mr. Lowe. Let me put it to you the best way I can. If you
reauthorize this program and you do not change it, then the
only thing I can do is pretty much what I have tried to do
since I have been here. That is to take every single mitigation
program we have and try to leverage it against the repetitive
loss problem. What have we seen? We have seen that the number
of properties that I am able to, and this program is able to
mitigate in one year is exceeded by the number of repetitive
loss properties that are added. In other words, I can mitigate,
let's say, 270 properties in a year, but I am adding to that
list from 500 to 750--some are in the target group; some are in
the bottom group.
Mr. Watt. So you want more ability to mitigate.
Mr. Lowe. We need more.
Mr. Watt. You want more ability to mitigate.
Mr. Lowe. We need more flexibility.
Mr. Watt. Thank you, Mr. Chairman.
Chairman Ney. I thank the gentleman.
Mr. Bereuter?
Mr. Bereuter. Thank you, Mr. Chairman. The gentleman from
North Carolina asked a very fair question. I would have to
reiterate that H.R. 253 does not force anyone out of the NFIP.
It simply says if they refuse mitigation after that second
flood of certain dimension, then they have to pay actuarially
sound rates. You asked a very fair question at the end there,
and I will answer for Mr. Lowe, from my perspective. We have
toyed around with this legislation and this program long
enough, and either we have reforms or I think we have to force
a crisis by blocking reauthorization.
I do have a couple of questions for Mr. Lowe. I very much
appreciate your testimony and all the agency has done in the
past in your successor position as well. What is your
estimation of FEMA's due diligence or success in ensuring
compliance for mandatory flood insurance programs, with
homeowners who have federally insured mortgages? What more
could be done?
Mr. Lowe. I think we need to look for ways to do more. Some
of what we have been trying to do since I think there was an IG
report that raised this issue, is to sync-up our computer
system. We would then have a better idea of when people are not
complying, after a disaster when they have dropped their flood
insurance that they were required to get in order to get
assistance after a flood.
Mr. Bereuter. Do you think we have had proper kind of
effort exerted by financial institutions to cooperate in
ensuring that in fact there is flood insurance for properties
located within a flood plain for which mortgages are insured?
Mr. Lowe. I have no reason to believe that those
determinations have been incorrect. By the same token, we have
found there seem to be policies that are falling in between the
cracks. So we are spending a tremendous amount of our energy to
increase our flood insurance policy base, not by necessarily
new policies, which we are certainly interested in, but also by
retaining existing policies. We are finding that what we are
bringing in the front end, we are almost losing the same
amount, if you will, out of the back end. That means we are
dropping policies, policies that probably still require flood
insurance. So we are trying to address that now in a number of
ways, and I certainly can go into more detail if you would
like.
Mr. Bereuter. Mr. Lowe, as you know, the cost to taxpayers
comes primarily for disaster assistance. We have larger and
larger disaster assistance rolls because we have few
disincentives. In fact, we have some real incentives with
Federal and other public funds to locate in flood plain areas.
But I would ask you a question with respect to Federal lands.
There are more than some people might imagine that are within
flood plains, and which have residences located upon them. The
Association of State Flood Plain Managers recommends charging
these properties as well, actuarial rates. Do you agree that
this is a good idea? Are these properties causing a drain on
the National Flood Insurance Program?
Mr. Lowe. Yes. I think we definitely need to pay attention
to those. I suspect it would be a reasonably large, relatively,
percentage of our 10,000 or 48,000 list--either one. I think
you are going to find a number of Federal properties. We do
need to take another look. Again, whether we address it by full
actuarial rates or a combination of full actuarial rates and
deductibles, I think we have to kind of move and get off the
dime. I think in that connection, Congress' help is very
helpful, so that the American taxpayers and certainly property
owners feel like their concerns have been fully considered
before being hit, if you will, with a full actuarial rate or
some higher deductible.
Mr. Bereuter. Thank you very much.
Thank you, Mr. Chairman.
Chairman Ney. I thank the gentleman. Mr. Scott of Georgia?
Mr. Scott. Yes, Mr. Lowe, the general thrust of this is the
repeaters, the repetitive loss properties. Let me ask you about
the mitigation process. I am fascinated to know why these folks
repeatedly, consistently put their families and themselves in
harm's way. And could it be that in the mitigation process that
maybe the amount that is being offered for that purchase is
insufficient to cover the balance on the payoff of their
mortgage? Are we being fair with these people? I mean, it just
seems to me that there has got to be a little bit more to all
of this from the standpoint of that person and his family
consistently putting himself in harm's way. Could you respond
to that, if that is a problem?
Mr. Lowe. Sure. There are a large number of reasons why
people refuse mitigation offers. A lot of them have to do with
not being able to meet the cost share, and different states
have different rules on what that cost share is. Some states or
communities can do more; some can do less. The average split is
75 federal, 25 state or local. If that cost is passed on to a
property owner, they may or may not be able to come up with it,
which may have a tremendous amount to do with whether or not
they take advantage of a mitigation offer. There are certainly
other considerations as well. Aesthetics sometimes comes up,
believe it or not. The impacts in that community on the tax
base can have an impact. There are a lot of things that can
come up.
One of the questions that I have asked my staff is, what
has been the impact of fair market value and mortgages on
determinations of whether or not to accept a mitigation offer.
What I am finding is that by and large if someone is talking
about a first mortgage, it is not much of an issue. But if we
are talking about a second mortgage, and somebody has a lot of
money outstanding, so to speak, it can be more of an issue.
Again, I think both bills that we are talking about today go a
long ways to deal with that. Again, the example that I gave of
the pilot project in Louisiana, which is again also occurring
in Florida, both attempt to address this situation where there
is inadequate resource, if you will, that a homeowner can bring
to bear so that they can get out of a bad situation.
I would also note one other thing. We have just completed a
demographic study, and we have another one that is also in the
works. We looked at 2.7 million properties in as many ways as
we could against our repetitive loss group, both the large
group as well as the target group. What we found is that it
really is not a low-income problem. There is not a
disproportionate number of low-income properties overall in the
repetitive loss target group or in the broader group. However,
there are some aberrations. The reverse of that is somewhat
true, for example, in Louisiana. So that is a very real
problem. But again, that is where we have to have the
flexibility to be creative.
I think we have the will, and the program has the will. I
think we need the support of Congress and we need the
flexibility. Again, in terms of mortgages and fair market
values, if we have a situation where someone, because of
repetitive flood losses is rapidly losing the value of their
property, as was suggested, this may be the best offer that
they have. But it is going to be a fair offer, and I suspect
most people are going to frankly want to get out of a bad
situation. They are not going to want to stay there with floors
that never dry out and mold in the baseboards and all of those
sorts of things. It is just a horrible way to live.
Mr. Scott. So you believe that these two measures before us
will give you the tools that you need?
Mr. Lowe. I believe so--the flexibility in the definition,
the resources, and certainly the reauthorization. Those are
really key for us. Most of the other things we can work
through. But again, we have the will to do it and to leverage
all of our programs in a way that we have never had before. So
I really want to take advantage of that.
Chairman Ney. The time of the gentleman has expired.
Mr. Blumenauer? Would you like to ask a question? I thank
the gentleman.
I want to thank the witness for his time.
Mr. Lowe. Thank you.
Chairman Ney. The next panel, panel three. I would note
there are votes expected within probably the next 15 or 20
minutes, so we will try to adhere strictly to the time clock.
That way we can get in the witnesses testimony and the members
of course would be able to come back after the vote.
I want to welcome panel three, and we will begin with Chad
Berginnis. He is the Flood Plain Management Program Supervisor
in the Division of Water with the Ohio Department of Natural
Resources. He has coauthored a comprehensive revision of model
state flood plain regulations, drawing in part on his previous
experience as director of the Perry County Planning Commission.
We want to make sure you tell Mr. Speck we said hi. He was the
State Senator that I replaced years ago in Ohio, so he is
director of ODNR. Welcome.
Fletcher Willey is the Chairman of the Government Affairs
Committee, Flood Insurance Task Force of the Independent
Insurance Agents and Brokers of America, an association
representing more than half of all the independent insurance
agencies in the country. Mr. Willey owns the Willey Agency in
Nags Head, North Carolina, and has been in the insurance
industry for nearly 30 years.
Gerald Nielsen is from Metairie, Louisiana--Billy Tauzin
and Baker can pronounce that better than I can, but I will give
it a shot--Metairie, where he has been practicing law in the
area of flood insurance. The Nielsen Law Firm handles National
Flood Insurance Program related litigation on a national basis,
and Mr. Nielsen has been the attorney of record in the majority
of all case law in this area.
Rick Willetts is the President and CEO of the Cooperative
Bank in Wilmington, North Carolina, a state-chartered
commercial bank with assets of $500 million. Today, he is
representing America's Community Bankers, an association of
banks which originate more than 25 percent of all mortgages in
the United States, some of which are for properties in areas of
high flood risk.
I want to welcome the panel, and we will begin with Mr.
Berginnis.
STATEMENT OF CHAD BERGINNIS, VICE CHAIR, ASSOCIATION OF STATE
FLOOD PLAIN MANAGERS
Mr. Berginnis. Thank you, Mr. Chairman, and good afternoon.
In June, 1998 and one week into my job as Perry County
planner, a flood devastated a small Appalachian village in our
county of Corning, Ohio. Within nine months, we developed a
hazard mitigation grant program project that included 59
structures. The mitigation options included acquisition,
elevation, retrofitting things such as relocating utilities,
were the options chosen by participants. One of those
participants, Gertrude Kerrigan, who had flood insurance,
declined to participate later on because she said I will
probably be long gone before the next flood comes. Hazel Cales,
who also had flood insurance, was reluctant at first, but later
chose to elevate her home. Afterwards, she told the mayor of
Corning, I sleep through the night now and my furniture no
longer sits on concrete blocks inside of my living room.
These experiences illustrate benefits and social
complexities of implementing the National Flood Insurance
Program and flood mitigation. After nearly 35 years, the NFIP
has been successful at reducing flood losses nationally,
however some modifications are necessary to increase this
success.
My name is Chad Berginnis, and I represent the Association
of State Flood Plain Managers as vice chair. We are an
organization that represents over 5,000 people that are mostly
State and local officials that deal daily with the National
Flood Insurance Program, the flood plain management and
mitigation programs. I want to use the balance of my time to
discuss repetitive loss, NFIP reauthorization and some future
issues of the NFIP.
Repetitive losses are a drain on the flood insurance fund.
The association believes that an overall repetitive loss
strategy should include implementing mitigation that achieves
measurable results, implementing cost-effective mitigation that
is in the best interest of the NFIP, implementing mitigation
that is technically feasible, having a sensitivity to low-
income homeowners, allowing flexibility in choosing mitigation
options, and utility of different mitigation programs. Two ways
to implement this type of strategy would be to actually
implement a new initiative based on what we believe is a
blending of the best elements of H.R. 253 and H.R. 670, and
modifying the existing mitigation insurance mechanism, ICC, or
increased cost of compliance coverage.
Both H.R. 253 and H.R. 670 have a number of good
provisions, including a definition of repetitive loss
properties that at least defines the universe of properties to
be considered; an appeals mechanism to ensure due process for
property owners; funding that is ultimately paid by the flood
insurance fund; the charging of actuarial rates on structures
if mitigation is refused; and provisions to address structures
on property leased from federal entities. Additionally, upon
analysis of these bills, the association recommends that the
committee should direct FEMA to work with State and local
partners to develop procedures for assessing mitigation
options. There should be a recognition that for certain
properties, subsidized flood insurance is the best mitigation;
that FEMA works directly with property owners, but only after
the state and community are unwilling to participate; and that
the Federal government not become a landowner regardless of the
circumstances.
The increased cost of compliance mitigation insurance has
not realized its full potential and could be modified to
effectively tackle the repetitive loss issues. Currently, ICC
collects over $80 million, yet since 1997 under 1,100 claims
have been paid, averaging $11,400 per claim. The maximum claim
amount allowed will increase from $20,000 to $30,000 this May.
The association believes there are two reasons for this
underutilization: FEMA's tight interpretation of the statute,
and actually some language within the statute itself. We have
provided the committee with three pages of recommended changes.
Briefly, I would also like to comment on the
reauthorization of the NFIP. The association believes it is
reasonable to reauthorize the NFIP on a three-year basis, which
reserves the opportunity for congressional oversight. Then I
would like to conclude by discussing the future of the NFIP.
The Association of State Flood Plain Managers is both excited
and apprehensive. The map modernization program and FEMA's
effort to partner with State and local communities have been
tremendous. However, we are much more apprehensive about
proposed changes to existing mitigation programs. The flood
mitigation assistance programs was authorized by this committee
in 1994, and is funded by flood insurance policyholders. The
2004 administration budget blurs the line between FMA and a new
pre-disaster mitigation program. We would urge the committee to
express its intent that FMA be independent of this new program.
Our final area of concern is uncertainty associated with
FEMA's placement in the Department of Homeland Security. The
NFIP is only one of the department's many responsibilities and
we hope that programs like the NFIP continue to get the
resources and attention required to face this nation's primary
natural hazard.
Chairman Ney. I would want to note to the witness to sum up
because the time has expired. Thank you.
Mr. Berginnis. Thank you.
The village of Corning and its residents have a more
promising future due to the NFIP and FEMA's mitigation
programs. The programs work. Let's work together to make these
programs even better.
Thank you.
[The prepared statement of Chad Berginnis can be found on
page 49 in the appendix.]
Chairman Ney. I want to thank the gentleman. We will move
on to our next witness, Mr. Nielsen.
STATEMENT OF GERALD NIELSEN, NIELSEN LAW FIRM, METAIRIE, LA
Mr. Nielsen. Good afternoon. My name is Gerry Nielsen. I am
a lawyer from New Orleans. My job is to go before federal
judges, sometimes State Court judges, all over the United
States and I attempt to explain to those judges what Congress
intends for the National Flood Insurance Program and what FEMA
intends. Right now, there is a structural problem that is
preventing me from doing that job effectively, and I am
bringing that idea to the Congress' attention because the
Congress is the only place where I can go to have a
jurisdictional statute fixed.
In 1983, Congress amended the jurisdictional statute to
provide for exclusive jurisdiction in the federal courts. But
ever since then, the claimants have never stopped trying to
maneuver these claims back into the State Courts. So it is an
incessant, expensive battle. Lately, they have been meeting
with some success. The word ``claim'' in the statute, federal
judges are looking at that under removal jurisdiction, which is
a very narrow analysis, and saying, well, wait a minute--that
word ``claim''--you look at that statute; they are just talking
about the claims under the policies. I have got no basis for
being in federal court for policy issuance, policy
underwriting--all of the operations pursuant to which we put
the U.S. Treasury at risk. That is the part that agents and
companies do. We handle all of that.
So we are having cases falling into the State Court, and we
are having an increase of artful pleadings of people changing
the kinds of claims they are making to get around your commend
of 4072. The biggest problem this creates is agents. Agents are
getting sued at a much higher rate, just for forum
manipulation. Now, the position of the states is just to the
opposite. The state of California and the state of Florida, who
have great interest in the program, have both held through
their courts--no, we are going to look straight up at Congress'
intent; there is no way Congress intended that the jurisdiction
of how you put the U.S. Treasury at risk is in the States--50
different sets of State Courts--and federal court jurisdiction
is only over how the money goes out the door. So in those two
key program states, jurisdiction over any claim is in the
federal courts.
The insurance commissioners of the States of Texas,
Mississippi, North Carolina and South Carolina are all of
accord. They have signed sworn affidavits that are attached to
my written testimony stating that they have neither
jurisdiction nor regulatory control over anything involving the
NFIP. So I have got the federal judges sending me to the State
Courts, and I have got the State Courts telling me to be in
federal court. My job is to build a uniform body of case law.
It is a problem.
I have presented for the committee a proposed revision of
the statute which says in essence that any dispute arising out
of participation or attempted participation in the program must
be in the federal courts. If you pass this statute, what do you
get? Three things: One, you get a stoppage of all the legal
bills that are being spent in these arguments over
jurisdiction; two, you start to get the development of a
unified, uniform system and body of case law over all program
issues. Then when you get that, you start getting lessened
legal bills on all issues all over the map. What do citizens
get? A citizen has no interest in their legal dispute being
tied up in the courts for three years over where it is supposed
to be. My last 10 appearances before appellate courts, seven
out of ten of those were discussions of jurisdiction. We never
got to the merits. No citizen wants that.
Now, I quickly point out, I am not asking the Congress to
in any way restrict anyone's remedies. We are just talking
about jurisdiction here. A federal judge can ruin my client's
day as easily as a State Court judge. But where that line is
drawn between what federal law governs and what State law
governs, has to be drawn on a uniform basis across the country
so that the deal anyone gets is equal in California as opposed
to New Jersey--that it is the same all the way across the
country. So if we make clear that the judges that are deciding
what the law is for this unified national program are federal
judges, we get lower costs; we get uniformity of decision and
predictability in the law; and we get efficient litigation.
The states are the ones saying this is what we ought to
have, and it is the federal judges who are hamstrung by their
own limited jurisdiction under the Constitution, who are now
saying otherwise. And no one is saying that the current
situation is what Congress intended.
Thank you for hearing me.
[The prepared statement of Gerald Nielsen can be found on
page 69 in the appendix.]
Chairman Ney. I thank the gentleman for his testimony.
Mr. Willey?
STATEMENT OF FLETCHER J. WILLEY, GOVERNMENT AFFAIRS COMMITTEE,
FLOOD INSURANCE TASK FORCE CHAIR, INDEPENDENT INSURANCE AGENTS
AND BROKERS OF AMERICA
Mr. Willey. Thank you, Mr. Chairman.
I spoke earlier with Congressman Jones in the room, and he
wanted me to thank you for sponsoring the bill that renamed the
potato to freedom fries.
Chairman Ney. We appreciate that. My relatives in France
are not real happy, but we appreciate Walter's support.
[Laughter.]
Mr. Willey. Thank you, sir.
My name is Fletcher Willey, and I am speaking today on
behalf of the Independent Insurance Agents and Brokers of
America. The NFIP provides the only way that homes and
businesses can be protected from catastrophic floodwaters. The
private insurance industry will not and has not come to the
table to provide coverage for this kind of exposure. Although
the independent agents and brokers of America have not taken a
position on the two bills before us today, it is clear that
reforms are necessary to address certain operating losses and
to make the NFIP actuarially sound.
We hope that we can work with you on this reform, because
our members have the expertise and the experience serving our
flood policy holders covering billions of dollars of property.
This is just not a professional matter for me. I live on
Roanoke Island, in the flood plain along coastal North
Carolina, so I have a personal investment on flood protection.
Today, we will outline the five principles that the independent
agents support for improving the flood program. First, we need
to strengthen the building regulations on both new construction
and improvements of existing buildings. Experience with the
program shows us that only 4 percent of the repetitive loss
properties were built when the communities began enforcing
elevation requirements. Second, in creased compliance with
mandatory flood insurance purchase requirements show that only
25 percent of the flood plain have flood coverage. We propose
that all insurance companies need to inform property owners
that their homeowners policy does not cover flood damage.
Third, the NFIP should have additional resources for
mitigation. This way, the program can take action to prevent
future losses. There are two ways to do this: one, buyouts to
move the most frequently damaged risk; and grants to elevate
the other risky properties. Multiple loss properties account
for $200 million per year in claims. These risks are subsidized
by everyone else. Four, we need to stop the abuse of the
program with multiple claims. Some properties have collected
five to six times their full replacement costs from previous
claims. Five, we need to require mandatory disclosure of flood
claim history so that new buyers will not knowingly buy a known
flood risk property.
[The prepared statement of Fletcher J. Willey can be found
on page 103 in the appendix.]
Chairman Ney. The time of the gentleman has expired. The
reason I want to mention that to say the time, we have about 10
minutes until the vote ends, so if we give the last witness
five minutes, and then we will come back--whoever would like to
come back. Thank you.
Mr. Willetts?
STATEMENT OF FREDERICK WILLETTS III, PRESIDENT AND CEO,
COOPERATIVE BANK, WILMINGTON, NC ON BEHALF OF AMERICA'S
COMMUNITY BANKERS
Mr. Willetts. Good afternoon, Mr. Chairman, and members of
the subcommittee. Thank you for the opportunity to testify
today.
My name is Frederick Willetts, III. I am president and CEO
of Cooperative Bank in Wilmington, North Carolina. Cooperative
Bank is a State-chartered commercial bank with total assets of
$500 million. We operate 20 offices from Virginia Beach,
Virginia to Myrtle Beach, South Carolina. I am testifying today
as a member of America's Community Bankers. The NFIP is
important to every mortgage lender in the United Stats whose
lending territory, like mine, includes properties in areas of
high flood risk. We and our customers have come to rely on the
NFIP as a primary source of affordable flood insurance.
ACB supports attempts by the Federal government to begin
stemming the costs associated with repetitive loss properties
to taxpayers. These efforts must protect mortgage lenders by
giving them advance notice of any actions that would impair the
homeowner's ability to repay the mortgage or recoup the value
of the property. Also, Congress must clarify that it does not
intend to treat as repetitive loss properties those that have
experienced losses that are not expected to reoccur. We also
commend Congress for expediting NFIP authorization earlier this
year. However, ACB believes that any bill to reform the NFIP
must extend NFIP authorization for a period of at least four or
five years.
ACB supports increased flood insurance premiums under the
circumstances identified in H.R. 670 and H.R. 253, as a way of
making property owners take additional responsibility to
prevent multiple claims. However, legislation should take into
account circumstances that might unduly imperil the homeowner,
the lender or other affected parties. Very large increases in
premiums could impair the property owner's capacity to pay and
would likely affect the value and the marketability of their
property. Therefore, the mortgage lender should be notified
formally of the planned premium increase in advance, and at a
time when intervention might still be possible.
A lender's collateral could also be put at great risk by a
mitigation buyout offer. Lenders deserve some assurances that
any loan secured by a property targeted for demolition will be
repaid with the proceeds of the buyout. We recommend that the
bills provide for notice to the mortgage lender or servicer of
a buyout offer made under the mitigation program. ACB believes
it is essential for Congress to clarify that it does not intend
to deny flood insurance coverage to properties in broad
geographic areas that might experience large numbers of losses
as an aberration. For instance, my home region of coastal North
Carolina has recently experienced an unusually large number of
hurricanes, one of which resulted in a 500-year flood. It would
not be practical for FEMA to respond to such circumstances by
seeking extensive mitigation or relocation. Entire communities
would be affected. Legislation should clarify the expected
scope of circumstances under which FEMA might deny, cancel or
otherwise change the availability of flood insurance under the
bills to avoid such unintended effects.
Again, thank you for the opportunity to testify today. I
would be pleased to answer any questions you might have.
[The prepared statement of Frederick Willetts III can be
found on page 98 in the appendix.]
Chairman Ney. I thank the gentleman for his testimony. We
will break to vote, and then if you could bear with us, I
appreciate it, we will return. Thank you.
[Recess.]
Chairman Ney. The committee will come to order. I want to
again apologize to the witnesses. We had to go cast a vote. I
think we had finished the testimony of the last witness. I
would open it up to questions.
Mr. Bereuter?
Mr. Bereuter. Thank you very much, Mr. Chairman. I
appreciate you continuing the question period so we could come
back up and vote for that purpose.
Mr. Willey, as an insurance agent, how can we increase
compliance with the mandatory purchase requirements for flood
insurance? Why is there not a better record at this point?
Mr. Willey. Thank you for the question. We would like to
see a requirement that insurance companies notify people that
they must buy flood insurance from the National Flood Insurance
Program, because homeowners policies do not cover flood. We
think it is a notification problem. I know that the National
Flood Insurance Program is trying to find ways to notify
people, but we think the homeowners' carriers should tell
people that they need to get a flood policy to be covered for
flood.
Mr. Bereuter. I would like to ask you, Mr. Willetts, maybe
you are the best person to start with, at least on this
question. How many mortgages, what percentage of mortgages do
you think in this country are federally insured or federally
backed?
Mr. Willetts. Congressman, I would not have a way of
estimating that. I would assume that the majority through
brokerage arrangements as well as direct loans through banks
and thrifts.
Mr. Bereuter. Do we have a requirement now which applies to
the issuance of mortgages that are not federally backed, and
the mandate for flood insurance to cover properties that are in
the flood plains?
Mr. Willetts. I am not aware that that requirement extends
beyond federally insured financial institutions, congressman.
Mr. Bereuter. I think you are right. I could ask any of you
to respond to the concern that people may purchase a property
for which there has already been two floods that exceed in
value $2,000, for example, or $8,000, as the case in our bill.
Perhaps in that case the decision has not been made yet about
whether or not they are going to accept mitigation when they
sell. That is a pending issue. How do we serve adequate notice
to the property owner who may be considering purchase of that
property?
Mr. Willetts. I am not the attorney in the group, but I
will attempt to answer that. I think some method of recording,
some device at the public record would be perhaps the best way
to accomplish that.
Mr. Nielsen. You could do it through the public record,
having something recorded against the property, or on FEMA's
Web site, which is quite extensive. You could have publication.
One of the problems FEMA seems to have with this is that they
are torn between their own objectives and the Privacy Act.
Right now, the companies have to enforce various provisions of
the policy and need information as to what has happened on
prior claims, and FEMA is really torn as to whether or not they
are supposed to be giving us that. So in terms of prior claims
for U.S. Treasury funds, there should be no claim of privacy.
That would seem to me strange, that if you have made a claim
for public funds that is a public record, and there should be a
ready source or a list of that information that anybody can get
at any time.
Mr. Bereuter. Mr. Nielsen, I noted your concern about the
jurisdictional question, about the money being spent there, and
I take that quite seriously. I think, because I recall that you
have specific language that you are suggesting in leaving for
us to consider. Is that correct?
Mr. Nielsen. Yes. It is on page 10 of the written
testimony.
Mr. Bereuter. Thank you.
Mr. Willetts, on page two of your testimony you state that
any fix should take into account circumstances that might
unduly imperil the homeowner of the land or other affected
parties. You mention that you support an appeals process
similar to that included in the Baker bill that would allow an
owner of property to appeal a decision on mitigation. Are there
any changes, requirements or stipulations that you would
include as a part of the appeal process?
Mr. Willetts. Any changes to the requirements?
Mr. Bereuter. Any changes or stipulation or requirements to
that kind of appeals process, to the language in his bill? Do
you have any specific suggestions as to how that might be
changed or improved?
Mr. Willetts. There has been discussion about architectural
integrity, for one thing, in altering a building. Obviously,
the question we have brought up several times today about
sufficient funds to pay off the loan. I would think that the
word ``practical'' is probably too broad a term, but there
could be other cases I cannot think of immediately.
Mr. Bereuter. Mr. Chairman, I know I have the red light,
but may I have Mr. Berginnis respond to that question, too?
Chairman Ney. Without objection.
Mr. Bereuter. Thank you.
Mr. Berginnis. I think as far as the appeals process,
Congressman Baker raises several points in his proposal
regarding things like historic structures. Those could be
things handled perhaps in an appellate-type process, as opposed
to an exception kind of criteria where you would exempt
actually a whole class of structures.
Mr. Bereuter. Thank you.
Thank you, Mr. Chairman.
Chairman Ney. I would point out to the gentleman, I have
really two brief questions. If you would like to continue, I
just have two brief questions. It would be up to you.
The first question I would have is for Mr. Berginnis. The
Association of Flood Plain Managers supports the introduction
of actuarial rates after mitigation is refused, following a
second loss. What is your view on someone who has paid several
thousand dollars in premiums over the course of many years,
only to lose their coverage after a couple of thousand dollar
claims?
Mr. Berginnis. This is a situation, and again it is a point
made in the oral and written testimony, where there needs to be
a realization that there could be circumstances where the best
mitigation is the continuance of the subsidized flood
insurance. I think the example, Mr. Chairman, that you gave is
very appropriate to that, where a person has paid a lot of
premium over years. They may have four, five, six claims, each
of them $1,000, yet there may not be a cost-effective way to
actually do mitigation. And so potentially in that case,
continuing subsidized flood insurance would be appropriate.
Chairman Ney. Thank you.
The other question would be for Mr. Willetts. I noted in
your testimony it says that to avoid such problems in the
future, ACB advocates a multi-year extension of NFIP, authority
for a period of at least four to five years. I think Mr.
Bereuter's bill has seven, or up to 2007, if I am correct. I
just wondered, is the rationale in any way tied to actuarial
tables or what is the interest that it would serve to help you
better be able to be involved?
Mr. Willetts. I think to avoid the potential train wreck
that we faced at the beginning of this year.
Chairman Ney. Mr. Bereuter, do you have additional
questions?
Mr. Bereuter. Thank you, Mr. Chairman.
I would like to go back to Mr. Berginnis, if I could, to
the discussion you had there with the chairman in response to
his question, which is certainly one of the important questions
we need to consider. What about that person that really does
not want to proceed or is unable to proceed, in their judgment,
to accept the mitigation offer? Now, that would be a problem
only, wouldn't it, when we do not have 100 percent of the
mitigation costs paid for by the Federal government--75
percent, for example, and 25 percent by State or local? Then
would you think that regardless of whether or not the person
wants the mitigation to go forward, it ought to go forward,
since it is not a matter of them not being able to afford it,
but simply they choose not to do that and continue to live at a
high-risk location without mitigation?
Mr. Berginnis. Well, I think--and again there are so many
factors involved as far as offers of mitigation--but really the
concept that the association supports is that in these
repetitive loss situations, that a property might go through an
evaluation of cost-effectiveness, making sense to the flood
insurance fund, and go through this process to find out if in
fact the property itself can be mitigated. I would think that
there would probably be limited circumstances where somebody
would continue with subsidized flood insurance, but certainly
that could be affected by things like cost-sharing, when you
are dealing with, for instance, a low-income homeowner. If the
mitigation option were to be 100 percent federal, for instance,
for those folks, then a reasonable expectation would be that
they would be able to accept the mitigation offer.
Certainly, mitigation is not just--we need to have the
flexibility to consider all mitigation. It is not just buyouts.
It is elevations. It may be doing minor retrofitting. Somebody
could have a furnace that has been repetitively damaged in a
flood five or six times, and the appropriate mitigation there
may be to elevate the furnace unit or relocate it to a higher
level, and you have eliminated the insurance, or at least
reduced the insurance risk.
Mr. Bereuter. And wouldn't it be logical to assume that
proper management, common sense management on the part of the
federal agency would suggest that where mitigation is
extraordinarily expensive or not really very realistic, they
simply will not make mitigation offers, and therefore this
relieves the person from being struck out by two strikes and
you are out, because there are two conditions. One is, there
have been two losses at least, which total $1,000 each loss or
more, and that an offer be made and refused. In this case, the
offer probably we assume would not be made. Isn't that what you
would hope out of a common sense kind of application of the
federal agency's requirements? I hope.
Mr. Berginnis. Yes. And I think that would be reasonable--
if it is not cost-effective, an offer would not be made. Then,
again, it would just continue to go----
Mr. Bereuter. It continues to be there. I have one final
question, Mr. Chairman. Thank you for your patience.
Mr. Willey, you suggest that an accessible electronic data
base of flood losses be created to facilitate disclosure of
flood information. Has your organization been in contact with
FEMA regarding the creation of such a data base by chance? Are
there currently any procedures used to elicit flood information
from property sellers, of which you are aware? The latter could
be open to any of you, if you know.
Mr. Willey. No, sir. I think the problem is that I have
understand that the disclosure runs contrary to the privacy
law. I might want to refer to my friend.
Mr. Nielsen. That would be something that Congress could
look at, is that all of this is being done with public funds.
To say that there is a privacy interest, as I said earlier,
seems inconsistent. So if you could relieve FEMA of that
problem for the specific purpose of allowing lists on these
things to be published, to where anybody could go look at them,
then that would alleviate notice problems. Also one of the big
problems we have in flood litigation is a failure to inform
claim, where you did not tell me. Well, to the Supreme Court,
that is strange because the flood program is a law, the policy
is a law. But if we are holding back information that might
give rise to that type of claim being validated.
Mr. Bereuter. I appreciate that suggestion. We are going to
look at that. It would therefore be due diligence for any
financial institution or any lawyer helping a person to
purchase to check that list if it is available and publicly so.
Mr. Nielsen. Correct.
Mr. Bereuter. Mr. Chairman, thank you very much.
Chairman Ney. I thank you, Mr. Bereuter.
Mr. Bereuter. Thanks to all the witnesses.
Chairman Ney. I want to thank the witnesses for coming to
the Capitol today and for your very helpful testimony. We have
a duty to do something with the issue, and as we go through the
next several weeks, we want to keep your views in mind. Also I
want to note Mr. Bereuter and Mr. Blumenauer have a very well
thoughtful crafted, what I would call a base situation to begin
with on that bill.
So I appreciate your involvement today and Mr. Blumenauer,
who was here, and the rest of the members.
The chair notes that some members may have additional
questions for this panel which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for members to submit written questions to these
witnesses and place their responses in the record.
With that, the hearing is adjourned.
[Whereupon, at 4:25 p.m., the subcommittee was adjourned.]
A P P E N D I X
April 1, 2003
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