[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
                        MANAGEMENT AND OVERSIGHT
                         OF THE NATIONAL FLOOD
                           INSURANCE PROGRAM

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 20, 2005

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-60




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  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 Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois         MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North          HAROLD E. FORD, Jr., Tennessee
    Carolina                         RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
VITO FOSSELLA, New York              STEVE ISRAEL, New York
GARY G. MILLER, California           CAROLYN McCARTHY, New York
PATRICK J. TIBERI, Ohio              JOE BACA, California
MARK R. KENNEDY, Minnesota           JIM MATHESON, Utah
TOM FEENEY, Florida                  STEPHEN F. LYNCH, Massachusetts
JEB HENSARLING, Texas                BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
GINNY BROWN-WAITE, Florida           ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina   AL GREEN, Texas
KATHERINE HARRIS, Florida            EMANUEL CLEAVER, Missouri
RICK RENZI, Arizona                  MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania            DEBBIE WASSERMAN SCHULTZ, Florida
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin,
RANDY NEUGEBAUER, Texas               
TOM PRICE, Georgia                   BERNARD SANDERS, Vermont
MICHAEL G. FITZPATRICK, 
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina

                 Robert U. Foster, III, Staff Director
           Subcommittee on Housing and Community Opportunity

                     ROBERT W. NEY, Ohio, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California
    Chairman                         NYDIA M. VELAZQUEZ, New York
RICHARD H. BAKER, Louisiana          JULIA CARSON, Indiana
PETER T. KING, New York              BARBARA LEE, California
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         BERNARD SANDERS, Vermont
CHRISTOPHER SHAYS, Connecticut       STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio              BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
KATHERINE HARRIS, Florida            ARTUR DAVIS, Alabama
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
STEVAN, PEARCE, New Mexico           AL GREEN, Texas
RANDY NEUGEBAUER, Texas              BARNEY FRANK, Massachusetts
MICHAEL G. FITZPATRICK, 
    Pennsylvania
GEOFF DAVIS, Kentucky
MICHAEL G. OXLEY, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    October 20, 2005.............................................     1
Appendix:
    October 20, 2005.............................................    47

                               WITNESSES
                       Thursday, October 20, 2005

Baker, Hon. Richard, a Representative in Congress from the State 
  of Louisiana...................................................     7
Jenkins, William O., Jr., Director of Homeland Security and 
  Justice, U.S. Government Accounting Office.....................    30
Maurstad, David I., Acting Director and Federal Insurance 
  Administrator, Mitigation Division, Federal Emergency 
  Management Agency, Emergency Preparedness and Response 
  Directorate, Department of Homeland Security...................    27
Taylor, Hon. Gene, a Representative in Congress from the State of 
  Mississippi....................................................    10

                                APPENDIX

Prepared statements:
    Kelly, Hon. Sue W............................................    48
    Davis, Hon. Jo Ann...........................................    52
    Fitzpatrick, Hon. Michael G..................................    54
    Jenkins, William O., Jr. (with attachments)..................    55
    Kanstoroom, Steven J.........................................   145
    Maurstad, David I............................................   132
    Taylor, Hon. Gene............................................   140

              Additional Material Submitted for the Record

Independent Insurance Agents & Brokers of America, Inc., prepared 
  statement......................................................   149
National Association of Professional Insurance Agents, prepared 
  statement......................................................   152
National Flood Insurance Program: Estimate of Ultimate Paid 
  Losses from Hurricane Rita.....................................   166


                        MANAGEMENT AND OVERSIGHT
                         OF THE NATIONAL FLOOD
                           INSURANCE PROGRAM

                              ----------                              


                       Thursday, October 20, 2005

             U.S. House of Representatives,
 Subcommittee on Housing and Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:06 a.m., in 
Room 2188, Rayburn House Office Building, Hon. Robert Ney 
[chairman of the subcommittee] presiding.
    Present: Representatives Ney, Harris, Pearce, Neugebauer, 
Fitzpatrick, Waters, Scott, and Cleaver.
    Ex officio present: Representatives Oxley and Frank.
    Also present: Davis of Virginia, Kelly, Melancon, and 
Blumenauer.
    Chairman Ney. Today the Subcommittee on Housing and 
Community Opportunity meets to continue its review and 
oversight of the National Flood Insurance Program. 
Specifically, today's hearing will focus on GAO's report on 
issues related to the NFIP, its management and oversight by the 
Federal Emergency Management Agency, FEMA, and FEMA's 
implementation or reforms to the NFIP that were mandated by the 
Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004.
    Last year this committee spent considerable time and effort 
on legislation to reauthorize and reform the National Flood 
Insurance Program. The legislation includes provisions to 
strengthen the operational and financial aspect of the NFIP by 
providing States and local communities with an additional $40 
million a year for flood mitigation efforts to try to help with 
repeatedly flood-prone properties. It allows for increases in 
flood insurance premiums on properties that refuse Government 
mitigation offers.
    While the Flood Insurance Reform Act addresses a number of 
procedural problems with the NFIP, additional concerns were 
raised during the deliberations on the legislation.
    Incidental evidence showed that policyholders often did not 
have a clear understanding of their policies. Insurance claims 
often did not understand what they were selling or how to 
process claims correctly. Many policyholders did not know of or 
understand the appeals process, and many questioned the 
adequacy of payments in the adjustment system.
    The Flood Insurance Reform Act mandated the GAO conduct a 
study on these issues. The study released this week concluded 
that improvements are needed to enhance oversight and 
management of the NFIP.
    As evidenced by Hurricanes Katrina and Rita, floods have 
been and continue to be one of the most destructive and costly 
natural hazards to our Nation. During this past year there have 
been three major floods in my district in the State of Ohio. 
All three of these incidents qualified for Federal relief 
granted by President's executive order, and recent flooding in 
January of this year resulted in historic levels in several 
local dams, and in Tuskares county three communities in the 
district were forced to evacuate, which displaced 7,000 people 
in a county out of 70,000.
    I was obviously able to witness firsthand the devastation 
when I toured the damaged properties in Tuskares and Guernsey 
counties. Of course, we have colleagues who have witnessed 
unbelievable devastation in their areas of the United States.
    Today marks the fourth hearing the Housing subcommittee has 
held since enacting the Flood Insurance Reform Act. Last week I 
conducted two productive emergency management summits in 
Belmont and Athens counties back home. Discussions focused on 
the devastation of the Gulf Coast and how these recent 
disasters have amplified many of the shortcomings in the 
National Flood Insurance Program. It is critical we take the 
next step forward and review the GAO report and find out why 
there are so many stumbling blocks to the success of the NFIP.
    The National Flood Insurance Program is a valuable tool in 
addressing the losses incurred throughout this country due to 
floods. It ensures that businesses and families have access to 
affordable flood insurance that would not be available on the 
open market.
    Last year's Flood Insurance Reform Act achieved significant 
reforms to this important Federal program. I look forward to 
hearing from our witnesses today as we discuss how best to 
implement the legislation, as well as determine whether new 
reforms and initiatives are in order to complement the work we 
accomplished last year.
    I want to thank our witnesses this morning for taking the 
time to share their testimony, their important testimony, with 
this subcommittee, especially Chairman Richard Baker, 
Congressman Gene Taylor. Also, I want to thank David Maurstad 
of FEMA, who should be designated as an honorary member of the 
Housing subcommittee for his numerous appearances here before 
this subcommittee. I also believe Congressman Melancon may be--
oh, I'm sorry--is here to our right.
    I also want to thank our ranking member, Maxine Waters, all 
her work on this, and also the ranking member of the committee, 
Barney Frank, and his staff. Mr. Reilly came to Ohio, has had 
different hearings on disaster issues, along with our staff, 
Tallman Johnson, Clinton Jones, and Cindy Chetti, who have 
worked on this issue.
    And I will recognize, without objection, the gentleman from 
Oregon, Mr. Blumenauer, and the gentleman from Louisiana, Mr. 
Melancon, will be permitted to participate in today's hearing. 
And, I'm sorry, very important, the gentlewoman Jo Ann Davis 
from Virginia. The gentleman from Massachusetts?
    Mr. Frank. Thank you, Mr. Chairman. I appreciate the 
diligence you have been showing in this effort to deal with the 
terrible events that befell the residents of the Gulf Coast.
    As people who follow this closely know, we actually 
anticipated the need for changes in the Flood Insurance 
Program. It was interesting afterwards to have people say, 
``Well, okay with flood insurance, but you've got to do these 
things,'' many of which had been done as a result of the 
initiative of this committee.
    The gentleman from Louisiana, with his knowledge of it, had 
a major role in shaping this bill. There was a genuinely 
bipartisan effort in the last Congress. Our former colleague, 
Mr. Bereuter of Nebraska, and our current colleague, Mr. 
Blumenauer of Oregon, worked together to do this. And we will 
be talking, obviously, both about what can be done here, but 
also--and I noted our Senate colleagues raised some questions.
    Again, it was bipartisan. It was both the Senator from 
Kentucky, Mr. Bunning, and the Senator from Maryland, Mr. 
Sarbanes, who pressed for better implementation of some of the 
things we put into the bill last year, including mitigation.
    We are sometimes accused of just sending out money and the 
legislative work we did last year clearly refutes that. And in 
a bipartisan way, we and the initiative to come out of this 
committee--and the chairman of the full committee was one of 
those most responsible for it happening--we restructured that 
program and put into it many of the safeguards, both 
environmental and fiscal, that people wanted.
    I was very pleased when that bill was being pushed that it 
had strong support from the taxpayer groups concerned about a 
better use of Government money and the environmental groups. So 
there are some aspects of that bill that are not being 
implemented. Obviously, we understand the focus right now on 
the aftermath of Katrina, but that's only for the last month 
and a half. And there is I think an obligation on the part of 
those responsible to explain to us why more hasn't been done to 
implement last year's bill and to give us more assurance.
    Beyond that, I want to express my strong support for the 
efforts that our colleague from Mississippi, Mr. Taylor, has 
taken. And New Orleans, obviously, is a picturesque and famous 
part of American culture celebrated in movies, and books, and 
song, and has been the focus of a lot of attention, 
understandably, but it is not the only part of the region that 
was hit.
    Mr. Taylor represents a part of the region in the Gulf of 
Mississippi that was hit very hard. He has been absolutely 
tireless from the very first moments in calling attention to 
that, and working responsibly to try and get some aid for those 
people he represents, and we are talking particularly about 
people who don't have vast resources.
    And again, as I said, people sort of saw the TV pictures of 
the victims of this disaster in New Orleans. We have other 
victims who deserve every bit as much attention, and Mr. Taylor 
has been reminding all of us of that, and I was particularly 
pleased to work with him on his legislation that would provide 
some help for people who did not have flood insurance.
    And I think to let people's--to let the situation rest 
where people of moderate income, low income obviously, but even 
people of moderate income whose houses have been wiped out, to 
get no help whatsoever when their houses are wiped out through 
events over which they had no control is a great mistake.
    And I believe that we have the capacity to respond. I think 
we can respond in ways that do not encourage future 
irresponsible behavior. There were people who were badly 
advised. There were flaws in the Federal program. I do not 
think the moderate income homeowners of the Gulf Coast of 
Mississippi ought to bear that burden, and we also want to 
understand that by helping them, we also avert serious damage 
to our financial system.
    One of the things that I most fear, and I know many other 
members of the committee share this, is a continued move in 
this country towards larger and larger banks and a threat to 
the smaller community banks. We need a mix. We don't want to 
see the smaller banks and the credit unions forced out of 
business.
    If, in fact, the most responsible banker in the world, the 
most responsible credit union official in the world whose locus 
was in Mr. Taylor's district or in parts of Louisiana had made 
home loans that were perfectly reasonable, he or she would now 
find the situation where the bank's future is threatened, not 
because of any error anybody made, but because of an entirely 
unanticipated event.
    And if we allow the individuals to go uncompensated, not 
only do we have serious problems for them as individuals to 
which I think we should respond, but we get systemic problems. 
We will see bank failures. We will see credit unions go under 
that cost the Government some money on the insurance front. But 
even more negatively, it undermines our ability to keep this 
network of community banks.
    So, the legislation Mr. Taylor has put forward I think is a 
very responsible way to provide desperately needed help for 
individuals who have worked hard all their lives, did nothing 
wrong, and found themselves in this distress, but also, as part 
of our responsibility to the Banking Committee, averts a 
further push towards the kind of excessive consolidation of the 
industry, which is not a good thing.
    Thank you, Mr. Chairman.
    Chairman Ney. Thank you. Without objection, I have several 
statements for the record: a statement of the National 
Association of Professional Insurance Agents, a statement of 
the Independent Insurance Agents, a statement of Representative 
Jo Ann Davis, a statement of Steve J. Kanstoroom. Without 
objection, it will be part of the record.
    [The following information can be found on pages 52, 145, 
149, 152 in the appendix.]
    Any opening--Mr. Pearce, opening statement? Mr. Scott, 
opening statement?
    Mr. Scott. Very brief, Mr. Chairman. First, let me thank 
you for the excellent leadership you are providing on this 
issue, and I certainly look forward to hearing from Mr. Baker 
and Mr. Taylor, of Louisiana and Mississippi areas that were 
hit so impactfully. We have no better twosome in this Congress 
that can deal with it and help us understand the magnitude of 
the tragedy because they, indeed, were in the eye of the storm, 
as were their constituents.
    It seems to me we have two issues to consider when 
reviewing flood disaster responses. The first is to determine 
if flood maps are updated and accurate and if enough homes are 
covered by the insurance.
    The second issue is whether or not Federal agencies are 
prepared to work with State and local authorities to plan for 
and execute a disaster plan. FEMA has estimated that national 
flood insurance claims for Hurricanes Katrina and Rita could 
exceed $22 billion. This amount would surpass the total payout 
since the program began 37 years ago.
    Now we have Wilma that is now headed to Florida according 
to the latest estimates of direction. It could change at any 
time, however, but Florida seems to be directly in the path, 
and it is estimated to be one of the most powerful storms ever 
on record.
    It is imperative that flood mapping be quickly updated in 
all coastal communities while insuring that those homes 
adjacent to flood plains have adequate protection.
    Most of the ninth ward residents in New Orleans were not 
required to purchase flood insurance since Federal flood maps 
assume that these neighborhoods would be protected by the levee 
system. There are concerns that many of these residents will 
now lose their homes.
    I look forward to the hearing. And, hopefully, we can 
address some very critical questions. For example, should FEMA 
be independent from the Department of Homeland Security? How 
would you grade FEMA's ability to work with State and local 
officials in flood map development? We need to elaborate on the 
current efforts of the Department of Homeland Security, to work 
with local communities to plan for disasters and terrorist 
preparedness.
    We need to determine are we finding that other communities 
are not following through on their preparedness. These are very 
critical questions for a very critical time in our Nation, and 
I look forward to this hearing and hearing from this 
distinguished committee. Thank you, Mr. Chairman.
    Chairman Ney. Well, I thank the gentleman. The gentlelady, 
our ranking member from California?
    Ms. Waters. Thank you very much, Mr. Chairman. I would like 
to submit my statement for the record and just briefly say that 
it is not enough to say how frustrated I am with the lack of 
support and protection for the victims of these hurricanes.
    Mr. Chairman, you have held hearings where we have 
attempted to get at vital information about the National Flood 
Insurance Program. And I think that on more than one occasion 
we have been misled.
    And it appears that just as FEMA was in chaos following the 
hurricane, not equipped or able or competent to respond in a 
timely manner, now we are learning that the National Flood 
Insurance Program appears to be not what some of us thought it 
was. And many of the allegations that have been made about 
adjusters, et cetera, appear to be true.
    And so, I am going to let us get on with this hearing today 
and have some questions to answer later. And I will submit my 
statement for the record.
    Chairman Ney. I want to thank the gentlelady also on her 
work on this issue.
    Mr. Cleaver has no opening statements. Mrs. Davis? The 
gentlelady is not--Mr. Neugebauer?
    Mr. Neugebauer. Well, just briefly, Mr. Chairman, I think 
this is an important hearing. And one of the things I think 
that we need to continue to think about is ways that we make 
this flood insurance program an insurance program that works.
    But I think what we do also need to understand is what the 
limitations to a flood insurance program are. And one of the 
things that I believe that we are going to have to do is go to 
a risk-based system where we are in areas where there is a 
higher risk for the kind of events that we have witnessed in 
the past few months, that there may have to be a higher premium 
for that.
    Because certainly what we don't want--and we have to have a 
system where there is participation and not the anticipation 
that every time one of these events happens, that the Federal 
Government is going to have to step up and be responsible for 
the losses that occur. And I think that the perfect system is 
one that, hopefully, maybe incorporates more in providing a 
partnership with the Federal Government and the private sector 
to determine what these risks are, and how to adequately build 
a premium base that will support those programs.
    But obviously, there is much more risk in a river rising in 
certain areas than there is a hurricane wall that none of us 
can foresee the surge that might happen during that time. So I 
look forward to having some important dialogue about this 
program.
    Chairman Ney. The gentleman from Louisiana, do you have an 
opening statement?
    Mr. Melancon. No. I think anything that I would express 
would be expressed by Mr. Taylor or Mr. Baker. Thank you, Mr. 
Chairman.
    Chairman Ney. Thank you. The gentleman from Pennsylvania, 
do you have an opening statement? Thank you.
    With that, we will move on. I just wanted to--did want to 
say a couple of things. The ranking member, I think, was one of 
the first non-Gulf Members of Congress on the scene in the New 
Orleans area and in other parts of the Gulf, extensively 
looking also at the shelter situation down there.
    And also, the first hearing we had was requested by the 
gentlelady, actually, from Virginia, Mrs. Davis, and we 
appreciate you starting us rolling.
    And I am going to move on right away. I want to say one 
other thing, too, that I don't think the public knows. And I 
know it wearing another hat, chairman of the House 
Administration Committee. I just want to give credit to the 
Members sitting here, the three Members from the Gulf, and the 
other Members, both sides of the aisle, from the Gulf and their 
staffs.
    When this all happened, we extensively dealt with the 
Members. If the staff couldn't get a phone call through, they 
tried 900 more times until it happened. They wanted to make 
sure they were there for the constituents, the Members and your 
staff. They did a remarkable job under a very terrible 
situation to make sure that they were there for your 
constituents, as you all were. So I credit you for that.
    With that, we will start with Mr. Baker, Chairman Baker.

 STATEMENT OF HON. RICHARD BAKER, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF LOUISIANA

    Mr. Baker. Thank you, Mr. Chairman. I want to express my 
appreciation to you and the Members for your continuing 
attention to these difficult subject matters.
    As to your responsibility in House Administration, I 
certainly want to acknowledge the extent to which you and your 
staff went in trying to facilitate just the simplest of tasks. 
Just communication was extraordinarily difficult. And your team 
went well beyond any expectation in trying to assist us in 
meeting our obligations. And for that, I am grateful.
    I think to speak to this issue this morning, I want to 
start with just a brief historical story to establish my 
credentials on this matter. My dad is now a retired Methodist 
preacher. Years ago, served a church in Baton Rouge for 10 
years. And when I went to the church--I was 6 when we left--I 
was 16, so I was affectionately known in the church as Little 
Richard. That causes some confusion, I'm sure.
    [Laughter.]
    Mr. Baker. However, when my dad would meet with individuals 
after our departure from the church, he ran into a lady, a 
senior lady, who said, ``Well, Reverend, how is Little Richard 
these days?''
    And he gave the usual kinds of explanations about 
legislature and elected to Congress, and so forth. And when she 
heard, ``He is now a Member of Congress,'' she dropped her head 
and said, ``Oh, he used to be such a nice young man.''
    I think the flood insurance program and I enjoy similar 
regard. And I am speaking here today in defense of the flood 
insurance program. I would like to establish that when any 
natural disaster affects any region of the country, the only 
natural disaster which has a structured program where we 
collect premium and pay out benefits is the flood insurance 
program.
    Whether earthquake, tornado, mudslide, fire, we simply 
write checks out of the United States Treasury. Questions have 
not been asked, ``How do we have budget offsets for those 
expenditures?'' We respond because people are in need.
    Since 1988, every dollar advanced to pay claims for the 
National Flood Insurance Program have been repaid with 
interest, with premiums paid by policyholders.
    Now that doesn't mean that the system can't be made better. 
Two years ago--Mr. Frank made reference to the reforms that 
were adopted relative to repetitive lost properties. I will 
admit, Louisiana was one of the contributors to a significant 
problem. There was one property I know of where there were 21 
claims submitted and paid. There is no excuse for that.
    The reforms adopted 2 years ago went to great lengths to 
eliminate abusive and inappropriate practices, and there are 
still limitations in the program's implementation. But I will 
say to you, Mr. Chairman and members, in principle, what the 
flood insurance program provides is a well structured program 
that operates as intended with room for improvement. There is 
no other natural disaster that can lay claim to any such 
structure.
    Therefore, I find the discussion of whether we should have 
a flood insurance program, that it's abusive or wasteful, 
frankly, very inappropriate. Mr. Taylor, I know, has a remedy 
for needs he has identified. I have my own program that I am 
introducing today that addresses some needs.
    Certainly we ought to have a discussion about how we can 
improve on it. But the idea that this is taxpayer money flowing 
out the door without accountability is simply not accurate.
    Where do we go from here? One of the matters which I think 
needs to be addressed is the current limitation on the line of 
credit. As I indicated, if you have a rush of claims and there 
is no cash in the drawer, you can go borrow money, which is 
subsidized by the taxpayer--today, up to $2 billion.
    As has been mentioned by members earlier, the expected 
losses to be paid merely for Katrina are approaching--and they, 
in fact, exceed--$20 billion. There will be a necessity to 
increase that line of credit for borrowings to pay obligations 
as they come due.
    I think it appropriate when we are addressing the line of 
credit that we also address the issue of the $250,000 limit. 
For those not familiar with the aspects of the program, if you 
choose to buy all of the flood insurance one can attain through 
this program, the maximum you can get for your structure is 
$250,000, and $100,000 for contents, for a total of $350,000.
    As people on the lakefront of New Orleans are painfully 
learning, who may live in a $1 million or $2 million or $3 
million home, the flood insurance won't buy the lot back after 
this disaster. And so, it ought to be made available on an 
actuarial basis where a person can acquire whatever flood 
insurance they think appropriate for the risk they face.
    Enforcement. Louisiana is only second to Florida in the 
number of policy holders who pay premium. We're about 42, 43 
percent, somewhere in that range. I do not understand why 
financial institutions do not mandatorily force place flood 
insurance coverage when they issue a loan to an individual.
    Let me, for sake of reference, bring to the committee's 
attention the map dated March 1, 1984, for the principal area 
known as New Orleans. There is a notation on this map. By the 
way, all of this is--would be normally--in the flood zone. But 
it's designated as Flood Zone B. There are a whole host of 
flood zone designations which relate to the rate you pay, your 
premium. All zone B areas are protected from the 100 year flood 
by levee, dike, or other structure, subject to failure or 
overtopping during larger floods.
    March 1, 1984, Mr. Chairman. Why is it that a financial 
institution extending hundreds of thousands of dollars of 
credit would not take the fiduciary responsibility to require 
flood insurance on those properties for which they are 
extending credit? It makes no sense.
    I think we should have a requirement that within a certain 
number of miles of a coastal zone--from New York, which 
experienced a hurricane in 1938, to Washington State--the 
entire coastal area of the United States should be mandatorily 
required to participate in paying premium to the flood 
insurance program. That is the only way we can address Members' 
concerns about repayment of lines of credit extended to meet 
obligations of Rita, Katrina, and--God help us all--Wilma.
    We all know they are going to come. We all know that 
coastal areas are exposed. Why don't we address it and simply 
say, ``Everybody is in the deal.'' That's what keeps prices 
low. That's what keeps taxpayers from being unnecessarily under 
financial duress. It's logical, defensible. I'm from Louisiana. 
I live 8 feet above sea level. I can do this. The rest of the 
Congress should be able to do this.
    This past two weekends, we watched as New England 
unexpectedly suffered extraordinary flooding loss and loss of 
life. What is not generally described or known, outside the 
100-year flood plain--everybody is familiar with the 100-year 
flood plain. If you're in the 100-year flood plain, everybody 
says you ought to have insurance. Twenty-five percent of all 
the claims paid by the National Flood Insurance Program are for 
properties outside the 100-year flood plain.
    Now we can't simply say, ``Because you're outside the 100-
year flood plain, you have no obligation to protect your 
property.'' We need to have better mapping and assessment. We 
need to have an identification of risk and people obligated to 
participate in the flood insurance program and assessed a 
premium in relation to their actuarial rate exposure.
    I will introduce today legislation to create a Louisiana 
Recovery Corporation. The corporation will be empowered to 
issue debt off budget, subject to approval by the Treasury, to 
get us out of the recurring necessity to come to this Congress 
and fight appropriations battles.
    We cannot tell you today the cost for our environmental 
remediation. We cannot estimate the cost to give people the 
opportunity to move on with life. That information will develop 
over years as we move forward with our redevelopment effort.
    There is no local authority. The State government doesn't 
have the ability. Fitch, Moody's S&P have all downgraded our 
ability to issue debt. We're on a negative credit watch. It's 
only a matter of time before our ability to sell debt 
obligations in the capital markets will be so impaired it will 
make no sense. We have to have the Federal Government's ability 
to borrow.
    I understand there is an obligation to each of you and your 
constituents to be transparent and responsible for the money we 
spent and, to the best of our ability, repay what we are 
borrowing from the rest of the generosity of the Nation.
    To that end, we should empower this organization to go in 
and acquire large tracts of land, respecting private property 
rights. If you want to take a cash settlement and move on, 
fine. You're going to take a loss. So is the bank. The banks 
are going to come in for a big hit on this. So are the 
insurers.
    If you want to stay with us, and live through the 
redevelopment, and have your tract of land back when it's done, 
fine. We're not going to pay you anything; you're just going to 
be a partner in redevelopment.
    If you would like to have a cash payment and have an option 
of first right of refusal on the redevelopment of property, 
that's fine too. We will give you that shot. And if you want to 
come back and buy at market rate that tract of land, that's 
fine.
    If you don't want to do any of it, if you want to just sit 
it out on your tract of land where you are today with no help 
from anybody, that's your choice. You can do that too. 
Respecting private property rights. There is not going to be 
bulldozers running wild down the middle of New Orleans taking 
people's property away from them.
    At the same time, in order for a redevelopment to occur, 
somebody has to be able to provide for levee restoration, 
environmental remediation, basic infrastructure so we can have 
large tracts of developable property made available to the 
market.
    Last week of this month, we will have the GSE reform bill 
on the floor. One of the important assets of that bill is an 
affordable housing fund. It will make available $500 million to 
about $1 billion annually of affordable housing money for 
Katrina/Rita victims.
    This redevelopment plan will not be about making rich 
people richer; it will be about rebuilding Orleans and the 
surrounding area in a way which is a modern community that 
affords opportunity for everybody, from subsidized housing, 
multi-family, to giving those who have good fortune an 
opportunity to reclaim some of their loss.
    Mr. Chairman, I hope you and members of the committee will 
carefully review the legislation known as the Louisiana 
Recovery Corporation, and in concert with your ongoing 
examination of the flood insurance program, in concert with the 
massive redevelopment requirements that are going to be needed 
for Mr. Taylor, myself, Mr. Melancon--and I want to get that on 
the record; it's Melancon--that we are going to be around for a 
long time asking for a lot. We know it.
    We need to be held accountable; we need to be subject to 
reporting standards. We want to do this the right way.
    I thank you, Mr. Chairman.
    Chairman Ney. Thank you.
    The gentleman from Mississippi.

  STATEMENT OF HON. GENE TAYLOR, A REPRESENTATIVE IN CONGRESS 
                 FROM THE STATE OF MISSISSIPPI

    Mr. Taylor. Mr. Chairman, thank you very much for letting 
me appear before your committee. And on a private note, as 
someone from possibly the most affected area by the storm, I 
want to thank you in your capacity as the chairman of Oversight 
for allowing me to hire, within the limits of my budget, a 
couple of extra staffers because of the unprecedented amount of 
casework that has been generated by this storm. I thought that 
was incredibly generous on your part, and I think it should be 
noted by my colleagues.
    Mr. Chairman, I'm going to take about as long as Mr. Baker, 
so please indulge me. It's going to take--this is of such great 
importance to so many people, that I just can't say it in 5 
minutes. I do think it's important to walk my colleagues 
through this.
    Like most of you all during the August break, I took a 
couple of days off. Like most of you all during the August 
break, at night I gave speeches. But on the nights when I 
didn't give speeches, I made shutters. I bought $2,000 worth of 
plasticized decking. No telling how many hundreds of dollars 
worth of stainless steel screws, deck caulking, and every night 
I made at least a pair of shutters, and many nights as many as 
three.
    On the weekends, when my son wasn't working, we installed 
those shutters. I come from hurricane country. Preparing your 
house for a hurricane is not only a part of your life, it's a 
part of your job as a dad, to show your son how to do it, just 
like my dad showed me.
    On the day of the storm, we actually finished installing 
the last pair of shutters, about 3:00 in the afternoon. The 
wind was kicking up to about 30 knots, and you can imagine how 
much fun it is being on a second story ladder trying to hold a 
drill in one hand, a screwdriver in the other, and a 50-pound 
shutter in your third hand, while your son is helping you.
    We got them all up. And then the routine is you move 
inside, and you start taking your furniture--none of which 
would be fancy by your standards--but you take the least 
desirable furniture, and you put it on top of the kitchen 
counter. You take the stuff that's a little bit better than 
that, you put it on top of that. You take the stuff that you 
might have inherited from your folks, and you put that on top.
    Again, I live in a place that's only 14 feet above sea 
level. But in the 28 years that I have lived it, I have never 
lost a shingle; it's never flooded. But I do know that in 
Hurricane Camille it took about 2 feet of water, and that in 
Hurricane--I'm sorry, about 4 feet of water. And Hurricane 
Betsy took about 2. We live in an area that comes to accept 
that.
    But the point that I'm trying to make in all this is there 
are some cynics in this town who would have you believe that 
somehow the people of Mississippi weren't prepared for the 
storm, that they didn't take the steps necessary to protect 
themselves. And that's shear nonsense.
    The people of Mississippi--what happened in my home was 
going on in every home in south Mississippi simultaneously. 
Fathers and sons were buying plywood, boarding up their 
windows. They were taking the family possessions and trying to 
get them up off the ground if they thought their house was 
going to flood, or if they thought the roof was going to get 
blown off, or trying to find some common ground, as I did, when 
you imagine that both things could happen. And you want to take 
those things that are precious to you and try to protect them.
    My wife, simultaneously, was taking the family photos, 
putting them in Rubbermaid tubs, and taking them with us when 
we left. She had learned that lesson because both of her 
grandparents lost everything they owned in Hurricane Camille, 
including the family photos. And so, again, you learn to cope 
with this. It's just a way of life. It's like a disease. You 
try to prevent it, but you know if it comes you take the 
necessary steps to minimize it.
    So, for those people who were saying that somehow the 
people of my district, or any district, are trying to game this 
into getting rich, don't kid yourself. Every one of us would 
rather have our houses back. All we're trying to do is help 
make people whole.
    Historically, it is a place where people stay for a long 
time. My family has been there for 53 years. We're relative 
newcomers, but the old timers can tell you about the storms in 
the early 1900s. They can tell you about the 1947 hurricane, 
the storm in the early fifties, Betsy and Camille. They can 
tell you about lashing a wooden skiff behind the house so that 
when worse came to worst, you pulled the skiff up, you put your 
family in it, and you went inland.
    In the case of my neighbor, Larry Larue, if it was a mild 
storm like Betsy, he went to his daughter's house a quarter of 
a mile away. If a bad storm like Camille, he went to his 
brother's house a half-a-mile away by boat. Again, you deal for 
this. You know it's coming, and you take the necessary steps.
    What I am asking today, though, is to help those people who 
could not have envisioned this storm being as bad as it was. 
You see, houses that made it through Betsy, houses that made it 
through Camille--like mine--no longer exist. They are gone. 
There is nothing there but a line of debris.
    And you could say, ``You should have known better,'' but 
these places were there, in many instances, since the Frenchmen 
landed in 1699. They were also backed up not only by local 
knowledge, but by the knowledge that our Nation provides for us 
the Federal Flood Insurance Plan.
    One of the things I would like to point out is that there 
will be some people who say that, ``You should have known your 
house was going to go, you should have bought flood insurance. 
And if you didn't, shame on you.''
    This is a Federal flood insurance map drawn by Government 
experts in Long Beach, Mississippi. This area fairly close to 
the water is the flood plain. As Congressman Baker pointed out, 
if you live in this area and you go to buy a house, your banker 
is going to tell you you have to have Federal flood insurance. 
They won't guarantee your loan if you don't have Federal flood 
insurance. So everyone in this area buys it. I was one of those 
people who lived in an area that required Federal flood 
insurance. I had it.
    This is the map that another Government agency, the Corps 
of Engineers, tells us--the exact same block. Remember? One was 
very close to the water. This is what the Corps of Engineers 
tells people south of Mississippi that in the event of a bad 
storm, ``All you guys need to get out of here.''
    So, we have the National Flood Insurance telling folks 
basically just down here you need to worry about a storm, but 
the Corps of Engineers telling you all the way up here--now 
this is about 10 miles--``In the event of a bad storm, you need 
to get the heck out of there,'' based on Government 
information.
    This is what happened in just one of the towns I represent. 
This is Long Beach, Mississippi. Now it's a little strange 
looking at it from the sky, but it's the same map as the first 
one. This lighter stuff that you're seeing is debris. It was 
people's houses. You don't see any big chunks of houses because 
they have been just broken up into small pieces again.
    What you will find very interesting is, again, that flood 
line of where you are required to have Federal flood insurance 
because the American experts told them so is about right here. 
What this is is a 100-foot-long barge that at light draft draws 
3 feet of water, but this one was full. So it draws over 6 feet 
of water. It's several blocks inside where the Government--I'm 
sorry, it's several blocks above where our Nation's experts 
told these people they had to have Federal flood insurance.
    This was a casino barge. Used to be down here floating. 
It's now on the wrong side of Highway 90. This is another barge 
on the wrong side of Highway 90. The storm surge, as you can 
see--this is where it ended; this is where the pieces of 
people's houses ended up, well beyond what our Nation's experts 
told them the storm would take them to.
    Now why do I say all this? The point is not to help me, 
because I had flood insurance. It's to help those tens of 
thousands of south Mississippians and south Louisianans who 
lived outside of the flood plain that our Nation's experts told 
them they should expect, who their bankers, like Congressman 
Baker just told you, said, ``Look, you're outside the flood 
plain; you don't need flood insurance, no use wasting your 
money.'' And it is relatively inexpensive.
    But I will take it a step further. In August, the Consumer 
Federation of America, the folks that are supposed to be out 
looking for us, helping us out, actually issued a press release 
talking about ways that people waste money on insurance. One of 
the things they listed in the way that people waste money on 
insurance, one of the examples was those people who live 
outside the federally-mandated flood plain who buy flood 
insurance.
    So when you say that maybe these guys should have known 
better, I hope I have provided you with some examples of why 
they don't. And there is probably some people who say, ``Well, 
they are just dumb Bubbas.'' You know? ``Who cares about 
them?''
    Well, Jerry St. Pe, the former president of Ingalls 
Shipbuilding, 13,000 employees, builds one half of our Nation's 
surface fleet, isn't a dumb Bubba. Ricky Matthews, the 
publisher of the Gulf Publishing Company, his son Harold, is 
not a dumb Bubba. U.S. District Judge Lou Guirola, appointed by 
this administration, is not a dumb person. My predecessor, Cy 
Faneca, one of the smartest attorneys in south Mississippi, is 
not a dumb man.
    What all these people have in common? They lived outside 
the federally mandated flood plain; they did not have flood 
insurance; and they are getting no coverage. Now, why are they 
getting no coverage? Every one of them had wind insurance, 
every single one of them. But if you read down in that wind 
policy, there is a provision in there that says if there is 
wind-driven water, they don't pay.
    So, if the wind knocks a tree into your house during the 
storm, you're okay. If the wind blows your neighbor's house 
into your house during the storm, you're okay. But if the wind 
generates a 30-foot wall of water that caused the kind of 
devastation--that's just in Long Beach; there are actually 
places worse than Long Beach--a 30-foot wall of water that 
picked up the Bay St. Louis bridge and threw it over in the 
bottom of the bay, you're not covered.
    I'm trying to make those people whole. Like the rest of us, 
they probably had credit card bills. Like the rest of us, they 
had mortgages. But now, unlike the rest of us, they suddenly 
have a house that's either uninhabitable, at best, or gone, at 
worst. And their insurance company is saying, ``We're not going 
to pay you a dime because that was water and not wind.''
    There are a couple of ways we could address that. We, as a 
Congress, don't make the sun rise and set. But we, as a 
Congress, do decide what to call the number of--the time of day 
that that sun comes up and the sun goes down. We call it 
Daylight Savings Time.
    We, as a Congress, could say to the insurance companies, 
``That was wind-driven water, that 8 inches of rain don't cause 
a 30-foot flood of water, and you are going to honor those 
insurance claims.'' I'm not so sure that my colleagues are 
willing to do that.
    Second thing we could do is just come up with some money, 
just give them a grant. Again, I got here; I got elected on the 
day of the San Francisco earthquake. One of the first things I 
did was to vote to help those people. Since that time, there 
has been a big flood in the Midwest. I voted to help those 
people. Hurricanes in South Carolina, in Florida, Texas, I 
voted to help those people.
    So we could just vote to give them some money. Or we could 
take a third step. And we could allow those people--prudent, 
smart people, who lived outside the flood plain, who weren't 
required to have flood insurance, but now find themselves in 
this horrible bind--we could allow them to pay 10 years back 
premiums, take a 5-percent penalty, and then file a claim up to 
the value of their wind coverage, or the $250,000 that Mr. 
Baker told you about, whatever is less, and file a claim as if 
they had been in the program all along.
    Furthermore, much like Congressman Baker is telling you 
about, we would then require them to stay in the program as 
long as they own that house so that they can't game the system, 
get a check today, tell us goodbye tomorrow, and so that they 
don't file the multiple claims that he is concerned about. And 
I share his concerns.
    That's what the legislation does. I am very fortunate to 
have about 40 of my colleagues co-sponsor it. I am very 
fortunate to have Congressman Frank help us put this together. 
It has been endorsed by the Mississippi mortgage lenders; it's 
been endorsed by the Mississippi bankers. I would hope it would 
be endorsed by you.
    You know, basically what it's doing is in a time of 
severe--and believe me, you guys have been great. Every one of 
you, at one time or another, has walked up to me since the 
storm and said, ``What can we do?'' This is something you can 
do.
    I am asking basically the same thing we asked for as 
congresspeople. We got here because we asked other people to 
help us, and we got here--and the other thing we got in our 
lives is every one of us got a second chance. I am asking to 
give the little league coach, the preacher, the people who have 
invested in south Mississippi a second chance because if they 
don't get it, tens of thousands of Mississippians will have 
their mortgages foreclosed. We can sit back and do nothing, or 
we can help them. I am asking you to help them.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Gene Taylor can be found on 
page 140 in the appendix.]
    Chairman Ney. Thank you. I want to thank both gentlemen for 
your very compelling testimony. And I will turn--are there 
questions of the members? Gentlelady from California?
    Ms. Waters. Yes. First, let me just say to the Members 
representing these areas that you are absolutely correct about 
the feeling of your colleagues about what you are going through 
and what your constituents are going through. And we certainly 
appreciate each--everything that you do to try and make your 
constituents whole, to try and help them. This has been a 
monumental disaster. We all recognize that, and we want to 
help.
    I am listening to the bills that you are proposing, and of 
course I want to take a close look at them to see if there are 
more questions that I may want to raise with you, starting with 
you, Mr. Baker.
    I want you to know that even though you describe this as 
not being taxpayer money, that we care as much about 
constituents who pay premiums as we do about just taking the 
money from the Federal coffers if there were no premiums 
involved. We believe that these people should be respected, and 
we should do everything that we can to help them.
    When you talk about creating a new authority, does this 
mean that this overrides the city role and the State role in 
helping to bring about some relief and some rehabilitation? How 
has this idea come together? Are all of these entities involved 
in some way? Who is the appointing authority, and who will run 
this authority? Who will sit on this authority?
    Mr. Baker. As you are aware, Mayor Nagin has appointed his 
commission; Governor Blanco has appointed her commission; the 
President has said he would like to see the redesign of 
communities adversely impacted be built from the bottom up, 
meaning local community, homeowners, elected officials, local 
planners come up with the ideas of how they would like their 
community to be restructured.
    The proposal that I am offering is only the mechanism by 
which we pay for whatever it is the local community decides 
should be done. Public hearings, involvement--as I indicated in 
my testimony, if an individual doesn't want to participate, you 
can stay right where you are with whatever asset you have got, 
and you are outside the process. If you want to take money and 
move on, we provide that option. If you want to be a partner in 
the development, we provide that option. If you want to take 
money, and wait and see, and come back and buy in later, we 
provide that option.
    This is a homeowner-sensitive plan where homeowners decide 
what should be done with their property. We merely provide 
mechanisms for them to have choice. It does not require that 
anyone take any step at all.
    But when you are very pragmatic about the problems we face, 
if you look at Mr. Taylor's community where there is no fire 
station, there is no police department, there is no school, 
there is no bakery, there is no daycare, who goes in first?
    We have to have levee restoration first, environmental 
remediation second, to get the bad stuff out, and then we need 
to prepare large tracts of land for development to occur. The 
plan can be generated at the local level. The debt that will be 
issued will be approved by the Treasury.
    The commission, which--will be a presidentially-appointed 
commission with the Governor submitting names for positions on 
the commission to be appointed by the President, and it's the 
meeting of what I call taxpayer accountability to your 
constituents with local planning saying how we would like to 
have resources deployed, done in the full light of day where 
everybody can understand where their stake is in the future 
development.
    It is not an attempt to take anybody's property away from 
anybody.
    Ms. Waters. Is the debt scored against the budget?
    Mr. Baker. No, it is not. And let me also quickly add that 
if this tract looks like this table, and it's clean, and we 
have a plan developed by the community, and we have 10 guys who 
come in and submit proposals, then the commission can accept 
which proposal they think makes the most sense, not just from a 
taxpayer view, but from a community view.
    So if a guy has got green space, he's got all sorts of 
community services involved in his proposal, that's the 
proposal we take, and that's the taxpayer take-out. They buy 
the land back from the commission for their development 
purpose. So that's where the taxpayers get some relief.
    This is different. We have never done it this way before, 
but there are models. We have had three different Government 
agencies in our history which have been real estate acquisition 
and disposition entities, and this is modeled after those.
    Ms. Waters. But a little aside from this--and if you will 
bear with me, Mr. Chairman--I had not intended to ask this 
question, but because I am so deeply involved in the issue of 
eminent domain, I want to ask it of you now.
    As you know, the Supreme Court decision in Callo basically 
allows for the taking of private property for private use. 
Would you support efforts that are being put together here in 
Congress that will protect those homeowners from having their 
property taken for private use, private property for private 
use?
    Mr. Baker. Certainly. And as I said at the outset, if an 
individual chooses not to participate, wants to take their 
land, as it is, without any----
    Ms. Waters. That's okay. That's fine. I got that.
    Mr. Baker. And secondly, the only utilization of the 
authority of eminent domain would be if you decide to sell, and 
if you are negotiating price--and keep in mind, you have 
decided to sell, and you want to move on--that a dispute as to 
value will enable us to take property and then litigate value 
in court so the development may proceed.
    But it is only after you decide that you want to dispose of 
your asset that the right of eminent domain may be deployed. 
And it comes after a very extensive process. But as to 
utilization of an individual's property----
    Ms. Waters. In the taking of land for a public purposes----
    Mr. Baker. Correct, I understand.
    Ms. Waters.--fair market value is decided. What would be 
different in this situation that you are describing?
    Mr. Baker. Well, only that the individual thinks the fair 
market value is different from that established----
    Ms. Waters. But that's not how it works in eminent domain 
for public purposes. An individual may ask $1 million for a 
$200 piece of property, but fair market value ends up ruling 
the assessments that are done.
    Mr. Baker. You do have a judicial right to dispute----
    Ms. Waters. Yes.
    Mr. Baker.--to go to court----
    Ms. Waters. Yes.
    Mr. Baker.--to litigate that value. And that's all that I 
am saying. While that litigation dispute is ongoing, you cannot 
then hold up the recovery of a community where your property is 
essential for that public purpose to proceed.
    Ms. Waters. So you would support, under some circumstances, 
the taking of private property for private use?
    Mr. Baker. In this case, it's taking a private property for 
a public use. The restoration of communities is a public use. 
If I were going to take your property and turn it into a 
casino, I would have a problem with that. If I want to take 
your property and turn it into a city, I think that's a public 
use. What we are doing here is restoration of cities.
    Ms. Waters. Well, that is going to be an issue that a lot 
of people would have to take a very close look because the 
implications are so great, and we--this is a great opportunity 
to watch and see what happens, not only with that Supreme Court 
decision, but what we are able to formulate here, as public 
policy, to deal with that particular issue.
    And finally, let me just ask you some questions about 
mapping because you are very knowledgeable about the flood 
insurance program, and one of the big complaints, as I remember 
it, is that the mapping is outdated, that it did not take into 
consideration, often times, the flood plain areas, et cetera, 
et cetera.
    And if that is true, does Government bear some 
responsibility in a very special way if people thought they 
were not at risk because of the outdated mapping or the 
incompetent mapping in these areas?
    Mr. Baker. You are correct. A flood is an animal. It 
changes shape every day. If you are living in a community that 
historically had no flooding problem and there is a development 
above you in the flood plain--a shopping center where now you 
have concrete where there once was grass--if downstream 
maintenance by another political subdivision has not kept pace 
and there is growth in the drainage outlet so you have more 
water coming down more quickly with an inhibited ability to 
drain water, historically, that got out, in consequence is the 
person in the middle of that pipe gets flooded.
    It's not of their own making. It's not even within their 
political jurisdiction. But the consequence is water is in 
their home.
    The mapping really needs to be done almost annually because 
the dynamics of development and the inhibitions to drainage are 
continually changing. We have snapshots. And we say, ``Because 
you look like this, in March of 1984,'' or whatever the date 
might be, that determines whether or not you are compliant with 
the rules. That is a very unfortunate system.
    Given our technological capabilities today, it ought to be 
an annual assessment requirement. At least a fly-over with 
aerial photography----
    Ms. Waters. Will that be reflected in your legislation?
    Mr. Baker. My legislation only deals with the recovery of 
the----
    Ms. Waters. It does not deal with the mapping problem?
    Mr. Baker. That's correct.
    Ms. Waters. Okay. One more--this is--I'm so sorry.
    Mr. Baker. I've got one answer left.
    Ms. Waters. I beg your pardon?
    Mr. Baker. I said I have one answer left, so let's----
    Ms. Waters. No, I bet you got a lot. I've never known you 
not to have an answer.
    [Laughter.]
    Chairman Ney. Let's just compromise, one question and one 
brief answer.
    Ms. Waters. Well, maybe I don't have another question. So 
you can reserve that answer.
    Mr. Baker. I will save it for next time.
    Ms. Waters. No, you give it to somebody else. I know you 
are just waiting to do it. Okay, thank you very much.
    Mr. Baker. I thank the gentlelady----
    Chairman Ney. If there are no further--Mr. Neugebauer?
    Mr. Neugebauer. Thank you, Mr. Chairman. I was down in New 
Orleans last Sunday and saw the tremendous devastation, not 
only just in the New Orleans area, but then we flew out to the 
LaFayette area and flew over the rural areas. And you know, 
we've got people who have lost all of the infrastructure that's 
necessary to carry on their agricultural activities.
    I think in some ways I associate myself with both of your 
remarks because one is the frustration that we have insurance 
companies that are carrying insurance in that area, and yet 
they have excluded, you know, maybe the greatest risk in those 
storms.
    I know that, from a home-building standpoint, being a 
former home-builder, we have done a lot of innovation as far as 
building new structures and buildings to where they are able to 
sustain the high winds of hurricanes. And so, from a wind 
standpoint, we have been able to mitigate a lot of the damage 
that occurs from the wind.
    But I almost think, Chairman Baker and Congressman Taylor, 
I mean, one of the things we may need to look at is coastal 
insurance and not just hurricane insurance or flood insurance. 
But maybe what we need to look at--and I agree with what the 
gentleman said about the technology today--we have the ability 
to fly over those areas, digitize them, and then model what 
could occur in certain kinds of storms.
    And certainly we're not going to be able to model every 
storm that occurs, but I think we can do a better job of 
modeling that.
    Then, I think we've got to take that modeling data to the 
insurance industry and say to them, ``Let's come up''--and I 
think also to allow people to carry coverage that the risk 
they're taking, that if I'm going to go build a $1 million home 
on a beach area, that I am responsible for covering the risk 
that I am taking. But we have to provide a product for them to 
cover that risk.
    And I have dealt with flood maps, and they are easy to 
amend. And basically, what we're talking about is rising water 
in a rainstorm, most of the time of just falling rain or rising 
water in--from other drainage areas.
    But I think one of the things that's not in place, and 
what's so terrible about that, is that we have got people in 
three States now waiting to see what the United States Congress 
is going to do so that they can get on with their lives.
    Where if in place they had a coastal coverage, it's a 
question of adjusters coming out and saying, you know, ``Here 
is--you have sustained a loss, and here is your check,'' and 
then people can make the decisions that they need to make to go 
on with their life.
    Chairman Baker, I like your idea because one of the things 
that struck me when I was in New Orleans, being in the land 
development business, is that what needs to happen is there 
needs to be a market-driven activity developed into that plan. 
We can't assume that everybody is coming back to that location. 
And there may be areas that are not going to be adequately 
protected in the future, and those areas will have to be dealt 
with.
    I want to look more at your plan, but I do like the fact 
that it provides a basis for some private activity. I think 
that if we send a signal to those States that the Federal 
Government is going to come in here and try to fix all of this, 
the private sector will stay home. I do not think they will 
participate.
    But I think if we provide an adequate environment where the 
private sector can come and participate, where we have then a 
plan in place, or a coastal coverage in place, where if I'm 
going to come back in to New Orleans, or going to come back in 
to Mississippi, that--and I'm going to build that home--that if 
I build it, I can cover the risk that I am taking of building 
that.
    So I think a multi-faceted plan has got to really think 
coastal flooding, and not just certain kinds of storm surges, 
but what happens in these catastrophic situations and with the 
understanding to the insurance industry that we can't cover 
every risk. There are just certain things that happen. I mean, 
who knew that 9/11 was--we were going to be worried about 
airplanes flying into buildings?
    But I do believe today, in some cases, the flood insurance 
program does work. But I think what we have seen in the coastal 
areas is that we do not have an adequate one. And it has got to 
be one--and as you said, Chairman Baker--where we encourage 
participation.
    And you can do that in two ways. You can in the quality of 
the product, but I think you also have to say to Randy 
Neugebauer that, ``If you come and build that million dollar 
house on the beach, and you don't cover the insurance, it's 
your risk, and you're not going to ask the American people to 
take that risk for you.'' And I think that's a fair thing.
    So, I look forward to having some meaningful debate with 
both members because I think we have seen a hole in the system 
that we do need to address.
    Mr. Baker. I thank the gentleman, I just want to make a 
brief response in that in my capacity as chairman of capital 
markets, which has jurisdiction over insurance matters, we will 
have a very thorough examination of the practice of how we 
address the exposure and the risk.
    As insurance is constructed, you spread risk across a broad 
number of participants on the belief that, ultimately, only a 
certain number of people will make claims and, therefore, it is 
actuarially sound.
    Mr. Neugebauer. That's right.
    Mr. Baker. Today, we have a concentration of loss without a 
broad distribution of premium payers. And I think it's pretty 
evident one of the remedies that might be pursued.
    Secondly, a discussion going forward about wind-driven 
water versus wind-driven trees is a pretty intriguing one. And 
the difference during the storm, if your house burned down you 
got the face value of the policy. If you bought more insurance 
than the loss, and it burned, you get the face value. If it's 
wind-driven, you get actual loss; and if it's flood, you get 
$250,000. I don't care what you want to buy. There is no logic 
to that insurance strategy.
    And so, we need to have good public discussion, and going 
forward, talking about how--the risk people face, living in 
coastal areas.
    And the last point. People have to live in New Orleans. 
Your home heating oil bill will reflect that this year. Your 
price at the gas pump will reflect it. If you are a Midwestern 
farmer exporting corn or grain, 65 percent of that goes through 
our ports. If you like seafood, 32 percent of the Nation's 
seafood--I mean, fir, for goodness sakes, comes out of 
Louisiana. I mean, I didn't know that.
    We are a big producer of matches. Where did that come from? 
This area is economically essential, and people are going to go 
where the jobs are. Therefore, people are going to live next to 
the coast and have this risk, and we need to have an adequate 
insurance net to keep a catastrophic loss to the American 
taxpayer.
    Mr. Taylor. If I may?
    Chairman Ney. Mr. Taylor?
    Mr. Taylor. To your point--and I guess I'm a lot closer to 
this than I wish I was, since I'm one of those people whose 
house now looks like that debris line--what's really 
frustrating is--and I will point to myself--when the agent came 
to what was my house, walks around a piece of tin roof that's a 
half-mile back, piece of slate floor over here, sink is quarter 
of a block over that way.
    And what they do is they say, ``Well, we're prepared to pay 
on your flood insurance,'' to which I reminded them that's 
mighty generous of them. ``That's Federal money, not''--I won't 
name the company, ``--not your money.''
    He says, ``Well, we're not so sure about this wind 
policy.'' What really tens of thousands of people are seeing 
now, despite the full-page ads being run by the insurance 
industry saying, ``We're there for you,'' is the insurance 
industry really trying to find every reason that they can not 
to pay the claim.
    And it really is the little individual down on his luck, 
worst of circumstances, out of a house, out of a job, still got 
that mortgage to pay, and the great big insurance company 
saying, ``And by the way, where is the evidence for you to 
prove that it was water and not wind, and wind and not water,'' 
because they're trying to play it both ways.
    One of the things that I would hope would come of this--it 
was after Hurricane Camille, the devastation of Hurricane 
Camille, that this Nation started the Federal Flood Insurance 
Program so that people could pay to mitigate their own risk, 
those people who live in areas that are going to have 
hurricanes.
    But what we have seen is that when you leave a loophole, 
the smart guy is going to figure out a way not to pay. If the 
private sector doesn't step up to the plate--and I will leave 
that ``if'' there--then I think we, as a Nation, are in the 
business of looking out for people.
    And if the private sector won't do it, then I think we, as 
a Nation, have a responsibility to do it. And maybe it 
shouldn't be called flood insurance; maybe it should be called 
natural disaster insurance so that we, as a Nation, aren't 
trying to find a reason not to pay people claims, people who 
have paid their premiums faithfully for 10, 20, 30 years. Maybe 
we, as a Nation, will treat them a little bit better.
    And by the way, Congressman Baker is exactly right. We, as 
a Nation, doing a pretty good job of paying our claims on the 
flood insurance program. Yes, the losses are limited to a 
quarter of a million dollars--and again, in a lot of places 
that's a lot of money. For some of these newer homes that have 
been put up in the past few years, that doesn't begin to pay 
for them. And certainly, raising the cap absolutely is 
something we need to look into.
    But the other thing is, if the private sector isn't going 
to treat the people of Mississippi, of Louisiana, of Texas, of 
Florida, South Carolina, wherever it occurs--80 percent of all 
Americans in the next 50 years are going to live within 50 
miles of the coast. And if the private sector is not going to 
step forward and treat them properly, as someone who has voted 
for almost every single tort reform measure that has come 
before this Congress, I will be the first to say if they're not 
going to do their job, then I think our Nation has to step up 
and do it.
    Chairman Ney. I want to thank you. I want to also remind 
members we can continue to question, ask questions of the 
members. We have a vote at 11:45. We do have an, I think, 
important panel with Mr. Maurstad and Mr. Jenkins, but again, 
if you would like to ask questions--gentleman from 
Massachusetts?
    Mr. Frank. Let me first yield to the gentlewoman from 
California.
    Chairman Ney. All right.
    Ms. Waters. Thank you very much, and I will be quick with 
this, and I would like to ask both of the members if you are 
willing to support the cost of what you are advocating even if 
there are no offsets, as it has been discussed by the 
administration--because I think you have good ideas--when you 
establish a commission, for example, it costs money. And some 
of the other aspects that you can't enough determine now will 
cost money.
    And I am feeling very strange by the rumblings that I am 
hearing that we can't pay for making these citizens whole and 
taking care of this problem unless we find some deep cuts in 
other places that offset. How do you feel about that, and are 
you going to stand up for your constituents even if it costs 
money to do so that you can't find offsets for?
    Mr. Baker. I come to agreement with you, Ms. Waters, and 
from a slightly different perspective. To a great extent, I am 
so overwhelmed by the Nation's generosity, private and public 
dollars that have been made available to us; we have not been 
the recipients of that kind of assistance before.
    But you have written one check. How do I come back to you 
and say, ``I'm going to cut your programs and make you pay 
twice?'' I'm asking you to make two commitments to me. I'm not 
going there.
    Now, I don't know what the thinking is. The plan I'm 
putting forward has a provision for the sale of property at the 
end to get taxpayers some money back. I feel I've got to do 
that. I feel we need to be very transparent, very accountable, 
show you where every dollar goes, and if you find something 
that's wrong, let's correct it. That's the way we--at least I 
believe--we should conduct ourselves in this disaster.
    Chairman Ney. Mr. Taylor?
    Mr. Taylor. Ms. Waters, I--my vote sent over close to 2,000 
young Americans over to Iraq to die. My vote also sent billions 
of American dollars over there to build schools, build roads, 
build water lines, build sewer lines. I didn't ask for an 
offset to help the people of Iraq. I'm not going to ask for an 
offset to help the people in Mississippi, Louisiana, or Texas.
    Ms. Waters. All right. I yield back to the gentleman from--
--
    Mr. Frank. I thank the gentlewoman.
    Ms. Waters. Thank you.
    Mr. Frank. And let me just say that I am impressed by the 
dignity, as well as the moral seriousness, of both answers, and 
I hope that it becomes the public policy.
    I would just say that the gentleman from Louisiana, he has 
also been in the forefront of our effort--because one of the 
things we're going to have to do, and obviously there is room 
for the private sector, but when it comes to building housing 
to be inhabited by people who are $40,000, $30,000 a year in 
income and below, there should be no way that's going to be 
build without some public--some other source of funds, 
particularly in an economy where people have lost their jobs 
and have lost what they had.
    So I think that makes it all the more important to pass the 
Affordable Housing Fund, and the gentleman from Louisiana has 
been working diligently on that. And I hope that next week we 
can get that through, and that would be another source of 
money.
    Beyond that, I just wanted to ask Mr. Taylor--and I must 
say this has now started to hit me. People may have been 
reading or watching on television the story of a dam in 
Massachusetts that is on distress. It's in my district, in the 
city of Taunton. I was up there yesterday, along with my 
Senators bringing our considerable engineering expertise to the 
job and maybe a little money as well.
    But--and it was pointed out to me by Mr. Riley on my staff 
that, you know, one of the problems is, I guess, if you live 
behind the dam, you don't have to get flood insurance. I've got 
people, it now turns out, in my district who may be facing 
flood damage who aren't insured. And one of the things I will 
do as of next week when this crisis has passed is to do 
something that I wish I had thought of before, which is to 
begin to tell people, ``You better buy flood insurance, even 
though it's optional.''
    But let me ask Mr. Taylor, because that's something for the 
future. But for those people he is talking about--and I know 
there is some reference to million dollar homes, they're doing 
this--how many million dollar homes in your district are we 
concerned about, Mr. Taylor?
    Mr. Taylor. Again, Mr. Frank, I hope I have made it clear--
I'm first to admit I'm bad to mumble--I hope I made it clear 
we're only asking in the bill that you and a number of others 
have helped me put together to pay up to the amount that people 
had insured themselves in the wind pool, or a quarter of a 
million dollars, which is the existing limit in the Federal 
Flood Insurance Program, whichever is less.
    Mr. Frank. Thank you.
    Mr. Taylor. If someone only thought enough of their place 
to insure it for, for example, $160,000 in the wind pool, there 
is no reason for the taxpayers to insure it to the----
    Mr. Frank. All right, then let me ask you this. And I do 
think--and you've done this, and it's painful, but I--and we 
often, when we are focused on legislation, talk about what 
people think will be the problems if we pass it.
    If we do nothing, if we don't pass the bill that you have 
sponsored, that I'm proud to co-sponsor, or we do nothing else 
to deal with the situation and the people whose housing losses 
will not be covered--and there will be lawsuits and things, but 
I'm not optimistic, I must say, and you've said the notion of--
likelihood of us passing a bill that makes that decision about 
what coverage is, I think, is even less likely than your bill--
if there was no congressional action, if things don't change 
and the current situation doesn't change, what happens to the 
people in your district?
    Mr. Taylor. Well, again, I am very appreciative that the 
President of the United States has been down to the district 
probably five times. I'm very appreciative that many of my 
colleagues have taken time out of their busy schedule to go 
see. Because even though you can see it on television, you 
really don't get a grasp for just how bad that is until you 
stand and look at that mountain of debris.
    The likelihood that tens of thousands of south 
Mississippians will lose their houses as a result of this is 
extremely high. The President's plan calls for tax breaks for 
people who come in from outside, invest in places like these 
down in Mississippi, and then after they fix something up and 
sell it high, they get to get those profits tax free.
    Well, that's great for the fellow who comes in and preys on 
the misery of the poor guy who has got to sell his house. It 
does absolutely nothing for the poor guy who has got to sell 
his----
    Mr. Frank. What happens--if they lose their houses, what is 
the prospect for all these people--working people we're talking 
about, maybe making $30,000 or $40,000 a year--what is the 
prospect that, having lost the house they had and lost the 
money they had sunk into it, and lost the downpayment, lost 
whatever mortgage payments, what is the prospect for large 
numbers of them getting a new house? How is that going to 
happen?
    Mr. Taylor. I think, Congressman Frank, you can answer your 
own question. I mean, two bad things can come out of this. They 
can have on their record that the bank foreclosed on their 
mortgage, or they can have on their record that they, you know, 
bought a house for $100,000 and sold it for $20,000 and that 
because of that then, therefore, could not pay off their credit 
card bill, could not pay off other loans that they may have had 
out. Their credit history is probably ruined from that point, 
and their chances of buying another house have been 
substantially diminished.
    We can try to make those people whole. Not even whole, just 
make them closer to where they were the day before the storm. 
Every one of them would rather have their house back. But at 
least we're saying that we, as a Nation, are going to step up 
and try to help you save your house. And again, I appreciate my 
colleagues who have signed on to this bill.
    Believe me, if we could think of a better way, I would 
welcome anyone's thoughts on a better way to make these people 
whole.
    Mr. Frank. Thank you. And Mr. Baker indicated that he had 
something to add.
    Mr. Baker. I just wanted to contribute. I come at it with a 
similar motive but a slightly different direction, with the 
Recovery Corporation, where we do provide for a mechanism not 
to make whole, but to provide for some reimbursement at the 
owner's choice: cash, move on, stay part of the new 
development----
    Mr. Frank. Let me ask you, too. Your bill is Louisiana-
specific. Is there any reason why that couldn't be broadened, 
or----
    Mr. Baker. The only reason it is Louisiana-specific is 
because of the varying amount of debt that would be issued 
between Texas, Louisiana, Mississippi, Alabama, and we don't 
want to have States competitive within Treasury----
    Mr. Frank. But the logic of your proposal would be that 
each State should have their own----
    Mr. Baker. Yes, that is correct.
    Mr. Frank. Thank you. Thank you, Mr. Chairman.
    Chairman Ney. I would like to move on to the second panel 
unless members have a compelling desire to ask questions.
    Mr. Pearce. If you don't mind me making a quick comment--
and I understand the sensitivity of the matter--I will just 
tell you--it needs better explanation--but in understand that 
we need to get to the next panel; the devastation is apparent. 
But I will tell you that there are single individual losses 
that occur every day that, because they don't have the 
visibility, will never get paid. And we are asking people who 
are devastated individually to pick up the burden.
    And I would use examples of ranchers on the border that, 
due to the policy of our U.S. Government, we have fences stolen 
and the Government will not reimburse that. And people say, 
``Well, they should be ranching at a better place; they should 
have known,'' same things that Mr. Taylor is saying, that they 
should not be on the border of where the people come up to the 
border and steal their goods.
    Just south of my district in Texas, the town of Zaragosa, 
Texas, about 15 years ago the entire town was blown away by a 
tornado, and it was not rebuilt with Federal funds.
    When we look at compassion--someone said if the private 
sector is not going to pay, we, as a Nation, should pay--when 
we begin to use the Government for compassion, I will tell you 
it is very difficult because compassion to one is uncompassion 
to another. And if we go back and review the decision to pay 
the people $1 million-plus at 9/11, it was full of compassion, 
full of heartfelt understanding of the loss.
    But what it said to the families--my district was the one 
who was at Bataan, it was the Mexico National Guard that served 
and died in the Bataan Death March--and what it said to those 
people who lost loved ones in Bataan is that, ``Your loss is 
somehow not compensationable.'' That's not a very good term, 
but we are not going to compensate your loss, but we are going 
to compensate the victims of 9/11 because it is so much more 
apparent, and it is so much more--we have got the political 
desire to do that.
    I will tell you that we are all going to wrestle with this 
problem. I understand the economic devastation, but keep in 
mind it was in my district, a district with no earthquake 
experience throughout our history, and about 15 years ago an 
earthquake came. We've got oil wells which stick 7,000 and 
10,000 feet deep, and those oil wells were completely broken.
    There was no one there to say, ``We should pick up the 
pieces for you; we should try to recreate the jobs; we should 
do these things.'' And I will tell you that as emotional as it 
is, if we pay for one and don't pay for every one, we are 
making some judgement errors that we will live with a long 
time. Thank you, Mr. Chairman.
    Mr. Tyler. You know, I hope you know I pride myself on my 
desire to balance the Nation's budget. And we probably look at 
this differently. I voted against almost every tax break 
because I didn't see how we could simultaneously increase 
spending, cut taxes, and somehow make it all work, and prepare 
for things like this and future wars.
    I guess what is different is the scale, quite frankly. I 
also feel fortunate to know people who have survived the Bataan 
death march. I know a guy who at 16 received the Congressional 
Medal of Honor, lied about his age to get into the Marine 
Corps, dove on two hand grenades at the Battle of Iwo Jima. 
He's a south Mississippian.
    There are 38,000 people in south Mississippi who don't have 
homes. Seventy percent of the people in my home county either 
have no home or now own a home that is uninhabitable. I think 
it's the shear scale of it. And I do understand we can't do 
everything for everybody.
    But, you know, there is going to be some cynic out there--
maybe one of the next panelists--who is going to say, ``They 
should have known better.'' You know, that blind cleric by the 
name of Raman got a guy to drive a truck full of explosives 
into the twin towers with the idea of setting off an explosion 
in the basement, toppling one tower into the other, and killing 
all the occupants. That happened around 1994.
    I guess a person could say, ``Well, those people should 
have known it was a target of terrorists,'' but I didn't say 
that. I voted to help make those people's--I can't bring back 
the people who died, but I tried to make the people--the lives 
of the survivors a little bit better. I thought it was a 
prudent thing for our Nation to do.
    And you're right. When you consider that compared to what 
happened at the Bataan Death March, or the people in World War 
II, the guys who were slaughtered on the beaches in Normandy, 
you can't make every wrong right. But you can do some things. 
And those things we can do, we should do.
    Chairman Ney. Thank you. Mr. Blumenauer?
    Mr. Blumenauer. Mr. Chairman, I appreciate your courtesy in 
permitting me to sit in on this. I want to commend these two 
gentlemen for the big picture that is being offered up. And I 
am hopeful that there is a way to approach it in the spirit 
that I think in which it is offered.
    I think we heard people ask for tweaks. We have been 
privileged to work with Mr. Taylor as he has brought this 
concept forward. But I think we are putting on the table two 
big items in terms of scale of reconstruction and type of 
partnership.
    I commend Mr. Baker for calling the question, and look 
forward in various committees, how we can come together to see 
what can come from this challenge. And his approach is the 
biggest scale I have seen to this point, and I think it is 
worthy of serious consideration.
    And I appreciate Mr. Taylor and the work that he has done 
in terms of calling the question about the nature of the flood 
insurance program and how this committee has already 
acknowledged that more money is going to be needed anyway. This 
is an opportunity to deal with this issue in a more 
comprehensive way keeping the integrity of the program, but 
dealing with people who have really been taken unawares.
    I appreciate the spirit with which both gentlemen have 
offered their proposals and the way the committee has been 
approaching them. And I think there are lots of us on the 
outside world that would really love to continue working with 
you and with them because this is the sort of thing that I 
think is ultimately going to get us to the situation and 
resolving it.
    Chairman Ney. I am sure that this will not be the last of 
these discussions. Any other members? Mr. Melancon?
    Mr. Melancon. I want to thank both of my colleagues, Mr. 
Taylor and Mr. Baker, who I am proud to say I served with. The 
efforts are good. We have got a long way to go.
    To the gentleman who was concerned just a minute ago, just 
for the record, tornadoes are covered by property insurance 
policies. So if they rebuilt, if they had insurance, they 
didn't have a problem.
    This is a situation where people had insurance, and they 
are not covered. And this is a situation where in St. Bernard 
Parish alone I think the number is 24,000 or 34,000 homes are 
uninhabitable and not covered if the insurance companies have 
their way, by the policies that they thought would take care of 
them.
    Mr. Baker. If the gentleman would yield on that point, I 
have also learned that when a properly conducted business owner 
acquired business interruption insurance, if your supplier was 
in Orleans and the supplier was wiped out, you're covered. But 
if your business was in Orleans and you were flooded, you're 
not covered.
    Mr. Melancon. That's right.
    Mr. Baker. So smart business people buying product they 
thought to protect them prudently turned out not to be so 
prudent.
    Mr. Melancon. Thank you, sir.
    Chairman Ney. Any other members?
    [No response.]
    Chairman Ney. I want to thank both the gentlemen.
    Moving on right away to panel two, I think what we will do 
is have a vote. We should probably do that and come back. I 
won't return; I have got another appointment--I thought this 
would end by noon--but somebody will be here, you know, 
obviously, to chair.
    So I just wanted to make one comment because I won't be 
back here. I think that if we--well, my question is going to 
be--and it will be asked for me--is, is the White House 
actually going to submit a request for--to up the debt relief.
    And just a personal opinion, if that happens, we ought to 
have instantaneous accurate mapping if we are going to spend 
all that money.
    On another note, we would remind members that you are not 
going to be able to answer all the FEMA questions that we want 
answered about housing and situations like that. But as a 
personal editorial, if we are looking just for FEMA's 
information--not yours--but if we're looking for helping people 
down there, taking away Davis-Bacon living wage is not a way to 
help people down in that affected area.
    With that, we will recess.
    [Recess.]
    Mr. Pearce. [presiding] The meeting will come to order. Our 
second panel is Mr. David I. Maurstad, acting director and 
Federal insurance administrator, mitigation division, the 
Federal Emergency Management Agency, the emergency preparedness 
and response director in the Department of Homeland Security. 
And if he has to announce his title every day, it takes about a 
third of the work day just to say that.
    And the second witness will be Mr. William O. Jenkins, Jr., 
director of homeland security and justice, U.S. Government 
Accounting Office.
    Mr. Maurstad?

  STATEMENT OF DAVID I. MAURSTAD, ACTING DIRECTOR AND FEDERAL 
INSURANCE ADMINISTRATOR, MITIGATION DIVISION, FEDERAL EMERGENCY 
    MANAGEMENT AGENCY, EMERGENCY PREPAREDNESS AND RESPONSE 
          DIRECTORATE, DEPARTMENT OF HOMELAND SECURITY

    Mr. Maurstad. Thank you, Mr. Pearce, members of the 
subcommittee. If I can have the written remarks part of the 
record, I will----
    Mr. Pearce. Could you ensure that your microphone is on and 
pulled up close?
    Mr. Maurstad. Yes, sir. Is that better? Thank you. And let 
me first say that I appreciate the opportunity to appear this 
afternoon. I have personally observed the area down in the Gulf 
Coast area, the damaged areas, and been there and witnessed the 
devastation that was talked about earlier, and have been 
working with the insurance commissioners of the affected 
States, and want to continue to express my sympathy and prayers 
for all of those that are affected.
    I would like to focus my remarks, oral remarks, on the 
financial condition of the National Flood Insurance Program, as 
seen through the prism of Hurricanes Katrina and Rita.
    However, I want to take the opportunity, in addition, to 
emphasize that NFIP is more than just an insurance program. It 
is flood risk identification, the importance of which is 
demonstrated with the 5-year $1 billion flood map modernization 
effort that is underway with the support of Congress and the 
Administration, which leads to an important aspect, and that's 
the company participation and community participation in the 
National Flood Insurance Program.
    There are over 20,100 communities that voluntarily agree to 
participate in the program. Part of that agreement deals with 
the mapping. The Federal Government doesn't impose the 
referenced maps on local communities. Communities agree to 
participate; they agree to adopt the flood maps to guide them 
with the second aspect of what I want to share with the 
committee that deals with flood plain management.
    So when they adopt those flood maps, the proposed flood 
maps that we provide to them, they are adopted on the basis 
that that is the minimum requirement to participate in the 
National Flood Insurance Program. Communities have the ability 
to adopt maps that go beyond the 100-year flood, and many 
communities do do that.
    The sound flood plain management component of the NFIP 
saves this country an estimated $1.1 billion in preventative 
flood damages annually. That means that since 1996, the Nation 
has reduced the risk of flood by $10 billion. In addition, the 
structures built to NFIP criteria experience 80 percent less 
damage than structures not built to those standards.
    Having said that, let me return to the financial situation 
of the National Flood Insurance Program on the heels of Katrina 
of Rita. On September 20, 2005, the President signed H.R. 3669, 
which increased the NFIP's borrowing authority from $1.5 
billion to $3.5 billion.
    However, as Katrina and Rita-related claims will exceed 
this amount, I am authorized to request from the committee that 
$5 billion be added to this authority. This stop gap measure 
should allow sufficient borrowing authority to cover claims 
through mid to late November, which would enable us to work 
with this committee and others to complete meaningful program 
reform recommendations.
    It is also important to note that since 1986, the NFIP has 
been financially self-supporting. During periods of high 
losses, the NFIP has borrowed from the U.S. Treasury, which is 
an essential part of NFIP's financing for heavy loss years. 
These loans have been repaid with interest from policy-holder 
premiums and related fees at no cost to the Nation's taxpayer.
    Hurricane Katrina was a catastrophic event, going well 
beyond what the NFIP was intended to address from premium 
revenues alone. In that context, let me refer to the charts 
that have been provided to subcommittee staff and, hopefully, 
are available to you.
    I direct your attention first to the chart that is about 
National Flood Insurance Program Estimate of Ultimate Paid 
Losses from Hurricane Katrina. There is a similar report----
    Mr. Pearce. Which panel--which sheet is that, CRS37?
    Mr. Maurstad. I believe I provided these charts to staff, 
along with the oral testimony, sir. And we have copies if you 
need copies. Do you need copies? There should be three 
documents----
    Mr. Pearce. Yes, you can go ahead. Thank you.
    Mr. Maurstad. Okay, thank you. Two of them are identical in 
format, one dealing with losses from Hurricane Katrina, and the 
other from Rita. I'm not going to go through this chart line by 
line. I just point out to you that this is the basis by which 
we have developed what we believe that the ultimate paid losses 
from the hurricanes will be, broken down by State and by 
affected counties.
    What we have provided in that is the total policy in force 
in a particular county, the total coverage associated with 
those policies and then as you move across to the right, what 
we estimate the assumed frequency for the number of losses on 
that total policy count, which leads us to the next column, 
which is the estimated number of claims that we are looking at 
for that particular county.
    The next column, we estimate what we believe to be the 
severity of the individual losses, with the final column being, 
of course, the total of the estimated number of claims times 
the assumed severity.
    If you go down to Louisiana, we also break that severity 
down to a little bit finer level in the assumption of the 
percentage of claims that would be paid at policy limits, those 
that would have a $40,000 severity, and the remaining at 
$50,000 severity.
    So we have used this as the guide, in addition to the 
information that has been generated from our requests from the 
96 write-your-own companies. But primarily in this area there 
are about seven major insurance companies that administer the 
National Flood Insurance Program on behalf of the Federal 
Government in our what was biweekly calls and now weekly calls 
and the reporting that we have set up for them to tell us the 
number of claims that they are getting reported.
    And as time goes on, when those claims are being closed, 
and the amount that they're being closed, so that we can keep 
as close an accounting, real time, as much as possible, given 
the circumstances, so that we know what to present to you as to 
the condition of the fund is.
    The third sheet that we provided is the projection of the 
Federal cash flow from the claim payments, and which is guiding 
us to--it is the basis by which we requested the additional $2 
billion of borrowing authority and now are requesting an 
additional $5 billion of borrowing authority.
    And you can see that our expectation is, on a weekly basis, 
that by mid to late November, our current borrowing authority 
will not be sufficient to take care of the claims that were 
expected to be closed and payments made to policy holders 
during the period between now and then, and then we carry that 
on out to the ultimate of $23 billion being the expectation for 
this event.
    I indicated in my written testimony how that compares with 
historical, and it clearly is many, many, many times beyond 
what the program has ever experienced in the 38-year history.
    Let me conclude my comments and then be certainly available 
for questions, either about the reports or my testimony. The 
$23 billion in estimated claims from those whose homes and 
businesses have been damaged or destroyed by Hurricanes Katrina 
and Rita is not a new obligation. It is the result of a legal 
promise we made to these homeowners and business owners when 
Congress passed the National Flood Insurance Act of 1968 and 
the subsequent revisions.
    Homeowners and business owners agreed to pay the premiums; 
communities agreed to adopt building codes to mitigate flood 
damages; and the Federal Government agreed to provide insurance 
coverage to policy holders after a disaster.
    Every single one of these claims represents someone who has 
taken the responsible course of action by purchasing flood 
insurance and faithfully paying the premiums. We not only have 
a legal obligation to honor our commitments, we have a moral 
obligation to provide the coverage we promised to provide.
    To do anything less would not only result in dire 
consequences for the NFIP, the write-your-own insurance 
companies whose names are on the policies, and the communities 
working hard to manage their flood risks, it would simply be 
wrong.
    Once again, thank you for the opportunity to testify. And 
certainly, as in the past, I'm available to the committee.
    [The prepared statement of David I. Maurstad can be found 
on page 132 in the appendix.]
    Mr. Pearce. Thank you. Mr. Jenkins?

  STATEMENT OF WILLIAM O. JENKINS, JR., DIRECTOR OF HOMELAND 
    SECURITY AND JUSTICE, U.S. GOVERNMENT ACCOUNTING OFFICE

    Mr. Jenkins. Congressman Pearce and members of the 
subcommittee, I appreciate the opportunity to be here today to 
discuss the challenges facing the National Flood Insurance 
Program.
    The devastating effects of Hurricanes Katrina and Rita have 
placed unprecedented demands on the NFIP. As of October 13th, 
FEMA reported that 192,809 claims had been filed, and NFIP had 
paid almost $1.3 billion to settle 7,664 of these claims. This 
number of claims is more than twice as many as were filed in 
all of 2004, itself a record year.
    The NFIP combines property insurance for flood victims, 
maps to identify the areas at greatest risk of flooding, and 
incentives for participating communities to take actions that 
reduce future flood damage.
    A key characteristic of the NFIP is the extent to which 
FEMA must rely on others to achieve the program's goals. FEMA's 
role primarily is to one, establish policies and standards that 
others generally implement on a day-to-day basis, and two, 
provide financial and management oversight of those who carry 
out those day-to-day responsibilities.
    My statement today focuses on FEMA's management and 
oversight of the sales and service of flood insurance policies. 
FEMA faces a challenge in providing effective oversight of the 
96 insurance companies and thousands of sales agents and claims 
adjusters who are primarily responsible for the day-to-day 
process of selling and servicing flood insurance policies, 
including claims adjustment.
    About 40 FEMA employees, assisted by about 170 program 
contractor employees, are responsible for managing the NFIP. 
Management responsibilities include establishing and updating 
NFIP regulations, administering the National Flood Insurance 
Fund, analyzing data to actuarially determine flood insurance 
rates and premiums, and offering training to insurance agents 
and adjusters.
    In addition, FEMA and its program contractor are 
responsible for monitoring and overseeing the performance of 
the write-your-own companies to assure that the NFIP is 
administered properly. For example, assuring that policies are 
properly priced, and claims appropriately handled.
    FEMA told us that its principal method of monitoring 
performance and identifying and resolving problems is to 
conduct an operational review about once every 3 years, of each 
of the 95 write-your-own companies. In addition, FEMA's program 
contractor is to check the accuracy of claim settlements, do 
quality assurance reinspections of a sample of claims 
adjustments for every flood event.
    We examined 15 operational reviews completed from 2001 to 
February of 2005. We found that these 15 operational reviews 
met both FEMA's standards for identifying critical errors, such 
as violation of policy or an incorrect payment, and that FEMA 
tracked a company's progress in correcting any identified 
critical errors.
    We also found that FEMA's method of selecting the sample of 
claims for reinspection was useful for identifying some 
specific problems and risks. But the sample was not 
representative of all claims settled and, thus, could not be 
used to assess the overall performance of private insurance 
companies and adjusters who process claims in a specific flood 
event.
    An instructor for adjuster training cited several problems 
he had identified in reinspecting claims, such as one, improper 
room measurements, two, improper allocation of costs caused by 
wind damage, and three, poor communication with homeowners in 
the process followed to inspect the property and settle the 
claim.
    Additional payments were made for about half of the 2,294 
claims that used the appeals process set up for Isabel claims, 
principally, for two reasons: the adjuster did not include some 
items he should, and higher payments for materials, labor, or 
personal property than originally allowed were allowed on 
appeal.
    FEMA has made progress, but not fully implemented the 
requirements of the 2004 Flood Insurance Reform Act. For 
example, in September, FEMA posted on its website its flood 
insurance claims handbook, which outlined a basic four-step 
process for appeals, but has not yet completed the design and 
implementation of its full appeals process.
    We recommended that FEMA develop plans that include 
milestones for completing requirements of the 2004 Act and 
assigning accountability for meeting those milestones.
    FEMA faces a formidable challenge in providing effective 
direction and oversight for processing the record number of 
flood insurance claims that have arisen and will arise from the 
recent hurricanes. This record number of claims only reinforces 
the importance of effective oversight and the need for clearly 
defined, understandable, and consistently applied processes for 
policy holders on filing claims and appealing claims 
settlements.
    It also highlights the need for effective communication 
with the thousands of anxious policy holders, many of whom have 
been displaced from their homes and many who have lost 
everything.
    As part of the body of work GAO is beginning on the 
preparation for a response to and recovery from Hurricanes 
Katrina and Rita, our work on the NFIP will continue. That 
concludes my statement, Mr. Chairman. I will be pleased to 
respond to any questions you or the other members of the 
committee may have.
    [The prepared statement of William O. Jenkins, Jr. can be 
found on page 55 in the appendix.]
    Mr. Pearce. Thank you. I would yield to myself to start the 
questions.
    And Mr. Maurstad, I guess if I'm looking backwards, it 
looks like maybe in 2004 we were about $60 million--we had $60 
million in the bank right? And then we had the losses of $2.28 
billion in 2004, so we ended up borrowing $220 million. And you 
said that money has entirely been paid back?
    Mr. Maurstad. We originally had borrowed $300 million 
earlier this year. We paid back $75 million. And so the 
statement that we had paid for 1986 now is up to that point in 
time.
    Mr. Pearce. I understand. But you have--you make--you take 
loans out and you make repayments. So I am looking at a revenue 
picture of $2 billion a year. Is that about what the Agency 
gets in in premiums?
    Mr. Maurstad. In premiums and in fees from the policy 
holders.
    Mr. Pearce. About $2 billion in revenues?
    Mr. Maurstad. Yes.
    Mr. Pearce. Now if I were going to go to a bank and borrow 
$22 billion with $2 billion worth of revenue, 22 versus 2, I 
would have to have it amortized over a long number of years. 
How many years is it going to take to pay back just Katrina?
    Mr. Maurstad. We----
    Mr. Pearce. Just the $22 billion or $23 billion that you 
are estimating.
    Mr. Maurstad. It is my opinion that the program does not 
have the ability to repay the portion of the--of what we are 
looking at here, beyond about $1 billion, unless we extend it--
--
    Mr. Pearce. Okay. So we don't have the ability to repay.
    Mr. Maurstad. Not----
    Mr. Pearce. And in another part of your testimony, you said 
that we have made a legal promise. Why are we making legal 
promises that we don't have the capability to fulfill? That 
becomes a critical question in the administration of the 
program.
    Mr. Maurstad. When the program was designed, back in 1968, 
and since then, it was designed from the premise that premiums 
would be generated that would be able to take care of the--an 
average loss year, and that borrowing authority would be 
extended to move--enable the program to move from year to year 
in those ups and downs that are going to occur from an average 
loss year.
    Mr. Pearce. Basically, you are saying we miscalculated.
    Mr. Maurstad. No, I'm saying that without--it's my opinion 
that the idea that if a catastrophic event ever occurred such 
as we're facing now, that the Federal treasury would be the 
means by which that difference would be made up, that the 
program was not capitalized, that the previous looks at whether 
or not reinsurance made more sense turned out to be more costly 
than if we continued to work the program based on average loss 
years with the necessary borrowing authority to get through the 
ups and downs.
    Mr. Pearce. What--you said that all the check marks--in 
other words, the responsibility is on the part of others. Your 
comments were we made a legal promise to pay, but that people 
have a responsibility to buy; the communities had a 
responsibility to develop building codes.
    And are you telling me that if I am to look at your other 
sheet showing 235,000 estimated claims, 235,944 estimated 
claims that the building codes for all of those have been 
adequately--the check marks have been adequately made and that 
we have done our due diligence through all parts of society in 
order for us to say that we have the moral obligation to pay, 
which is your ultimate conclusion?
    Mr. Maurstad. It is the responsibility of the program to 
make sure that the communities----
    Mr. Pearce. And have they done that?
    Mr. Maurstad.--the----
    Mr. Pearce. And have they done--you said building codes was 
an important parameter.
    Mr. Maurstad. Yes.
    Mr. Pearce. And have all the building codes been put in 
place and complied with?
    Mr. Maurstad. Yes.
    Mr. Pearce. Could I get documentation to that effect, that 
you would, in your words, say that all building codes have been 
put in place, and they have been 100 percent complied with?
    Mr. Maurstad. When they are--when non-compliance is 
discovered, either by our inspections and community visits that 
occur, or if we are made aware of those violations, then we 
address them and require the communities to rectify the 
problem, or we go through the process of suspending them from 
the----
    Mr. Pearce. Mr. Jenkins, in your testimony you have 
indicated some oversight of--or some looking at introspection 
of the program. Would in your estimation we have complied with 
100 percent of the building codes in the requirements for 
communities to do their due diligence in these 235,000 claims 
that are going to be filed?
    Mr. Jenkins. Well, I think there is one thing that is in 
Mr. Maurstad's statement that is not a fault of FEMA, but there 
is a significant number of repetitive loss properties that by 
definition don't necessarily meet those regulations because 
they were essentially grandfathered into the program. And there 
are roughly 22,000 of those in Louisiana, for example, for 
which there would be claims.
    So, in particular, for the repetitive loss properties--
these are properties that were built before the flood maps were 
created, and when they were built it wasn't known that they 
were necessarily in a flood plain.
    So to the extent that there are these properties in the 
program--and they are about 24 percent of all the properties 
that are in the program are in this category--then they don't 
necessarily meet the building codes.
    Mr. Pearce. Thank you. I appreciate that. Ms. Waters, I 
yield to you. I will have additional questions, so if you would 
like to have two sets of questions ready, we will go at least a 
second round.
    Ms. Waters. Thank you. Thank you very much. I appreciate 
that.
    Mr. Maurstad, there have been, as you know, a lot of 
criticism and many complaints about the program. I think when 
you were here before, we requested information from you about 
interrogatories and document requests that Steve Kanstoroom--
several committee members in July.
    You answered to the question--you said you had responded, 
or you were in the process of responding to every request that 
came to your office. I have not received anything. Have you 
sent me anything?
    Mr. Maurstad. Ms. Waters, I regret to let you know that we 
have not responded to those questions for the record. They are 
in the concurrence process now, and I am working with my 
cohorts in the office of general counsel in getting those 
answers for your questions, and getting them to you and the 
committee.
    Ms. Waters. How long do you think it will be before we get 
those answers? What's the time frame?
    Mr. Maurstad. Very soon.
    Ms. Waters. This year?
    Mr. Maurstad. Yes, ma'am.
    Ms. Waters. Next month? This month? Next month?
    Mr. Maurstad. Hopefully. I will work----
    Ms. Waters. Before December?
    Mr. Maurstad. Yes, ma'am.
    Ms. Waters. Some time in November. Okay, we will look 
forward to that.
    Mr. Maurstad. I will do my best.
    Ms. Waters. All right. There are some questions about the 
competency of some of the people that work for the Agency. And 
there is some information that I received about an adjuster 
training session, all these problems about--questions about the 
adjusters.
    A training session that took place in Mississippi shortly 
after Katrina, and according to a Mr. Jackson, many of the 
prospective adjusters had never adjusted a claim of any type, 
and that the CSC trainer provided the test answers to more than 
500 adjusters, and he believed that these untrained adjusters 
were being used, unleashed on unsuspecting Katrina and Rita 
victims. How do you respond to that?
    Mr. Maurstad. I am not aware of that. We will certainly 
check into that. I would say to you that if there are 
independent adjusters, they have to be certified with the 
program for 4 years. If--we certainly have a provision where if 
a less experienced adjuster is needed because of the sheer 
volume of claims that we're looking at, that they have to work 
with one of our certified adjusters and, in essence, in a buddy 
system, so to speak, apprentice system.
    And so there aren't any adjusters out there that have never 
worked flood insurance claims that have the authority to settle 
the claim. They would be working with one of the certified 
adjusters.
    Now the adjusters that work for the companies that we 
primarily write the policies--that write the policies on behalf 
of the program, 95 percent of the policies are written by the 
write-your-own companies. They use their adjusters, and they 
train those adjusters, and they provide the assertion to us as 
a part of their arrangement with the program that those 
adjusters are trained.
    But your specifics about somebody providing answers to test 
questions, I will have to look into. That's not my 
understanding. I don't have a firsthand understanding of that.
    I did attend adjuster training sessions right after Katrina 
hit in Alabama and Mississippi and Louisiana, and I didn't 
witness any of that.
    Ms. Waters. What is the Jones Insurance Agency?
    Mr. Maurstad. The Jones Insurance Agency that I am familiar 
with is located back in Nebraska. It's an independent insurance 
agency that operates in a few of the communities in Nebraska. I 
am sure there are a number of other Jones Insurance Agencies 
throughout the country.
    Ms. Waters. Is there one that is doing business as Maurstad 
Insurance Services?
    Mr. Maurstad. That agency purchased the agency that I was a 
corporate officer of back in 2003, I believe.
    Ms. Waters. Are you a principal, a beneficiary in any way, 
of the Jones Insurance Agency at this time?
    Mr. Maurstad. No. No, I am not.
    Ms. Waters. When did you sever your relationship with them?
    Mr. Maurstad. I believe it was March 1, 2003. I can 
provide--if that's not correct, I will correct the record.
    Ms. Waters. Okay. Would you say that for me, again? March?
    Mr. Maurstad. First of 2003. The agreement, I believe, was 
effective, actually, you know, January 1, 2003.
    Ms. Waters. What was the period of overlap in your service, 
your job, and the overlap with your----
    Mr. Maurstad. As acting Federal insurance administrator, 
none.
    Ms. Waters. Give me the dates from the----
    Mr. Maurstad. March 1, 2003. I was appointed acting Federal 
insurance administrator, I believe, June 25, 2004.
    Ms. Waters. Do you have any interest or participation in 
any other insurance-related business or entity at this time?
    Mr. Maurstad. No, I do not.
    Ms. Waters. Well, I have a lot of questions here that 
relate to conflict of interest, and I don't want to just simply 
put you on the spot, because these are very serious questions. 
But you should be aware that there are a number of allegations 
and inquiries that are being made about past conflicts of 
interest, potential conflicts of interest, even to a point 
where you were licensed to serve as a broker.
    So what I am going to do is I am going to set up some time 
with you to talk this over with you first and go through these 
questions so that you will have an opportunity to tell me what 
you know about these issues. And then we will see what happens 
from----
    Mr. Maurstad. Yes. And I have provided this information to 
the ethics officer of the department. I have filed all the 
necessary financial disclosures as required.
    Ms. Waters. Okay.
    Mr. Maurstad. I would be pleased to be able to sit down 
with you as well.
    Ms. Waters. Okay, thank you. We will do that. My time up?
    Mr. Pearce. Yes.
    Ms. Waters. Thank you very much.
    Mr. Pearce. There will be a second round if the gentlelady 
would like to take that.
    Ms. Waters. All right.
    Mr. Pearce. I think my first question would be that, Mr. 
Maurstad, I understand that you said we could sustain about $1 
billion repayment, and the rest of it really should not be in 
the form of a loan. Is that more or less correct?
    Mr. Maurstad. Yes, sir.
    Mr. Pearce. In your initial opening statement, you had 
talked about $1.5 billion to $3.5 billion has already been 
authorized, and another $5 billion would be authorized. Now, it 
was my understanding you were talking in terms of a loan at 
that point.
    Mr. Maurstad. Yes, sir.
    Mr. Pearce. Why would we be--why would FEMA be requesting a 
loan when you don't have capability to repay anything exceeding 
$1 billion. Is that--shouldn't we just get the terminology out 
on the table right now?
    Mr. Maurstad. The reason that we are requesting the 
additional loan authority is so that we can work with the 
committee and work with others in developing a program to--
recommendations to strengthen the program when that--the 
ultimate decision that you're talking about would be made.
    Mr. Pearce. And what recommendations to strengthen the 
program involve--I mean, just basically financially, what 
recommendations are you going to make? Are there going to be 
premium increases for the affected areas? What?
    Mr. Maurstad. Well, premium--there would not be premium 
increases for just the affected areas because the same rates 
are charged throughout the country based on the risk associated 
with a particular zone on the flood map. So more isn't 
charged----
    Mr. Pearce. I understand.
    Mr. Maurstad. Okay.
    Mr. Pearce. Just premium increases across the board, then?
    Mr. Maurstad. Certainly. We increased premiums last year.
    Mr. Pearce. How much did premiums go up last----
    Mr. Maurstad. Those policies that are at less then risk, 
about 8 percent. The actuarial-rated policies that make up 
about 75 percent of the program, at about--my memory is between 
2 and 3 percent. I can provide that, those specific increases, 
to you.
    Mr. Pearce. What about the repetitive losses that Mr. 
Jenkins mentioned? You have got 22,000 repetitive losses. I was 
watching a guy on TV one night saying that he had rebuilt two 
or three times and collected every time. Do you have any idea 
that you're going to begin to curtail those practices of paying 
repetitive losses?
    Mr. Maurstad. We were given authority in 1994 and started 
the flood mitigation assistance program that was targeted at 
repetitive loss properties that was funded from part of the 
fees that were generated from the policies.
    You know, last year we had about $20 million go towards 
that effort trying to address repetitive loss property----
    Mr. Pearce. How are we trying to address those?
    Mr. Maurstad. Excuse me?
    Mr. Pearce. How are we trying to address them?
    Mr. Maurstad. We either relocate or elevate the structures 
above the base flood elevation are the two primary ways that 
that is done.
    And, of course, the--in the reauthorization in 2004 that 
included a provision to address severe repetitive loss 
properties--and, you know, we're pleased that with the signing 
of the Department of Homeland Securities budget a couple of 
days ago--we will now have the ability to transfer funds from 
the National Flood Insurance Fund to support the beginning of 
the severe repetitive loss property, as directed by the 
authorization----
    Mr. Pearce. You're not going to stop--you won't cease 
paying claims on repetitive properties? You will actually buy 
them out and physically move them, is that correct?
    Mr. Maurstad. In the previous policy it was on a willing 
buyer/willing seller basis that you provide a mitigation 
opportunity to a property owner and provide grant assistance to 
do that. We have two other programs----
    Mr. Pearce. Well, I think if we took a--did you take a look 
at some of the people? I mean, I suspect if I go back and 
explain to my constituents that we are paying--I think if we 
took a balance sheet of some of the people that we're buying 
their properties, and the number of times they have received 
compensation for those properties, I suspect I would not have a 
good time explaining to people in my district.
    Our average income is about $21,000, $22,000 a year, and we 
are paying those repetitive losses to people, I suspect, with 
bank accounts larger than net worths of people in my district. 
I really question that whole process.
    You have got--you have 40 full-time employees, 170 contract 
employees. How many people is it going to take to administer 
Hurricane Katrina by itself?
    Mr. Maurstad. Well, one of the benefits of the way the 
program is structured--and again, that we rely on the 96 write-
your-own companies to administer the program--is primarily 
their resources that are being used to handle the claims that 
are going to--that are outlined in the hand-outs that I 
provided you.
    And so, although this is certainly beyond what a normal 
event would be, right now we have set up processes by which 
companies would be able to streamline some of the claims 
handling for those losses that are going to clearly exceed 
policy limits.
    So we are working with the write-your-own industry to 
handle these claims as quickly and as fairly as possible. But 
the benefit, again, of the system--to get directly to your 
question--is we utilize the private insurance industry to deal 
with the magnitude of this event.
    Mr. Pearce. And I realize my time has expired, but just to 
follow up, is that, the cost for that use of the private 
insurance industry to administer, is that calculated into the 
cost?
    Mr. Maurstad. Yes. Some of it is, sir, yes.
    Mr. Pearce. Ms. Waters, do you have additional questions?
    Ms. Waters. Well, you know, I am so concerned about all of 
these losses, and all of these citizens who will be placed in 
the position of trying to recover, trying to get insurance 
companies to pay, trying to get you to compensate them fairly.
    And we have had so many complaints, and people are in the 
understanding, often times, that they are to be made whole, 
that the adjusters, you know, are not doing the work in a way 
that respects and recognizes their tremendous losses.
    Now I am looking at this GAO report, and it said that FEMA 
has not yet fully implemented provisions of the Flood Insurance 
Reform Act 2004 requiring that the Agency provide policy 
holders with ``a flood insurance claims handbook that meets 
statutory requirements to establish a regulatory appeals 
process,'' on and on and on, and that the deadline was December 
30, 2004. What's with this?
    Mr. Maurstad. There are some aspects of the reauthorization 
that we are--have not fully completed to this point. But as my 
written testimony indicates, beginning back in September, we 
are, in fact, providing the claims handbook to policy holders. 
We are in the process of the companies providing the summary of 
coverage to the policy holders as those policies are now 
beginning to be reviewed--or renewed.
    So there are certain--the agent training component of the 
reauthorization, we have completed that, working as directed 
with the insurance commissioners across the country. So there 
are certain parts of the reauthorization that we have complied 
with and completed. There are other parts that we are in 
various stages of completing. We are working very aggressively 
at getting it all done.
    Ms. Waters. That's a real problem.
    Mr. Maurstad. And if I could----
    Ms. Waters. Let me just tell you--and I think you know 
this--one of the greatest complaints that we are going to hear 
from the victims of Katrina and Rita is that they are not being 
treated fairly, that the adjusters are not treating them 
fairly.
    So we are going to hear a lot of this. And we just hope 
that you can do something that will demonstrate that you are 
bending over backwards to treat these people fairly. I mean, 
they have gone through an awful lot.
    Mr. Maurstad. Yes----
    Ms. Waters. Having said that, this handbook and information 
that helps to educate people and helps to help them to walk 
through these processes and these procedures is so very 
important. And that should not be underestimated. And I would 
like to see this fully implemented.
    Mr. Maurstad. Yes, ma'am. We agree with you. And we 
wanted--and part of the delay, quite frankly, was working with 
the write-your-own companies, working with the agent groups, to 
make sure that the tools that we develop have the effectiveness 
that you're talking about.
    So we work with them and consult with them to make sure 
that we do that. We agree that the better information we can 
provide to policy holders, the more easily they are going to 
understand the process and be able to have their claims handled 
fairly. We have----
    Ms. Waters. Do you think we should set up a program for the 
payment of premiums that will protect beyond $250,000, if 
people are willing to pay a little more?
    Mr. Maurstad. We certainly--that figure has not been 
changed since 1994. We certainly need to look at----
    Ms. Waters. Have you recommended----
    Mr. Maurstad. We would certainly need to look at, as we try 
to move forward on how we can strengthen the program, whether 
the fund can support that increase in limit of insurance. It 
certainly is on the table and certainly needs--and we are 
reviewing it.
    Ms. Waters. So--but you have not made a recommendation to 
that effect anyplace?
    Mr. Maurstad. No, I have not.
    Ms. Waters. But this would be with an increase in premiums 
for those who are willing to pay?
    Mr. Maurstad. There will certainly be----
    Ms. Waters. Can afford to pay? Who have properties that are 
in excess of $250,000? You think that's a legitimate way to 
deal with coverage of some of these properties?
    Mr. Maurstad. I certainly think it's legitimate and 
certainly think that it's one of the things that we need to 
look at as we work together to try to strengthen the program if 
that, in fact, is----
    Ms. Waters. What's taking you so long? You didn't just 
start thinking about this today.
    Mr. Maurstad. No. Part of the reason--I started, actually 
thinking about it a year ago, after some of our conversations 
and after reviewing some of the complaints that had been 
registered before.
    But at that time, we were on the heels of the four 
hurricanes that we were affected by in 2004, causing the 
greatest number of claims in the history of the program, and 
the fund was in a borrowing position. And so to increase the 
limit of insurance at that point in time, it seemed to be 
prudent to wait and see as we continued to look at that. So 
it's on the table.
    Another--what you're getting at is another concern of mine 
in that we need to continue to educate people and make people 
aware of, and that's insuring the value. Many times, when 
people do buy a flood insurance policy, they only buy it for a 
minimum amount. And then, when they have a devastating loss, 
they again don't have the necessary insurance proceeds to help 
them rebuild. So we need to do a better job of getting the 4.7 
million policy holders that we have now to insure to value, 
similar to what they do on their normal homeowner policy.
    Ms. Waters. Well, what's taking you so long to have gotten 
that job done?
    Mr. Maurstad. Well, we are working very aggressively. We 
have a public awareness campaign that we have shared with you 
before, floodsmart.gov. We have a national campaign we targeted 
to areas that have the greatest losses to try to make sure 
people understand their flood risk, encourage them to contact 
their local agent and buy a policy, provide the necessary 
information to them through our floodsmart.gov website----
    Ms. Waters. Okay, that's good. What about mapping? What 
have you done about that?
    Mr. Maurstad. Mapping, we are working very aggressively, 
again, with our stakeholders. My programs all deal with working 
with States and local communities, associations like the 
Association of State Floodplain Managers, and we are working 
with them in implementing the flood map modernization. We are 
about--we are starting our, I think, fourth year of that 5-year 
program. We are on track.
    But it takes time to develop maps, from an engineering 
point of view, working with the corps, working with private 
engineers. But then also, it takes time once we deliver those 
maps on a preliminary basis to the communities for them to have 
the public hearings necessary and to formally adopt those maps.
    So the process is one that is 2 to 3 years in time. That's 
the way it is designed to be for the necessary public 
protections.
    Ms. Waters. Finally, do you support Mr. Taylor's bill for 
dealing with those people who have no flood insurance?
    Mr. Maurstad. No. I do not.
    Ms. Waters. Why not?
    Mr. Maurstad. Well, I think that it would provide a 
disincentive for people to purchase flood insurance. There is 
already a perception out there that one of the reasons why--I 
am told, when people are asked why they don't have a flood 
insurance policy--is one, they think that--they erroneously 
believe that it is covered under their homeowner's policy, but 
second, there is a perception that the Federal Government will 
come in at the time of a disaster, and----
    Ms. Waters. So what should happen to these people?
    Mr. Maurstad.--provide them assistance. And it does not----
    Ms. Waters. What should happen?
    Mr. Maurstad.--encourage people to do the right thing and 
buy----
    Ms. Waters. What should happen to these people who--this 
great disaster?
    Mr. Maurstad. I think that there are a number of efforts, 
not only within the Department, but within the Federal 
Government and within the private sector to try to develop the 
best way to meet those unmet needs.
    Ms. Waters. No, we're not talking about meet unmet needs; 
we're talking about people who have lost everything they have, 
their home, everything they have.
    Mr. Maurstad. I have seen it. Yes, I have seen it. And 
maybe I didn't phrase my answer very well. What I am getting at 
is that beyond this program that is designed to provide payment 
of insurance claims for people that had insurance policies, 
there are many other efforts underway to try to help those 
people----
    Ms. Waters. Such as?
    Mr. Maurstad. Well, the individual assistance programs in 
the disaster support----
    Ms. Waters. Such as?
    Mr. Maurstad. The Individual Assistance Program, rental 
assistance, that there is actually--part of that program is 
called ``Unmet Needs.'' Temporary housing----
    Ms. Waters. Okay, see, it's all----
    Mr. Pearce. The gentlelady's time is expired.
    Ms. Waters.--talk in generalities about other programs, et 
cetera, but let me just say this, Mr. Chairman, and I am 
finished.
    You have a lot of excuses, not only about mapping, about 
not making recommendations to the Congress of the United States 
about how to expand the program, excuses about why we have not 
done the education job you further exacerbate by telling me 
that people don't understand their own homeowner policies and 
think that they are covered, and because they are stupid and 
they are ignorant, that they should have to suffer, you know, 
the consequences.
    Please, try and think about this differently. Try and think 
about what it means to a family to lose that home. I mean, that 
is the American dream. That is everything. And there may be--
even though I have heard some discussion here today about how 
do we meet all of the needs and whether or not we are doing it 
for people with earthquake--there comes a time when the 
disaster is so catastrophic, it is so huge, that we need to do 
something special.
    And we have got to be particularly sensitive at a time like 
this. And I want you to think about how you can strengthen our 
ability to provide protection in ways that people really 
understand it. And in this case, with Katrina, Rita, et cetera, 
how we do something extraordinary.
    Thank you very much. And I appreciate that, Mr. Chairman.
    Mr. Pearce. The gentlelady's time has expired. The 
gentleman from Oregon, Mr. Blumenauer, is recognized.
    Mr. Blumenauer. Thank you. And I do appreciate the 
subcommittee's courtesy in permitting me to join in this 
effort. I have been shuttling back from--with another committee 
I am on that's looking, actually, at some of the same things.
    Mr. Pearce. And the chair is about to have to do that, 
also.
    Mr. Blumenauer. I will be very brief. I would like to ask 
about the nature of the report on the value of mitigation that 
was required, I think, in the HUD appropriations bill of 2003. 
My understanding is that you contracted with somebody; the 
report is done; you have reviewed it; it has been forwarded off 
to Homeland Security someplace. Do you have a sense of when 
this report is going to be released?
    It seems to me that if there was ever a time when it would 
be useful for Congress to be able to understand the value of 
mitigation, it would be as we are looking at these sensitive 
issues. When can we get this report?
    Mr. Maurstad. Sir, I have seen a draft of the report. We 
have seen--but the actual report has not been formally 
transferred to the Department or to the mitigation division.
    It's my understanding that that's going to happen any day 
now. I agree with you on the timeliness of the findings of that 
report. And--but that is, as I understand it, the current 
status.
    We have worked with the multi-hazard mitigation council 
that--the briefing that I received a number of months ago, as 
they were winding down the report, the scientists that they 
used on the report, I think it's going to be a very valuable 
tool, and I also am anxiously waiting for that report to be 
provided to us.
    Mr. Blumenauer. Well, it would be helpful if we could pin 
this down and get a specific answer about where this is. I was 
told that it had been cleared by FEMA and had been sent off to 
the Department of Homeland----
    Mr. Maurstad. Sir, we have seen a draft of it, and I am 
waiting for the multi-hazard mitigation council to provide me 
with the formal report. And it was my understanding last week 
that it was on its way.
    Mr. Blumenauer. Good to know. I am unclear about the 
progress on the implementation on the regulations for the Flood 
Insurance Reform Act.
    What are some of the critical issues that have been 
highlighted by your consultation of the States and communities, 
and when are we going to see that promulgated?
    Mr. Maurstad. What--I guess I am not sure what--are you 
talking about the agent training component that you asked us--
--
    Mr. Blumenauer. The regulations that would be attended to 
the flood insurance reform.
    Mr. Maurstad. Are you talking about the severe repetitive 
loss pilot program?
    Mr. Blumenauer. There are regulations with that, and I 
thought there were some other regulations that had not yet been 
promulgated.
    Mr. Maurstad. Well, we just received the ability to 
transfer the funds from the National Flood Insurance Fund to 
provide the resources to start the severe repetitive loss 
program.
    We held that consultation meeting, actually, late last 
year, as required by the legislation, and are now in the--
beginning with the authority that happened a couple of days 
ago, with beginning the rulemaking process.
    Mr. Blumenauer. And when do you think the rules will be 
finished?
    Mr. Maurstad. Well, I am hopeful----
    Mr. Blumenauer. This is a conversation you and I had 6 
months ago.
    Mr. Maurstad. Well, we didn't have the authority six months 
ago to be able to begin the pilot program. We now have that 
authority. I am hopeful that if we get some of our--when we get 
some of our staff back from the field that are still helping 
the respond and recover to Katrina and Rita, that rulemaking 
process as we both know it, some time in the March/April time 
frame of next year.
    Mr. Blumenauer. I had submitted a series of questions after 
our April hearing and resubmitted them in writing in September. 
To the best of my knowledge, we haven't yet--and I understand 
things have been going on----
    Mr. Maurstad. That's correct, and I--as I indicated to Ms. 
Waters, I made a commitment to her to work with the other parts 
of our department to get those answers back to you some time 
next month.
    Mr. Blumenauer. I would just conclude--one thing that would 
be useful to have, because we have been having conversations in 
the past--I appreciate your courtesy--but by the nature of the 
business that FEMA is involved with, there is always something 
going on. You would wish there wouldn't be, but the reason 
you're there is because we have emergencies. And we had four 
hurricanes last fall; we've got Katrina; we've got a whole 
range of things.
    I have been working with FEMA for the last 5 years to try 
and get resources to the Agency, new tools, money, and 
authorization so that it's easier for you to do the job. And I 
have appreciated the professionalism with a whole host of folks 
who have given us back information as we have tried to craft 
legislative responses.
    What would be helpful would be to have a candid response 
from the Agency about what you need to be able to deliver 
what's in the pipeline, what we have been trying to do. I don't 
like being in a sort of a give-and-take situation because I 
have tried to be on your side for 5 years. And I see some of 
our old friends in the back of the room who have been there and 
have been constructive.
    But what would be very helpful for some of us who have been 
trying to be constructive partners with FEMA is to understand 
what it is that we can give you to clarify, to provide 
resources, and to move us forward.
    We are going to be spending--I think we're spending $14 
million an hour, last I calculated. I mean, it's--after a while 
it's real money. But number of things that we have talked with 
you about here, and that the committee is looking at, are not 
that expensive in the overall scheme of things. But they will 
make a huge difference on saving long-term costs, helping 
people get out of harm's way, and helping us get ahead of the 
curve, rather than you folks scrambling to catch up.
    And so my specific request is to have some of your 
certified smart people who have been through this before and 
given what's happened informed by your year or so in this`` 
squirrel cage,'' get some specifics so that we can go to bat 
with our authorizing committees and our appropriating 
committees, to make sure that whatever it is to clear up 
ambiguity or to provide resources happens, so we're not in a 
situation like you're telling me, that something we passed last 
year we're going to talk about maybe promulgating regulations 
next year.
    I am interested in ways that we can get ahead of the curve, 
and I look forward to working with the committee and the 
committee's staff on these recommendations so that we can--so 
we're not going to rehash this. And I offer it from the 
perspective of somebody who has been trying to work with you 
folks for 5 years.
    Mr. Maurstad. Well, sir, we--as I have indicated before, we 
appreciate your support. My Member of Congress, of course, 
worked very closely with you--now retired Congressman Bereuter. 
I have had conversations with him. We appreciate your support.
    The rep loss pilot program, now that we have that 
authority, provides some assistance for staff in that area that 
we didn't have the capability of before, but we will certainly 
look at your request and have that continued discussion with 
you.
    Mr. Blumenauer. Thank you. Mr. Chairman, thank you for your 
courtesy----
    Mr. Pearce. I thank the gentleman from Oregon. And I just 
have two last questions, and I appreciate your indulgence. You 
have been very gracious with your time, and you got caught in a 
vote, and the first hearing lasted somewhat longer.
    Mr. Jenkins, I am going to ask you last--but you're going 
to be thinking about it based on your previous work--of the $22 
billion or $23 billion in losses that are declared on this 
page, how much problem do you think--how many dollars problems 
would you think would be involved in there based on the lack of 
oversight and people overestimating? So that will be the wrap-
up question.
    Mr. Maurstad, you indicated legitimacy to upping the 
ceiling, the cap. If we change from $250,000, say, to 
$500,000--that's a nice, round number; it's twice. If that were 
the case, how much would your columns change by here, and how 
much would you have changed in Katrina?
    And then I suspect if you talked about raising the caps--
which you said the Agency has talked about--you have gone back 
and plugged in to the losses for 2004, that was $2.28 billion--
how much would those losses have gone up through the increased 
caps, and how much more exposure do we have here? If you can 
give those----
    Mr. Maurstad. Well, I would try--your--an answer to your 
question would require a number of assumptions based on how 
many people that currently have the maximum amount of 
insurance, $250,000, would pay the additional premium to go to 
a higher level. That would be the first assumption that comes 
to my head that would have to be made.
    But most importantly, what we would do is we would go back 
and actuarially determine what the additional premium amounts 
would need to be, given the higher limit of insurance that we 
would be making a commitment to paying for, if there were a 
loss, and determining what those appropriate premium levels 
should be.
    And then, you would--we would have to determine--and it 
would be most accurate after the fact--how many people decided 
to increase their limit of insurance, pay that additional 
premium that would then provide the additional resources to pay 
claims.
    Mr. Pearce. Am I to understand, then, that you have not put 
in any projections? As a business owner, I would tell you how I 
would approach it. I would approach it to the maximum risk. 
That is, the maximum number people take it as possible, and we 
suffer the maximum number of losses. That is, this loss sheet 
extended to the maximum. And then you would project the 
increase of premiums.
    And am I to understand that even though you are suggesting 
that we want to go up on the caps, you haven't figured out what 
it's going to actually cost the taxpayer in New Mexico?
    Mr. Maurstad. Well, again sir, as also a former small 
business owner, I would look at things in a certain fashion. 
And I know, from my experience, that the actuaries are going to 
look at it in a whole other fashion to make sure that what's 
being done is done----
    Mr. Pearce. I understand that. We're just talking about a 
business model.
    Mr. Maurstad. But----
    Mr. Pearce. If I'm going to come to the Congress and 
suggest that we up the caps, I think I would be prepared to 
say, ``If we did that and if everybody had upped their premiums 
and upped their purchases, the losses, instead of $22 billion, 
would be $33 billion,'' or something. I just think that's a 
fair question for us to ask, and a business-like question to 
ask, so that we know the stakes of going up on our premiums.
    And, likewise, because this is an extraordinarily high loss 
year, it would be very, very pragmatic to scoot back to 2004, 
which was the period of greatest loss, but at 1/10th the level 
and say, you know, ``We are not going to always get these big 
years, but even in this bad year, this 1/10th year, here is 
what we would have expected.''
    Mr. Maurstad. That modeling would go on. And again, we 
would base it as--absent any other substantive program 
changes--based on an average loss year, as to the ability to 
generate the necessary premium from the policy holders to pay 
the claims that come in during that year.
    Mr. Pearce. I understand that. My point is that you said 
that you saw certain legitimacy to the idea, that you all had 
talked about it internally. And to talk about it internally 
without measuring the possible consequences, to me, is upside 
down, that as we are talking about the legitimacy, we should be 
talking about the consequences.
    Mr. Jenkins, would you like to wrap up? We really do need 
to finish this.
    Mr. Jenkins. You asked about the potential extra cost.
    Mr. Pearce. Yes.
    Mr. Jenkins. I would say that, basically, if you take the 
Isabel model and assume that it, with some adjustment, sort of 
applies to this, you had roughly 10 percent of people who had 
an opportunity to appeal their claim did appeal their claim. 
And then, of those people, half got more money, and they got 
about 10 percent more than their average claim for various 
reasons.
    So you could say, based on that model, that whatever this 
estimate is, it's probably not unreasonable to assume it's 
about 10 percent higher. Particularly if you have an appeals 
process.
    The thing that--the mitigating factor in that compared to 
Isabel is that a lot of these people whose homes have been 
completely wiped out are going to get the maximum that their 
policy pays, so you're not going to have some of the issues, in 
terms of what the repair costs are, and the schedule of costs 
that ought to be used, and that kind of thing, because it's not 
an issue for those particular claims.
    Mr. Pearce. Using your knowledge of the system, did you 
have a chance to review the charts----
    Mr. Jenkins. No, we have not seen those.
    Mr. Pearce. Just going to assume severity and the bulk of 
the losses are going to occur in Jefferson Parish, where there 
is a loss of $75,000 per unit projected, and 73,000 homes, a 
loss in Orleans Parish, of 100,000.
    Using your estimates, would those severity calculations be 
fairly accurate, or is it just too far out of your realm to 
guess?
    Mr. Jenkins. Just--we would really have to look at it. I 
mean----
    Mr. Pearce. Okay, all right.
    Mr. Jenkins. Just let me give you additional information.
    Mr. Pearce. Yes.
    Mr. Jenkins. We have some data, this October 13th data that 
we got, and we know it has to have an error in it. The average 
claim that that data shows for Louisiana is $663,000. That's 
pretty unlikely that that's the actual average amount being 
paid.
    Mr. Pearce. Right. Thank you both, and again, Mr. Maurstad, 
these are very difficult days, very difficult times, and the 
questions that we have to wrestle with are tremendous. But the 
ones that you have to see firsthand are even worse. So I thank 
you for your service and thank your Agency.
    The chair notes that some members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, this hearing record will remain 
open for 30 days for members to submit written questions to 
these witnesses and to place the responses in the record.
    [No response.]
    Mr. Pearce. Hearing none, this hearing is adjourned.
    [Whereupon, at 1:15 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                            October 20, 2005

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