[Senate Hearing 111-853]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-853

 
        REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                                   ON

EXAMINING COMPREHENSIVE FLOOD INSURANCE REFORMS AND THE REAUTHORIZATION 
                OF THE NATIONAL FLOOD INSURANCE PROGRAM

                               __________

                           SEPTEMBER 22, 2010

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


                 Available at: http: //www.fdsys.gov /



                  U.S. GOVERNMENT PRINTING OFFICE
64-388                    WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman

TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin                 KAY BAILEY HUTCHISON, Texas
MARK R. WARNER, Virginia             JUDD GREGG, New Hampshire
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado

                    Edward Silverman, Staff Director

              William D. Duhnke, Republican Staff Director

                 Beth Cooper, Professional Staff Member

                Brett Hewitt, Professional Staff Member

                       Paul Revesz, GAO Detailee

                    Jim Johnson, Republican Counsel

                       Dawn Ratliff, Chief Clerk

                     Levon Bagramian, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                     WEDNESDAY, SEPTEMBER 22, 2010

                                                                   Page

Opening statement of Chairman Dodd...............................     1
    Prepared statement...........................................    37

Opening statements, comments, or prepared statements of:
    Senator Bunning..............................................     3
        Prepared statement.......................................    39
    Senator Schumer..............................................     4
    Senator Tester...............................................     6
    Senator Shelby
        Prepared statement.......................................    38
    Senator Johnson
        Prepared statement.......................................    39

                               WITNESSES

Richard J. Durbin, Senator from the State of Illinois............     6
    Prepared statement...........................................    40
Roger F. Wicker, Senator from the State of Mississippi...........     7
    Prepared statement...........................................    41
Orice Williams Brown, Director of the Office of Financial Markets 
  and Community Investment, Government Accountability Office.....    11
    Prepared statement...........................................    44
    Responses to written questions of:
        Senator Reed.............................................   106
Sally McConkey, Vice Chair, Association of Floodplain Managers...    22
    Prepared statement...........................................    85
    Responses to written questions of:
        Senator Reed.............................................   121
J. Nicholas D'Ambrosia, Vice President of Training and 
  Recruiting, Long & Foster......................................    24
    Prepared statement...........................................    95
    Responses to written questions of:
        Senator Reed.............................................   127
Stephen Ellis, Vice President, Taxpayers for Common Sense........    26
    Prepared statement...........................................   102

              Additional Material Supplied for the Record

Prepared statement submitted by Senator Mark Pryor of Arkansas...   130
Letter submitted by Adam Kolton, Senior Director, Congressional 
  and Federal Affairs, National Wildlife Federation..............   131

                                 (iii)


        REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM

                              ----------                              


                     WEDNESDAY, SEPTEMBER 22, 2010

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 2:08 p.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Christopher J. Dodd, Chairman of 
the Committee, presiding.

       OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    Chairman Dodd. The Committee will come to order. Let me 
welcome all of our guests here in the--I was going to say we 
are almost awash in humanity here for this hearing. It is not 
quite a full room.
    Senator Shelby will be here shortly. I gather from my good 
friend Jim Bunning that there has been a Republican Conference 
meeting, and Roger, you pointed out the same, so I presume they 
will be coming in, but we will get underway. I have got an 
opening statement to make, and Senator Bunning does. I think 
Senator Schumer, as well, wanted to make an opening statement 
when he comes, and we will get to you very quickly. In fact, if 
they don't come in, we will just go to Jim and I and then we 
will go right to you. I know you have got other issues. Senator 
Johnson, Tim, is here with us. Tim, thanks for being with us.
    Let me start, if I can, and first of all, I welcome, as I 
said, everyone here this afternoon for the hearing on the 
reauthorization of the National Flood Insurance Program, NFIP. 
I want to thank Roger Wicker, our colleague from Mississippi. 
Roger has talked to me on the floor on numerous occasions about 
this issue, how important it is to his State. I promised him we 
would get a hearing on all of this. There is a lot of interest 
in the subject matter from a variety of different perspectives. 
I am very aware of the Mississippi perspective and their 
interest in the subject matter. I am sure Roger is going to 
talk about it and others are.
    We actually passed a bill out of this Committee, I think 
last year, pretty overwhelmingly, and then it passed on the 
floor pretty overwhelmingly. The House didn't, and now the 
House has acted on a bill. I am not sure whether or not we are 
going to respond to that or not. So we are kind of each getting 
it done at different times, and unfortunately, not the same 
time, so this afternoon's hearing is an important one.
    NFIP, the Flood Insurance Program, is a very important 
program, providing a range of benefits, as we all know, to deal 
with the often overlooked but serious threat, floods, that 
cause more damage and create more economic losses than any 
other type of natural disaster. It may come as a surprise for 
those who are not well versed in the subject matter, and while 
the topic may bring Hurricane Katrina's Gulf Coast devastation 
to mind, the truth is that floods can happen anywhere, and they 
do.
    Parts of my own small State of Connecticut were ravaged by 
flooding this spring, and back in the 1950s, before a lot of 
flood control programs, the entire Naugatuck Valley, the 
central part of Connecticut where a lot of the early days of 
the Industrial Revolution occurred, the Naugatuck River 
overflowed and swamped one community after another all along 
that flood plain.
    Flood insurance provides critical assistance to 5.5 million 
families and businesses, insurance to help them recover from 
flood damages and mitigation assistance to help them avoid 
damages in the future. It also provides a framework of 
responsible floodplain management, requiring safer, more 
environmentally sound development that limits Americans' flood 
risks. Together, these measures have saved taxpayer money by 
limiting the amount of emergency disaster assistance necessary 
in the wake of flood events.
    Despite these many benefits, the program faces some serious 
challenges that threaten its ability to carry out its mission. 
The hearings before this Committee in previous Congresses 
revealed a number of issues in need of reform. Perhaps foremost 
is NFIP's financial condition, which threatens the program's 
long-term viability. Due to increased borrowing to pay claims 
for catastrophic disasters in 2005 and 2008, the Flood 
Insurance Program faces almost $19 billion in debt to the 
Treasury, a sum that isn't likely to ever be repaid. Subsidized 
rates for nearly 25 percent of policy holders do not reflect 
the actuarially sound rates sufficient to cover expected 
claims.
    Another key issue is ensuring that citizens and the Federal 
Government understand their risks. Despite mandatory purchase 
requirements for properties in flood hazard areas, only about 
half of all property owners in those areas actually participate 
in the program, increasing their potential exposure to 
devastating losses.
    On top of this, until recently, FEMA had been using 
outdated paper-based flood maps to assess risks. These and 
other concerns caused the GAO to place the program on its High-
Risk List in 2006.
    In the last Congress, Senator Shelby and I worked together 
on flood insurance reform legislation to put the National Flood 
Insurance Program on a stronger footing for the future. That 
bipartisan, fiscally responsible legislation would have 
provided comprehensive Flood Insurance Program reforms to 
address these pressing issues that I have raised and talked 
about this afternoon and would have reauthorized the program 
for 5 years. It would have relieved the Flood Insurance 
Program's debt while requiring actuarially sound premium rates.
    We worked with Senator Jack Reed on the provisions to 
strengthen FEMA's mapping capabilities to inform citizens of 
their risks and actuarially set premium pricing. I know that 
Senator Reed was disappointed not to be here today, but is to 
be commended for his work on these provisions and improving the 
mapping provisions.
    In recent years, we have heard a number of proposals to 
improve insurance options and delivery for so-called 
``multiperil'' events such as those involving both wind and 
water, for example, and for lowering the cost of insuring 
against catastrophic natural disasters. Our legislation also 
called for the creation of a National Commission on Natural 
Catastrophic Risk Management and Insurance to provide expert 
recommendations to the Congress on these very complex topics.
    In 2008, the Senate adopted this legislation by an 
overwhelming 92 to 6 vote on the floor of the Senate. 
Unfortunately, we did not reach agreement with the House. Since 
that time, the program has been operating under a series of 
shorter-term extensions. And while our comprehensive 
reauthorization discussions continue, I have been working with 
my colleagues to ensure that the program remains in force.
    Last night, the Senate approved a 1-year extension of the 
Flood Insurance Program. A multiyear reform bill is preferable, 
obviously, to an extension, in my view. However, such an 
extension will, in my view, provide necessary program and 
market stability to homeowners, lenders, and insurers while the 
Congress further considers the next steps for the reform of the 
Flood Insurance Program.
    The purpose of today's hearing is to return to this 
discussion of comprehensive flood insurance reform, something 
all of us agree is absolutely essential. We are going to hear 
from our distinguished colleagues, and we have been joined by 
Senator Durbin, who has had a long interest in this subject 
matter, and I have talked with him about mapping issues. I 
mentioned already, Chuck, that you had some opening comments, 
and Senator Schumer and I had a conversation the other evening 
about a similar set of issues in New York. And I suspect we are 
going to hear from a growing number of constituencies about the 
mapping issues that I only initially heard from Dick Durbin, 
who raised the issue initially about Illinois, but obviously a 
growing problem across the country.
    Before I turn to our panelists, Senator Shelby isn't here, 
but Jim, why don't I turn to you for a couple of opening 
comments you have, and then I will go to Senator Schumer. I 
will then go to you. I don't know if you have any opening 
comments, Tim, but if not, then we will go to our two 
colleagues who are here.

                STATEMENT OF SENATOR JIM BUNNING

    Senator Bunning. Mr. Chairman, thank you for holding the 
hearing.
    One of my proudest accomplishments in the U.S. Senate was 
authorizing the 2004 law that reauthorized the National Flood 
Insurance Program. Senator Johnson was my Ranking Member at 
that time, and Senator Sarbanes was very important in getting 
that bill completed and through the U.S. Senate because he 
added some very, very significant things that gave those people 
that had a problem the right of appeal.
    Chairman Dodd. Yes.
    Senator Bunning. Now, it took us many years and many holds 
of people to get it done, but we finally got the Vice President 
of the United States and the head of FEMA held to get it done, 
and we thank you for your help.
    We worked very hard, as you did with Senator Shelby, in a 
bipartisan way, including incentives for communities and 
homeowners to mitigate flood risk when properties have a 
history of serious and repeated flood damage, and we provided 
long-term certainty for the program for property owners, 
communities, and leaders. Thankfully, my bill ensured that the 
Flood Insurance Program was in place before the Katrina 
disaster hit.
    Unfortunately, the law I wrote expired in September of 
2008, and since then, as you said, Mr. Chairman, we have 
extended the program only for short periods of time, and with 
the latest extension of 1 year. But we need to get a permanent 
law in place, and that is why we are here today to listen to 
the suggestions of our colleagues in the Senate, and I want to 
make sure that we do this before we get out, because I want 
something to say before I leave this Congress at the end of the 
year, and I hope you do, too.
    Chairman Dodd. I do, too.
    Senator Bunning. So I look forward to the input of Senator 
Durbin and Senator Wicker and all of my colleagues on the 
Committee. Thank you.
    Chairman Dodd. Thank you very much.
    Tim, do you have anything?
    Senator Johnson. No, I will pass.
    Chairman Dodd. OK. Chuck Schumer.

            STATEMENT OF SENATOR CHARLES E. SCHUMER

    Senator Schumer. Thank you, and first, I want to thank you, 
Mr. Chairman, not only for holding this hearing, but for 
lending an understanding ear to the problems, numerous, that we 
have in New York. I want to thank Senator Shelby, Senator 
Bunning, and my colleagues Senator Durbin and Senator Wicker 
for testifying.
    Now, National Flood Insurance is an important program that 
has impacted people all across the country. But as I have 
witnessed firsthand in my home State of New York, it is not 
without its flaws. As the Senate debates reforms to the 
program, it is important we examine the facts on the ground in 
places like Nassau County on Long Island and in Western and 
Central New York, as well.
    Requiring homeowners in Flood Hazard Zones to purchase 
flood insurance is a necessary goal and one in which the 
Federal Government certainly has a role to play. But flood 
insurance is expensive for families, often very, very 
expensive. So we must do everything we can to ensure that as 
FEMA modernizes its flood maps, it is accurately assessing what 
areas are truly at risk of flooding.
    Unfortunately, we are coming to find at home in New York 
that the various technologies used by FEMA to draw the flood 
maps are exhibiting real flaws and vulnerabilities to error, 
resulting in thousands and thousands of New Yorkers being 
required to purchase expensive new insurance even though they 
live in an area that hasn't seen a serious flood for over a 
century. Let me explain.
    Flawed aerial and GIS survey data in places like Long 
Island have resulted in updated flood zones that have ensnared 
tens of thousands of residents who never planned or expected to 
have to pay for costly flood insurance. In the area of Valley 
Stream, for instance, in Nassau County, some 5,000 homeowners 
were added to a High Risk Flood Zone. Longtime residents of 
Valley Stream that have been through hurricanes and tropical 
storms dating back to the 1950s are shaking their heads in 
confusion and desperation, asking why Valley Stream, since they 
have never reported a drop of flooding.
    Last week, I visited Valley Stream Village Hill to meet 
with local officials and community residents. They presented me 
with an artifact of the past, the Village Board meeting minutes 
after the devastating 1932 hurricane known as the Long Island 
Express. While the minutes highlighted some downed trees and 
wind damage, there wasn't a single report of flooding in areas 
now in the High Risk Flood Zone.
    It has also been reported that more than 50 percent of the 
Long Island residents that have appealed FEMA's flood map 
determination have won. In other words, they proved that the 
mapping technology was inaccurate, but it cost them an arm and 
a leg to even have to appeal.
    Alarmingly, even FEMA officials on the ground themselves 
have admitted that the mapping technology is flawed. This is 
one of the reasons I requested a GAO report in 2009 to assess 
the accuracy of the technology that FEMA deploys in its 
mapping, and I look forward to seeing GAO's results later this 
year.
    I have personally witnessed the impact that these flawed 
flood maps have on people's lives. I have sat in the homes of 
New Yorkers in different parts of my State who are already 
struggling to tread water in these challenging economic times 
and now have the Government telling them they have to pay new 
insurance premiums in excess of $2,000 a year.
    Mr. Chairman, I truly believe that before we go any further 
with the reauthorization of the Flood Insurance Program, we 
need to apply the brakes and fix these problems. I agree with 
the testimony of my friend and colleague, Senator Durbin, that 
we should work to pass a moratorium on the mandatory purchase 
requirement for 5 years until technological and implementation 
issues can be resolved. This will give affected homeowners 
ample notice and a thorough explanation of the mapping process 
and how it impacts their lives so they are not caught by 
surprise. I believe Congress should still offer residents in 
high-risk areas flood insurance and make them aware of 
potential risks, but we certainly should not mandate it before 
the new technology and data are proven accurate. This 
moratorium would give the Congress and FEMA more time to work 
out kinks in the mapping process and technology and ensure we 
implement the program in an accurate, effective, and responsive 
way.
    In conclusion, Mr. Chairman, the House wisely, in my 
opinion, passed such a moratorium. Their flood insurance bill 
championed by my colleagues in the House, Representatives 
McCarthy and Maffei, both from parts of New York that have had 
trouble with flood zones, with the FEMA flood mapping, includes 
a 5-year delay followed by a 5-year phase-in of the flood 
insurance purchase requirement. I encourage the Senate to 
include the House-passed moratorium in the final flood 
insurance reauthorization bill, and Chairman Dodd, as I 
mentioned to you on the phone, I would like to work with you to 
see if we could pass such a moratorium in the Senate, where I 
believe there is rising support for such a policy. Thank you.
    Chairman Dodd. Senator, thank you very, very much.
    We have been joined by Senator Tester from Montana. Thank 
you, Jon, for joining us. We are going to turn to our two 
colleagues for any comments, unless you had a quick opening 
comment, Jon, you wanted to make.

                STATEMENT OF SENATOR JON TESTER

    Senator Tester. It will be ultra-quick. First of all, 
thanks to my two friends in the Senate for being here.
    I think the Flood Insurance Program really falls into two 
areas, number one, affordability, and sustainability for the 
program. Both need to work. That is all. Thanks.
    Chairman Dodd. That is about a succinct a description of 
the hearing there ever was. I appreciate that.
    Dick, we are delighted to have you before the Committee. I 
will have you testify and give us your comments, and then 
Roger, we will hear from you. I thank you both for being here.

   STATEMENT OF RICHARD J. DURBIN, SENATOR FROM THE STATE OF 
                            ILLINOIS

    Senator Durbin. Thanks, Chairman Dodd and Members of the 
Committee. I might say to Senator Tester, that was very un-
Senatorial of you.
    [Laughter.]
    Senator Durbin. I think Senator Schumer, my colleague, has 
really summarized the State of New York's situation, comparable 
to my State of Illinois. I am from downstate, from an area of 
great rivers, Mississippi, Illinois, and others, born and 
raised in that area, and I have seen my share of flooding in 
the past. What came as kind of a surprise to us was in 2007, in 
came FEMA and informed us that they were about to take a new 
assessment of the levees and new floodplain mapping.
    The first thing they did was said, we will do the Illinois 
side of the river first. We will get to Missouri later--the 
same watershed. Well, it created an economic dissonance, a 
disadvantage on the Illinois side that we were going to have 
ours mapped first and the cost imposed while those on the other 
side--well, we fixed that. Thank you for helping us fix that, 
Chairman Dodd. That provision at least applies to the entire 
watershed now. Wait until they have completed it until you move 
forward.
    But the point that Senator Schumer made is one that is 
included in the House Reauthorization Act, which I hope we will 
consider. In this area, they took a look at all these levees by 
the Mississippi River and they said, yes, we need to repair 
them and make them better. So we will impose on our local 
residents a new sales tax and generate in the three counties 
affected $10 million a year to start repairing the levees. In 5 
years, we will get it done. So it isn't as if they are walking 
away from the challenge. They are accepting the challenge and 
they are paying with local funds to do it. So we are suggesting 
at least while they are doing this construction, do not impose 
these new mandates on them. Give them this 5-year window to 
take the money raised locally with whatever we can bring in 
federally and do our best to upgrade the levees.
    We estimate, as Senator Schumer said, this could cost 
$2,500 a year. Imagine hitting a family in the midst of 
recession with that kind of a bill, trying to hang on to their 
homes and now more than $200 a month in a new flood insurance 
requirement.
    The second part of the bill, which Senator Schumer also 
alluded to, was in the second 5 years, let us phase it in. Now, 
I think that is a reasonable way to go. We have got self-help 
going on locally. We have got people committed to getting the 
job done and done right. And we are trying to phase it in in a 
reasonable, affordable way, I might way, Senator Tester, so 
that we ultimately have a sustainable program. But we can't 
drop this in a matter of months or even a year or two on 
everyone and say, take it or leave it. I think that is 
fundamentally unfair and unreasonable. Up to 30,000 new 
properties could be affected with this requirement for new 
flood insurance.
    Now, I say to people who ask me in this region, if you can 
afford it, buy it. Buy it now. Protect yourself. Just as you 
have fire insurance, if you can afford it, buy it. It is smart 
advice, and if I owned a home in my area, I would do my best to 
buy it. Some people just can't. They can't afford it. And so 
that is what we are up against. We are trying to come up with a 
reasonable alternative that will take care of it.
    I would just conclude by saying that I think that, in 
summary, your Committee's version of flood insurance--as you 
craft your Committee's version of flood insurance legislation, 
include language to achieve the following goals. Ensure FEMA 
updates flood maps on a watershed basis. Delay the effective 
date for mandatory purchase of flood insurance for areas that 
have been newly mapped in a floodplain. Phase in flood 
insurance rates for newly mapped areas over 5 years so we have 
got a window here where this is happening in a gradual way. 
Require FEMA, State, and local governments to undertake 
extraordinary outreach to homeowners so that they understand 
the real risk that could be involved here, the potential of it. 
And offer discounted rates to newly mapped properties to 
increase the number of homeowners who are into the habit and 
custom of buying flood insurance.
    Thanks for the opportunity to address the Committee.
    Chairman Dodd. Thank you very much, Senator. I appreciate 
your efforts and your interest in the subject matter.
    Senator Wicker, we welcome you to the Committee.

    STATEMENT OF ROGER F. WICKER, SENATOR FROM THE STATE OF 
                          MISSISSIPPI

    Senator Wicker. Thank you very much. Mr. Chairman, could I 
ask that my full statement be included in the record.
    Chairman Dodd. That is true on all statements and 
documentation and so forth that you would like the Committee to 
have, we will include in the record.
    Senator Wicker. Thank you very much. I was reminded the 
other day by Al Goodman, the Mississippi State Floodplain 
Manager, that major flood disasters have often led to changes 
in the law. For example, Hurricane Agnes in 1972 resulted in 
the Flood Disaster Protection Act of 1973. Flooding on the 
Mississippi River in 1993 prompted the National Flood Insurance 
Reform Act of 1994. The Flood Insurance Reform Act of 2004 was 
influenced by Hurricanes Andrew and Isabel.
    Unfortunately, 5 years after Hurricane Katrina, that major 
event has not prompted a reform in the law, and I would submit 
to this Committee that in order to talk about hurricane 
insurance, we have to talk about wind and water insurance. One 
of the best things Congress could do for the vast coastal areas 
of this country, not just my State of Mississippi but all of 
the Gulf Coast States, including the States represented on this 
panel, is to resolve the nuances associated with insuring 
against hurricanes, and that involves insuring against flood 
and wind.
    For all practical purposes, private insurance coverage for 
wind damage is no longer available in the Gulf Coast area since 
Hurricane Katrina. Before the storm, the wind peril was 
typically insured by basic hazard insurance policies, with the 
exception of those living right on the beach. Today, in most of 
Coastal Mississippi, individuals have to purchase wind coverage 
through the State-run Wind Pool. State Wind Pools were 
originally designed to be the insurer of last resort. However, 
in recent years, State Wind Pools have unfortunately become the 
rule, not the exception.
    Now, as you know, in 2008, I attempted to address this 
problem by offering an amendment that would have added wind 
coverage to the National Flood Insurance Program on a voluntary 
and actuarially sound basis. This multiperil concept has passed 
the House of Representatives but failed in the Senate.
    I would simply point out to my colleagues, I still support 
the multiperil debate, although I understand the arguments 
against it. Let me emphasize that it would be voluntary and 
that the requirement would be that it be actuarially sound. If 
that resulted in the wind portion of the premiums being too 
high, then so be it, but that was what my amendment contained.
    The major concern we have in Mississippi is that it takes 
two kinds of insurance to cover a hurricane, flood insurance 
through the NFIP and very expensive wind insurance through 
either the Wind Pool, or if you can get it, private coverage. 
After Hurricane Katrina, many property owners were forced to go 
to court to decide who was responsible for the damage, wind or 
water, even if they had all of the necessary insurance 
policies. Other property owners had not purchased flood 
insurance because they relied on Federal Zone Maps. When their 
property was damaged by storm, the wind insurance adjustors 
denied claims, ruling that the damage had been caused by water 
alone.
    Now, I recently introduced the Coordination of Wind and 
Flood Perils Act. This legislation, S. 3672, addresses some of 
the lessons learned following the wind versus water dispute 
that occurred after Katrina. Individuals who had all of the 
appropriate insurance, wind and water policies, were in many 
instances caught in the middle and forced to go to court to 
watch the insurers fight among themselves before they could be 
indemnified for their loss.
    The legislation I have introduced, S. 3672, would remove 
the property owner from this debate and put the burden where it 
belongs, on the insurers. The insurance industry already 
coordinates benefits for other types of losses. If there is a 
dispute under my legislation, the damages would be split evenly 
between the insurers so the property owner would be compensated 
in a timely manner. Then the insurers would appear before an 
arbitration panel and the panel's decision would be binding.
    Now, Mr. Chairman and Members of the Committee, there are a 
few other lessons learned from Katrina and observations I would 
like to make about NFIP.
    Number one, after Hurricane Katrina, we learned that flood 
hazard risk in many coastal areas of Mississippi and many parts 
of the country was not accurately reflected by FEMA's flood 
insurance maps. As a result, property owners outside the flood 
zones had no NFIP coverage. With only wind insurance coverage, 
these individuals were not properly insured for a hurricane. 
Since property owners rely heavily on this information, I hope 
Congress can work with FEMA to ensure that these maps are 
accurately updated for all residents.
    Number two, FEMA and many banks do a poor job of enforcing 
the flood insurance requirement. Now, we have had testimony 
about this from Senator Schumer today, but under the Flood 
Disaster Protection Act of 1973, the purchase of flood 
insurance is mandatory in flood zones if the consumer is using 
a federally regulated lender. However, there is a breakdown 
with the enforcement of this requirement. According to CRS, at 
least eight Federal agencies are responsible for enforcing this 
requirement.
    Recently, the Wharton School of the University of 
Pennsylvania surveyed insurance coverage among property owners 
impacted by flood in Vermont. The study revealed that 45 
percent of the victims of the flood who were required to have 
insurance did not purchase it. With regard to private 
insurance, lenders do a much better job of enforcing insurance 
requirements. If a homeowner stops his payment, stops paying 
his premium, the bank will purchase insurance for him and bill 
the homeowner. The Chair himself today has pointed out that 
some 50 percent of the people who are required to have flood 
insurance somehow do not have flood insurance, and the Wharton 
study documents this, too. Regulators and lenders routinely 
fail to enforce the mandate enacted in the Flood Disaster 
Protection Act. I hope the Committee will further investigate 
this issue and report its findings. Why are hazard insurance 
requirements enforced so well by lenders and the flood 
insurance requirement enforced so poorly?
    Of course, rates should be actuarially sound and 
meaningful. Premium reductions should be offered for mitigation 
improvements. I hope this Committee will study the work done by 
the Wharton School in this area. These scholars proposed 
linking NFIP policy to the mortgage, which would create a long-
term insurance policy tied to the length of the mortgage and to 
the property itself. Having a long-term policy tied to the 
property is one way to limit NFIP cancellations. This proposal 
would also give meaningful premium reductions for mitigation 
improvements. If a property owner knows they can save money 
year after year by strengthening their homes above the building 
code requirements, they will have a powerful incentive to do 
so.
    One final proposal that I would commend to this Committee 
is the Travelers Coastal Wind Zone Plan. This proposal would 
create an independent Federal commission to establish standards 
for the wind peril in coastal areas. The Travelers plan allowed 
insurance companies to purchase reinsurance from the Federal 
Government to cover losses resulting from extreme events. In 
addition, like the Wharton plan, the Travelers plan calls for 
meaningful premium reductions for property owners who mitigate 
by improving their homes.
    I would simply summarize and say this, Mr. Chairman. There 
are many things here that are long-term that are going to take 
time. Two things ought to be fairly easy. There ought to be a 
way to figure out how to enforce the mandate for property 
insurance, and there ought to be a way to allow insurers to 
coordinate benefits. Those are two simple things that could be 
done relatively quickly, perhaps before the end of the year.
    Earlier this year, the Sun Herald, a Mississippi Coast 
newspaper, wrote in an editorial, ``Better protection for all 
Americans living within harm's way of a hurricane would be 
Katrina's greatest legacy.'' I agree. Five years after Katrina, 
Congress still has an opportunity to make sure affordable wind 
and water coverage can be provided to the millions of Americans 
in coastal areas of our country.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you, Senator Wicker, very, very much. 
And let me thank you, Senator Durbin, as well.
    I do not know if any of my colleagues have any questions 
for our two colleagues here. If not, we appreciate very much 
your testimony.
    Dick, I thank you because you were the first one to bring 
up the whole mapping issue to me a couple years ago, I guess it 
was. And there are more and more Members doing so. You heard 
Senator Schumer talk about it in New York. But it is not just 
the two States. And so I appreciate that very, very much, and 
it is obviously an issue.
    I am going to turn to Senator Shelby to make some opening 
comments.
    Senator Shelby. No, no. I do not want to interrupt that. I 
would just like for my opening statement to be made part of the 
record.
    Chairman Dodd. Absolutely.
    Senator Shelby. Then I will my turn.
    Chairman Dodd. OK. Very good.
    Thank you both very, very much.
    Let me introduce our panelists quickly here, panel two, and 
then we will ask them to make some brief opening comments, if 
they would. In fact, I will introduce all of them, panel two 
and panel three.
    Our first witness in panel two is Ms. Orice Williams Brown. 
She is Director of the Office of Financial Markets and 
Community Investment at the U.S. Government Accountability 
Office. Ms. Brown has overseen the preparation of numerous 
reports on the financial and operational health of the National 
Flood Insurance Program, and we are very honored to have you, 
Ms. Brown, with us this afternoon.
    Our third panel will include Ms. Sally McConkey. I hope I 
pronounced that correctly.
    Ms. McConkey. Yes, Senator.
    Chairman Dodd. I did. Thank you. Ms, McConkey is a senior 
professional scientist at the Illinois Department of Natural 
Resources State Water Survey. She is also the current Vice 
Chair of the Association of State Floodplain Managers and will 
be testifying on behalf of that organization this afternoon.
    Next we will hear from Mr. Nicholas D'Ambrosia--I hope I 
pronounced that correctly as well--who currently serves as the 
Vice President of Recruiting and Training for the Long & Foster 
real estate company, a very well known company. We all see Long 
& Foster signs everywhere. He is also the Vice Chair of the 
Maryland Real Estate Commission. Mr. D'Ambrosia is testifying 
on behalf of the National Association of Realtors.
    And our final witness today will be Mr. Steve Ellis, who is 
Vice President of Programs at Taxpayers for Common Sense, where 
he oversees programs and serves as a media and legislative 
spokesperson. Mr. Ellis also served as a Coast Guard officer 
for 6 years, earning both the Coast Guard Commendation Medal 
and the Coast Guard Achievement Medal. And I am presuming by 
that you spent some time in New London, Connecticut. Is that 
correct?
    Mr. Ellis. Yes, Senator.
    Chairman Dodd. So you are going to claim some local 
interest I have in that. It is a great school, too. Anyway, we 
are delighted you are here. You know something about the water, 
obviously.
    I welcome all of our witnesses and, Ms. Brown, we will 
begin with you. And let me just says on behalf of all of the 
witnesses, whatever documentation or supporting evidence you 
would like to have as part of this hearing record will be so 
included. And if you could try and keep your remarks down to 
about 5 minutes, I would appreciate it so we can get to some 
questions. Thank you.

 STATEMENT OF ORICE WILLIAMS BROWN, DIRECTOR OF THE OFFICE OF 
    FINANCIAL MARKETS AND COMMUNITY INVESTMENT, GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Ms. Williams Brown. Good afternoon. Chairman Dodd, Ranking 
Member Shelby, and Members of the Committee, I appreciate the 
opportunity to participate in today's hearing on the National 
Flood Insurance Program.
    As you know, GAO placed NFIP on its high-risk list in March 
2006, after the 2005 hurricane season exposed the potential 
magnitude of longstanding structural issues on the financial 
solvency of the program, and brought to the forefront a variety 
of operational and management challenges. FEMA continues to owe 
the U.S. Treasury $18.8 billion from these losses and interest 
expenses, which it is unlikely to be able to repay under the 
program's current design.
    My statement today is based on GAO's past and ongoing work 
and focuses on NFIP's financial condition, its operational and 
management challenges, and possible actions that could be taken 
to address them. While the structural issues were well known, 
the management challenges have become more evident in the past 
several years. We have made recommendations addressing 
virtually every aspect of the program. For example, we have 
recommended that FEMA take action to improve NFIP's management 
of data quality, the rate-setting process, oversight of the 
insurers that sell flood insurance, the expense reimbursement 
process, its contractor oversight, and its claims processes.
    While preliminary results of our ongoing review of FEMA's 
management reveal that many of these problems are ongoing, FEMA 
has for the first time begun to acknowledge that it faces a 
number of challenges and has displayed a willingness to engage 
in a dialog with GAO about them. While acknowledgment of a 
problem is an important first step, we also expect to see FEMA 
take actions necessary to meaningfully address these 
challenges.
    We are currently completing a comprehensive review of NFIP 
that builds on our past work and plan to issue a report early 
next year. We hope this report will help provide a road map for 
identifying root causes and addressing many of these 
outstanding issues.
    However, we also recognize that many of the challenges 
facing the program will require congressional action. Moreover, 
we understand that this is no small issue, given the 
complexities of the program and the often competing public 
policy goals, including having rates that accurately reflect 
risk, encouraging participation, and limiting cost to the 
taxpayer.
    For example, while many premium rates for properties are 
subsidized by law and rate increases are capped for a number of 
reasons, including offsetting the cost of catastrophe relief, 
these decisions involve tradeoffs that have to be balanced with 
the goals of NFIP. Specifically, while mitigation is viewed as 
vital to limiting the Government's exposure, charging rates 
that do not reflect risk may hamper mitigation efforts by 
encouraging property owners to build in harm's way and not 
adequately mitigate. Moreover, the current NFIP structure 
increases the likelihood that the program will have to borrow 
from Treasury when losses exceed premiums collected, thereby 
exposing taxpayers to greater financial risk.
    Part of this conversation must include a dialog about the 
appropriate role of Government in paying for losses from 
natural catastrophes, which in 90 percent of the cases include 
flooding. The other part deals with who should pay for losses; 
that is, Congress must decide how much of the cost associated 
with flooding the Government should pay versus property owners.
    In closing, I would like to note that while the $18.8 
billion that NFIP owes Treasury may not seem large by today's 
standards, it is significant compared to NFIP's annual premium 
revenue, which is just over $3.2 billion. This debt may also 
continue to grow unless Congress and FEMA take action to begin 
to address some of the program's operational and structural 
issues.
    Finally, one option to maintain subsidies but improve the 
financial stability of NFIP would be to rate all policies at 
the full risk rate and to appropriate the subsidized amount to 
the program. This structural change would remove the financial 
burden on NFIP by making the subsidy explicit and make the 
actual flood risk more transparent to the property owner.
    Thank you. This concludes my oral comments, and I am 
prepared to answer any questions.
    Chairman Dodd. That was excellent testimony. I really 
appreciate it. As you know, many of us up here have a great 
deal of respect for the GAO. They do great, great work, and I 
do not know if you ever get the kind of credit you deserve for 
the tremendous focus--you get to do what a lot of us would 
probably like to do, and that is, you get to focus on a subject 
matter and dedicate your professional lives to really 
understanding it fully. And you obviously do in this area, so 
we are very grateful to you for your work and that of your 
staff and others that have worked with you to produce not only 
your testimony today but your assessment and analysis.
    You mentioned, obviously, a wide range of actuarial and 
managerial problems at NFIP, and we have all heard about them. 
We heard Senator Bunning going back to 2004 working on this 
issue, and Senator Shelby and I did last year, and the House 
has. We have just had a lot of interest. In every one of our 
States, as I pointed out earlier, this is the one subject 
matter that all of us, regardless of where you live, with the 
exception of--I am not even sure I should say probably Nevada. 
Maybe even out there at certain times of the year, it may be 
actually subject to the same kind of problems. But the problem 
is including an unfortunate but necessary step to cancel the 
program's debt, and that is one of the issues.
    I wonder if you could give us a sense of what the most 
important steps might be to help to get the program on track 
toward financial soundness and off the high-risk list. And, 
second, GAO has been reviewing the Flood Insurance Program for 
a few years. What progress has FEMA made, in your view, if any, 
on implementing the GAO recommendations in recent years, 
particularly regarding their premium rate structure and 
ensuring that participating insurance companies are compensated 
at reasonable rates?
    Ms. Williams Brown. I will start with your first question 
dealing with getting off the high-risk list. FEMA has taken one 
of the important steps to start that process and to start a 
dialog, and that is, acknowledging that there are issues that 
need to be addressed and beginning to take steps and having a 
conversation internally as well as with the GAO about what they 
need to do.
    There are a number of structural issues that we have 
highlighted, including oversight of the WYOs, contractor 
oversight, data quality issues, as well as the rate-setting 
process. So I think from FEMA's perspective they would need to 
address those issues. From a legislative perspective, it would 
involve dealing with the structural issue that really continues 
to impact the financial soundness of the program, and that has 
to do with subsidized rates.
    Chairman Dodd. Well, you have sort of answered the second 
question in a way. You heard Senator Durbin and Senator Schumer 
and others--and I do not want to put words in their mouths, but 
proposing a delay or a phased-in approach for setting insurance 
rates for homeowners in the new high-risk flood zones. Clearly, 
this is going to lessen the impact on these homeowners, and 
obviously at a time like that, I think all of us are very 
sympathetic. I think Senator Durbin and Senator Schumer talked 
about a $2,500 tax or fee the people would be paying, and 
obviously at a time when you are trying to hold your families 
together financially, that 200 bucks a month can be 
devastating. So we understand that.
    But there are downsides to such an approach. What might be 
the impact on the fund and the general taxpayer? Because 
everyone else ends up subsidizing this to some degree, so we 
are all paying for it, which is one of the things we have got 
to consider in all of this. It is not just the person who is in 
the floodplain but all of us because the subsidies are paid 
through tax dollars to support those efforts. Further, are 
there any unintended consequences for homeowners' perception of 
risk with such an approach in your view?
    Ms. Williams Brown. I would agree with all of the above. I 
think we have pointed out in our past work that the challenge 
with subsidized rates, it impacts not only the program but it 
does also give homeowners that live in high-risk areas a false 
sense of security. But there is a tradeoff that we have also 
acknowledged in our work, and that is, by increasing rates you 
also risk fewer people participating in the program, and that 
is something that has to be balanced.
    One of the things that FEMA has attempted to do as they are 
remapping, they have a program, a grandfathering program, that 
allows a homeowner who currently lives in an area and they 
purchase flood insurance, if they are remapped into a higher-
risk area, they have the possibility of retaining that lower-
risk rate. And according to FEMA, their rationale for this is 
to balance the issue of someone had been living in an area, 
they had been complying with the standards for that particular 
zone, they are remapped and they are faced suddenly with the 
potential for higher insurance rates and allowing them to keep 
that lower rate.
    So, you know, it creates a new set of subsidized 
properties, but that is the tension that they are trying to 
balance.
    Chairman Dodd. I am going to turn to Senator Shelby right 
away, but I wonder if you might comment--and maybe you did and 
I did not pick up on it in your testimony. Obviously, listening 
to Senator Schumer as well talk about the case in New York on 
Long Island where all of a sudden for the first time they are 
being mapped as being in a floodplain area where there is no--
and I am relying on his testimony, no historical evidence they 
have ever had any problems, at least not within the historical 
memory of the community, and all of a sudden being drawn into a 
map. And I appreciate the fact that FEMA has done a much better 
job than was the previous case in the mapping, and I appreciate 
very much the work they are doing.
    But I often get the impression that what--sort of get both 
sides of this question, sort of hedging in that I get the 
feeling that FEMA is kind of reaching maybe a little further--
this is just a general observation on my part--to put areas 
more in a floodplain area to reduce the cost, increase the 
obligation of the homeowner in that area to pick up the cost. 
The other side, of course, wants just the opposite to happen in 
a sense. There seems to be a calling for some neutral observers 
here to help draw these maps in some ways so you can sort of at 
least have an opportunity to have some debate, because it is 
not a perfect science in these maps.
    Do you have any comment on that?
    Ms. Williams Brown. The only comment that I can make is 
that in 2004, GAO looked at the mapping process and found 
issues at that time with the mapping process. FEMA did a 
midcourse adjustment so they really focused on true remapping 
and not just updating and digitizing outdated maps.
    We are currently in the process of looking at the status of 
the map modernization effort, specifically looking at the 
quality of the maps that are being used, and also looking at 
the community outreach effort.
    One issue based on our previous work, the remapping process 
really relies on a partnership between FEMA and the 
communities, and the communities have a role in some ways in 
driving the quality of the information that is collected that 
goes into the remapped areas. And one of the points that FEMA 
has made historically is that communities that invest lots of 
money in maps and good technology--North Carolina is one 
example--they tend to produce higher-quality topography 
information, and that is a key piece of information that goes 
into the mapping process.
    So, you know, it is definitely a challenge, and as you say, 
it is that tension of communities do not want to be mapped into 
higher areas. And FEMA is looking for trying to make sure that 
they are capturing maps that accurately reflect the----
    Chairman Dodd. Well, it might be helpful--because I can 
just see this--Jim Bunning and I will be leaving, but I can see 
this is a growing issue.
    Ms. Williams Brown. Absolutely.
    Chairman Dodd. And you do not have to have a Ph.D. in 
political science to know that if you end up with what I would 
call the perfect storm of members coming here on behalf of 
their communities, just as Senator Schumer did on behalf of his 
and Senator Durbin on behalf of his, any effort to try and deal 
with this is going to collapse. And so we better understand 
this issue and get around it or figure out a way to resolve it 
in ways that do not end up sort of delaying what we must 
confront, and that is having a National Flood Insurance 
Program.
    I do not expect this to be--it is not your job.
    Ms. Williams Brown. Absolutely.
    Chairman Dodd. I am using your presence here to make that 
point.
    Senator Shelby.
    Senator Shelby. Thank you, Mr. Chairman.
    I want to pick up on Senator Dodd's area of questions 
dealing with mapping. It seems to me that mapping is the key to 
an overall sound actuarial program. Without proper mapping and 
updated maps, where is the program going? Do you have a 
comment?
    Ms. Williams Brown. I would agree mapping is key. It is 
critical to the rate-setting process. They need accurate maps 
to appropriately determine risks to the program and set rates 
accordingly. So mapping is key.
    Senator Shelby. But isn't there evidence of what areas are 
subject to flooding? You know, historically, they have got maps 
on all this. Maybe they are not up-to-date, but there is 
evidence of where the tide comes in, you know, where it goes 
out, rivers, hurricane, whether it is on the east coast or it 
is on the gulf coast. There is data there if you can put it all 
together, and it looks like with all of the software that we 
have today, that that could be put together if there is the 
political will to do it.
    Ms. Williams Brown. I think, you know, the data is key, and 
coming up with really good topographic information to go into 
the mapping process is key. And the other challenge is the 
topography is constantly changing. Areas are being developed, 
erosion is taking place. So the mapping process really becomes 
a never-ending process. Maps are going to have to constantly be 
revisited and reevaluated.
    Senator Shelby. Well, once you get the basic mapping 
process up to speed--you know, we know things more than evolve. 
They change fast. But it would be a lot easier to build on 
layers of what you have. But we are not there yet, are we?
    Ms. Williams Brown. In terms of where they are with the 
mapping, I would say that the map modernization process is 
still very much underway in terms of where FEMA is. I think the 
current statistics that we have, FEMA tracks their progress 
generally by the percent of population covered and also the 
miles of streams covered. In our report on rate setting that we 
issued in 2009, we tracked the amount by effective maps that 
are in place, and I think as of 2008, 4 percent were effective 
maps, and the 90-plus percent really reflected maps that were 
in some stage of the process, but not finalized.
    Senator Shelby. But on mapping, in the area of mapping, 
would you say, again, that the key to having a meaningful, 
substantive, actuarially sound Flood Insurance Program, we have 
got to have mapping right?
    Ms. Williams Brown. Mapping definitely has to be part of 
it. The mapping has to be right.
    Senator Shelby. Without the mapping data, the program will 
always be suspect, to say the least.
    Ms. Williams Brown. It raises a question.
    Senator Shelby. That is right. It is my understanding that 
the National Flood Insurance Program's goal of fiscal 
solvency--Senator Dodd alluded to that--is defined as charging 
premiums that will generate enough revenue to cover a 
historical average loss year. How does the NFIP, the National 
Flood Insurance Program, rate-setting policy compare to that of 
private sector insurers? In other words, ma'am, how does the 
private sector definition of the term ``actuarially sound'' 
compare with the NFIP's, the National Flood Insurance Program's 
construct of generating enough premiums to cover ``a historical 
average loss year''? Is there a disconnect here?
    Ms. Williams Brown. There is definitely a difference 
between the Flood Insurance Program and how private insurers 
operate. One has to do with the issue of NFIP operating on a 
cash-flow basis. That means that their goal is to bring in 
enough premiums to cover losses on a year-to-year basis, and 
they do not do any reserving. Private insurers----
    Senator Shelby. No reserve for the future?
    Ms. Williams Brown. No. And private insurers do not operate 
that way. Reserving is a key based on risk in the future. The 
National Flood Insurance Program also holds onto all of the 
risk that it is exposed to; that is, they do not reinsure. 
Private insurers commonly hold onto some portion of the risk 
that they are exposed to, but they reinsure the majority of the 
risks that they face.
    And the other big difference is that the National Flood 
Insurance Program basically takes all comers to their program. 
So regardless of the risk level, if you want to purchase flood 
insurance and your community is participating in the Flood 
Insurance Program, you can get a flood insurance policy. 
Private insurance companies do not do that. They factor in 
risk, your loss history, and they use that information to 
determine whether or not they will underwrite a policy for you.
    Senator Shelby. Ms. Brown, Ms. Williams Brown, GAO, which 
you represent, highlighted in its ongoing work examining FEMA's 
management of the National Flood Insurance Program, FEMA does 
not have an effective system to manage flood insurance policy 
and claims data although investing roughly 7 years and $40 
million on a new system whose development has been halted.
    Why were the investments made in these critical operational 
systems subsequently halted? Was it because they were not doing 
the job, they were flawed at the outset or what? That is a lot 
of money and a lot of years.
    Ms. Williams Brown. Yes. The particular project in question 
was called NextGen, and this particular system was to replace 
their existing data management system. And they basically were 
unable to shut down the old system and rely on the new system. 
There were questions of quality, and there were questions of 
whether or not it actually was performing as intended.
    Senator Shelby. Ms. Brown, I know the Chairman has been 
generous with my time here, but to sum it up, would it be fair 
to say, one, this program is broken, it is not actuarially 
sound? It is not going to be actuarially sound unless we do 
massive reforms starting with mapping and getting into 
something that is actuarially sound.
    Ms. Williams Brown. Based on the work that we have ongoing, 
we believe that, yes, the program needs to face some structural 
overhaul. In terms of the operations of the program, there are 
significant improvements that need to be made, and we do 
acknowledge that FEMA, you know, in the 5 years that I have 
been working on it, I am for the first time seeing an 
acknowledgment that there are significant improvements that 
need to be made in the operation and management of the program.
    Senator Shelby. One last comment, if you would, Mr. 
Chairman. Some of my colleagues want to add wind damage to all 
of this. Have you seen some actuarial studies on what that 
could possibly cost the taxpayer?
    Ms. Williams Brown. We looked at the implications of adding 
wind to this program, and we found that there would be--that 
FEMA would face significant challenges given the current 
condition of the Flood Program.
    Senator Shelby. An astronomical problem.
    Ms. Williams Brown. Potentially.
    Senator Shelby. Sure. Thank you, Mr. Chairman.
    Chairman Dodd. Thank you very much.
    Senator Tester.
    Senator Tester. Thank you, Mr. Chairman and Ranking Member 
Shelby. I am going to kind of follow on some of the same lines 
here.
    The GAO has been really focused on the integrity of the 
National Flood Insurance Program. An integral component, as 
Senator Shelby has pointed out, is the accuracy and validity of 
the maps. In Montana, because the Army Corps has said they are 
not going to certify anymore, we have got some experience that 
FEMA and our Army Corps are not always on the same page, 
specifically as it results to the areas behind the levees. Have 
you examined ways for FEMA and the Army Corps to be able to 
work together better?
    Ms. Williams Brown. On this specific issue, no.
    We have looked at other mitigation programs and have 
recommended that there be better interagency coordination. GAO 
has been mandated to do a study looking at an interagency task 
force that was supposed to be set up earlier this year. That 
includes FEMA, the Army Corps and USGS, to specifically deal 
with communities' challenges involving levees, and we are 
supposed to then go in and look at how that process is 
functioning and report on that on a periodic basis.
    Senator Tester. OK. Would that oversight look into--what do 
I want to say--the standards of which FEMA is requiring levees 
to be versus the standards by which Army Corps is, and 
determining if they are the same?
    Ms. Williams Brown. We have not started that body of work, 
but I would imagine yes.
    Senator Tester. OK. You talked a little bit in your 
previous answer about communities. Have you been able to 
determine whether FEMA has worked with communities to help 
mitigate the economic impact of the new maps?
    Let me give an example. A town by the name of Miles City, 
southeastern Montana, was a third in a floodplain. The maps 
came back, and now two-thirds of the town is in a floodplain. 
That is a big hit, as other people have mentioned here this 
morning.
    Have you been able to work with FEMA on ways to mitigate, 
and, if you have, what recommendations have you given them?
    Ms. Williams Brown. Well, the work that we currently have 
going on, looking at the mapping, one specific objective deals 
with outreach to the communities, but one program that FEMA 
currently put in place to try to deal with some of the economic 
impacts of being remapped is the grandfathering program. And we 
have looked at the grandfathering program, and the 
recommendation that we have made did not deal with how FEMA 
dealt with the communities, but it really had to do with how 
FEMA was managing that program internally in that they were not 
able to track how many communities were actually being 
grandfathered.
    Senator Tester. OK. I can give you lots of examples, and 
you know all these things, being in the position you are, but 
for example, if you are thrown into a floodplain your flood 
insurance rates tend to go through the roof. Is it within your 
purview or do you plan on making recommendations to FEMA in 
cases like that, how they can deal with communities in a way 
that does not drive families into bankruptcy?
    Ms. Williams Brown. The purposes of the grandfathering 
program is that if you are in the zone that you are in, if you 
are remapped into a higher risk zone, you are able to maintain 
that lower premium.
    Senator Tester. For how long?
    Ms. Williams Brown. It stays with the property.
    Senator Tester. Forever?
    Ms. Williams Brown. So it does not end, as long as----
    Senator Tester. It depends? If the ownership transfers, 
then it would transfer?
    Ms. Williams Brown. Yes.
    Senator Tester. OK. All right, thank you.
    You had spoken in your opening statement about a report 
that you are working on, on the accuracy of FEMA's flood 
mapping efforts.
    Ms. Williams Brown. Yes.
    Senator Tester. I think we are all interested in that. Is 
there anything from that analysis you could share with us 
today?
    Ms. Williams Brown. I cannot. It should be issued the end 
of the year.
    Senator Tester. OK. Last, we talked a little bit about the 
private sector with Senator Shelby, and I was curious. Is the 
risk so great that the private sector will not touch this, or 
is there insurance available in the private sector that is 
affordable, outside of this?
    Ms. Williams Brown. Generally, the Flood Insurance Program 
is really it when it comes to flood insurance. There is some 
coverage available for properties that are valued above the 
$250,000 limit, and they want excess flood insurance coverage. 
We did find some cases that there is that type of coverage 
available.
    Senator Tester. And so you are talking about a basic policy 
that would be covered by NFIP and an additional policy that 
would be covered by the private sector.
    Ms. Williams Brown. Correct.
    Senator Tester. OK. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Dodd. Thank you, Senator.
    Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    Ms. Brown, in your testimony, you mentioned several ways in 
which some property owners are subsidizing other property 
owners in the Flood Insurance Program. Can you briefly list the 
different ways in which homeowners in risky areas can avoid 
paying premiums that truly reflect the actual risk that they 
have?
    Ms. Williams Brown. One would be to be a pre-FIRM property, 
meaning that the house was built----
    Senator Bunning. Grandfathered.
    Ms. Williams Brown. Grandfathered properties.
    The other would be kind of the new generation of 
grandfathered properties. Those are homeowners who are living 
in communities, they have purchased a flood insurance property, 
their community is remapped into a higher risk zone, and they 
are able to retain that premium.
    Senator Bunning. For how long?
    Ms. Williams Brown. It stays with the property. There is 
not a limit currently.
    Senator Bunning. That is FEMA's present recommendations?
    Ms. Williams Brown. Well, that is FEMA's current policy.
    Senator Bunning. Interpretation?
    Ms. Williams Brown. Yes.
    Senator Bunning. All right. How would you grade the bill 
the Senate passed in the last Congress and the bill that 
recently passed the House in terms of improving the 
relationships between the premium property owners pay and their 
actual risk?
    Ms. Williams Brown. Well, we note----
    Chairman Dodd. I am listening very carefully. Go ahead.
    Senator Bunning. Yes, I hope so.
    [Laughter.]
    Ms. Williams Brown. We note that both of them would address 
the issue of some sort of phase-in for the pre-FIRM, or the 
originally grandfathered, properties.
    We also have looked at the house version in terms of 
recommendations that we made and how it would address those. 
One example has to do with properties that are subject to wind 
and flood damage, and this would give FEMA access to the wind 
file as well as the flood file, which is something that we had 
recommended.
    Senator Bunning. Are you telling me that GAO would 
recommend that wind----
    Ms. Williams Brown. No.
    Senator Bunning. ----and water go together?
    Ms. Williams Brown. No, no, no.
    Senator Bunning. Please do not tell us that.
    Ms. Williams Brown. No, no. What we recommended, we looked 
at the issue of wind versus water, post-Katrina, and we found 
that for adjusters that do a flood adjustment they get no 
information about whether or not the private insurance company 
paid anything on a wind claim, and they had no information or 
access to the information on the possible wind portion.
    Senator Bunning. Ms. Brown, do you have any indication that 
FEMA has taken seriously GAO's recommendation to do more 
detailed risk rating within an area, within a certain area, 
like Long Island?
    Ms. Williams Brown. We have made a number of 
recommendations, and as of our most recent kind of broad-based 
conversation with FEMA we have roughly 30 recommendations that 
remain open. All of our recommendations dealing with rate-
setting continue to be open recommendations.
    Senator Bunning. Somebody already asked you the question 
about actual flood maps, so I will proceed to the next one. 
Your testimony discussed a growing trend of Write-Your-Own 
companies who managed a flood policy for the Government keeping 
more and more of the claim payments that are supposed to go to 
property owners, despite the fact that the companies bear no 
risk of loss themselves. In your opinion, has FEMA taken this 
issue seriously or made any attempt to ensure that the payment 
it makes to those companies bears a direct relationship to the 
costs that they are actually incurring?
    Ms. Williams Brown. The one area that there has been 
movement on this issue has to do with the claims portion of 
what the WYOs receive. So this would begin to address the 
Katrina phenomenon, and that is because of----
    Senator Bunning. That was a $22 billion phenomenon.
    Ms. Williams Brown. Yes. The high number of claims resulted 
in the WYOs keeping a significant portion of the premiums that 
they collected because it is based on an average of 3.3 percent 
of the claims filed, so that portion. FEMA has changed the 
formula somewhat to hopefully the WYOs do not end up with that 
huge windfall if there is a catastrophic flood event.
    But the other portion of the expense that the WYOs are 
reimbursed for is roughly 30 percent; that still remains in 
effect. So they still have the 30 percent, and they get another 
portion on top of that, as well as a possible bonus. And we 
have also made recommendations that they reevaluate their bonus 
program.
    Senator Bunning. FEMA needs to do a little recalculating.
    Ms. Williams Brown. Well, yes. And we have suggested that 
they made decisions about how to reimburse the WYOs early on in 
the history of the program, and they have not leveraged the 
years of data that have occurred since then in terms of actual 
flood-related expenses for the WYOs, in determining how much 
the WYOs need to be reimbursed based on their actual expenses.
    Senator Bunning. Last question, some of my colleagues up 
here think that we should have a phased-in version over five, 
possibly, Senator Durbin said, 10 years. Five, Senator Schumer, 
maybe five plus five more. In fact, if we do that, if the 
Congress does it that way, you are absolutely correct that this 
program will fall into an abyss and never pay for itself, and 
the Government will be on the hook for more than the 18 plus 
billion dollars it presently is.
    Unless we can quantify the risk in the areas where the most 
flooding takes place--that all has something to do with 
mapping--we cannot get this program on a sound financial basis. 
Is that accurate?
    Ms. Williams Brown. I would say that addressing the subsidy 
issue is critical to the future solvency of the program.
    Senator Bunning. Thank you.
    Chairman Dodd. Thank you, Senator, very much.
    Ms. Brown, I am going to ask you just to stay at the table. 
Senator Jack Reed, who is very involved in this issue, is 
making his way over. So rather than excusing you, I will ask 
you to kind of sit here while I invite our other two witnesses 
to come on up and be at the table, and I have introduced them 
already.
    Welcome to the Committee once again. It is Sally McConkey 
and Nick D'Ambrosia and Stephen Ellis, so if you will join us 
and if you will just maintain a seat up there some place. I 
thank all of you for being with us.
    I think I notice that all of you were sitting here during 
all of the testimony, including from Senator Durbin and Senator 
Wicker, as well as the testimony of Ms. Brown as well. So you 
have had the opportunity to hear sort of the drift.
    And let me also offer to you the same I did the others 
here. Full testimony as well as documentation and other 
evidence will be included as part of the record.
    I will begin in the order that I have introduced you, Ms. 
McConkey, and so if you could try and limit it to about 5 
minutes apiece it would be helpful.

    STATEMENT OF SALLY MCCONKEY, VICE CHAIR, ASSOCIATION OF 
                      FLOODPLAIN MANAGERS

    Ms. McConkey. All right. Thank you. The Association of 
State Floodplain Managers thanks you, Chairman Dodd and the 
Committee Members for their attention to the need to 
reauthorize and reform the National Flood Insurance Program, 
and we really appreciate your holding this hearing.
    The Association of State Floodplain Managers and its 29 
chapters represent over 14,000 State and local officials, and 
other professionals, who are engaged in all aspects of 
floodplain management and hazard mitigation. So we have a real 
interest in looking at the National Flood Insurance Program.
    And I would also like to note that actually I am with the 
Illinois State Water Survey at the University of Illinois, and 
the program that I manage actually creates the maps for the 
State of Illinois. We are under contract with FEMA, and we do 
the mapping for the State of Illinois.
    Today we have been requested to address why the NFIP needs 
to be reauthorized, benefits of the program and what reforms to 
the program are most important for Congress's consideration.
    As already noted, the Flood Insurance Program was created 
in order to provide flood insurance when there was a gap, that 
it was not being provided by private insurance company. But 
also it is noted there are really three strong tenets to the 
program: It is the identification of the flood-prone areas, it 
is doing mitigation in those areas and it is providing that 
flood insurance, so that we can make sure that people can get 
their lives back together quicker and that we are not spending 
taxpayer dollars that would have been destined for disaster 
relief.
    But in that same spirit we need to keep in mind that as we 
reform or look at reforms to the National Flood Insurance 
Program, that these are interdependent, and a change to one 
piece of the program is going to have impacts on others, and we 
need to look at it holistically.
    In a larger, even larger context, the Nation needs to 
formulate a coherent policy to address the Nation's flood risk 
management that considers policies across agencies and 
programs.
    The Federal Emergency Management Agency is tasked with 
identifying those flood-prone areas which are shown on the 
Flood Insurance Rate Maps, and because of growing concerns 
about the inaccuracy and currency of those maps, map 
modernization was funded to update the maps and use better 
technology and new flood data. So, not unexpectedly, the areas 
shown as prone to flooding have changed.
    And it should be noted really that the assessments done so 
far have shown that while there are many properties newly shown 
in the flood plain there is almost an equal number of 
properties no longer shown in the flood plain, as the maps are 
improved and the accuracy is better. However, we are seeing few 
challenges to the maps when the floodplains shrink.
    Over the last decade, the failure of levees to perform as 
expected and the resulting catastrophic flooding experienced by 
so many have really brought into sharp focus the degraded 
condition of our levees. And FEMA has had the unenviable 
position of being the bearer of the message, the bad news, when 
they roll out the new floodplain maps. A lot of times what is 
wrong with the maps is the fact that people are upset and do 
not believe that their levees do not provide protection 
anymore. They are not really challenging the actual mapping 
based on those assumptions.
    While the spotlight is on our national flood risk, it is an 
opportunity to really examine our entire flood risk management 
policy and take real action to reduce that risk, and it needs a 
solid foundation that has already been established based on 
data, based on engineering and based on science. But the 
results of many of these technical evaluations that have 
already been done show areas that are going to flood, levees 
that will fail or be overtopped, and we need to pay attention.
    The insurance standard of a 1 percent chance event is not a 
safety standard, and many of the insurance claims actually are 
for properties that are not in mapped flood hazard areas.
    I will offer this one example to show you how this can play 
out. In 1999, the city of Gulf Port, Illinois, not Mississippi, 
was successful in getting their levee accredited and shown as 
providing protection from the 1 percent chance flood. In this 
Midwestern town of about 750 people, nearly everyone dropped 
their flood insurance.
    Then in 2008, when we had the Mississippi floods, their 
levee failed and the town was inundated. It was more than a 
100-year flood actually. The town was inundated with over 10 
feet of water. Only 28 people had flood insurance, and the rest 
were wiped out. It devastated the community and actually the 
county because of the tax base that was lost. The financial 
consequences were huge. They still have not quite recovered.
    Yet, in the local news, people were featured and quotes 
were given with the people saying, FEMA said we did not need 
flood insurance. That is what people perceived. It certainly 
was not the message that FEMA gave them, but it was how they 
perceived and interpreted the language of the floodplain maps 
because they were not required to have flood insurance. 
Therefore, they thought they would not flood.
    Citizens deserve to know and understand their true flood 
risk, and our national experience shows the true costs of 
flooding. We have lost lives, businesses, communities disrupted 
and growing costs to all taxpayers as has been noted, and we 
need to equitably reduce those risks, not ignore them.
    It is essential that the NFIP stay in place to continue 
providing flood insurance, strengthen mitigation programs and 
identify those flood hazard areas, and we really appreciate the 
Senate's action this week to reauthorize the program for a 
year. But we do need to go further and creatively rethink the 
NFIP and look at our flood loss reduction policies.
    FEMA has already begun a careful assessment, looking at 
decades of research, holding listening sessions and self-
examination, and they will be providing recommendations to 
Congress on how to rethink and redo the NFIP. ASFPM supports 
providing time for FEMA to prepare this assessment and careful 
consideration of their recommendations.
    We support development of more effective incentives for 
flood loss reduction in communities, particularly those that 
are already using higher standards.
    We support clear communication, and we see the need for 
clear communication of flood risk to individuals through 
improved outreach communication and support FEMA's new risk map 
outreach and mitigation efforts. Delivery of updated floodplain 
maps that inform citizenry of hazards should not be delayed.
    We do need creative solutions to address the issues of 
affordable insurance through appropriate mechanisms, such as 
the means-tested vouchers for low income, at-risk citizens, 
community--based flood insurance policies or levee district 
flood insurance policies.
    ASFPM supports forgiveness of the debt to restore stability 
to the program but urges Congress to consider either clearly 
stating that the NFIP is not intended to cover catastrophic 
losses or adjusting the program so that it can handle them.
    We believe the current problems confronting the program 
offer real opportunity to adjust and improve our Nation's 
efforts to protect our citizens and their property.
    Thank you very much for this opportunity to testify, and I 
am happy to take questions.
    Chairman Dodd. Thank you very much.
    Mr. D'Ambrosia.

STATEMENT OF J. NICHOLAS D'AMBROSIA, VICE PRESIDENT OF TRAINING 
                 AND RECRUITING, LONG & FOSTER

    Mr. D'Ambrosia. Chairman Dodd, good afternoon, Members of 
the Committee. Thank you for inviting me to testify today 
regarding the reauthorization of the National Flood Insurance 
Program.
    My name is Nick D'Ambrosia. I have been a realtor since 
1973. I have held numerous positions throughout the realtor 
organization. Most recently, I served on NAR's task force to 
examine how to improve access to affordable property insurance, 
including insurance for flooding. I, today, testify on behalf 
of the more than 1.1 million members of NAR who are engaged in 
all aspects of the real estate industry.
    Since September of 2008, Congress has approved 8 short-term 
extensions of the NFIP. Twice, it has been allowed to expire 
for several weeks at a time.
    My message today is very simple. We need to reauthorize and 
strengthen this program for the long term. Anything less will 
continue to undermine the fragile real estate market.
    About a week from today, on September 30th, NFIP authority 
is set to expire again for the 9th time in 2 years. We are 
pleased that last night the Senate passed Senate Bill 3814 to 
extend the deadline by 1 year, and 1.1 million realtors thank 
the Senate and the Members of this Committee and you, Mr. 
Chairman.
    We would urge the House to quickly do the same, so that 
Congress has time to complete work on the long-term reform 
bill. This month-to-month approach has hindered recovering real 
estate markets and increased uncertainty for the more than five 
million taxpayers who depend on the NFIP for basic flood 
protection.
    While we are beginning to see some signs of stabilization, 
the housing market is in a very precarious position, with sales 
at 15-year lows, excess inventories and numerous foreclosures. 
Commercial property values have fallen 43 percent across the 
board since 2007. Our Nation cannot afford further negative 
shocks to these markets.
    The House has already passed its NFIP reform bill, H.R. 
5114, which makes some difficult reform choices but also 
reauthorizes the program for a full 5 years.
    As the Committee considers legislation, we would ask that 
you consider the following views regarding NFIP reform:
    NAR supports reforms to strengthen the NFIP's solvency as 
part of long-term reauthorization. Increasing participation 
would increase funding for the NFIP, help property owners 
recover from flood losses and decrease Federal assistance when 
uninsured properties flood and suffer loss. To this end, NAR 
strongly supports provisions for outreach and education to 
consumers about the availability and importance of flood 
insurance. Offering additional coverage for living expenses, 
business interruption and replacement cost of contents would 
attract new participants.
    Maximum coverage limits for residences, nonresidential 
properties and contents, which have not been adjusted for 
inflation since 1994, should be updated to reflect today's 
property values and provide fuller coverage.
    NAR strongly supports extending and fully funding the 
current pilot program to mitigate properties which have 
repeatedly suffered insured flood losses. However, we do 
continue to have concerns about how to phase in rates for pre-
FIRM properties without a demonstrated history of loss.
    I would like to thank you again for the opportunity to 
share the realtor community views on the importance of the 
NFIP. NAR stands ready to work with Members of this Committee, 
to develop meaningful reforms to the NFIP that will help 
property owners and renters prepare for and recover from future 
losses resulting from floods.
    Chairman Dodd. Thank you very much, Mr. D'Ambrosia.
    Mr. D'Ambrosia. Thank you, sir.
    Chairman Dodd. I have just gotten a note by the way from 
Senator Reed's staff. He will not be able to make it down. He 
is going to submit some questions for you, Ms. Brown. I know he 
does want to speak to you.
    There is large group of constituents from Rhode Island who 
are in town for the day, from the business community, and I 
know that he and his colleague, Sheldon Whitehouse, are meeting 
with those business people all day. I think he had hoped to get 
away for a few minutes and just could not do so, but he wanted 
you to know he is going to submit some questions for you. As I 
mentioned earlier, Jack Reed has been very involved in this 
issue.
    So I appreciate your sitting at the table, but you are 
excused if you like. Thank you.
    Mr. Ellis, welcome.

   STATEMENT OF STEPHEN ELLIS, VICE PRESIDENT, TAXPAYERS FOR 
                          COMMON SENSE

    Mr. Ellis. Thank you, Chairman Dodd.
    Good afternoon. I am Steve Ellis, Vice President of 
Taxpayers for Common Sense, a national nonpartisan budget 
watchdog. Thank you for inviting me here today to testify on 
reauthorizing the National Flood Insurance Program.
    TCS is allied with SmarterSafer.org on NFIP reform. This 
coalition represents a broad set of interests, from American 
Rivers to Americans for Prosperity, from the National 
Association of Mutual Insurance Companies to the National Flood 
Determination Association. I would like to submit for the 
record SmarterSafer.org's principles for NFIP reform.
    Will Rogers observed that if you find yourself in a hole, 
stop digging. Well, NFIP is $18.8 billion in debt to the 
taxpayer and has annual revenues of $3.1 billion. With that in 
mind, any reauthorization of NFIP must make significant changes 
to put it on sounder financial footing, not dig a deeper hole 
with loopholes, new insurance lines or undercutting the 
program's ability to charge actuarially sound rates.
    Before NFIP was created in 1968, the Presidential Task 
Force on Federal Flood Control Policy wrote, ``For the Federal 
Government to subsidize low premium disaster insurance or 
provide insurance in which premiums are not proportionate to 
risk would be to invite economic waste of great magnitude.'' 
Sounds about right.
    To foster increased participation, the NFIP does not charge 
truly actuarially sound rates. Fiscal solvency is defined as 
charging premiums that will generate enough revenue to cover a 
historical average loss year. Catastrophic loss years are 
largely left out of the equation, and shortfalls are met by 
borrowing from the U.S. Treasury, a significant subsidy in and 
of itself.
    Twenty percent of insured properties predate a community's 
involvement in the NFIP, or Flood Insurance Rate Map, and pay 
only 35 to 40 percent of their actual full-risk level premium. 
Repetitive loss properties, as has been mentioned, represent 
only 1 percent of the total number of policies, yet account for 
up to 30 percent of the payouts under the program--like a 
property owner in Houston, Texas that has received 1.6 million 
in payouts for a house that is worth $116,000. We need to help 
these people out, out of harm's way, and at the same time help 
the taxpayer who is picking up the tab.
    NFIP insurance rates are driven by maps of the Nation's 
dynamic floodplains. Areas that were previously less likely to 
flood could now be more likely. Levees that were adequate a 
decade ago may provide far less protection due to poor 
maintenance or increased flood elevations. The maps must be up 
to date, accurate and based on the best available science. FEMA 
has been modernizing the maps, and in some cases homeowners are 
facing steep increases in premiums as we have heard earlier 
today.
    In response, several lawmakers have introduced legislation 
to either roll back or delay mapping changes and commensurate 
rate increases. The House included it in their NFIP 
reauthorization. Absent strong scientific evidence of specific 
inaccuracies, efforts to delay and forestall map revisions must 
stop. Legislation does not alter geology. It may be popular to 
delay map modernization or waive building standards, but what 
makes good politics generally makes bad insurance policy.
    Remember, regular homeowners insurance does not cover 
floods. People deserve to know the costs and the risks of where 
they live, and taxpayers deserve to have those who choose to 
live in harm's way to pick up part of the tab. A better way to 
ease any sticker shock would be to provide for a relatively 
short phase-in of actuarial rates or other assistance.
    Besides the mapping issue, there are other efforts that 
would take a backhoe to NFIP's deep financial hole. One is the 
addition of wind insurance. It simply does not make sense to 
add a whole new business line to the already challenged flood 
insurance program.
    Another related area is the effort to create a new national 
catastrophe reinsurance program for State-run reinsurers. 
Private reinsurance, essentially insurance for insurance 
companies, is widely available. However, some States want the 
Federal Government to subsidize reinsurance rates as well.
    The current NFIP model is clearly not sustainable. The 
subsidies have to be phased out, and the program has to move 
toward actuarial rates. This would help eliminate the cross 
subsidies that have a few homeowners picking up the tab for 
properties that have enjoyed subsidized premiums for decades.
    There must be a strong commitment to help communities and 
homeowners to reduce their flood vulnerability, eliminate the 
problem of repetitive loss properties with elevation and 
relocation programs, increase the availability of accurate 
information about flood risks and ensure adequate enforcement 
of program rules. Additionally, NFIP should begin to identify 
pilot areas that the private sector can begin providing flood 
insurance.
    Last Congress, the Senate adopted important reforms as 
well: mandated insurance in residual risk areas--those in a 
natural floodplain but protected by a levee, flood wall or dam, 
like those in Gulf Port, Illinois, as was mentioned earlier--
also charging rates sufficient to create a reserve fund for a 
higher than predicted loss years.
    The shaky foundation on which the flood insurance program 
was based has enormous cracks. Congress and the Administration 
can either create even greater cracks by adding new business 
lines or delaying a shift to actuarial rates and updated flood 
maps, or remake and strengthen that foundation by putting the 
program on more solid financial footing.
    Thank you very much.
    Chairman Dodd. Thank you very much, Mr. Ellis. I appreciate 
that.
    Just to pick up on the wind issue, I have listened to 
Senator Wicker and others come to talk about it. I am 
sympathetic obviously to what they go through, but I do not 
think there is anything.
    You see the difficulty we have, even having passed a bill 
last year pretty overwhelmingly, and I think people saw the 
bill as being a pretty good piece of legislation. In fact, we 
had some pretty good amendments that were offered that 
challenged the very foundation of the legislation. That is the 
obligation of those who choose to live in these areas picking 
up I think it was a dollar a day. I think the average premium 
was about $360 a year, and there was still awful resistance 
even to that idea. They were not exorbitant costs, but it was 
considered enough to at least provide the coverage for people 
in those areas and reducing the exposure to people who live in 
other parts of the Country that are being asked to subsidize 
people's choices about where they live.
    Let me ask you all a series of questions here if I can, and 
then I will leave the record open for several days as well, so 
that additional questions may be offered by my colleagues. I 
think all of you, as I said earlier, were here for hearing 
Senator Durbin's and Senator Schumer's remarks regarding the 
flood mapping, and again you heard Senator Shelby and others 
raise the issue and conversation with Ms. Brown as well on the 
topic. She was asked about it. And I know, as we have 
discussed, FEMA has been working on this to try and get this 
right.
    I was thinking as you were testifying. I mean today with 
all of us having MapQuest and Google Earth. It's frightening 
what you can pull up on your BlackBerry, let alone some high 
powered computer, to hone in on exactly what is occurring in 
almost anyone's backyard in the Country. So to me the 
technology of mapping, it seems to be, ought to be fairly 
sophisticated today and fairly accurate based on what you could 
overlay and lap and historical records and the like.
    Now last Congress, of course, we would have authorized more 
funding for a technical advisory council to improve this even 
further, the mapping. I wonder what your perspective is.
    You sort of shared some, Ms. McConkey, on this already. I 
gather you felt probably and somewhat disagreed with Senator 
Durbin then, unless I misread what you said. I mean he came to 
me early and talked about the mapping problems as he saw them 
in southern Illinois. What is your take on that?
    Ms. McConkey. The change in three counties--St. Clair, 
Monroe, and Madison County are the locations where there has 
been most of the focus of attention because of the levee 
decertification.
    Chairman Dodd. Right.
    Ms. McConkey. And the new study that was actually shown was 
a study done by the Corps of Engineers. People really have not 
challenged the discharges or the elevations that the Corps of 
Engineers came up with. What they were challenging was they did 
not believe their levees were not going to hold against the 
flood. The challenge was the viability of the levees, not the 
quality of the engineering work.
    Chairman Dodd. Unlike New York where they are challenging 
the engineering and the level of the floodplain.
    Ms. McConkey. Correct. That was the point I was making. 
There is a certain amount of debate about coastal analysis that 
is still a little bit more open than riverine analysis, which 
is a little bit better established.
    Chairman Dodd. Well, what do you recommend here? Because, 
again, I can see this is a growing problem as you get the kind 
of political influence coming to bear on the decision making, 
we delay, you know, 1-year extensions, 1-year extensions in a 
lot of this. I am anticipating a lot more interest in this as 
you get these maps coming forward and communities reacting, 
picking up the phone and calling their Congressman and their 
Senators and coming before--either calling me or others and 
saying you have got to get a moratorium, we cannot afford to do 
this. Obviously, they have a pretty good case today given the 
economies of scale.
    I would ask all of you to comment on this. I understand 
your point, Mr. Ellis. I agree with you on this. But I wonder 
if you have any practical suggestions on how we might deal with 
this?
    Ms. McConkey. One thing that I think that is really 
important to point out was the fact--the cause of the analysis, 
looking at those levees down in the Metro East area, we became 
aware of a real flood risk and a public safety issue. And I 
think the biggest question we have before us is how we can deal 
with the public safety issue. The affordability of the flood 
insurance is a separate issue.
    The fact that the maps were going to be going effective got 
everyone's attention, and I think that a gradual phase-in--not 
a 5-year moratorium but a gradual phase-in of the flood 
insurance would keep that in the public eye, keep the focus and 
the pressure on dealing with the real problem, which is the 
degradation of the levees, and allow people to adjust and make 
decisions over time. It is important to get that bill in front 
of them, but it should be phased in.
    Chairman Dodd. I should have asked you, by the way, he 
makes the case about how you should be basing these maps on 
watersheds. Do you agree with that?
    Ms. McConkey. The analysis needs to be done based on 
watersheds, and it was done on a watershed basis. It was just 
the timing of actually coming out with the digital--with the 
effective flood insurance rate maps, and that was more the 
timing of the maps of the consequence in terms of the 
equitability issue on when Illinois had to start buying flood 
insurance versus Mississippi--Missouri.
    Chairman Dodd. Let me ask either one of you, do either one 
of you want to comment on these questions I have just raised? 
Yes, Mr. Ellis.
    Mr. Ellis. Sure. Mr. Chairman, I think that also--I think 
that is exactly it. It was more about the fact that the cost of 
owning a home east of the Mississippi River was going to be 
higher relative to the cost of owning a home west of the 
Mississippi River, and that was some of Senator Durbin's 
concern and why he wanted to look at it rather than from a 
scientific point of view, just sort of relative economics. 
Because, clearly, the flood protection, you know, the issues 
there are different. I mean, St. Louis has a flood wall. There 
are levees in East St. Louis.
    But then also I think the other point that I wanted to 
raise about Senator Schumer's comments about, well, there had 
never been flooding here before, well, geology changes. I mean, 
we are spending millions of dollars every year pumping sand 
onto Long Island's beaches to try to forestall erosion. So, 
clearly, the land changes and so there are areas that did not 
use to flood that are going to flood now just because of 
development and other issues. So the idea that it never 
happened or it did not happen when the Long Island Express came 
through 70 years ago does not really get to the issue of the 
maps. And I think absolutely there is going to be a lot of 
controversy, I think you are absolutely correct, Mr. Chairman, 
and that it is going to only build as the maps come out. But I 
think that the idea that we would basically wait 10 years 
before people would actually be paying the full freight of 
where they live is doing a disservice to those people, one, 
because there is an economic issue of where they can think 
about what they can do and mitigate and other things, and it 
really brings to bear some of the underlying issues of where 
people choose to live; but also it is doing a disservice to all 
of us because we are being stuck with that tab when it seems 
likely that there are going to be several floods in these 
areas, wherever they are in the country in that 10-year period 
that they are not actually paying their way.
    Chairman Dodd. Mr. D'Ambrosia.
    Mr. D'Ambrosia. But the reality--I would just like to 
address what was just said, if I may. The reality of the 
taxpayers being stuck, the taxpayers pay one way or the other. 
If there is no Flood Insurance Program, then the taxpayers end 
up paying once the disaster occurs. And then there is the 
taking care of the disaster. So it is a hard bullet to dodge. 
You either address it up front and try to get as many people 
into the program to create the funding necessary to do it, or 
you are going to pay in the end, anyway.
    Chairman Dodd. I was thinking as Mr. Ellis was talking, I 
recall being--having spent a little time in Iowa a couple years 
ago, the Missouri River in Kansas and Iowa, and how the 
Missouri River changed course. And there was the debate over--
in fact, I think it went to the Supreme Court--as to whether or 
not the boundary between those two States would change because 
the river changed not long ago.
    Mr. Ellis. Right.
    Chairman Dodd. But you are absolutely right about that. 
These things change all the time. And if Al Gore is right at 
all, in Kansas you could be living on the shoreline.
    Let me go back to the issue of the levees and the flood 
control infrastructure issues, and I wonder if you might 
elaborate--again, Ms. McConkey, let me ask you this as well. 
Can you elaborate on the scope of this problem beyond your 
Illinois perspective, obviously, and some examples of where 
this need has been effectively addressed or examples of where 
such infrastructure is falling apart that you are aware of 
besides the one you talked about?
    Ms. McConkey. Well, actually, there is--it is a national 
issue. We are seeing a lot of the levees, particularly in 
California, that have been identified as not meeting standards. 
There are a number of levees in Illinois. There are hundreds of 
cases. And I am a little bit stumbling right now to give you a 
specific one like the Gulfport one, but I would point out that 
there has been---- through the Water Act of 2007, the National 
Committee on Levee Safety was convened, and they are--one of 
the top things they did was to say that we need to have an 
inventory of the levees that are in the Nation and also an 
inspection of those levees. And that is ongoing right now 
through the Corps of Engineers.
    The problem is extensive. We could find--there is data on 
the number of provisional letters of accreditation that FEMA 
issued whereby when the maps were being done, if the levee 
owners signed that they believed that the levees would provide 
protection from the 1-percent flood, they thought that they 
would build to provide the proper documentation, FEMA would 
grant them provisional accreditation. Many of the new maps 
rolled out with that provisional accreditation, and FEMA will 
have numbers on the--they had 2 years to provide the data, and 
there are hundreds of levee owners that are not--those letters 
are coming due. It is time for them to show the data, and they 
are not able to do it, and levees are being de-accredited 
because the information is not there.
    Chairman Dodd. But your association--do you have an 
independent source of information on this, or are you just 
relying on others?
    Ms. McConkey. On the problem----
    Chairman Dodd. Yes, just an idea of a cross-section of the 
country. You mentioned California specifically, but do you have 
other information about other States? Or do you have to go to 
the Corps of Engineers for that kind of information?
    Ms. McConkey. We do not have any independent information. 
We would be relying on what the Corps has, and looking--
actually, I serve on the Review Committee for the National 
Levee Safety Committee, so that is really my source of 
information. But one thing that is important, back to my 
testimony, is that we do need to look at these issues of 
coordination between the agencies with the Corps and with the 
Federal Emergency Management Agency and the USGS so that we 
have coordinated policies that move us toward a safer 
environment and mitigate our flood risk.
    Chairman Dodd. Thank you.
    Mr. D'Ambrosia, you mentioned in your testimony education 
and outreach obviously is an important step for FEMA and the 
communities to take to make sure their residents are aware of 
the flood risks. Do you have any idea what FEMA is currently 
doing to support this effort and what it could do to make it 
better? And who in your view, an insurance agent, a real estate 
agent, mortgage broker, Government official, who is the best 
person to convey that kind of information?
    Mr. D'Ambrosia. Well, what you see currently from FEMA is a 
series of commercials telling people about flood insurance and 
the opportunity that the properties have to flood. As far as 
getting entities from the housing industry involved, the 
National Association of Realtors itself is willing to go ahead 
and talk and participate in those actions.
    As was said earlier today, 50 percent of the people who are 
in floodplains do not have flood insurance for a variety of 
reasons, either they----
    Chairman Dodd. How realistic would it be, with all due 
respect, to have a real estate agent be reminding a home buyer 
of some additional costs they are going to have to take? That 
is not the kind of thing you want to raise with a buyer unless 
it is mandatory where you have certain requirements under law 
that you have got to meet. But assuming this is not being 
followed to the letter with as much as 50 percent of the people 
who are not complying, how--and I say this respectfully. But 
how likely, if you are trying to make a sale and get something 
done here, you say in the middle of that, ``By the way, I 
forgot to tell you. You are going to owe another 200 bucks or 
300 bucks a year for this stuff.''
    Mr. D'Ambrosia. Well, Senator, as you mentioned earlier, I 
sit on the Maryland Real Estate Commission, so we make rules 
all the time that real estate agents have to go out and follow 
and give disclosures and tell people they have to spend extra 
money.
    You know, part of it comes down to protecting the public, 
and the reality is that without the flood insurance, you know, 
as was mentioned earlier by Senator Tester, you know, there are 
only a couple private companies out there--Chubb, Lloyd's of 
London, I think there are two more--that will go ahead and even 
address flood insurance with people. And usually they are 
addressing it with high-cost homes and more wealthy people. You 
know, for the person in the middle class who lives in a 
community such as Chesapeake Beach, Maryland, where the homes 
are smaller and they are old and have been there for a while, 
there is nowhere for those people to turn when they want to go 
ahead.
    So if it comes down to that--since there is a paying, 
anyway, either by all or by people who are buying in the 
floodplain, there is no--things have to be paid for, and if it 
has to be put forth to people you need this program, it is 
going to cost you $200, it is always better to spread it out 
over the group of the people rather than to concentrate it on a 
few. Otherwise, you end up in a situation----
    Chairman Dodd. What do you do in Maryland? What do you tell 
people? What does Maryland require?
    Mr. D'Ambrosia. Well, in Maryland, it depends on the area 
which you are in. Ocean City, of course, and down through the 
coastal regions. Maryland has more coast than any other part of 
the country. So you have a lot of people that are affected by 
it. It is presented to people. It is not required to be 
presented, but it is presented by those sales people in those 
various areas.
    Chairman Dodd. As a regular matter?
    Mr. D'Ambrosia. As a regular matter, because usually the 
mortgage companies that are giving the loans in those areas 
require it.
    Chairman Dodd. Yes. Mr. Ellis, you mentioned that the Flood 
Insurance Program was established with the goal of promoting 
the wise use of floodplains, and obviously you are right in 
that. And you and others have noted that communities continue 
to develop in risky areas. I wonder if you have any more recent 
examples of development that occurred after the inception of a 
program that may have been unwise to build? I can think of 
some, but do you have some that come to mind in your work?
    Mr. Ellis. Well, you know, actually, not to pick on 
Louisiana, but the whole area of New Orleans East developed 
after the creation of the program, and actually you can look at 
it, it kind of shows some of the problems with our whole flood 
protection, flood insurance infrastructure where essentially 
the Army Corps of Engineers built flood protection out in that 
area, which then induced development behind the levee, which is 
an area that got completely destroyed by Hurricane Katrina. 
That was all in the 1970s, so after the development of--after 
the Flood Insurance Program was instituted, and it also sort of 
shows that some of the problems that we have is that right now, 
you know, essentially for years we have dumbed down our 
Nation's flood protection to the 100-year or the 1-percent 
flood, because essentially communities knew that if you had a 
levee that gave you 100-year protection, then you did not have 
to buy flood insurance. And so that was always the target, was 
to get something along those lines, when in reality we 
recognize that it is far less protection than what communities 
need, and that was why one of the things that I complimented 
you on on your bill from last Congress was this idea that you--
mandatory in residual risk areas, the areas like Gulfport, 
Illinois, purchase flood insurance, and it would be less 
expensive than if you were actually in that floodplain. But you 
are in the floodplain, you just happen to have manmade 
protection. And I think that you can look along the Nation's 
coastlines, and you can see all the development that has 
occurred there. That is all the floodplain. I mean, I do not 
think you are going to change that. People like to be near the 
water. It is sort of a human instinct. And so it really is then 
making sure that people know what their true cost is, not just 
from an economic point of view for the taxpayer, but from a 
human life point of view, people knowing that they are moving 
into harm's way and some of the issues surrounding that.
    Chairman Dodd. Well, I agree, and I am glad you pointed out 
what we did last year in the bill. You understand the political 
difficulty when all of a sudden the Federal Government starts 
telling local communities how to develop land, let alone State 
and local. I mean, you see those problems. But clearly we need 
to. There is no question about it. It is a great disservice to 
people, and obviously this runs directly, Mr. D'Ambrosia, in 
the face of builders, realtors, and others, that the last thing 
they want is big Government. Today we all know what is going on 
politically in the country. But to talk about having--because 
we all end up paying. Asking some taxpayer in Nevada or Idaho--
I am using those States somewhere in the Midwest--to pick up 
the cost of people who make choices to live elsewhere or 
communities or States that allow property to get developed in 
areas where clearly they are at risk--I mean, these are hard 
calls, but I do not need to tell you the political mine field 
you enter when you start advocating suggestions like that. We 
need leadership out of the real estate community and others to 
help step up on these matters, or it is just going to get out 
of control.
    Mr. D'Ambrosia. Senator, if I may, and I totally agree with 
what you just said. The flood insurance does not really spawn 
the development. The development is going to happen in one way 
or another. As Mr. Ellis pointed out, people like living by the 
water. But also at one point in time there was a necessity for 
people living by the water--Baltimore, Boston, where because of 
shipping and everything else, fishing in Maryland--you 
mentioned Maryland, the fishing industry in Maryland.
    What happens, those properties are already there, they are 
already developed. They are already in place, and there has to 
be an avenue for those people to be able to transfer those 
properties when the need arises.
    Mr. Ellis. Mr. Chairman, I would just point out that there 
is an existing program, just to challenge Mr. D'Ambrosia on one 
little bit of this, and that is, the Coastal Barrier Resources 
Act was created in 1982 and then expanded in 1980, and 
essentially it was something where they would deny flood 
insurance to undeveloped coastal barrier islands, and they 
worked with the States to identify these. And the Fish and 
Wildlife Service has done a study and has looked at property 
that is right outside the CBRA unit, the Coastal Barrier 
Resources Act unit, and they went inside. And really the key 
subsidy that drives this sort of--that drives the development, 
because you can still build in these areas. You just cannot get 
any Federal subsidies for building or flood insurance, the 
Flood Insurance Program. And the Fish and Wildlife Service has 
documented that that is one of the key things in these coastal 
areas that fuel development. And it is really amazing. You can 
look at some of the aerial photos of these barrier islands, and 
you can basically tell exactly where the line is. The really 
popular areas still will build. People will privately insure. 
But in many cases it is actually--you can see that flood 
insurance is one of the key drivers or enablers of development.
    Chairman Dodd. I recall, by the way, you mentioned East New 
Orleans, flying in a helicopter just a few days after Katrina, 
and that whole area, it was just stunning. All you could say to 
yourself was, ``How did that ever get developed?''
    Mr. Ellis. And, Mr. Chairman, actually in the 1970s when 
the Corps first proposed this, because it was all supposed to 
be in response to Hurricane Betsy, their flood protection, then 
Congressman Livingston was a freshman, and he was on the 
Committee there, and he basically challenged the Corps, saying, 
``Well, why are you building levees where people are not in New 
Orleans East''--because they were not there yet--``instead of 
building higher and stronger levees where people are, in New 
Orleans.'' It was really because that was the way that the 
Corps did their analysis, and the economic benefit of 
developing that basically virgin area was a much greater 
benefit to overcome the cost of the project than to actually 
put higher and better levees in New Orleans.
    Chairman Dodd. Interesting. Well, listen, I thank you. You 
have been very informative, very helpful, and enlightening as 
well. I would love to tell you I know what is going to happen 
here. I get uneasy about extended moratoriums and not really 
addressing what we need to address. It is kind of a classic 
response of Congress these days, kicking the can down the road. 
But the problems do not go away. They only get worse. We have a 
pretty good idea what needs to be done.
    The mapping issue is one that has been raised here, and 
that is going to be around. We have got to address that to some 
degree. And I think having phase-ins, even the grandfathering 
provisions we heard from Ms. Brown will help, I think, to ease 
some of the political pressures against this. But I am not sure 
we can get the kind of 92-6 vote again in the Senate, even with 
that same bill and the same make-up of the place. We might have 
difficulty getting there. But I wish we could get beyond the 1-
year extensions. Again, I am moving on and leaving, and others 
will have to pick up this issue. But I would like to see if it 
were not possible--and the House-passed bill, would you vote 
for the House-passed bill, Mr. Ellis?
    Mr. Ellis. No, sir, I would not.
    Chairman Dodd. So you do not think we ought to try and do 
that.
    Mr. Ellis. No. I think that the House bill--it has the 5-
year--I mean, it has essentially what was proposed here, which 
is 5 years waiting on the maps implementation and 5-year phase-
in of the cost. And that is just way too long.
    Chairman Dodd. And I agree with you, but as a practical 
matter, my concern is that that 5 years, we might look back a 
year from now and say, ``You know something? Offer me the 5-
year and I will take it now,'' because I am fearful what I am 
going to get is a 10-year proposal and so forth, as more of the 
mapping issues come up, and others, and we might regret not 
having grabbed what we could grab, and then work it over these 
next 3 or 4 years. That is where the tipping points are 
politically. I do not like them necessarily, but in the world 
that I have to function in here--and this happens to me all the 
time--I have to find out where the tipping points are 
politically before I can get something done. I am not crazy 
about five.
    Mr. Ellis. Right.
    Chairman Dodd. But if it is the only thing I can get versus 
1-year extensions, inevitably----
    Mr. Ellis. Well, I think that--I mean, the Senate has 
always been sort of the bulwark on this issue, and, you know, 
certainly I think that the one thing that the House did better 
this time was that they did not include wind.
    Chairman Dodd. They dropped wind.
    Mr. Ellis. And so that is the one improvement. But I think 
that working with the Senate, actually having more of their 
imprint on the final product will turn out a much better 
product than what the House got, and hopefully the 1-year 
extension will continue to provide a little bit of pressure--
not be ridiculous. I agree the month-to-month extensions are 
ridiculous and do not help anybody at all. But the 1-year 
hopefully gives the new Congress enough time to sort of build 
and to come up with something.
    Chairman Dodd. There is an old Gaelic expression, ``From 
your mouth to God's ears.''
    Mr. D'Ambrosia. Senator, if I may, you know, one of the 
things that I mentioned--and Mr. Ellis is correct--when you 
have those lapses and then it takes time to go ahead and get 
things approved and ramped up, everybody reacts differently. 
Consumers react differently. They lose confidence. They drop 
out of the market. They lose their loan lock. Lenders react 
differently. You have some lenders who say, ``Oh, we know 
Congress is going to reapprove this.'' And other lenders say, 
``No, no, we are not going to settlement until it is in 
place.''
    So it goes ahead, and it causes literally thousands of 
settlements to either be postpone or canceled. And we all know 
how fragile the market is, and I am sorry I am myopic in my 
focus on housing.
    Chairman Dodd. No, no. It is your job.
    Mr. D'Ambrosia. Housing does drive a lot of what goes on.
    Chairman Dodd. So you would be--where do you come down? If 
I just made you a Senator and you got a vote----
    Mr. D'Ambrosia. We would be in favor of----
    Chairman Dodd. You would vote it just to get something 
going.
    How about you, Ms. McConkey?
    Ms. McConkey. We would not be in favor of the 5-year 
extension. We would like to see what FEMA is going to come up 
with in the next year on their recommendations for a real 
rethink of the NFIP. There are a lot of issues that have come 
up since those two bills were considered by the Houses, and I 
think FEMA would be the best one to make some good 
recommendations.
    Chairman Dodd. Well, you have got some good Members here. 
As I mentioned, Jack Reed has a strong interest in this subject 
matter. You heard Senator Tester here. These Members will be 
back. Senator Shelby has a strong interest in the legislation 
as well, and Tim Johnson, so I am optimistic that the next 
Congress and this Committee can pick this up and move forward 
with it.
    I cannot thank you enough, all three of you. Sorry we did 
not have more colleagues here, but in the afternoon there are 
all sorts of things going on up here in the last days before 
the election starts, so we do not have as much participation. 
But this is a subject matter in which there is a tremendous 
amount of collegial interest, I can tell you, in the Flood 
Insurance Program.
    So I thank all three of you. We will leave the record open 
for a few days.
    Mr. Ellis. Thank you very much.
    Ms. McConkey. Thank you very much.
    Mr. D'Ambrosia. Thank you.
    Chairman Dodd. The Committee will stand adjourned.
    [Whereupon, at 4 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]

           PREPARED STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    I welcome everyone here today for a hearing on the 
``Reauthorization of the National Flood Insurance Program,'' or NFIP.
    The NFIP is an important program providing a range of benefits to 
deal with an often overlooked, but serious, threat. Floods cause more 
damage and create more economic losses than any other type of natural 
disaster. While the topic may bring Hurricane Katrina's Gulf Coast 
devastation to mind, the truth is that floods can happen anywhere. 
Parts of my home State of Connecticut were ravaged by flooding this 
spring.
    Flood insurance provides critical assistance to 5.5 million 
families and businesses--insurance to help them recover from flood 
damages and mitigation assistance to help them avoid damages in the 
future. It also provides a framework of responsible flood plain 
management, requiring safer, more environmentally sound development 
that limits Americans' flood risks. Together, these measures save 
taxpayer money by limiting the amount of emergency disaster assistance 
necessary in the wake of flood events.
    Despite these many benefits, the program faces serious challenges 
that threaten its ability to carry out its mission.
    Hearings before this Committee in previous Congresses revealed a 
number of issues in need of reform. Perhaps foremost is NFIP's 
financial condition, which threatens the program's long-term viability. 
Due to increased borrowing to pay claims for catastrophic disasters in 
2005 and 2008, the NFIP faces almost $19 billion in debt to the 
Treasury, a sum it is unlikely to ever repay. Subsidized rates for 
nearly 25 percent of policy holders do not reflect the actuarially 
sound rates sufficient to cover expected claims.
    Another key issue is ensuring that citizens and the Federal 
Government understand their risks. Despite mandatory-purchase 
requirements for properties in flood hazard areas, only about half of 
all property owners in those areas actually participate in the program, 
increasing their potential exposure to devastating losses. On top of 
this, until recently, FEMA had been using outdated, paper-based flood 
maps to assess risk.
    These and other concerns caused GAO to place the program on its 
High-Risk List in 2006.
    In the last Congress, Senator Shelby and I worked together on flood 
insurance reform legislation to put the NFIP on a stronger footing for 
the future.
    That bipartisan, fiscally responsible legislation would have 
provided comprehensive NFIP reform to address these pressing issues, 
and would have reauthorized the program for 5 years. It would have 
relieved NFIP's debt while requiring actuarially sound premium rates. 
We worked with Senator Jack Reed on provisions to strengthen FEMA's 
mapping capabilities to inform citizens of their risk and accurately 
set premium pricing.
    In recent years we have heard a number of proposals to improve 
insurance options and delivery for so-called ``multiperil'' events--
such as those involving both wind and water, for example, and for 
lowering the cost of insuring against catastrophic natural disasters. 
Our legislation also called for the creation of a National Commission 
on Natural Catastrophe Risk Management and Insurance to provide expert 
recommendations to the Congress on these complex topics.
    In 2008, the Senate adopted this bipartisan legislation by an 
overwhelming 92-6 vote. Unfortunately, we did not reach agreement with 
the House. Since that time, the program has been operating under a 
series of shorter-term extensions.
    While our comprehensive reauthorization discussions continue, I 
have been working with my colleagues to ensure that the program remains 
in force. Last night, the Senate approved a 1-year extension of the 
NFIP. A multiyear reform bill is preferable to an extension. However, 
such an extension will, in my view, provide necessary program and 
market stability to homeowners, lenders, and insurers while Congress 
considers the next steps for the reform of the NFIP.
    The purpose of today's hearing is to return to our discussion of 
comprehensive flood insurance reform. We will hear from distinguished 
colleagues and experts about the status of the NFIP and their 
prescriptions for reform.
    Before I introduce the panelists, I will turn to Senator Shelby to 
see if he would like to make any opening remarks.

            PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY

    Thank you Chairman Dodd.
    The National Flood Insurance Program remains in serious trouble and 
is in desperate need of reform. Every aspect of the program must 
undergo significant revisions. This concern is clearly not partisan, 
nor is it novel.
    Since early 2006 the GAO has targeted this program as ``high risk'' 
because of both the massive debt problems plaguing the program and the 
imbedded structural deficiencies.
    During the 109th Congress, this Committee held multiple hearings on 
ways to improve the Flood Insurance Program. Ultimately, with Chairman 
Dodd's leadership, this Committee voted unanimously on a piece of 
legislation that addressed many of the program's core deficiencies.
    For example, the bill immediately eliminated subsidies on vacation 
homes, businesses, and severe repetitive loss properties, and 
established a process for the elimination of all subsidies in the 
future.
    The bill addressed insufficiencies in the current maps by setting 
forth stringent standards that the program must use to complete the map 
modernization process.
    The bill provided both State and Federal bank regulators with more 
tools to ensure that homes in a floodplain had the necessary coverage.
    Finally, the legislation created a mandatory reserve fund to 
provide additional funding to help pay future claims without further 
need to seek contributions from the U.S. taxpayer.
    The legislation passed by the Senate during the last Congress is a 
good starting point. There are, however, several other reforms that 
this Committee must consider.
    First, the GAO is about to complete a number of studies on specific 
aspects of the program, including a thorough examination of the 
relationship between the program and the Write Your Own (WYO) insurance 
companies.
    We need to have a full understanding of the costs and benefits 
provided by the Write Your Own program. If there is fat in this 
program, we need to trim it.
    In addition, we need to know more about who is using the flood 
program to ensure that its resources are targeted. The Congressional 
Budget Office (CBO) has determined that 12 percent of the homes 
receiving subsidies under the program are worth more than $1 million. 
We need to ensure that the program requires wealthy participants to pay 
their full freight.
    There also has been much attention focused on the mapping for this 
program.
    The map modernization process has been ongoing within the program 
for several years. These maps are important for two reasons.
    First, they serve as a warning for developers and homeowners about 
the risk of developing or living in a floodplain.
    Second, they ensure that individuals paying into the flood 
insurance program are paying fair prices for coverage.
    Several groups have stated that the program has not given 
communities the ability to have input in the map making process.
    While I believe that it is important that communities have a voice 
in this process, I am concerned that many who wish to contribute only 
are attempting to slow down the process of modernizing the flood maps.
    Government transparency is crucial, but this process needs to take 
place rapidly. Many of these maps are several decades old and do not 
accurately outline the costs and risks of living within the floodplain.
    Finally, the term ``actuarially sound'' must be defined in a manner 
which ensures that the premiums cover the costs.
    Once this definition is codified in statute, there will be no 
question that we intend this program must be financially self-
sustaining.
    Yesterday, I agreed to allow the program to be extended once again. 
While there needs to be a degree of certainty for policy holders, we 
are not serving the American taxpayer well by continually extending a 
fundamentally flawed program.
    The National Flood Insurance Program is broken. The sooner we get 
around to fixing it, the better it will be for everyone.
    Thank you Mr. Chairman.

               PREPARED STATEMENT OF SENATOR TIM JOHNSON

    Mr. Chairman, thank you for holding this important hearing 
regarding the reauthorization of the National Flood Insurance Program 
(NFIP).
    The goal of the NFIP has always been to enable at-risk property 
owners in participating communities to purchase insurance as protection 
against potentially catastrophic flood losses. If such Federal 
insurance were not available, citizens would be exposed to unacceptable 
risk, and Congress would face ever-escalating requests for Federal 
grants to rebuild uninsured flood-zone properties. Though the NFIP does 
involve costs for the Government and for individuals in flood zones, 
the program is a cheaper alternative to letting flood-zone properties 
remain uninsured.
    But this program has faced many challenges in recent years, 
including an expansion in the size of the program, a debt to the 
Treasury, repetitive lost costs, and the reality that the policies may 
not be priced at their actuarial price. After Hurricane Katrina, this 
Committee began bipartisan work on legislation to reform and 
reauthorize the NFIP. While the Senate has passed legislation the past 
two Congresses, differences between with the House and Senate 
legislation have gone unresolved. Authorization for the NFIP has had to 
be extended on a short-term basis as Congress works to resolve 
differences over the longer-term reform.
    These short term extensions have led to several temporary 
terminations of the program. These temporary terminations are 
disruptive, frustrating, and confusing to the many people who rely on 
flood insurance; they also cause uncertainty for those Americans trying 
to buy new homes. They also demonstrate how vital it is for Congress to 
approve a long-term extension and eventual reform of the NFIP, which 
would give certainty to those seeking to purchase flood insurance for 
their homes. I am pleased that last night, the Senate approved an 
extension for 1 year.
    In addition, I have supported reauthorization and modernization of 
the NFIP many times and continue to be hopeful that long-term reform 
can be agreed upon within the Senate and successfully reconciled with 
the House of Representatives. Now that we have approved a longer-term 
extension of the NFIP, we can work on modernization proposals. While 
the legislative days are numbered this year, making modernization 
proposals unlikely, I hope my colleagues and I can begin work on a 
modernization proposal that we can take up as soon as possible.

                                 ______
                                 
               PREPARED STATEMENT OF SENATOR JIM BUNNING

    Mr. Chairman, thank you for holding this hearing.
    One of my proudest accomplishments in the U.S. Senate was authoring 
the 2004 law that reauthorized the National Flood Insurance Program.
    At the time, I chaired this Committee's Economic Policy 
Subcommittee. We worked in a bipartisan way to improve the program, 
including incentives for communities and homeowners to mitigate 
flooding risk when properties have a history of serious and repeated 
flood damage. And we provided long-term certainty for the program for 
property owners, communities, and lenders.
    Thankfully, my bill ensured that the flood insurance program was in 
place before the Katrina disaster hit. Unfortunately, the law I wrote 
expired in September of 2008, and since then, Congress has extended the 
program for only short periods of time.
    The program has lapsed twice this year, mainly because Congress 
could not manage deadlines and short-term extensions were held hostage 
in bills that were controversial.
    Last night, the Senate passed yet another extension of the flood 
insurance program, this time through September 30, 2011. If Congress 
does not complete action on it, the program will lapse again next week.
    We simply cannot keep kicking the can down the road. It is not fair 
to property owners or to taxpayers.
    There are several issues with flood insurance that are crying for 
reform. Many people covered by the program are not paying premiums that 
bear any relationship to their actual risk of flood damage, and other 
property owners and taxpayers are subsidizing them. Flood maps need to 
be updated. The program also owes $18.8 billion to the Treasury, with 
interest, which is not sustainable.
    The Senate passed a bipartisan reauthorization of the program in 
the last Congress that would make several improvements, but it died 
from inaction.
    Reform and long-term renewal of the program is long overdue. I hope 
this hearing moves us closer to a more stable and rational flood 
insurance program.
    Thank you, Mr. Chairman.

                                 ______
                                 
            PREPARED STATEMENT OF SENATOR RICHARD J. DURBIN

    Chairman Dodd, Senator Shelby, and Members of the Banking 
Committee, thank you for this opportunity to testify on the importance 
of the National Flood Insurance Program.
    I would like to limit my testimony to one important issue--FEMA's 
flood mapping program. This program is well underway in Illinois and 
has affected thousands of homeowners and businesses in my State.

Metro East
    As you know, FEMA is currently updating outdated floodplain maps 
across the country.
    The Metro East St. Louis area was one of the first areas in the 
country to undergo this floodplain map modernization process. The 
greater Metro East area is home to 150,000 people and dozens of 
historic communities, including East St. Louis, where I was born and 
raised.
    In early 2007, FEMA informed the Illinois levee districts in Metro 
East that their levees were not strong enough to be certified against a 
100-year flood event. This lack of accreditation by FEMA means that 
tens of thousands of homeowners will soon find themselves living in a 
floodplain. This floodplain designation will also require these 
property owners to purchase flood insurance.
    FEMA originally decided to update flood maps on the Illinois side 
of the river only. The Missouri side of the river was not scheduled to 
undergo the new mapping process until well after the Illinois side was 
completed.

Mapping on a Watershed Basis
    With your help, language was included in the Fiscal Year 2009 
Continuing Appropriations bill that aligned the mapping process for 
both sides of the Mississippi river.
    As the Committee develops its bill to reauthorize reform the flood 
insurance program, I would encourage you to consider directing FEMA to 
undertake its mapping process on a watershed basis. Floodwaters do not 
stop at county or State lines and FEMA should recognize this by mapping 
watershed by watershed.

Mandatory Flood Insurance
    Floodplain designations by FEMA will require homeowners to purchase 
flood insurance. In Metro East Illinois, up to 30,000 new properties 
will be affected by this requirement. These individuals have lived in 
the same location for many years outside of a floodplain.
    Current law will require most of these homeowners to purchase flood 
insurance immediately after the new flood maps become effective. This 
could lead to an additional $2,500 per year on each mortgage. This 
sudden spike in costs is especially problematic for many of my 
constituents in Illinois who have struggled to make ends meet in this 
economy.

Phasing in the New Expense
    The House-passed flood insurance reauthorization bill includes a 
provision that would delay the mandatory flood insurance purchase 
requirement for 5 years in areas like Metro East, where new flood maps 
are being implemented.
    This delay would be followed by a 5-year period where insurance 
rates would be phased in incrementally. This additional time would be 
especially helpful for places like Metro East St. Louis, where the 
local community has developed an aggressive plan to upgrade the levees 
to ensure protection against a 100 year flood event.
    The three counties affected in Illinois have imposed a sales tax 
that will generate $10 million per year to be used on levee upgrades 
and improvements. The levee rebuilding project is expected to take 5 
years and ultimately deliver protection to the businesses and homes 
behind the levees.
    I encourage you to include the House-passed provision in your 
version of a Flood Insurance Reauthorization bill. This provision will 
give communities time to fully understand the new flood risk shown by 
these modern flood maps while giving temporary relief to homeowners and 
businesses.

Outreach and Education Are Critical
    I would encourage you to delay this mandatory requirement only in 
special circumstances. Temporarily lifting the flood insurance 
requirement should only be offered to communities that have done 
extraordinary outreach to provide flood risk information to residents 
in these newly mapped floodplains.
    Homeowners need to understand they are at risk. Levees do not 
provide 100 percent protection, and having federally backed flood 
insurance can help you rebuild your home and protect your mortgage if a 
disaster strikes. Even though flood insurance may not be required, it 
is important homeowners living in floodplains protect themselves with 
insurance.
    Unfortunately, even though flood insurance is required for everyone 
with a federally backed mortgage, compliance rates are very low in the 
Midwest. Recent research has shown only 20 percent of properties in a 
100-year flood plain in the Midwest carry national flood insurance 
policies.
    Something needs to be done encourage these homeowners to protect 
themselves. Extensive outreach combined with offering flood insurance 
at preferred risk rates or lower may incentivize more people to carry 
flood insurance than even mandating the purchase itself.
    Senator Wicker has suggested offering long-term flood insurance 
policies to increase compliance rates. This is an idea advocated for by 
many academics and I encourage you to give that proposal consideration 
too.

Conclusion
    In summary, as you craft your Committee's version of flood 
insurance legislation, I encourage you to include language to achieve 
the following goals:

    Ensure FEMA updates flood maps on a watershed basis;

    Delay the effective date for the mandatory purchase of 
        flood insurance for areas that have been newly mapped into a 
        floodplain;

    Phase-in flood insurance rates for newly mapped areas over 
        5 years.

    Require FEMA, State, and local governments to undertake 
        extraordinary outreach to homeowners to make sure they 
        understand their risk and the consequences of not carrying 
        flood insurance; and

    Offer deeply discounted rates to newly mapped properties to 
        increase the number of homeowners carrying flood insurance.

    Thank you for the opportunity to address this Committee about this 
important issue.

                                 ______
                                 
             PREPARED STATEMENT OF SENATOR ROGER F. WICKER

    Thank you, Chairman Dodd and Ranking Member Shelby. I appreciate 
your holding this hearing, and I am grateful for the Committee giving 
me the opportunity to appear today as a witness on the reauthorization 
of the National Flood Insurance Program.
    In this year alone, the National Flood Insurance Program (NFIP) has 
lapsed three times, creating uncertainty and unnecessary problems for 
property owners who rely on the NFIP for flood insurance. These lapses 
drive up the costs of administering the program and delay purchases for 
properties that require flood insurance prior to closing. I am glad 
that the Senate voted last night by unanimous consent to extend the 
NFIP through September of next year. However, in talking with 
Mississippians, it is clear that the NFIP needs to be reauthorized on a 
long-term basis and in a way that addresses some of the unique 
challenges that residents along coastal areas face.
    Although it has been 5 years since Hurricane Katrina made landfall, 
we are still rebuilding on the Mississippi Gulf Coast. The storm may 
have passed but remnants of Katrina remain. One of the greatest 
examples of Katrina's lingering effects--and one of the biggest 
impediments to our rebuilding efforts--is the lack of affordable 
insurance. Not only is access to affordable insurance a challenge in 
Mississippi, but it is also a problem from Texas, down to the tip of 
Florida, and on up through the New England coastal States. The 
affordability and availability of wind insurance is crucial in any 
State where there is coastal exposure.
    Last month, there were many speeches commemorating the anniversary 
of Hurricane Katrina and the incredible progress that many States have 
made since the destructive storm hit. The numerous ribbon cutting 
ceremonies of new businesses, homes, and developments demonstrated the 
remarkable work of the Gulf Coast communities in our efforts to 
rebuild. As we celebrated this progress and the resilience of 
Mississippians, we also recognized that there is more work that needs 
to be done to better prepare us for another Katrina. One of the best 
things that Congress could do for the Gulf Coast region--not just in my 
State of Mississippi, but in all of the Gulf Coast States--is to 
resolve the nuances associated with insuring against hurricanes.
    For all practical purposes, private insurance coverage for wind 
damage is no longer available in the Gulf Coast area since the 
aftermath of Hurricane Katrina. Before the storm, the wind peril was 
typically insured by basic hazard insurance policies with the exception 
of those living on the beach itself. Today, in most of coastal 
Mississippi, individuals have to purchase wind coverage through the 
State-run windpool. State windpools were originally designed to be the 
insurer of last resort. However, in recent years, State windpools have 
unfortunately become the rule, not the exception.
    In 2008, I attempted to address this problem by offering an 
amendment that would have added wind coverage to the National Flood 
Insurance Program on a voluntary basis. This multiperil insurance 
concept passed the House of Representatives last Congress but failed in 
the Senate. I understand the arguments on both sides of the multiperil 
debate, but I believe using such an approach would address the basic 
flaw in the current insurance system. And that flaw is this: it takes 
two kinds of insurance to cover a hurricane--flood insurance through 
the NFIP and very expensive wind insurance through either the windpool 
or private coverage.
    After Hurricane Katrina, many property owners were forced to go to 
court to decide who was responsible for the damage, even if they had 
all the necessary insurance policies. Other property owners had not 
purchased flood insurance because they relied on the Federal flood zone 
maps. When their property was damaged by the storm, the wind insurance 
adjusters denied claims, ruling that the damage had been caused by 
water alone.
    I recently introduced the Coordination of Wind and Flood Perils 
Act. This legislation, S. 3672, addresses some of the lessons learned 
following the wind versus water dispute that occurred after Hurricane 
Katrina. Individuals who had all the appropriate insurance--wind and 
water policies--were, in many instances, caught in the middle and 
forced to go to court to watch the insurers fight amongst themselves 
before they could be indemnified for their loss. The legislation I 
introduced would remove the property owner from this debate and put the 
burden where it belongs--on the insurers. The insurance industry 
already does this for many other types of losses. If there is a 
dispute, the damages would be split evenly between the insurers so the 
property owner would be compensated in a timely manner. Then, the 
insurers would appear before an arbitration panel, and the panel's 
decision would be binding.
    There are a few other lessons learned after Katrina and 
observations I would make about the National Flood Insurance Program:

  1.  After Hurricane Katrina, we learned that flood hazard risk in 
        many coastal areas of Mississippi, and other parts of the 
        country, was not accurately reflected by FEMA's flood insurance 
        maps. As a result, property owners outside of the flood zones 
        had no NFIP coverage. With only wind insurance coverage, these 
        individuals were not properly insured for a hurricane. Since 
        property owners rely heavily upon this information, I hope the 
        Congress can continue to work with FEMA to ensure these maps 
        are accurately updated for all residents.

  2.  FEMA and many banks do a poor job of enforcing the flood 
        insurance requirement. Under the Flood Disaster Protection Act 
        of 1973, the purchase of flood insurance is mandatory in flood 
        zones if the consumer is using a federally regulated lender. 
        However, there is a breakdown with the enforcement of this 
        requirement. According to the Congressional Research Service, 
        at least eight Federal agencies or Government Sponsored 
        Enterprises are responsible for enforcing this requirement. 
        Recently, the Wharton School of the University of Pennsylvania 
        surveyed insurance coverage among property owners impacted by a 
        flood in Vermont. The study revealed that 45 percent of the 
        victims of the flood who were required to have flood insurance 
        did not purchase it. With regard to private insurance, lenders 
        do a much better job of enforcing insurance requirements. If a 
        homeowner stops paying his premium, the bank will purchase 
        homeowners' insurance for him. However, as clearly documented 
        by the Wharton study, regulators and lenders routinely fail to 
        enforce the mandate enacted in the Flood Disaster Protection 
        Act. I hope the Committee will further investigate this issue 
        and report its findings.

  3.  Rates should be actuarially sound and meaningful premium 
        reductions should be offered for mitigation improvements. I 
        encourage this Committee to study the work done by the Wharton 
        School in this area. These scholars propose linking the NFIP 
        policy to the mortgage, which would create a long-term 
        insurance policy tied to the length of the mortgage and to the 
        property itself. Having a long-term policy tied to the property 
        is one way to limit NFIP cancellations. This proposal also 
        would give meaningful premium reductions for mitigation 
        improvements. When property owners know they can save money 
        year after year by strengthening their homes above building 
        code requirements, they will have a powerful incentive to do 
        so.

    Another proposal I would encourage this Committee to consider is 
the Travelers Coastal Wind Zone Plan. This proposal would create an 
independent Federal commission to establish standards for the wind 
peril in coastal areas. The Travelers' plan allows insurance companies 
to purchase reinsurance from the Federal Government to cover losses 
resulting from extreme events. In addition, like the Wharton plan, the 
Travelers' plan calls for meaningful premium reductions for mitigation 
improvements.
    Al Goodman, the Mississippi State Floodplain Manager, wrote to me 
this week and reminded me that major flood disasters have often led to 
changes in the law. For example, Hurricane Agnes in 1972 resulted in 
the Flood Disaster Protection Act of 1973; flooding on the Mississippi 
River in 1993 prompted the National Flood Insurance Reform Act of 1994; 
and the Flood Insurance Reform Act of 2004 was influenced by Hurricanes 
Andrew and Isabel.
    Earlier this year, the Sun Herald, a Mississippi Gulf Coast 
newspaper, wrote in an editorial: `` . . . better protection for all 
Americans living within harm's way of a hurricane would be Katrina's 
greatest legacy.'' I agree. Five years after Katrina, Congress still 
has an opportunity to make sure affordable wind and water coverage can 
be provided to the millions of Americans in coastal areas of our 
country.
    Thank you.

                                 ______
                                 
               PREPARED STATEMENT OF ORICE WILLIAMS BROWN

 Director of the Office of Financial Markets and Community Investment, 
                    Government Accountability Office
                           September 22, 2010



















































































                  PREPARED STATEMENT OF SALLY MCCONKEY
          Vice Chair, Association of State Floodplain Managers
                           September 22, 2010

    The Association of State Floodplain Managers (ASFPM) thanks this 
Committee, Chairman Dodd and Ranking Member Shelby, for your attention 
to the need to reauthorize and reform the National Flood Insurance 
Program (NFIP). We very much appreciate your holding this hearing and 
appreciate the opportunity to share our thoughts on the current status 
of the NFIP, challenges the program confronts and opportunities to 
improve our Nation's efforts to reduce flood-related losses. 
Unfortunately, the extensive work that went into the Flood Insurance 
Reform Act, passed in different forms in the 110th Congress by both the 
House and Senate did not result in new public law. Many of the elements 
of that legislation are still highly relevant and in need of 
resurrection. Beyond that, some other issues have emerged that point to 
the need for further reform ideas.

Who We Are
    The Association of State Floodplain Managers, Inc. (ASFPM) and its 
29 Chapters represent over 14,000 State and local officials and other 
professionals who are engaged in all aspects of floodplain management 
and hazard mitigation, including management, mapping, engineering, 
planning, community development, hydrology, forecasting, emergency 
response, water resources, and insurance for flood risk. All ASFPM 
members are concerned with working to reduce our Nation's flood-related 
losses. Our State and local officials are the Federal Government's 
partners in implementing flood mitigation programs and working to 
achieve effectiveness in meeting our shared objectives. Many of our 
State members are designated by their governors to coordinate and 
implement the National Flood Insurance Program, and many others are 
involved in the administration and implementation of FEMA's mitigation 
programs. For more information on the Association, our Web site is: 
http://www.floods.org.

Need To Reauthorize and Reform the National Flood Insurance Program
    A reauthorization of 2-3 years is important for the stability of 
the NFIP and the associated predictability is important for lenders, 
the housing industry, home buyers, policy holders and the Write Your 
Own (WYO) insurance companies which write flood insurance policies in 
partnership with FEMA. Numerous recent periods of hiatus in the NFIP's 
authorization have caused confusion, bureaucratic paperwork challenges, 
legal worries, frustration (which has resulted in one major insurance 
company pulling out of the WYO program) and delayed real estate 
settlements in a difficult period for the housing industry. 
Reauthorizations of several weeks or months do not provide stability, 
confidence and predictability.
    While a longer period of authorization is clearly needed, many 
important reform ideas will need further evaluation and consideration 
by the Committee. In the 2 years since the Senate passed its version of 
H.R. 3121 in the 110th Congress, a number of additional issues have 
emerged. These, largely involving the status of levees and other 
infrastructure, the issuance of updated flood insurance risk maps and 
the affordability of flood insurance, lead to reform considerations 
that go beyond the reforms of the earlier legislation and may require 
reconsideration of some of its provisions.
    ASFPM believes that a 2-3 year reauthorization would provide the 
needed reliability while allowing time for FEMA to complete its ``Re-
Thinking the NFIP'' project, including presentation of legislative 
options and recommendations to the Congress, and for the Committee to 
consider and act on those recommendations.

A Comprehensive Review of National Flood Insurance Program 
        Accomplishments and Shortfalls Is Needed for Long Term Reform
    ASFPM applauds the constructive examination of the National Flood 
Insurance Program (NFIP) launched by FEMA Administrator Craig Fugate. 
Administrator Fugate has recognized both the value of the NFIP and the 
need for a new phase of program growth and adaptation to changing 
circumstances. During a Listening Session on the future of the NFIP 
last November, Mr. Fugate challenged over one hundred invited 
participants to think creatively about the overall value of the NFIP, 
what it was intended to achieve, what is has and has not accomplished, 
and needed changes, both small and large. \1\ One example to encourage 
thinking big was whether or not the private sector could now handle and 
provide flood insurance. Mr. Fugate has subsequently charged a FEMA 
working group with assembling the recommendations, analyzing their 
merits and feasibility, and then developing substantive recommendations 
for moving the NFIP forward. The working group will evaluate not only 
the suggestions from the recent and additional Listening Sessions, but 
also the recommendations of a multiyear NFIP Evaluation led by the 
American Institutes for Research, the results of several Government 
Accountability Office Studies, Congressional Research Service studies, 
and other reports. FEMA expects to have a number of substantive 
additional reform proposals ready for Congressional consideration 
within the next 2 years, when we urge your timely consideration.
---------------------------------------------------------------------------
     \1\ ASFPM comments at the NFIP listening session appended to this 
testimony.
---------------------------------------------------------------------------
The NFIP Challenges for Growth and Adaptation
    The hurricane seasons of 2004 and 2005 involved catastrophic losses 
well exceeding the average historical loss year, putting the program in 
debt to the Treasury. The debt now stands at $19.6 billion. Due to two 
mild loss seasons and a favorable refinancing of the debt, the NFIP has 
been able to repay $589 million and the interest. However, full 
repayment of the debt is not a reasonable expectation because mild loss 
seasons cannot be expected to continue, the Nation's flood risk is 
increasing due to development and more intense storms, the interest on 
the debt will go up, and the annual program income is about $3.2 
billion.
    The poor condition of much of the Nation's infrastructure, 
including levees, dams and other flood control structures, as well as 
stormwater facilities, has become more evident. More accurate flood 
maps now reflect the unreliable flood protection of levees and the 
effects of development by showing some areas as now in the 100-year 
flood hazard area (and, conversely, by showing many areas as no longer 
in the 100-year flood hazard areas). It is important to note that 
approximately as many properties are newly shown as out of a Special 
Flood Hazard Area (SFHA) as are newly shown as in the SHFA. The 
requirement to purchase flood insurance in areas newly shown to be at 
risk of flooding is highlighting concern about affordability of flood 
insurance. By the same token, if the new maps do not become effective, 
those property owners now shown out of the SFHA will still be required 
to purchase flood insurance.

Reflections and Questions
    The Association of State Floodplain Managers concludes that the 
NFIP has been successful in meeting a number of its original 
objectives, but less so in reducing flood losses in the Nation. The 
NFIP has, for example, required those living at risk to obtain flood 
insurance, sparing taxpayers from paying many millions of dollars in 
disaster relief, and enabling many citizens to more fully restore their 
lives to normalcy after a disaster. Additionally, the NFIP has 
prevented some unwise development and promoted some hazard mitigation 
through local adoption of floodplain management ordinances. On the 
other hand, too many Americans continue to build in at-risk locations, 
including residual risk areas behind flood control structures and high 
risk coastal areas, and collective flood losses for the Nation continue 
to increase in real dollars. In the first decade of this century, 
yearly flood losses have increased from $6 billion to $15 billion.
    We recommend that Congress consider clarifying the intended 
objectives of the NFIP so that the program can be evaluated 
accordingly. For example, should the NFIP be expected to accommodate 
catastrophic losses rather than the average historical loss year? If 
so, are there realistic, affordable program adaptations that can 
achieve that objective? If not, would it be best to clarify that the 
program is not expected to cover truly catastrophic losses?
    Other questions warrant examination. What adjustments are needed 
for the program to be a more positive factor in reducing flood losses 
in the Nation? What adjustments are needed to act on better risk 
identification through improved maps? If the NFIP is to be a 
significant tool in an integrated flood risk management approach, how 
should it be altered to better support this objective? ASFPM has 
endorsed the following concepts:

    Integrate the NFIP with other Federal flood risk programs, 
        including the disaster relief program, Army Corps of Engineers, 
        Environmental Protection Agency (EPA), and Natural Resources 
        Conservation Service (NRCS).

    Identify cross-program policy conflicts and inappropriate 
        incentives that increase risk.

    Build State floodplain management program capability and 
        capacity to work with the 21,000 participating local 
        jurisdictions.

    Delegate the floodplain management and mapping elements of 
        the program to qualified States, similar to programs managed by 
        the EPA and Department of Transportation.

    Identify incentives and disincentives for State and local 
        governments to make the program more effective, since local 
        decisions determine how much development will be placed at risk 
        of flooding.

    Evaluate the NFIP-funded mitigation grant programs to 
        determine whether they are effectively addressing the most 
        high-risk structures.

    Other questions that need to be addressed include:

    Should the flood maps better display the flood risk so that 
        communities and citizens understand that the flood risk does 
        not stop at the line on a map--and that considerable risk 
        exists beyond the ``100-year'' floodplain? (The average home is 
        occupied for more than 100 years, virtually assuring that every 
        home in the 100 year flood hazard area will flood in its 
        lifetime.)

    Should insurance be required in residual risk areas behind 
        levees and below dams?

    Should insurance be required in a broader area, such as the 
        200-year or 500-year floodplain?

    Should critical infrastructure like hospitals, fire and 
        police stations and water supply and treatment plants be 
        regulated based on a larger flood, but one the Nation 
        experiences somewhere every year, such as the 500-year 
        floodplain?

    Should flood insurance policies be long-term (20 years or 
        more) and tied not to the owner but to the property, regardless 
        of property transfers?

    Should some noninsurance means be identified, like flood 
        insurance vouchers, to assist lower income property owners and 
        renters with the cost of flood insurance?

Broad Recommendations
    Flood insurance should gradually move toward being actuarially 
sound to reflect actual risk and enable market-based financial 
decisions about how much risk-related cost to assume. We recognize that 
there are affordability problems for some citizens currently living in 
at-risk areas; this is more prevalent in older riverine areas than in 
recently developed coastal areas or some newly developed areas behind 
levees. The de-accreditation of levees and more accurate flood maps 
have highlighted the affordability issue. We do not support efforts to 
delay issuance of flood maps, withholding accurate information about 
flood risk from citizens living and working in hazardous areas. We 
suggest that this issue presents challenges, but ones that can lead to 
constructive new growth and adaptation for the NFIP if done correctly.
    To actually reduce flood-related loss of life and property in the 
Nation, we must move toward a true flood risk management framework with 
the Nation's policies and programs. A comprehensive flood risk 
management program recognizes that:

    Managing flood risk is a shared responsibility between 
        individual, private sector, community, State, and Federal 
        Government;

    Flood risk is not isolated to the 100-year flood hazard 
        area but is rather a continuum of risk that crosses lines on a 
        map;

    Development and other activity outside the 100-year 
        floodplain but in the watershed impacts flood levels--if we 
        only manage activity in that 100-year floodplain, we miss 
        opportunities to save lives and reduce flood damages and 
        impacts;

    All structural protection measures will fail or be 
        overtopped at some point by some flood event;

    Managing flood risk requires a mix of measures from 
        avoidance to retreat from high risk areas to consideration of 
        structural measures. Selection of only one structural measure, 
        such as a levee, leads to severe losses in catastrophic events. 
        Levee failure, high storm surge and 500-year events have shown 
        the need for a mix of approaches including elevation, 
        insurance, and structures;

    Flood levels will increase in the future because 
        development increases runoff; and storms are intensifying;

    Flood risk will increase as the natural resources and 
        functions of floodplains are altered by development since this 
        destroys the natural system that reduces the negative impacts 
        of flooding;

    Flood risk management includes concepts such as 
        identification of flood risk, community planning to steer 
        development away from areas of risk, basing flood insurance on 
        actual risk, vigorous promotion and support of hazard 
        mitigation actions, and enabling citizens to better recover 
        from disasters by being insured to reduce their financial risk.

    The U.S. Army Corps of Engineers has adopted the comprehensive 
flood risk management approach in many of its programs at the national 
level, but for this approach to be successful for the Nation, FEMA must 
also actively promote the concept and integrate its programs for the 
NFIP, mitigation and disaster relief internally, and integrate them 
with programs of the Corps and other agencies that impact flood risk.
    Consider a number of interesting ideas to address the affordability 
problem. The long-term goal should be to eliminate premium subsidies: 
an insurance program with subsidies is not an insurance program. We 
understand the need to assist low income people with insurance premiums 
for some specified length of time, or better yet, to assist them with 
mitigating their property--upon demonstrated need. A program of flood 
insurance vouchers to assist with purchase of flood insurance issued 
through a means-tested program could be administered by the Department 
of Housing and Urban Development. An analysis might show it would be 
less costly for the taxpayer to pay for flood insurance vouchers for 
low income property owners for a limited time rather than have the 
taxpayer continue to pay disaster costs from the Disaster Relief Fund 
every time that a community floods. This would also support more rapid 
postdisaster restoration and community economic stability because 
everyone would have flood insurance, which can also be applied toward 
mitigation of their property after a disaster. If short term relief is 
provided using the NFIP--through delayed mandatory purchase of 
insurance, extension of time when policies can carry Preferred Risk 
rates, or phase-in of actuarial rates; it must be recognized that none 
of these are appropriate long term solutions--somebody in the Nation 
will pick up those costs, mostly the Federal taxpayers. In conjunction 
with such short term relief, FEMA should provide general information 
about actuarial rates so people see what their true risk is, and at the 
same time, provide substantial information about mitigation actions and 
how much each action will reduce actuarial premiums in the future. 
Group flood insurance could be developed by FEMA for mapped flood 
hazard areas and areas mapped as protected by a levee, allowing a group 
policy to be purchased by the levee district or other local taxing 
entity for all residents of the area, thereby keeping costs down. 
Remember, the more policies there are the lower the premiums everyone 
pays.
    The Nation must carefully balance the issue of who benefits and who 
pays for development at risk. There are about 130 million housing units 
in the U.S. Of that about 10 or 11 million are in flood hazard areas. 
Of those in flood hazard areas, roughly half carry flood insurance. 
This means 90 percent of the population does not live in identified 
Standard Flood Hazard Areas, but continues to pay a large amount each 
year for disaster relief for flooding, rebuilding damaged 
infrastructure in flood areas, and may have to cover the $19 billion 
debt of the NFIP. Yet those same taxpayers obtain few, if any, of the 
benefits of that development. This points out the need to tie program 
outcomes of the NFIP to these other programs like disaster relief 
programs and programs of HUD, DOT, USDA and others.

Perspectives on the National Flood Insurance Program
    FEMA reports that the NFIP has been self-supporting for 20 years. 
From 1986-2005, prior to Hurricane Katrina, income from policy holders 
covered claims and all operating expenses, including salaries and 
expenses of the Federal employees who administer the NFIP and 
floodplain management programs. From time to time the NFIP exercised 
its authority to borrow from the U.S. Treasury when claims exceeded 
short-term income. Importantly, the program was praised for its ability 
to repay debts ahead of schedule and with interest. This would seem to 
be the way Congress intended the program to function. The original 
framers did not require the NFIP to set rates for truly catastrophic 
flooding associated with extreme events like Hurricane Katrina, or to 
have reserves to cover the fiscal impact such events would have on the 
program. A significant, often unrecognized, and difficult to measure 
benefit of the NFIP is the number of decisions people have made to 
build on higher ground and the damage that doesn't occur because 
buildings have been built to resist flood damage. Perhaps the original 
framers considered it reasonable that taxpayers contribute to payment 
of claims after extreme events that exceed the NFIP's capacity to pay 
as part of the bargain for long-term overall improvement in the way we 
manage flood losses--perhaps Congress could clarify this.
    The NFIP has multiple goals, and providing flood insurance in order 
to minimize direct Government subsidy of flood damage is one of the 
goals. The consequence of having fewer people insured against known 
risks would likely be greater reliance on taxpayer funded disaster 
assistance and casualty loss tax deductions. Striking the balance 
between a fiscally sound NFIP while having premiums that are 
affordable--but that do not reward or encourage development in high 
flood risk areas--is the challenge now facing Congress and the Nation.
    The National Flood Insurance Program is now 42 years old. It was 
created in 1968 by the Congress following several major studies in the 
1950s and 60s, after which studies concluded that the private sector 
did not offer insurance coverage for flood because only those who had 
actually flooded would buy policies, contrary to a normal insurance 
model which assumes a broad spreading of risk to cover losses. The lack 
of information showing which properties were likely to flood added to 
the private sector dilemma, which is less of a challenge now that FEMA 
produces flood maps for 21,000 communities. The concepts embodied in 
the NFIP were designed with the idea it would save the taxpayers' money 
in disaster relief by requiring those living in at-risk locations to 
pay something to cover their own risk, and to enable them to more fully 
recover from flood damage than they could with only disaster relief. 
The assumption was that this would reduce flood losses over time by 
requiring local regulation of development in flood hazard areas as 
communities voluntarily agreed to participate in the program in order 
to make flood insurance available to community residents and 
businesses.
    The NFIP has gone through various stages of growth and adaptation 
involving more, then less, then again more involvement with private 
insurance companies and agents. After its first 5 years, Congress added 
mandatory purchase of flood insurance in identified flood hazard areas. 
By 1979, the program moved from the Department of Housing and Urban 
Development (HUD) to the newly established Federal Emergency Management 
Agency (FEMA). Initially some 70 percent of insured properties had 
discounted policies because they were ``grandfathered'' since they were 
built before the flood hazard area was identified. Now about 23 percent 
of insured properties have these discounted rates. Many newly developed 
properties have been built either in safer locations outside the 100-
year floodplain or built to NFIP standards (elevated to the 100-year 
flood level) to mitigate possible flood losses.
    During the 1980s, the goal of making the program self-supporting 
for the average historical loss year was achieved, but the premiums did 
not provide sufficient income to develop and maintain accurate flood 
maps for 21,000 communities. There were no Congressional appropriations 
for the program from 1986 until 2003, when it was agreed the Nation 
needed a major map modernization effort requiring appropriated funds. 
Most of the Nation's flood maps were found to be 10 to 20 years old, 
not reflective of massive watershed and floodplain development, and 
therefore not accurately representative of actual flood hazards.
    A major report following the Midwest floods of 1993 found that only 
10-15 percent of damaged properties had flood insurance. This led to 
another set of improvements in the National Flood Insurance Reform Act 
of 1994, including stricter compliance requirements for lenders and new 
means of encouraging and supporting mitigation through the Increased 
Cost of Compliance insurance coverage, establishment of the Flood 
Mitigation Assistance program and authorization of the Community Rating 
System to make lower premiums available in communities taking 
significant steps beyond national minimum approaches to mitigate risk. 
The Flood Insurance Reform Act of 2004 Act made a number of 
improvements to insurance agent training and consumer provisions, and 
enhanced and developed programs to address the problem of repetitive 
flood losses.

Brief Observations on the Previous Senate-Passed Bill
    There are a number of provisions in the flood insurance reform bill 
passed by the Senate in May, 2008 that ASFPM finds helpful and would 
hope to see included in a future reform measure. As noted elsewhere in 
this testimony, we would recommend that a few provisions of that bill 
receive further evaluation and perhaps, adjustment. Those would include 
the provision for a 5 year reauthorization, the provision for inclusion 
of catastrophic loss years in the calculation of average loss years and 
the provision for a catastrophe reserve We would prefer to see a 2-3 
year reauthorization and we recommend that the Committee give further 
consideration to whether or not the NFIP should provide coverage of 
catastrophic losses.
    We appreciate the following provisions in the earlier legislation: 
(not an all-inclusive list)

    forgiveness of the current debt to the Treasury

    increase in cap on annual premium increases to 15 percent

    phase out of subsidies (discounts) for nonresidential and 
        nonprimary residence pre-FIRM structures and also for severe 
        repetitive loss properties where flood losses have exceeded 
        property value

    substantial section authorizing ongoing mapping program to 
        include additional risk information and mapping of areas behind 
        levees, below dams and in the 500 year floodplain

    provision for an Office of the Flood Insurance Advocate, 
        but only if a national office, thus restricting the 
        establishment of offices in FEMA Regional offices and temporary 
        local offices to situations following a flood event

    increased penalties for lender noncompliance

    escrow of flood insurance payments

    notification of flood insurance availability outside of 
        SFHAs during real estate transactions (the Committee may also 
        wish to consider a requirement that landlords notify tenants of 
        availability of contents insurance)

Flood Mitigation Assistance Program [Section 1366 of the National Flood 
        Insurance Act of 1968 (42 U.S.C. 4104c)]

    Add ``demolition and rebuilding'' as an eligible activity; 
        this not only achieves consistency with the NFIP-funded Severe 
        Repetitive Loss grant program, but gives another option that 
        makes sense in certain situations (areas other than high-risk 
        storm surge and floodway areas). Specifically, for some 
        communities, acquisition by fee simple acquisition of land and 
        relocation of the residents may not be the best solution, but 
        rather mitigation measures that help improve livability and 
        community integrity may be. Elevation-in-place is a feasible 
        measure for many buildings; however, for many older buildings 
        and certain types of buildings, it is more feasible or cost-
        effective to demolish and rebuild a new building, as long as 
        sustainability and resilience are assured along with full 
        compliance with floodplain requirements and building codes 
        which address fire resistance, energy efficiency, and where 
        appropriate, resistance to other hazards such as hail, high 
        winds, and seismic forces.

    Eliminate the limitation on aggregate amount of insurance 
        by striking subsection (f).

    Specify that the funds for this program (Section 1367) 
        shall be available until expended (currently FEMA imposes a 2-
        year limitation) and that the funds shall be made available 
        without offsetting collections through premium rates for flood 
        insurance.

Severe Repetitive Loss Grant Program [Section 1361A (42 U.S.C. 4102A)]

    Correct an oversight and modify the definition of ``severe 
        repetitive loss property'' to include nonresidential properties 
        that have received the same number and value of claims. 
        Nonresidential properties make up a disproportionately large 
        share of all repetitive loss properties and we must be able to 
        pursue mitigation of these high-loss properties in order to 
        more effectively stem the drain on the Fund that is associated 
        with properties that receive multiple claims.

    Delete 1361 A(g)(3)(A) and (B) so that the purchase price 
        offered would be determined only by the either the fair market 
        value immediately before the most recent flood event or the 
        current fair market value. It is complicated, confusing, and 
        expensive to have to determine the potential purchase price 
        four ways (and the purpose of the grant is not to enrich those 
        who unwisely paid more than a property's market value at the 
        time of purchase or who borrowed more than the property is 
        worth).

Grants for Direct Funding of Mitigation Activities for Individual 
        Repetitive Claims Properties [Section 1323 of the National 
        Flood Insurance Reform Act of 1968]
    Current NFIP-supported mitigation grant programs provide cost share 
funds to communities--and thus successful projects depend on community 
participation. ASFPM has long supported community-based mitigation; 
however, we recognize that some repetitive loss properties are in 
communities that may not have the resources to participate. In order to 
achieve the goal of reducing the repetitive loss drain on the National 
Flood Insurance Fund, we urge the Committee to:

    Clarify that FEMA has the authority to work directly with 
        certain property owners under this specific program, which was 
        authorized at $10 million each year. There are many 
        nonresidential properties that have received millions in flood 
        insurance claims. Allowing FEMA to selectively encourage very 
        high-loss property owners to consider mitigation will actually 
        implement paragraph (b) which calls for prioritizing the worst-
        case properties to result in the greatest savings to the Fund;

    Specify that at least two claims shall have been paid in 
        order for a property to be eligible;

    Specify that the funds shall be made available until 
        expended (see, Section 1310(a)).

The following also comes from our recommendations on S2284
    Create a New Section To Establish Priorities for NFIP-Funded 
Mitigation Grant Programs. Direct FEMA to develop a mechanism to 
recognize that mitigation of repetitive loss properties (of which 
Severe Repetitive Loss properties are a subset), and that mitigation by 
acquisition, are priorities. The former helps reduce the drain 
represented by properties that receive repetitive claims; the latter is 
the only mitigation activity that permanently avoids future damage, 
while also providing benefits that are difficult if not impossible to 
quantify. There are examples where FEMA has denied funding for homes 
that have a computed benefit to cost ratio of 0.99. We appreciate that 
FEMA has been criticized in the past for its policy of approving 
buyouts for homes when the B:C is ``close'' to 1.0. The required new 
section would fulfill Congressional intent and make implementation 
easier and more consistent. It should also be clarified that mitigation 
projects that include repetitive loss properties and SRLs are, by 
definition, in the best interests of the NFIP and therefore FEMA should 
develop a mechanism to recognize this. Report language can suggest that 
FEMA use multipliers applied to the computed benefit-to-cost ratios as 
proxies.

Create a new section as follows:
    Sec. 1366A. (a) PRIORITIES FOR MITIGATION ASSISTANCE.--In the 
administration of the mitigation assistance in Sec. 1323, Sec. 1361A, 
and Sec. 1366, and notwithstanding the provisions of those sections, 
the Director shall consider the following to be priorities and in the 
best interests of the National Flood Insurance Fund:

  1.  mitigation activities that include repetitive loss structures, as 
        defined in Sec. 1370(a); and

  2.  mitigation activities that include severe repetitive loss 
        structures, as defined in Sec. 1361A; and

  3.  mitigation activities that include substantially damaged 
        properties, as defined in Sec. 1370(a); and

  4.  mitigation activities that include acquisition of properties with 
        structures;

  5.  mitigation activities that include other such properties as the 
        Director determines are in the best interests of the National 
        Flood Insurance Fund.

    Sec. 1366A. (b) RECOGNIZING PRIORITIES.--The Director shall develop 
a mechanism to recognize explicitly that mitigation activities 
identified in paragraph (a) are priorities.
    Implementation of the Increased Cost of Compliance Coverage as 
Amended in 2004. ASFPM urges the Committee to request a report from 
FEMA on implementation of the changes to Section 1304(b) that were 
enacted in the Reform Act of 2004. This coverage (called ICC) has been 
part of all policies on buildings in mapped special flood hazard areas 
since about 1997. Total income associated with premiums for ICC greatly 
exceeds the payments made to qualifying policy holders.
    The Association of State Floodplain Managers appreciates the 
opportunity to share our views, recommendations and concerns with you. 
We hope these observations, based on our collective experience in 
working to reduce flood risk in the Nation and in serving as FEMA's 
partners in implementing the National Flood Insurance Program, will be 
helpful as you work to improve the NFIP. We look forward to answering 
any questions you may have and assisting the Committee in any way that 
you find helpful.







              PREPARED STATEMENT OF J. NICHOLAS D'AMBROSIA
        Vice President of Training and Recruiting, Long & Foster
                           September 22, 2010

Introduction
    Chairman Dodd, Senator Shelby, and Members of the Committee, on 
behalf of more than 1.1 million REALTORS' who are engaged in 
all aspects of the residential and commercial real estate sectors, 
thank you for inviting me to testify today regarding reauthorization 
and reform of the National Flood Insurance Program (NFIP).
    My name is Nick D'Ambrosia. A REALTOR' since 1973 and 
licensed in Maryland, Virginia, and the District of Columbia, I am 
currently Vice President of Training and Recruiting for Long & Foster 
Companies. Long & Foster is the largest independently owned real estate 
company in the United States operating with 13,000 sales associates, 
2,500 employees and 190 offices across seven States and Washington, DC. 
I am also Vice Chair of the Maryland Real Estate Commission, where I 
have served as chair and industry member since 2005. For many years, I 
have been active within the National Association of 
REALTORS' (NAR), holding significant positions at the 
national and State levels, including President of the Maryland 
Association of REALTORS', as well as the Prince George's 
County Association of REALTORS'. I also served as a member 
of NAR's Enlarged Leadership Team, Executive Committee, and Board of 
Directors, as well as numerous NAR standing Committees, task forces and 
presidential advisory groups. Most recently, I was a member of NAR's 
Property Insurance Task Force that was charged with examining how 
access to affordable property insurance for the plethora of natural 
disasters, including flooding, might be achieved.
    Since September of 2008, Congress has approved eight short-term 
extensions of authority for the NFIP. On two occasions, Congress has 
allowed authority for the program to expire for several weeks at a 
time. Each time NAR estimates that tens of thousands of real estate 
transactions were delayed if not cancelled. In addition, the many 
shutdowns and short-term extensions have exacerbated uncertainty in 
what are already troubled residential and commercial real estate 
markets. Earlier this year, the House of Representatives passed H.R. 
5114, the Flood Insurance Reform Priorities Act, to reauthorize the 
NFIP for a full 5 years. While this bill makes some difficult changes 
to the program, we would encourage the Senate to take up this 
legislation so that the program may be reauthorized long-term and 
continue writing flood insurance without further market disruption. We 
also note several efforts underway for a straight year-long NFIP 
extension, including one to September 30, 2011, in S. 3607 (Department 
of Homeland Security Appropriations, FY2011) which has been approved by 
the full Senate Committee. In any event, we would urge the Senate not 
to let the NFIP lapse again which would only further undermine the 
already fragile confidence in recovering real estate markets. At a 
minimum, the Senate should pass the year-long extension, as part of 
must-pass legislation or as a free standing bill.

The Importance of the NFIP
    In 1968, the Congress established the NFIP because of the lack of 
available flood insurance in the private market and the rising cost of 
taxpayer-funded disaster relief to flood victims, which, up until that 
time, had been the only way to pay for rebuilding after a flood. Still 
today, virtually no market exists for flood insurance. According to the 
General Accountability Office (GAO), only four large companies provide 
``almost all the private flood insurance'' and only then for owners 
with ``high net worth'' and properties valued at ``at least $1 million. 
\1\ Most American taxpaying families and small business owners would be 
priced out of what market exists for flood insurance were it not for 
the existence of the NFIP. Without this critical program, most 
Americans would not have access to a vital protection against loss of 
life and property due to the very real risk of flooding.
---------------------------------------------------------------------------
     \1\ GAO, ``Information on Proposed Changes to the NFIP'', Report 
to Representative Barney Frank, Chairman of the House Committee on 
Financial Services, pp. 18-19.
---------------------------------------------------------------------------
    The most common natural disaster in the United States, each year 
floods are responsible for 140 deaths according to NOAA and on average 
$6 billion in losses by the U.S. Army Corps of Engineers' estimate. The 
GAO put it best:

        [B]ecause flooding is so widespread, it presents risks to a 
        large segment of the population. For example, we found that 
        between 1980 and 2005, approximately 97 percent of the U.S. 
        population lived in a county that experienced at least one 
        declared flood disaster; about 93 percent lived in counties 
        that had experienced two or more flood disaster declarations; 
        and 45 percent lived in counties that experienced six or more 
        flood disaster declarations. \2\
---------------------------------------------------------------------------
     \2\ GAO, ``Natural Hazard Mitigation: Various Mitigation Efforts 
Exist, but Federal Efforts Do Not Provide a Comprehensive Strategic 
Framework'', (August 2007), pp. 11-12.

    Contrary to critic's assertions, the NFIP does not represent a 
cross subsidy from the interior of the U.S. to coastal States. While it 
is true that more than half the U.S. population lives within 50 miles 
of the coast and has access to the NFIP in participating communities 
(as does everyone else in a participating community), everyone benefits 
from a national flood insurance program. We have appended to this 
testimony a map developed by the GAO presenting the number of flood 
disaster declarations by county between 1980 and 2005. Areas of the 
country that have yet to experience flooding at a magnitude to warrant 
a disaster declaration are shown in white. As you will note, there is 
very little white space on the map. Maintaining access to affordable 
flood insurance is, therefore, of critical national interest to the 
whole of the United States, not just its coastal residents.
    By providing flood insurance, the NFIP effectively reduces the 
amount of Federal postdisaster assistance, paid by all taxpayers 
including those in the interior. For example, of the $88 billion 
obligated to Gulf Coast States after the 2005 hurricane season, $26 
billion went directly to under-insured property owners according to the 
GAO. \3\ That is $26 billion in taxpayer-financed rebuilding assistance 
which would not have been necessary had more properties been insured, 
because then, insurance--and not taxpayer-paid assistance--would have 
paid for rebuilding those properties. Fortunately, there was an NFIP 
that was authorized at the time to insure approximately half the 
properties in the floodplains which were in the path of those 2005 
mega-storms. \4\ But for the NFIP, the taxpayer-assisted number ($26 
billion) would have been significantly higher.
---------------------------------------------------------------------------
     \3\ GAO, ``Natural Disasters: Public Policy Options for Changing 
the Federal Role in Natural Catastrophe Insurance'', (November 2007), 
Figure 3.
     \4\ Pacific Institute for Research, ``Costs and Consequences of 
Flooding and the Impact of the National Flood Insurance Program'', 
(October 2006), p. 28 (hereafter, ``PIR Study''), p. 36.
---------------------------------------------------------------------------
    Also, the NFIP reduces flood damage by requiring communities to 
adopt and enforce strict floodplain management and mitigation 
regulations as a condition for their residents to be able to buy NFIP 
coverage. Nearly 20,000 communities have adopted these rules, averting 
$16 billion in losses since 2000 alone according to the U.S. Department 
of Homeland Security. Buildings constructed to NFIP standards 
experience 80 percent less damage than those not built to standards. As 
one program evaluation finds, the NFIP ``has clearly induced savings on 
flood costs'' and that ``flood insurance has shifted the loss from 
taxpayers to those who pay the insurance premium.'' \5\ In fact, the 
NFIP saves taxpayers money as well as property.
---------------------------------------------------------------------------
     \5\ PIR Study.
---------------------------------------------------------------------------
    Some have asserted that the NFIP encourages development of 
``environmentally sensitive areas.'' Not so. Government-backed 
insurance is not the deciding factor to locate in the floodplain. 
According to NAR research, neighborhood quality or access to parks or 
beaches is far more likely to drive the decision. Historically, this 
country was built in floodplains along rivers and coastlines. Long 
before the NFIP was even contemplated, New York, New Orleans, Boston, 
Miami, St. Louis, Pittsburg, Cleveland, Houston, and Washington, DC, 
were already well established in what today FEMA designates as the 
floodplain. Since then, there have been program reforms which prevent 
development of the most sensitive coastal areas. Under the Coastal 
Barrier Resources Act of 1982, all of these areas are off limits to the 
NFIP, though interestingly, not to privately financed development or 
insurance. A report released in October 2006 that found ``[t]he common 
belief that the NFIP has stimulated development that increased flood 
losses is not supported by our findings.'' \6\ Whether national flood 
insurance is available or not, there will continue to be floodplain 
development; the difference is that the NFIP saves taxpayers money as 
well as property.
---------------------------------------------------------------------------
     \6\ Ibid., p. 41.
---------------------------------------------------------------------------
    Others have claimed that the NFIP writes policies in wealthy resort 
communities, but for every policy holder in Hilton Head Island, SC, or 
Naples, FL, there is one in a home on the Red River in North Dakota or 
a rental property along the Missouri River in Iowa. The Congressional 
Budget Office (CBO) has found no evidence to suggest that the NFIP 
would cover larger or more luxurious structures, whether inland or in a 
coastal area. \7\ Another study on the NFIP found that those in the 
middle-income brackets were less likely to live in floodplain areas 
than either of those in the highest or lowest income brackets. That 
study noted that ``low income households [defined as $10,000-$30,000 
per year] live in hazardous areas in order to find affordable housing 
or because they work in water recreation areas and find the least 
expensive housing nearby.'' \8\ If someone is able to afford a 
multimillion dollar beach-front property or resort development, they 
are going to look to insurance companies willing to write coverage 
above the $350,000 coverage limits imposed by the NFIP (i.e., $250,000/
structure and $100,000 for contents). It is the lower and middle class 
families, retirees on fixed incomes and locally owned small-business 
owners who have been priced out of the private market for flood 
insurance, for which this Federal program is designed.
---------------------------------------------------------------------------
     \7\ CBO, ``Value of Properties in the National Flood Insurance 
Program,'' (June 2007), p. 7.
     \8\ PIR Study, p. 43.
---------------------------------------------------------------------------
NAR Urges Long-term NFIP Reauthorization
    Since September 2008, Congress has adopted eight short-term 
extensions of statutory authority for the NFIP--all within a few days 
of the deadline. (This includes the current extension to September 30, 
2010.) Twice, authority has been allowed to expire. Each time, NAR 
estimates that tens of thousands of real estate transactions were 
either delayed or cancelled. Without flood insurance, federally backed 
mortgages may not be secured in residential or commercial real estate 
transactions in nearly 20,000 communities across the United States. 
Because the NFIP did not have authority to issue any policies, property 
owners lost confidence that they would be able to renew their existing 
policy when the time came. While we can quantify the cost of delaying 
real estate closings, the shock to consumer confidence due to the many 
stop-gap extensions is immeasurable. This month-to-month approach has 
hindered a recovering real estate market and only exacerbated the 
uncertainty for more than five-and-a-half million taxpayers who depend 
on the NFIP as their main source of protection against floods.
    On September 30, 2010, about a week from today, again NFIP 
authority is set to expire. This will be the ninth time in 2 years that 
the Congress will have to reextend this important program. Recently, 
the House of Representatives passed H.R. 5114, the Flood Insurance 
Reform Priorities Act to reauthorize the NFIP for a full 5 years. While 
this bill makes some difficult changes to the program, we would 
encourage the Senate to take up this legislation so that the program 
may be reauthorized long-term and continue writing flood insurance 
without further market disruption. We also note several efforts 
underway for a straight year-long NFIP extension, including one to 
September 30, 2011, in S. 3607 (Department of Homeland Security 
Appropriations, FY2011) which has been approved by the full Senate 
Committee. In any event, we would urge the Senate not to let the NFIP 
lapse again which would only further undermine the already fragile 
confidence in recovering real estate markets. At a minimum, the Senate 
should pass the year-long extension, as part of must-pass legislation 
or as a free standing bill.

Reforms of the NFIP
    For over four decades, the NFIP has been largely self-supporting, 
collecting sufficient premiums to cover claims and expenses. In the few 
years when this was not the case, the program was able to pay back the 
debt with interest according to the Congressional Research Service. \9\ 
But then in 2005, Katrina, Wilma, and Rita struck and shattered all 
records including the highest number of Category 5 hurricanes in a 
season, and the NFIP now owes approximately $19 billion to the U.S. 
Treasury (including the nearly $3 billion for Ike and Midwest floods of 
2008). 2005 was an anomaly. According to the Federal Emergency 
Management Agency (FEMA), which manages the NFIP, this debt is greater 
than the sum of all previous losses since NFIP's inception in 1968. 
Accordingly, NAR supports reforms to strengthen the program's long-term 
fiscal viability.
---------------------------------------------------------------------------
     \9\ Congressional Research Service, ``National Flood Insurance 
Program: Background, Challenges, and Financial Status'', (July 2009).
---------------------------------------------------------------------------
    At the same time, the housing market continues to be weak as the 
country recovers from the longest recession since World War II. In the 
months immediately following the expiration of the homebuyer tax 
credit, home sales plunged to 15-year lows. Below is NAR's chart of 
existing home sales. In addition to overall economic weakness, 
including high unemployment, the housing market is plagued by excess 
inventory of distressed properties including foreclosures. While 
affordability remains strong and prices are beginning to show signs of 
stabilization, the housing market is in a precarious position and 
cannot afford any further negative shocks.



    The commercial real estate market is also struggling amid the 
greatest liquidity crisis since the Great Depression. Due to the 
economic downturn, commercial property values have fallen 43 percent 
across the board from their peak in 2007. Often it is the owner of 
America's small businesses--the very engine of job creation and 
innovation and the backbone of his or her local community--which has 
suffered most. Compounded with nearly $1.4 trillion in commercial real 
estate loans coming due over the next several years, and a very limited 
capacity to refinance, the sales and leasing of commercial properties 
have been dismal, hindering our Nation's economic recovery. Failing to 
reauthorize the NFIP long-term not only exacerbates the market 
uncertainties but also could leave many commercial property owners, 
many of whom are struggling to stay afloat due to high vacancy rates, 
without access to affordable flood insurance. The lack of flood 
insurance for property owners, in many cases, would hold up the sale of 
commercial properties, further contributing to the economic crisis.
    Against this backdrop, NAR would encourage Congress to strike a 
balance between the following NFIP reforms and real estate 
affordability, especially for lower-income homeowners and renters who 
often live in the Nation's lower-lying communities:
    Coverage Limits. Additional coverage would attract new NFIP 
participants. Increasing participation would lead to increased funds 
for the NFIP, help property owners recover from flood losses and 
decrease future Federal assistance when under-insured properties flood 
and suffer loss. Adding options for living expenses, basement 
improvements, business interruption and the replacement cost of 
contents would help increase protection for home- and small-business 
owners. Increasing the maximum coverage limits for residential 
properties, nonresidential properties, and contents coverage would more 
accurately reflect increases in property and contents values and 
provide fuller coverage to policy holders. These limits have not been 
adjusted despite inflation since 1994.
    Education and Outreach. Educating consumers could also increase 
participation. Many consumers may not be aware that flood insurance is 
available to them or believe that a standard homeowner's policy would 
cover flood damage, which is not true. Only 50 percent of homeowners in 
the federally designated floodplain purchase flood insurance. \10\ NAR 
would support provisions for outreach, education and information to 
consumers about the availability and importance of flood insurance.
---------------------------------------------------------------------------
     \10\ PIR Study, p. 36.
---------------------------------------------------------------------------
    Severe Repetitive Loss Properties. NAR strongly supports extending 
and fully funding the pilot program to mitigate properties which have 
repeatedly suffered insured flood losses. While less than 1 percent of 
NFIP-backed properties fall into this category, severe repetitive loss 
properties represent a disproportionate share of payouts from--and pose 
a significant financial burden to--the NFIP. Yet the owners, despite 
repeated losses, have declined a reasonable offer of mitigation funding 
from FEMA. Moreover, research conducted by the Multihazard Mitigation 
Council of the National Institute of Building Sciences has found that 
each dollar spent on mitigation saves society an average of four 
dollars. \11\
---------------------------------------------------------------------------
     \11\ Multihazard Mitigation Council, ``Natural Hazard Mitigation 
Saves: An Independent Study to Assess the Future Savings from 
Mitigation Activities, Volume 1--Findings, Conclusions and 
Recommendations'', National Institute of Building Sciences, Washington, 
DC. (2005), p. 5.
---------------------------------------------------------------------------
    Pre-FIRM properties. While NAR strongly supports phasing-in higher 
rates, proportionate to risk, for properties with a repeated or 
demonstrated history of loss, there is not an equally compelling policy 
basis to phase-in the rate for all properties built prior to the 
existence of the flood rate maps (pre-FIRM). In the mid-1970s, Congress 
grandfathered these properties in under a rate less than the actuarial 
(full risk) one, because they were built before the flood risk to the 
community was known and could not have retrofitted to NFIP standards 
immediately or cost effectively. Changing the rules in the middle of 
the game for these property owners would have been perceived as unfair 
and even punitive.
    Unlike the repeated/demonstrated-loss properties, many pre-FIRM 
properties have never filed a claim. Their flood risk has never 
changed. Yet these owners, who have been paying into the NFIP for 
years, could be expected to immediately pay significantly more under 
previous legislative proposals. FEMA estimates that if the average pre-
FIRM policy were to pay the full actuarial premium, that premium would 
be increased to about two and a half times the current level; some 
properties could see the premium increase more than four-fold. There is 
a limit to the amount that the insurance, or any other expense, may 
increase before owners are either forced to sell their properties, or 
go without insurance. This would have a particularly severely impact on 
the cost of home ownership and rents especially in older communities as 
well as those that rely on tourism. This could lead to additional 
rounds of delinquencies, foreclosures and reduced property tax bases in 
these communities.
    Rate Structure. Over the years, Congress has considered a range of 
proposals to strengthen the NFIP's long-term solvency, including 
increasing the statutory limit on the annual rate increase, setting 
minimum deductibles for claims and phasing in actuarial rates on the 
less than 20 percent that are pre-FIRM properties. While we continue to 
have significant concerns about the affordability of these reforms, we 
would urge the Committee to:

  1.  Continue to include comprehensive coverage for all residential 
        and commercial properties, including multifamily housing, 
        nonprimary residential and commercial properties;

  2.  Spread out any rate increases evenly over the entire base over 
        time so that everyone has ample opportunity to adjust to the 
        increases and no one has to shoulder the entire increase in a 
        single year. For example, H.R. 5114 (as passed by the House) 
        would gradually phase-in the rate over at least a 5-year-period 
        that would not begin until 3 years after the date of enactment, 
        rather than immediately. In order to preserve the Federal flood 
        insurance program into the future, the real estate sector 
        recognizes the need for everyone to shoulder their fair share, 
        even if it means paying a little more;

  3.  Separate out multifamily rental properties of 4 or more units 
        from the nonresidential properties and exclude them from the 
        phase-in, due to affordability concerns. For the renter, the 
        apartment or house in which he or she is living is the primary 
        residence, but could be considered either a commercial property 
        or a nonprimary residence because it is non-owner-occupied. 
        Thus, if the discounted rate were eliminated, tenants would 
        face rent increases that would have a dramatic effect on 
        housing affordability, especially in the case of low and fixed-
        income individuals and families;

  4.  Not adopt ``back-door'' or arbitrary rate increases for all NFIP 
        properties, by requiring FEMA to recalculate ``average loss 
        year'' to include catastrophic loss years ``in accordance with 
        actuarial principles.'' By law, rates are already set based on 
        actuarial principles (see, 42 USC 4015(b)(2)) so reiterating 
        this does not justify the new provision. However, including 
        outlier years in the calculation of average loss, as this 
        amendment would, will arbitrarily inflate the amount a rate 
        would have to cover and therefore the rate itself; and

  5.  Study the impact of any rate phase-in on pre-FIRM properties so 
        that the Congress would have a basis to evaluate and adjust the 
        phase-in as necessary. A similar study was included in the 
        House passed bill.

    Reserve Fund. We support the concept of establishing a reserve fund 
to cover the higher than average loss years. However, a previous 
proposal would have required FEMA to build up the fund by annually 
putting in hundreds of millions of dollars until an amount numbering in 
the billions was reached. As a result, the Agency would have had to 
raise rates somewhere in order to meet this annual quota, however it 
could not have looked to property owners who were already experiencing 
rate increases near the annual limitation. Instead it would have had to 
look those who were voluntarily participating in the program which 
could undercut future participation. We encourage Congress to ensure 
that all participants are treated fairly and equitably as the reserve 
fund is created.
    Flood Mapping. Another issue that has been the subject of 
discussion in recent years is requiring the purchase of flood insurance 
in the 500-year floodplain. Properties in the 500-year floodplain face 
a less-than-1-percent annual chance of flooding. This idea poses its 
own set of challenges and concerns from NAR's perspective, and many are 
similar to concerns faced by the NFIP in administering the current 
program. FEMA has been trying to update the 100-year flood maps, but 
the process itself of digitizing and modernizing is byzantine and slow. 
Other concerns include accurate mapping of the 500-year floodplain, an 
accurate assessment of the number of properties that will be impacted, 
notification of property owners that they now must purchase flood 
insurance, additional administrative burdens placed on FEMA to 
administer a much larger program, and keeping homes affordable while 
avoiding new and costly insurance requirements. Before imposing this 
requirement on property owners already hard hit by the recession, NAR 
would recommend a study to assess the costs and impacts of such a new 
requirement on homeowners and local economies.

Conclusion
    In summary, the NFIP fills a void in the private market for 
critical insurance protections against flood losses which benefit the 
Nation as a whole. While the House has passed a bill that makes some 
difficult reforms to the program, it is preferable to the current 
month-to-month stop-gap extension approach which has only undermined 
confidence and exacerbated uncertainty in recovering real estate 
markets. We would encourage the Senate to take up this legislation so 
that the program may be reauthorized long-term and continue writing 
flood insurance without further market disruption. We also note several 
efforts underway for a straight year-long NFIP extension, including one 
to September 30, 2011, in S. 3607 (Department of Homeland Security 
Appropriations, FY2011) which has been approved by the full Senate 
Committee. In any event, we would urge the Senate not to let the NFIP 
lapse again which would only further undermine the already fragile 
confidence in recovering real estate markets. At a minimum, the Senate 
should pass the year-long extension, as part of must-pass legislation 
or as a free standing bill.
    Thank you again for the opportunity to share the 
REALTOR' community's views on the importance of the NFIP. 
NAR stands ready to work with Members of the Committee to develop 
meaningful reforms to the NFIP that will help protect property owners 
and renters and help them prepare for and recover from future losses 
resulting from floods.



                  PREPARED STATEMENT OF STEPHEN ELLIS
               Vice President, Taxpayers for Common Sense
                           September 22, 2010

    Good afternoon, Chairman Dodd, Ranking Member Shelby, Members of 
the Committee. I am Steve Ellis, Vice President of Taxpayers for Common 
Sense, a national nonpartisan budget watchdog. Thank you for inviting 
me here today to testify on reauthorizing the National Flood Insurance 
Program (NFIP).
    Taxpayers for Common Sense has advocated for reform of the National 
Flood Insurance Program since our inception 15 years ago. This time is 
easily divided into two sections. The first 10 years our concerns about 
the program's subsidies and underlying risk to taxpayers were met with 
skepticism from many quarters. But after the devastating hurricane 
season of 2005 and with the nearly $20 billion the program is in debt 
to the treasury, all have recognized NFIP is fundamentally flawed and 
must be reformed. The question is how.
    TCS is allied with SmarterSafer.org, a coalition in favor of 
environmentally responsible, fiscally sound approaches to natural 
catastrophe policy that promote public safety. The groups involved 
represent a broad set of interests, from American Rivers to Americans 
for Prosperity. From the National Association of Mutual Insurance 
Companies to the National Flood Determination Association. \1\ The 
depth and breadth of the coalition of consumer, taxpayer, environmental 
and insurance industry groups underscores the importance of reforming 
NFIP. I would like to submit for the record SmarterSafer.org's 
principles for reform of the National Flood Insurance Program.
---------------------------------------------------------------------------
     \1\ Full list is available at www.smartersafer.org
---------------------------------------------------------------------------
Stop Digging
    Will Rogers' observation that ``if you find yourself in a hole, 
stop digging'' has become a cliche, but it's hard to come up with one 
more applicable to the flood insurance program.
    The National Flood Insurance Program is $18.8 billion in debt to 
the taxpayer \2\ and only has annual revenues of $3.1 billion. \3\ Even 
if you exclude interest payments, it would take more than 6 straight 
years with no claims to pay the debt back. Obviously, this isn't going 
to happen. With that in mind, any reauthorization of the National Flood 
Insurance Program must make significant changes to put it on sounder 
financial footing, not dig a deeper financial hole with loopholes, new 
insurance lines, or undercutting the program's ability to charge 
actuarially sound rates.
---------------------------------------------------------------------------
     \2\ Statement of Orice Williams Brown, Director Financial Markets 
and Community Investment, Government Accountability Office before the 
Subcommittee on Housing and Community Opportunity, Committee on 
Financial Services, House of Representatives. April 21, 2010. p. 1. 
Available at http://financialservices.house.gov/media/file/hearings/
111/brown_4.21.10.pdf 
    \3\ Congressional Budget Office. ``The National Flood Insurance 
Program: Factors Affecting Actuarial Soundness'', November 2009. p. 1. 
Available at http://www.cbo.gov/ftpdocs/106xx/doc10620/11-04-
FloodInsurance.pdf 
---------------------------------------------------------------------------
    Taxpayers are staring into a budgetary abyss with predicted average 
deficits of $1 trillion a year over the next 10 years; \4\ we cannot 
afford to bail out the flood insurance program again and again. People 
need to be informed of their flood risk and take steps to financially 
protect their own investments.
---------------------------------------------------------------------------
     \4\ Congressional Budget Office. ``Preliminary Analysis of the 
President's Budget Request for FY2011'', March 5, 2010. Available at 
http://www.cbo.gov/ftpdocs/112xx/doc11231/frontmatter.shtml.
---------------------------------------------------------------------------
Unintended Consequences
    After years of ad hoc disaster aid being meted out by Congress, the 
National Flood Insurance Program was established in 1968 to create ``a 
reasonable method of sharing the risk of flood losses through a program 
of flood insurance which can complement and encourage preventative and 
protective measures.'' \5\ The program was to make up for a lack of 
available flood insurance. But even at that time Congress was warned 
that it was playing with fire. The Presidential Task Force on Federal 
Flood Control Policy wrote in 1966:
---------------------------------------------------------------------------
     \5\ P.L. 90-448.

        A flood insurance program is a tool that should be used 
        expertly or not at all. Correctly applied it could promote wise 
        use of flood plains. Incorrectly applied, it could exacerbate 
        the whole problem of flood losses. For the Federal Government 
        to subsidize low premium disaster insurance or provide 
        insurance in which premiums are not proportionate to risk would 
        be to invite economic waste of great magnitude. \6\
---------------------------------------------------------------------------
     \6\ U.S. Task Force on Federal Flood Control Policy. ``A Unified 
National Program for Managing Flood Losses'', August 1966. p. 17. 
http://www.loc.gov/law/find/hearings/floods/floods89-465.pdf 

    Well, we know which way that story unfolded. Although subsidies 
were largely envisioned to be limited and short-term, they weren't. And 
while the program has encouraged standards and construction that help 
reduce flood risks for participating communities, the availability of 
cheap Federal flood insurance over the last several decades made it 
financially attractive to develop in high risk areas. Along with other 
factors, NFIP helped fuel the coastal development boom that increased 
the program's risk exposure and losses.
    To foster increased participation, the NFIP does not charge truly 
actuarially sound rates, or increase rates based on previous loss 
experience. The program's goal of fiscal solvency is defined as 
charging premiums that will generate enough revenue to cover a 
historical average loss year. \7\ That means catastrophic loss years 
are largely left out of the equation. The program covers any fiscal 
shortfalls by borrowing from the U.S. Treasury, which is a significant 
subsidy in itself.
---------------------------------------------------------------------------
     \7\ Thomas L. Hayes and D. Andrew Neal. ``Actuarial Rate Review'', 
Federal Emergency Management Agency. October 1, 2010. p. 5.
---------------------------------------------------------------------------
    NFIP's fiscal solvency is further challenged because properties 
that predate a community's involvement in the NFIP or the applicable 
flood insurance rate map (whichever is later) enjoy significantly 
subsidized rates, paying only 35-40 percent of their actual full-risk 
level premium. \8\ While the initial thought may be that because of 
their vulnerability these properties wouldn't be long for this world, a 
recent analysis by USA Today found 1.2 million buildings receive these 
discounts. \9\ FEMA puts the percentage of properties in the NFIP 
receiving subsidized rates as more than 20 percent. \10\
---------------------------------------------------------------------------
     \8\ Congressional Budget Office. Supra Note 3 at 6.
     \9\ Frank, Thomas. ``Huge Losses Put Federal Flood Insurance 
Program in the Red'', USA Today. August 26, 2010. Available at http://
www.usatoday.com/news/nation/2010-08-25-flood-insurance_N.htm
     \10\ Hayes and Neal. Supra Note 6 at 22.
---------------------------------------------------------------------------
    Furthermore, properties experiencing repetitive losses make up a 
disproportionate amount of the program costs. A repetitive loss 
property is one that has had two or more claims of $1,000 over 10 
years. These properties represent only 1 percent of the total number of 
policies, yet account for up to 30 percent of the cost of claims. \11\ 
Properties like one in Wilkinson, MS, that has flooded 34 times since 
1978 and received payments worth nearly 10 times the home's $70,000 
value. Or another property owner in Houston, TX, that has received $1.6 
million worth of claims for a house worth $116,000. \12\ We need to 
help these people out--out of harm's way--and at the same time help the 
taxpayer who is picking up the tab.
---------------------------------------------------------------------------
     \11\ Brown. Supra Note 2 at 8.
     \12\ Frank. Supra Note 8.
---------------------------------------------------------------------------
Maps Lead the Way
    The NFIP is driven by maps. They determine the veritable alphabet 
soup of what flood zone your structure is in: A, V, X, or variants 
within each category. There's a map for that. Your property could be in 
the 100-year floodplain or the 500-year floodplain; high-risk storm 
surge zone or special flood hazard areas. Your property could predate 
the flood insurance rate map (FIRM) or otherwise be eligible for 
significantly subsidized premiums. The maps are key to the program's 
success or failure. They must be up to date, accurate and based on the 
best available science. This is why FEMA's map modernization program is 
so critical to the long term fiscal viability of the program.
    The Nation's floodplains are dynamic. Not just from natural forces, 
but also the impacts of development and topographical changes. Areas 
that were previously less likely to flood could now be more likely. 
Levees that were adequate to provide 100-year protection a decade ago 
may provide far less due to poor maintenance or increased flood 
elevations due to increased runoff or new development.
    Since 2003, FEMA has been working to update thousands of flood 
maps. In addition, levees are being reviewed and in some cases 
decertified for not meeting the required level of protection. According 
to FEMA, the Nation's special flood hazard areas (SFHA) have grown in 
size by 7 percent. While this revealed more land and housing is 
vulnerable to flooding, other areas are less vulnerable. In fact, the 
number of housing units in SFHAs has seen a net decrease of 1 percent. 
\13\
---------------------------------------------------------------------------
     \13\ Testimony of Craig Fugate, Administrator, Federal Emergency 
Management Agency, Department of Homeland Security before the 
Subcommittee on Housing and Community Opportunity, Committee on 
Financial Services, House of Representatives. April 21, 2010. p. 4. 
Available at http://www.house.gov/apps/list/hearing/financialsvcs_dem/
fugate_4-21-10.pdf 
---------------------------------------------------------------------------
    Not surprisingly, the map modernization effort has been met with 
some controversy. In some cases, homeowners are facing steep increases 
in premiums after many years of paying the same rate. While the uproar 
is understandable, it doesn't change the underlying geology or the 
risk. In some cases property owners that didn't have to purchase flood 
insurance under existing law now find themselves required to do so. But 
just because it isn't popular doesn't mean it's not the right thing to 
do. What isn't the right thing to do is ignoring the realities on the 
ground--literally--and not requiring flood insurance in these 
instances. Because it means when the inevitable floodwaters appear, the 
homeowner will not be covered by their regular insurance and the 
taxpayer will be asked to open up their wallet to bail them out. In 
fact in some cases it makes sense to purchase flood insurance even if 
you are not required to do so.
    It may be politically expedient and popular to delay map 
modernization or waive building standards. But what may make good 
politics generally makes bad insurance policy--and by extension with 
Federal flood insurance--bad public policy. People deserve to know the 
cost and risks of where they live. And taxpayers deserve to have those 
who choose to live in harm's way pick up part of the tab.
    I'm not here to say that FEMA and their maps are infallible. 
However, absent strong scientific evidence of specific inaccuracies, 
efforts to delay and forestall map revisions must stop. Legislation 
doesn't alter geology. But that hasn't prevented various lawmakers from 
introducing legislation to either roll back or delay mapping changes 
and commensurate rate increases. The House-passed flood insurance 
reauthorization bill from this summer would delay mandatory insurance 
for special flood hazard zones and mandate a 5-year phase-in of rates. 
A better way to ease any sticker shock would be to provide for 
relatively short phase-ins of actuarial rates or other assistance.

Don't Make Matters Worse
    Besides the mapping issue there are other efforts that would take a 
backhoe to NFIP's deep financial hole. One is the addition of wind 
insurance, which was wisely--and soundly--rebuffed by the Senate in 
2007. It simply doesn't make sense to add a whole new business line to 
the already challenged flood insurance program. FEMA has no experience 
in pricing wind insurance, and the flood side has proven challenging 
enough. Besides, there are existing private wind insurance providers. 
Part of the whole rationale behind the creation of the NFIP was a lack 
of private flood insurance providers. I recognize that in the aftermath 
of Katrina there were concerns that in some cases insurance companies 
categorized wind claims as flood claims to avoid payouts. That should 
be investigated and corrected through appropriate mechanisms. But to 
use those instances to justify a Federal wind insurance program is the 
tail wagging the dog.
    Another related area is the effort to create a new national 
catastrophe reinsurance program for State-run reinsurers. Again, this 
would represent a significant Federal expansion into the insurance 
markets with little justification. Reinsurance--essentially insurance 
for insurance companies--is widely available and used to hedge an 
insurance company's risk. However, some States do not want to pay for 
the actual risks, but want the Federal Government to subsidize 
reinsurance rates as well. The legislation to create this program 
asserts that the program would charge actuarially sound rates. \14\ 
This makes little sense. If this program's rates were truly actuarially 
sound, they would exceed the private market's rates because the program 
would be forced to sell reinsurance to a very narrow pool of high risk 
States, whereas the private market could distribute the risk worldwide. 
But, remember, the Federal flood insurance rates are supposed to be 
actuarially sound as well. And we already know what happened there.
---------------------------------------------------------------------------
     \14\ H.R. 2555 ``Homeowners Defense Act'', Section 303(g).
---------------------------------------------------------------------------
Reform the Program
    Enough about what shouldn't be done, we all know there are big 
problems, so what should be done to reform the National Flood Insurance 
Program.
    The current model is clearly not sustainable. The subsidies have to 
be phased out and the program has to move toward actuarial rates. This 
can be done with a maximum of 20 percent year rate increase for 
properties paying nonactuarial rates. This isn't just about putting the 
program on more solid fiscal footing and protecting taxpayers. This is 
also about fundamental fairness within the flood insurance program and 
eliminating the cross subsidies that has a few properties paying full 
freight and picking up the tab for properties that have enjoyed 
subsidized premiums for decades.
    There must be a strong commitment to help communities and 
individuals to reduce their flood vulnerability, including stronger 
standards for floodplain management and mitigation. Congress should end 
the problem of repetitive loss properties with elevation and relocation 
programs, increase the availability of accurate information about flood 
risks, and ensure adequate enforcement of program rules. In too many 
cases it appears that communities or property owners have skirted 
existing rules and rebuilt more than 50 percent of the property while 
retaining subsidized rates.
    More than 40 years have passed since the National Flood Insurance 
Program was created. There have been significant advances in insurance 
pricing, evaluation of risk, mapping and imagery. NFIP should work with 
the private sector to identify areas that the private sector can begin 
providing flood insurance. This shouldn't leave NFIP holding the bag 
elsewhere and increasing levels of debt, but it is worth examining.
    Finally, last Congress this Committee produced commendable 
legislation to reauthorize the flood program. In addition to some of 
the proposals previously mentioned this legislation mandated insurance 
in residual risk areas--those in the natural floodplain but protected 
by a levee, floodwall, or a dam. Citizens of New Orleans know all too 
well that even after a levee is built, the risk remains. The 
legislation also created a reserve fund for higher than predicted loss 
years and directed NFIP to charge rates to establish and maintain a 
balance equal to 1 percent total potential loss exposure in that fund. 
These are also important elements of NFIP reform.

Conclusion
    The National Flood Insurance Program is in trouble and is at a 
crossroads. The shaky foundation on which it was based has enormous 
cracks. Congress and the Administration can either remake and 
strengthen that foundation by putting the program on more solid 
financial footing or create even greater cracks by adding new business 
lines or delaying a shift to actuarial rates and updated flood maps.

         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                   FROM ORICE WILLIAMS BROWN

Q.1. FEMA Map Modernization Efforts. FEMA has indicated that by 
the end of this fiscal year it expects to have preliminary 
Flood Insurance Rate Maps (FIRMs) issued for 92 percent of the 
Nation's population.
    Can you describe the quality of the maps being produced by 
FEMA? How can they be improved? How many of its ``updated'' 
maps are based on new data or modeling; how many are simply 
digital maps based on old data?

A.1. The precise accuracy of a map is difficult to determine, 
but as we reported in December 2010, the quality of data used 
in developing a map is an important determinant of the map's 
accuracy. We reported in our December 2010 report that FEMA 
lacks a way to systematically track, at a national level, the 
types of topographic data or level of project detail used in 
each study, which limited their ability to effectively and 
comprehensively describe the accuracy of flood maps. \1\ Thus, 
FEMA lacks a basis to comprehensively describe the quality of 
the maps being produced or to readily determine how many of its 
maps are based on new data or modeling and how many are digital 
maps based on old data. However, to help ensure map accuracy, 
FEMA has implemented and tracks compliance of individual 
mapping projects with three standards for ensuring the quality 
of data used in developing flood maps: FEMA's Guidelines and 
Specifications that define technical requirements, product 
specifications for Flood Hazard Maps and related NFIP products, 
and associated coordination and documentation activities; the 
Floodplain Boundary Standard (FBS) designed to ensure the 
locations of the predicted horizontal (floodplain boundary) and 
vertical (base flood elevation) lines drawn on flood maps are 
comparable to the topographic data that has been selected for 
the study area; and two of three elements of the New, Validated 
or Updated Engineering (NVUE) data standard that was 
established to provide a basis for assessing the engineering 
analysis used to develop flood elevations.
---------------------------------------------------------------------------
     \1\ GAO, FEMA Flood Maps: Some Standards and Processes in Place to 
Promote Map Accuracy and Outreach, but Opportunities Exist to Address 
Implementation Challenges, GAO-11-17 (Washington, DC, Dec. 2, 2010).
---------------------------------------------------------------------------
    In our December 2010 report, we made five recommendations 
designed to help FEMA address challenges in ensuring the 
accuracy of flood maps and enhance FEMA's independent 
verification and validation (IV&V) audit process. Specifically, 
we recommended that FEMA:

  1.  Establish separate measures and collect data needed to 
        assess compliance with the Floodplain Boundary Standard 
        for detailed and approximate flood studies, \2\
---------------------------------------------------------------------------
     \2\ Detailed flood studies incorporate greater amounts of data or 
more precise data into a map to provide greater granularity of 
information, for example, by determining base flood elevations within a 
Special Flood Hazard Area, to reduce uncertainty. In contrast, 
approximate flood studies generally require less precision in flood 
hazard data. For example, they are used for areas that are less subject 
to development and do not require the establishment of a regulatory 
base flood elevation.

  2.  Establish uniform guidance for the validation of existing 
        engineering data to help FEMA fully implement the NVUE 
        standard and provide a basis for mapping partners to 
---------------------------------------------------------------------------
        validate flood hazard data.

  3.  Implement probability sampling during the IV&V audit 
        process to the extent that the benefits outweigh the 
        costs, to ensure that the results are generalizable for 
        decision making;

  4.  Transfer IV&V duties back to an independent entity to 
        help ensure impartiality; and

  5.  Adopt a systematic approach to IV&V data collection, so 
        FEMA can better track map quality issues, more easily 
        analyze the data, and adopt a corrective action plan.

    In commenting on the draft report, DHS stated that it 
concurred with our recommendations to enhance its efforts to 
improve the accuracy of maps and identified actions FEMA had 
taken or plans to implement them. DHS similarly concurred with 
two of our three recommendations to enhance its IV&V audit 
process and identified actions FEMA had taken or plans to 
implement them. DHS did not concur with our recommendation that 
the Administrator of the Federal Emergency Management Agency 
should transfer IV&V duties back to an independent entity to 
help ensure impartiality. However, we continue to believe that 
the program management contractor's programmatic 
responsibilities and involvement prevent it from having a 
clearly independent role in validating and verifying the 
results of flood map production activities, because the 
contractor has a vested interest in overall program 
performance. Therefore, we believe that FEMA should transfer 
independent verification and validation duties back to an 
independent entity to help ensure impartiality.

Q.2. To what extent have funding limitations and program 
metrics affected map quality?

A.2. Regarding the effect of funding limitations on map 
quality, we reported in December 2010 that FEMA did not 
generally provide funding for mapping partners to acquire new 
topographic data prior to fiscal year 2010, in an effort to 
conserve resources and share responsibilities, according to 
FEMA officials. \3\ In a study commissioned by FEMA and issued 
in 2009, the National Academies of Sciences concluded that the 
quality of topographic data is the most important factor in 
determining water surface elevations, base flood elevations, 
and the extent of flooding and, thus, the accuracy of flood 
maps for riverine areas, which account for approximately 95 
percent of FEMA's flood maps. FEMA officials agreed that 
accurate data are essential and that even the best models 
cannot produce an accurate flood map with inaccurate inputs, 
but they said there is a point of diminishing returns where the 
cost of developing highly accurate topographic data outweighs 
its overall benefit. Historically, studies at all risk levels 
could have used the U.S. Geological Survey (USGS) National 
Elevation Dataset as the best available data, if obtaining 
better quality data was unaffordable, according to FEMA 
officials. Officials from the Association of State Floodplain 
Managers agreed with this characterization of historical 
mapping efforts and said that cost constraints limit local 
governments and mapping partners' ability to collect extensive 
data, a situation that has resulted, in some cases, in poor map 
quality. FEMA officials acknowledged that affordability issues 
have been the main reason high risk areas may rely on USGS data 
for their study. To address this issue, FEMA officials said 
they planned to provide $80 million in funding in fiscal years 
2010 through 2013 to acquire new topographic data.
---------------------------------------------------------------------------
     \3\ Topographic accuracy is a function of detail and age. Detail 
is important because detailed topography has significantly fewer errors 
than less detailed alternatives and better accounts for hydraulic 
structures--structures that affect water flow--such as buildings, 
dykes, river banks, and roads. Age is important because topography can 
change over time due to development and ecological factors such as 
erosion. The topographic data used in mapping studies can have 
significant variances in age and detail, and thus, accuracy.
---------------------------------------------------------------------------
    Regarding the effect of program metrics on map quality, 
prior to September 2010, FEMA lacked a metric for the quality 
of topographic data beyond the minimum standards in its 
Guidance and Specifications and delineated floodplains using 
the ``best available'' existing topographic data for the area 
being studied. In the absence of data provided by the mapping 
stakeholder or newly developed for a flood mapping project, a 
primary source for topographic data was the National Elevation 
Dataset maintained by the USGS, which is over 35 years old on 
average. FEMA's historical standards for new topographic data 
required data that is about 10 times more accurate than USGS 
topographic data and required topographic data acquired or 
reviewed within the last 7 years to account for changes such as 
human development. In September 2010, FEMA established new 
standards for the level of topographic detail required to 
ensure that the maps of those areas at the highest risk from 
flooding have the most accurate topographic data, as suggested 
by the National Research Council and FEMA's Risk MAP strategy. 
FEMA published Procedural Memorandum 61 to update its 
Guidelines and Specifications requiring mapping partners to 
align FEMA's topographic data specifications to levels of risk 
for flooding, as well as account for differing characteristics 
of elevation that can affect the accuracy and precision of base 
flood elevations. This procedural memorandum identifies the 
specifications of elevation accuracy and precision needed based 
on FEMA's previously identified risk classes for all 3,146 
counties in the United States. As the National Academies of 
Sciences report stated, the level of detail used in a study 
should correspond to the area's risk. FEMA officials stated 
that they will only be starting new studies in areas where 
there are already existing updated and accurate topographic 
data or in areas that have sufficient need and risk to 
necessitate FEMA's funding the acquisition of such data.
    In addition, we made several conclusions in our December 
2010 report that led to the recommendations to enhance FEMA's 
metrics for assessing the quality of flood maps discussed 
above. Specifically, we concluded that establishing separate 
measures of compliance for detailed and approximate studies 
could allow FEMA to better use FBS compliance rates as a 
measure of map accuracy; however, the data necessary to 
accomplish this are presently not maintained by the agency. By 
retaining and analyzing metadata, FEMA could report additional 
information on FBS compliance and, thereby, have a potentially 
better measure of map accuracy. Further, FEMA's NVUE standard 
provides a basis for flood mapping partners to assess the 
quality of new, validated, or updated engineering data in 
revising maps; however, establishing uniform guidance for the 
validation of existing data could help FEMA ensure mapping 
partners are consistently validating data. This step could help 
FEMA both track and report the accuracy of maps at the national 
and regional levels and better assess mapping data needs.

Q.3. Can you discuss the level of coordination that exists 
among FEMA and other relevant agencies, such as the Army Corps 
of Engineers, NOAA, USGS, and others, in the development of 
updated maps?

A.3. While we have not assessed the level of coordination that 
exists among FEMA and other relevant agencies, such as the Army 
Corps of Engineers, NOAA, USGS, and others, in the development 
of updated maps, FEMA's Risk Mapping, Assessment, and Planning 
(Risk MAP) Multi-Year Plan: Fiscal Years 2010-2014 discusses 
FEMA's views regarding synergies with other Federal agencies. 
According to the strategy, FEMA has engaged other Federal 
agencies in productive partnerships that benefit each entity 
and works to minimize duplication across the Federal 
Government:

    FEMA participates actively in National Digital 
        Orthophoto Programs (NDOP) and National Digital 
        Elevation Program (NDEP). \4\ These groups work to 
        maximize coordination of Federal mapping, focusing on 
        two key data themes of ground elevation data and ortho-
        imagery (aerial photo base maps).
---------------------------------------------------------------------------
     \4\ The National Digital Orthophoto Programs (NDOP) was chartered 
in 1993 as a consortium of Federal agencies with the purpose of 
developing and maintaining national ortho-imagery coverage in the 
public domain by establishing partnerships with Federal, State, local, 
tribal, and private organizations. (see, www.ndop.gov). The National 
Digital Elevation Program (NDEP) was established to promote the 
exchange of accurate digital land elevation data among Government, 
private, and nonprofit sectors and the academic community and to 
establish standards and guidance that will benefit all users. (see, 
www.ndep.gov/NDEP)

    FEMA has an agreement with USGS to fully transfer 
        the management of base map imagery to the USGS to 
        eliminate redundancy and allow FEMA to focus on the 
        production and management of the flood hazard and flood 
        risk layers; FEMA has a Memorandum of Understanding 
        with the Census Bureau to share its inventory of local 
        GIS data; FEMA has a liaison relationship with National 
        Geodetic Survey to exchange technical expertise and 
        align flood hazard mapping and Height Modernization. 
        \5\
---------------------------------------------------------------------------
     \5\ Height Modernization is a program that uses the Global 
Positioning System and other new technologies to increase the accuracy 
of elevation measurements that comprise the vertical portion of the 
National Spatial Reference System. (see, http://oceanservice.noaa.gov/
topics/navops/heightmodernization/)

    FEMA coordinates with (1) the National Weather 
        Service to share flood hazard mapping data with the 
        National Weather Service Inundation Mapping Program, 
        (2) with the NOAA Ocean Service on coastal mapping 
        standards, coastal science issues, and participation on 
        the Interagency Working Group on Ocean and Coastal 
        Mapping, (3) with USACE and its Flood Risk Management 
---------------------------------------------------------------------------
        Program.

    FEMA has an agreement with the United States Fish 
        and Wildlife Service to help ensure that Coastal 
        Barrier Resource Systems that affect the availability 
        of Federal flood insurance and other Federal funds are 
        accurately depicted on FIRMs.

Q.4. Do you believe that provisions included in the 2008 Senate 
flood insurance reauthorization bill will improve the quality 
of maps and coordination with other agencies and technical 
experts?

A.4. Sections 18 and 19 of the 2008 Senate flood insurance 
reauthorization bill (S. 2284) should help FEMA improve the 
quality of maps and coordination with other agencies and 
technical experts.

    Section 18 reestablishes the Technical Mapping 
        Advisory Council. The Council began its work in 1996 
        and has submitted recommendations to the Director of 
        FEMA in each of its Annual Reports. While we have not 
        assessed the specific impact of FEMA's implementation 
        of the prior Council's recommendations in annual 
        reports, the intent of the reestablished Council as 
        stated in the draft bill supports FEMA's Risk MAP 
        strategy to continue collaboration with local, State, 
        regional, tribal, national, and other Federal partners.

    Section 19 calls for FEMA to establish an ongoing 
        map update program that will include assessment of the 
        effects of erosion and climate change. This provision 
        should help prompt FEMA to address our outstanding 
        concerns regarding these issues. Specifically, we 
        identified concerns related to these issues in 
        assessing FEMA's rate-setting process for the National 
        Flood Insurance Program and in assessing financial 
        risks to Federal and private insurers. In assessing 
        FEMA's rate-setting process for the National Flood 
        Insurance Program (NFIP) in October 2008, we reported 
        that some experts have suggested that incorporating 
        ongoing and planned development, erosion trends, and 
        climate change into flood risk modeling would more 
        fully capture longer-term flood risk exposure, but FEMA 
        does not take these variables into account. \6\
---------------------------------------------------------------------------
     \6\ GAO, Flood Insurance: FEMA's Rate-Setting Process Warrants 
Attention, GAO-09-12 (Washington, DC: Oct. 31, 2008).

     FEMA's policy is to map Special Flood Hazard Areas (SFHAs) 
        based on current development conditions. However, as 
        floodplains are developed and more ground surfaces are 
        paved or made impervious (nonabsorbent), the risks and 
        expected elevations of flooding increase. As the 
        predicted elevation of the base flood increases, SFHAs 
        subsequently spread beyond mapped boundaries. As a 
        result, in rapidly developing watersheds or where 
        characteristics change significantly due to flood 
        control projects or other natural events, some FIRMs 
        may become outdated shortly after their completion. In 
        addition, some properties could be constructed without 
        proper protection from the flood hazard they may face 
        throughout their life span, and others could be 
        uninsured or subject to insurance rates that do not 
---------------------------------------------------------------------------
        accurately reflect flood risk.

     FEMA's current flood hazard mapping procedures for coastal 
        areas incorporate storm-induced coastal erosion but not 
        long-term erosion. While shorelines, dunes, and bluffs 
        can retreat during a single storm, long-term erosion at 
        a shoreline is the net result of a variety of factors 
        such as sediment losses from storms and inundation from 
        sea level rise, averaged over several decades. We 
        recommended that the Secretary of the Department of 
        Homeland Security direct FEMA to take steps to ensure 
        that the data it uses accurately reflect the risk of 
        losses from flooding. These steps should include, for 
        example, verifying the accuracy of flood probabilities, 
        damage estimates, and flood maps; ensuring that the 
        effects of long-term planned and ongoing development, 
        as well as climate change, are reflected in the flood 
        probabilities used; and reevaluating the practice of 
        aggregating risks across zones. FEMA had not yet taken 
        action to address this recommendation.

    In assessing the financial risks to Federal and private 
insurers posed by climate change, we reported that one 
important implication of Federal insurers' risk management 
approach is that they each have little reason to develop 
information on their long-term exposure to the potential risk 
of increased low-frequency, high-severity weather events 
associated with climate change. \7\ According to NFIP 
officials, their risk management processes adapt to near-term 
changes in weather as they affect existing data. As one NFIP 
official explained, NFIP is designed to assess and insure 
against current--not future--risks. Over time, agency officials 
stated, this process has allowed their program to operate as 
intended. However, unlike the private sector, the program has 
not conducted an analysis to assess the potential impacts of an 
increase in the frequency or severity of weather related events 
on program operations over the near- or long-term. Agency 
officials identified several challenges that could complicate 
their efforts to assess these impacts at the program level. 
NFIP officials stated there was insufficient scientific 
information on projected impacts at the regional and local 
levels to accurately assess their impact on the flood program. 
We recommended that the Secretary of Homeland Security direct 
the Under Secretary of Homeland Security for Emergency 
Preparedness to analyze the potential long-term implications of 
climate change for the National Flood Insurance Program and 
report their findings to the Congress. FEMA has yet to issue 
its report to Congress.
---------------------------------------------------------------------------
     \7\ GAO, Climate Change: Financial Risks to Federal and Private 
Insurers in Coming Decades Are Potentially Significant, GAO-07-285 
(Washington, DC: Mar. 16, 2007).

Q.5. Updating a Flood Insurance Rate Map (FIRM) does not 
necessarily increase the number of properties subject to 
National Flood Insurance Program (NFIP) mandatory purchase 
requirements. Homeowners in special flood hazard areas (SFHAs) 
may find their properties excluded from those areas when an 
updated flood map is adopted.
    Can you compare the number of properties have been added to 
special flood hazard areas (SFHAs) to the number that have been 
removed during the last several years of ``map modernization''?

A.5. Because FEMA does not assess the number of properties that 
have been added to SFHAs or the number that have been removed 
as a result of national flood mapping efforts, these data are 
not collected or reported. FEMA's mapping efforts are designed 
to establish the floodplain boundary that describes the SFHA, 
the area where the NFIP's floodplain management regulations 
must be enforced and where the mandatory purchase of flood 
insurance applies; the agency does not determine whether 
individual properties or buildings are within an SFHA.
    Under current notification requirements, federally 
regulated lenders, not FEMA, serve as the primary channel for 
notifying property owners whose mortgaged properties are 
subject to flood insurance requirements. When property owners 
seek new financing--through purchase or refinance--federally 
regulated mortgage lenders are required to determine if the 
property is in the floodplain, and, if so, require the purchase 
of flood insurance. Lenders are not required to monitor map 
changes or to notify property owners with existing mortgages 
whose properties are identified in a floodplain by remapping if 
they are not aware of the change in status. \8\ Nonetheless, if 
federally regulated lenders become aware of flood map changes 
that affect properties for which they hold mortgages through 
FEMA notifications or flood zone determination companies, then 
they must notify the property owner and require the purchase of 
flood insurance. \9\ The information that must be provided to 
property owners is limited to notifying property owners that 
their structure is in a floodplain, providing a definition of a 
flood plain, and requiring the purchase of flood insurance if 
they live in a participating NFIP community.
---------------------------------------------------------------------------
     \8\ In making loans, federally regulated lenders are required to 
ensure that property owners purchase flood insurance if their mortgages 
are secured by a structure located in a floodplain. Lenders are also 
required to check the flood hazard status of a property when triggered 
by statutory tripwires, such as loan renewal or extension.
     \9\ Many lenders use flood zone determination companies to 
determine whether properties require flood insurance as a result of 
loan origination, loan assumption, or map changes. These companies use 
FEMA flood maps and other data to ascertain if properties are situated 
in flood zones.

Q.6. Can you comment on the public participation in the 
---------------------------------------------------------------------------
adoption of new maps and how that process can be improved?

A.6. The ultimate success of FEMA's flood mapping program 
depends on the level of community investment and involvement in 
the process. In our December 2010 report, we noted that FEMA 
relies on local governments to provide it with notification of 
changing flood hazard information and to work with FEMA to 
collect the information needed to reflect the updated flood 
hazards on the flood maps. As noted in our report. the National 
Flood Insurance Act of 1968, as amended, and Federal 
regulations require that FEMA communicate potential changes in 
flood risk to the public when it decides to initiate a flood 
mapping study and when it is ready to release preliminary maps. 
Specifically, FEMA is required to notify local governments at 
the beginning of the mapping process, \10\ and it must publish 
the proposed base flood elevations in the Federal Register for 
public comment and notify the local government of the results 
of the study when FEMA is ready to release preliminary maps. 
\11\ When the final map is approved, FEMA publishes another 
Federal Register notice. \12\ FEMA is required to maintain 
documentation of selected elements of its public notification 
efforts. \13\ Outside of these statutory and regulatory 
requirements, FEMA has historically focused its outreach 
efforts on local government officials and has relied on local 
officials to inform the community at large (i.e., the public) 
of flood mapping efforts. \14\ However, we identified areas 
where FEMA could improve these outreach efforts. For example, 
FEMA is not ensuring that its mapping partners are complying 
with public notification documentation requirements. Further, 
FEMA is not collecting and analyzing data on appeals and 
protests that could be used to gauge public acceptance of flood 
maps.
---------------------------------------------------------------------------
     \10\ FEMA is required to contact community stakeholders, such as 
the State coordinating agency and other appropriate community 
officials, to discuss the intent and nature of the proposed flood map 
study. 44 C.F.R. 66.5.
     \11\ FEMA is required to publish the proposed flood elevations in 
a prominent local newspaper at least twice during the 10-day period 
following the notification of the community chief executive officer. 
Property owners have 90 days from the second newspaper publication to 
appeal the proposed flood elevations. 44 C.F.R. 67.4, 67.5.
     \12\ Final flood elevations must be published in the Federal 
Register and copies sent to the community chief executive officer, all 
individual appellants, and the State-coordinating agency. 44 C.F.R. 
67.11.
     \13\ 44 C.F.R. 66.3, 67.3.
     \14\ Federal law provides that FEMA must encourage local officials 
to disseminate information concerning a flood mapping study widely 
within the community, so that interested persons will have an 
opportunity to bring all relevant facts and technical data concerning 
the local flood hazard to the attention of the agency during the course 
of the study. 42 U.S.C. 4107.
---------------------------------------------------------------------------
    To address challenges in improving community outreach, we 
recommended that the Administrator of the Federal Emergency 
Management Agency:

  1.  establish a mechanism to better ensure compliance with 
        the documentation requirements of public notification 
        regulations;

  2.  collect and analyze data on appeals and protests, 
        including those on ineligible appeals, to the extent 
        that the benefits outweigh the costs;

  3.  issue guidance to mapping stakeholders to standardize the 
        process for analyzing appeals and protests and 
        submitting this data to FEMA;

  4.  establish performance goals and measures for promoting 
        public acceptance of flood maps; and

  5.  develop a reporting structure for regions to use to 
        identify resources needed to conduct flood mapping 
        outreach activities, and implement a risk-based 
        approach to allocate outreach resources; and leverage, 
        as appropriate, existing FloodSmart marketing resources 
        and expertise to help increase public acceptance of 
        flood maps.

    In commenting on the draft report, DHS stated that it 
concurred with our recommendations to enhance its outreach 
efforts and identified actions FEMA had taken or plans to 
implement them.

Q.7. What responsibilities do FEMA and localities have to 
inform the public about map updates at the outset of the 
process? What is the most important aspect of the flood maps 
for communities and property owners?

A.7. Federal regulations require that FEMA communicate 
potential changes in flood risk to the public when it decides 
to initiate a flood mapping study. At the beginning of the 
mapping process, FEMA is required to notify local governments. 
\15\ When FEMA is ready to release preliminary maps, the agency 
must publish the proposed base flood elevations in the Federal 
Register for public comment and notify the local government of 
the results of the study. \16\ FEMA works with communities to 
develop new flood hazard data or revise existing data during 
the flood study process. In general, the study process includes 
the following activities:
---------------------------------------------------------------------------
     \15\ FEMA is required to contact community stakeholders, such as 
the State coordinating agency and other appropriate community 
officials, to discuss the intent and nature of the proposed flood map 
study. 44 C.F.R. 66.5.
     \16\ FEMA is required to publish the proposed flood elevations in 
a prominent local newspaper at least twice during the 10-day period 
following the notification of the community chief executive officer. 
Property owners have 90 days from the second newspaper publication to 
appeal the proposed flood elevations. 44 C.F.R. 67.4, 67.5.

    FEMA holds a scoping meeting with community 
        officials to identify where a new flood study is 
        necessary and the type of study and extent (number of 
---------------------------------------------------------------------------
        stream miles) of the study.

    FEMA undertakes a flood study to identify the flood 
        hazards and to develop Base Flood Elevations (BFEs) 
        (hereafter referred to as ``flood elevations'') and 
        floodways for the areas of study identified during the 
        scoping process. In addition, the mapping process 
        includes activities such as obtaining the base map, 
        incorporating Letters of Map Change, and developing the 
        flood hazard database.

    The identification of flood hazards serves many important 
purposes. Identifying flood hazards creates an awareness of the 
hazard, especially for those who live and work in flood-prone 
areas. Maps provide States and communities with the information 
needed for land-use planning and to reduce flood risk to 
floodplain development and implement other health and safety 
requirements through codes and regulations. States and 
communities can also use the information for emergency 
management.
    Each time FEMA provides a community with new or revised 
flood hazard data, the community must either adopt new 
floodplain management regulations or amend its existing 
regulations to reference the new flood map and flood study. In 
some cases, communities may have to adopt additional floodplain 
management requirements if a new type of flood hazard data is 
provided, such as a new flood zone.
    Floodmaps are the tool FEMA uses to determine the flood 
risk homeowners face. Prior to the establishment of NFIP, 
homeowners had no mechanism to protect themselves from the 
devastation of flooding and in many parts of the United States 
unchecked development in the floodplain was exacerbating the 
flood risk. In addition to providing insurance to property 
owners, NFIP requires participating communities to enact local 
floodplain management ordinances that minimize floodplain 
development and encourage initiatives to reduce flood risk. 
FEMA's Web site includes information whose purpose is to help 
homeowners in locating and obtaining copies of their 
perspective floodmaps, how to read them, and how to request map 
changes that may be warranted.

Q.8. How are property owners informed after updated maps are 
adopted? Do homeowners receive any specific information with 
regard to their properties and how is that information 
otherwise made available?

A.8. Federal regulations require that FEMA communicate 
potential changes in flood risk to the public. When the final 
map is approved, FEMA publishes a Federal Register notice. \17\ 
When the study is completed, FEMA provides the community with a 
preliminary flood map and flood study for review. In addition, 
FEMA may hold a public meeting--often referred to as the 
``Final Meeting'' to explain and obtain comments on the 
preliminary flood map and flood study.
---------------------------------------------------------------------------
     \17\ Final flood elevations must be published in the Federal 
Register and copies sent to the community chief executive officer, all 
individual appellants, and the State-coordinating agency. 44 C.F.R. 
67.11.

    FEMA provides a 90-day appeal period when new or 
        revised flood elevations are proposed. Before the 
        appeal period is initiated, FEMA will publish the 
        proposed flood elevation determinations in the Federal 
        Register and notify the community's chief executive 
        officer of the determination. FEMA will then publish 
        information about the flood elevation determinations at 
        least twice in a local newspaper. The appeal period 
        provides the community and owners or lessees of 
        property in the community an opportunity to submit 
        information on whether the flood elevations are 
---------------------------------------------------------------------------
        scientifically or technically incorrect.

    At the end of the 90-day appeal period, FEMA 
        resolves all appeals and finalizes the flood map and 
        flood study.

    FEMA then issues a Letter of Final Determination 
        (hereafter referred to as the ``final letter''), which 
        establishes the final flood elevations, and provides 
        the new flood map and flood study to the community. The 
        final letter initiates the 6-month adoption period. The 
        community must adopt or amend its floodplain management 
        regulations during this 6-month period.

    The flood map and flood study become effective at 
        the end of the 6-month period. The effective date is 
        also the date when flood insurance rates will be based 
        on the new flood data for new construction built after 
        this date. The effective map will be the one that will 
        be used by federally insured or regulated lenders to 
        determine if flood insurance is required as a condition 
        of a loan.

Q.9. What factors and data does FEMA consider from communities 
and property owners in deciding whether to adjust maps?

A.9. According to FEMA, factors and data the agency may 
consider from communities and all local, State, and Federal 
stakeholders in deciding whether to adjust maps includes any 
available information on Federal, State, or local flood 
studies, flood control projects, bridges, culverts, or 
developments or flooding concerns, and any efforts to gather 
topographic mapping or aerial photography, or information on 
significant floods.

Q.10. What funding and technical assistance, if any, are 
provided to States and communities to help them develop their 
own capacity to assist in mapping updates?

A.10. FEMA has established two programs to provide funding and 
technical assistance to States and communities to help them 
develop their own capacity to assist in mapping efforts, the 
Cooperating Technical Partners (CTP) Program and the Community 
Assistance Program.

    The purpose of the CTP Program is to provide, 
        through a cooperative agreement, funds to better ensure 
        that CTP partners can perform program management and 
        technical mapping-related activities. Though there is 
        not a financial matching requirement under the CTP 
        Program except as defined by appropriations language, 
        the potential partner should demonstrate its ability to 
        leverage funding received from FEMA. CTP partners that 
        offer significant funding matches will be given 
        priority in allocating funding. FEMA may provide 
        technical assistance, training, and/or data to a CTP 
        partner to support flood hazard data development 
        activities. For example, fundable program management 
        activities include the development of State and local 
        business plans and/or updates, managing technical 
        mapping activities, conducting outreach, providing 
        training to State and local officials, staffing, 
        conducting pilot projects (as defined by the FEMA 
        regional office) and mentoring. Additional fundable 
        activities under the CTP program are summarized in the 
        table below.

        
        
    FEMA established the Community Assistance Program 
        to provide funding to States to provide technical 
        assistance to communities that participate in NFIP and 
        to evaluate community performance in implementing NFIP 
        floodplain management activities. Among other things, 
        the program is intended to build State and community 
        floodplain management expertise and capability, and 
        leverage State knowledge and expertise in working with 
        their communities. FEMA Regional Offices and the 
        designated State agency negotiate an agreement that 
        specifies activities and products to be completed by a 
        State in return for funds. In addition, each State is 
        required to develop a 5-Year Floodplain Management Plan 
        (5-Year Plan) describing the activities to be completed 
        using Community Assistance Program funding and how the 
        required performance metrics will be met. Performance 
        standards that address quality of service are to be 
        developed and measured. There is a 25 percent non-
        Federal match for all States receiving Community 
        Assistance Program funds. The fundable CAP activities 
        include:

        Performance measurement/5-Year Plan Updates;

        State model ordinance research and development;

        Ordinance assistance;

        Tracking and reporting floodplain management 
        data;

        Community assistance visits and community 
        assistance contacts;

        Outreach, workshops, and other training;

        General technical assistance;

        Mapping assistance;

        Coordination with other State programs and 
        agencies; and

        Assistance to communities in responding to 
        disasters.

Q.11. The House has adopted language in its NFIP 
reauthorization bill that would establish a 5-year moratorium 
on the mandatory purchase requirement for properties that are 
mapped into a special flood hazard area.
    Will this provision have any effect on properties that are 
removed from a special flood hazard area as the result of the 
adoption of an updated flood map? In other words, would the 
owners of these properties be able to drop their flood 
insurance as the result of the new map?

A.11. Section 6(a)(i)(1) of H.R. 5114 proposes a 5-year delay 
in the effective date of the mandatory purchase requirement 
specifically for properties in areas that were not previously 
designated as having special flood hazards. As a result, it 
would not apply to changes in premium rates for properties in 
areas that were previously designated as having special flood 
hazards but are no longer so designated.

Q.12. Is there any way to quantify the impact this provision 
would have on the financial standing of the program?

A.12. The impact of a potential delay in the mandatory purchase 
requirement for newly remapped properties depends on the 
premiums that would be paid for coverage on those properties 
and the losses they would experience once they enter the 
program.
    The nature of NFIP is such that it primarily insures 
properties with the highest risk of loss, such as those in 
SFHAs that are subject to the mandatory purchase requirement. 
In addition, many of the properties in SFHAs qualify for 
subsidized premium rates that do not fully reflect the risk of 
loss from flood damage. The potential impact of a delay in the 
mandatory purchase requirement would depend on the mix of 
properties that ultimately ended up in the program after the 
end of the 5-year period and the occurrence of flood losses. If 
that future mix of properties paralleled that currently 
experienced by the program, where just under 25 percent of 
properties receive subsidized rates, it is possible that adding 
more properties could actually worsen the financial stability 
of the program. That is, to the extent that floods do not occur 
in the added areas, the property owners there would contribute 
premiums to NFIP but not losses, and thus be a benefit to the 
program's financial standing. On the other hand, if they do 
experience losses, it is possible that, because of the 
properties receiving subsidized premium rates, NFIP could pay 
out more in damages than it collected in premiums. Ultimately, 
the impact of adding more properties and a potential delay in 
adding these properties would depend on the mix of properties 
added to the program and occurrence of flood losses in the 
areas added.

Q.13. Despite mandatory participation requirements, many 
homeowners do not buy or maintain flood insurance. Can you 
describe the reasons for this and do you have any suggestions 
on how to improve participation in NFIP?

A.13. While federally regulated lenders are not to make or 
renew loans on properties in participating communities that are 
in SFHAs unless the property is covered by flood insurance, the 
extent to which some homeowners might not purchase such 
insurance is not known and is a subject of disagreement. As we 
testified in 2007, viewpoints differ about whether lenders were 
complying with the flood insurance purchase requirements, 
primarily because the officials we spoke with did not use the 
same types of data to reach their conclusions. \18\ For 
example, FEMA officials believed that many lenders frequently 
were not complying with the requirements, an opinion that they 
based largely on estimates computed from data on mortgages, 
flood zones, and insurance policies; limited studies on 
compliance; and anecdotal evidence indicating that insurance 
was not always purchased when it was required. In contrast, 
Federal banking regulators, based on their loan reviews during 
bank examinations, believed that noncompliance with mandatory 
purchase requirements was very low. As we reported in 2002, in 
neither case did the studies or examinations offer a 
statistically valid projection of the overall participation 
rate. \19\ However, a 2006 FEMA-commissioned study of 
compliance with the mandatory purchase requirement estimated 
that compliance with purchase requirements, under plausible 
assumptions, was 75 to 80 percent in special flood hazard areas 
for single-family homes that had a high probability of having a 
mortgage. The analysis conducted did not provide evidence that 
compliance declined as mortgages aged. At the same time, the 
study showed that about half of single-family homes in special 
flood hazard areas had flood insurance. \20\
---------------------------------------------------------------------------
     \18\ GAO. Federal Emergency Management Agency: Ongoing Challenges 
Facing the National Flood Insurance Program, GAO-08-118T (Washington, 
DC: Oct. 2, 2007).
     \19\ GAO, Flood Insurance: Extent of Noncompliance with Purchase 
Requirements Is Unknown, GAO-02-396 (Washington, DC: Jun. 21, 2002).
     \20\ RAND Corporation, The National Flood Insurance Program's 
Market Penetration Rate: Estimates and Policy Implications, 2006.
---------------------------------------------------------------------------
    With respect to why homeowners might not purchase or 
maintain required flood insurance, in a previous report we 
noted that the general public lacks an awareness and 
understanding about natural hazards and risk. \21\ That is, 
individuals often have a misperception that natural hazard 
events will not occur in their community and lack a full 
understanding of the likelihood of an event occurring. As a 
result, homeowners might be motivated to forego the purchase of 
flood insurance when possible. With respect to why lending 
institutions might not enforce mandatory purchase requirements, 
as noted above, disagreement exists over whether and to what 
extent this is an issue.
---------------------------------------------------------------------------
     \21\ GAO, Natural Hazard Mitigation: Various Mitigation Efforts 
Exist, but Federal Efforts Do Not Provide a Comprehensive Strategic 
Framework, GAO-07-403 (Washington, DC: Aug. 27, 2007).
---------------------------------------------------------------------------
    In order to determine how best to increase mandatory 
participation beyond its current level, whatever it may be, 
knowing the extent to which compliance is lacking at loan 
origination, flood insurance renewal, or both is critical. 
However, disagreement exists over where compliance is lacking 
and challenges exist to obtaining that information. In our 2002 
report, we did analyses that suggested (with some limitations) 
that noncompliance at loan origination was not a major problem. 
FEMA, Federal banking regulators, and lenders all agreed with 
this assessment. However, the 2006 Rand study found no strong 
evidence that compliance with mandatory requirements declined 
over time. \22\ Fully assessing compliance would require 
property-specific data on mortgages, flood zone determinations, 
and flood insurance policies, obtained both at loan origination 
and at various points during the life of the loan. However, 
there are a number of challenges to obtaining and assessing 
this data. These include establishing data reporting 
requirements for lenders to provide relevant mortgage data, 
designating an organization to receive and compare these data, 
and determining the costs and benefits of obtaining these data.
---------------------------------------------------------------------------
     \22\ RAND Corporation, The National Flood Insurance Program's 
Market Penetration Rate: Estimates and Policy Implications, 2006.

Q.14. Can you comment on how innovations such as group 
insurance and community insurance can increase participation? 
Can these measures help reduce costs? What obstacles prevent 
---------------------------------------------------------------------------
them from being adopted?

A.14. FEMA's Group Flood Insurance Policy is a 3-year policy 
with limited coverage purchased on behalf of recipients of 
Federal disaster assistance following a natural disaster, often 
low-income persons or those on fixed incomes. For example, 
following hurricanes Katrina and Rita, group flood insurance 
policies were purchased on behalf of 36,285 Louisiana 
homeowners as part of the Federal assistance provided to those 
homeowners. According to FEMA, the purpose of these group 
policies is to allow property owners time to recover from the 
disaster and to be in a better position to buy flood insurance 
for themselves after the expiration of the 3-year policy term. 
If property owners do not purchase their own flood coverage at 
that time, they will forego future Federal disaster assistance. 
While this is not an area that GAO has studied, understanding 
the percentage of those covered under group policies that 
ultimately purchased their own policies after the 3-year term 
expired would be informative in understanding the program's 
impact on participation.
    Community flood insurance, as proposed by some industry 
advocates, would allow communities participating in NFIP to 
purchase one policy that would cover all structures within the 
community. NFIP would determine the premium rate for the 
community, which would then, in turn, determine how to allocate 
the cost of the total premium among its residents. While this 
is not an issue where we have done analyses, it raises 
questions that would need to be answered, including whether a 
community policy would increase participation, whether such a 
policy offers cost savings to NFIP or policy holders, and would 
any savings to NFIP outweigh the challenges involved in 
implementing such a policy.

Q.15. FEMA's Community Rating System (CRS) provides localities 
with an opportunity to reduce premiums for property owners if 
they adopt measures beyond what is required under NFIP in order 
to protect against flood damage. Can you comment on CRS as a 
tool to reduce risk as well as insurance premiums? How can it 
be improved to meet these goals?

A.15. In a 2007 natural hazard mitigation report, we noted that 
community planning and mitigation activities, including those 
done through CRS, can help reduce the risk of loss from natural 
hazards, and should involve land use plans, building codes, and 
hazard control structures. \23\ We also noted that while less 
than 5 percent of communities participating in NFIP 
participated in the CRS program, those participating 
communities represented around 67 percent of policy holders. We 
did not analyze the extent to which the CRS program reduced 
risk or insurance premiums, but we did note that CRS, like 
other hazard mitigation activities, faced several challenges. 
For example, mitigation efforts are often constrained by 
conflicting local interests, cost concerns, and a lack of 
public awareness of the risks of natural hazards and the 
importance of mitigation. Any efforts at improving the 
program's ability to reduce risks and premiums would thus need 
to address these challenges.
---------------------------------------------------------------------------
     \23\ GAO, Natural Hazard Mitigation: Various Mitigation Efforts 
Exist, but Federal Efforts Do Not Provide a Comprehensive Strategic 
Framework, GAO-07-403 (Washington, DC: Aug. 22, 2007).
---------------------------------------------------------------------------
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                      FROM SALLY MCCONKEY

Q.1. FEMA has indicated that by the end of this fiscal year it 
expects to have preliminary Flood Insurance Rate Maps (FIRMs) 
issued for 92 percent of the Nation's population. a) Can you 
describe the quality of the maps being produced by FEMA? How 
can they be improved? How many of its ``updated'' maps are 
based on new data or modeling; how many are simply digital maps 
based on old data? b) To what extent have funding limitations 
and program metrics affected map quality? c) Can you discuss 
the level of coordination that exists among FEMA and other 
relevant agencies, such as the Army Corps of Engineers, NOAA, 
USGS, and others, in the development of updated maps? d) Do you 
believe that provisions included in the 2008 Senate flood 
insurance reauthorization bill will improve the quality of maps 
and coordination with other agencies and technical experts?

A.1. FEMA expects to have issued Preliminary DFIRMs for 92 
percent of the population through the Map Modernization 
initiative that is just being completed. The quality of the 
mapping will vary depending on the funding available for the 
study, when the particular mapping project was initiated and 
the level of State and community involvement in the process.

  a)  The single most important factor in the quality of the 
        map is the funding available for producing the map. If 
        the map simply digitizes old data, or is done by 
        approximate or limited detail methods, or with old and 
        inadequate topo maps, the quality of the map may well 
        not be adequate. Because there was limited funding, 
        FEMA chose to digitize existing data for most of the 
        mapping under the map modernization program. Due to 
        program metrics which required that new maps be issued 
        for specified percentages of the population in 
        specified periods of time, the original phase of Map 
        Modernization resulted mostly in moving the mapping 
        inventory from paper maps to a digital platform. The 
        funds allocated were not sufficient to include new 
        engineering analyses for all studies and still meet 
        program metrics. The conversion to the geospatial 
        platform was a significant increase in the quality of 
        the mapping simply through better registration to 
        accurate base maps and enhanced further where updated 
        high resolution topography was available. The quality 
        of the maps will also vary depending on when in the Map 
        Mod they were produced. Over the course of Map Mod 
        (midcourse adjustment) quality assurance checks were 
        implemented which resulted in improving the quality of 
        the maps. The quality of the maps will vary depending 
        on what quality assurance controls were in place when 
        the maps were prepared. Many States were closely 
        involved with decision making regarding the extent of 
        new engineering data incorporated. Through the 
        Coordinated Needs Mapping System database development 
        currently underway, FEMA will have data on adequate 
        engineering studies and those needing new engineering 
        that can be used to prioritize future studies during 
        Risk MAP. The maps can be improved by expanding State 
        and community participation in the process and by 
        processes to improve the accuracy at every step in the 
        process. This may result in slowing down the number of 
        maps produced, but will greatly improve community 
        acceptance of the maps.

  b)  Funding for Map Mod was not sufficient to secure new 
        engineering study data for all counties in the Nation. 
        FEMA and the States had to weigh trading new study data 
        for fewer maps moved to digital formats. Because of 
        funding limitations there remain counties that still 
        have only paper maps and areas where the study data 
        does not reflect existing conditions. When States did 
        not actively participate in the planning process for 
        DFIRM mapping, the FEMA program metrics were the 
        drivers in prioritizing projects and the scope of work.

  c)  The level of coordination between FEMA and the USACE has 
        been steadily improving. At the national level there 
        have been regular meetings such as the 
        Intergovernmental Food Risk Management Committee 
        (IFRMC) which is an ongoing process to involve State 
        and local mapping and flood risk management partners. 
        The USACE Silver Jackets Program is one good mechanism 
        to gain the regional/State level coordination.

  d)  The 2008 Senate bill has a number of important mapping 
        provisions, e.g., authorizing continued funding for 
        mapping that will have an impact on improving flood 
        hazard identification and coordination among agencies. 
        The 2008 Flood Insurance Reform bill, as passed by the 
        Senate, provides for significant additional mapping 
        tasks such as mapping the 500 year floodplain, areas 
        affected by erosion and areas affected by sea level 
        rise. The measure also includes provision for inclusion 
        of mapping data from other Federal agencies, such as 
        the Army Corps of Engineers' inundation maps and the 
        Fish and Wildlife Services' Coastal Barrier Resource 
        Zone (COBRA) maps.

Q.2. Updating a Flood Insurance Rate Map (FIRM) does not 
necessarily increase the number of properties subject to 
National Flood Insurance Program (NFIP) mandatory purchase 
requirements. Homeowners in special flood hazard areas (SFHAs) 
may find their properties excluded from those areas when an 
updated flood map is adopted.
    Can you compare the number of properties have been added to 
special flood hazard areas (SFHAs) to the number that have been 
removed during the last several years of ``map modernization''?

A.2. Updating the Flood Insurance Rate Maps does not 
necessarily increase the number of properties shown in the 
floodplain. There are two independent sources that indicate the 
number of properties newly shown in a SFHA is very nearly the 
same number of properties removed from a SFHA, within about 1 
percent. In May 2010, FEMA used a large sample of completed 
digital flood maps and compared the change of housing units 
which had a change in SFHA (in or out) and found a positive 1 
percent increase in housing units now shown in a SFHA. The 
National Flood Determination Association did a preliminary 
evaluation of changes in property determinations for SFHA and 
that data indicated about as many properties were newly 
identified in an SFHA as properties newly shown no longer in an 
SFHA. It is important to keep in mind that in part, Map 
Modernization was initiated because Flood Insurance Rate Maps 
had inaccuracies due to a variety of reasons, so changes in the 
SFHA would be expected.

Q.3. Can you comment on the public participation in the 
adoption of new maps and how that process can be improved?

A.3. Public participation, including community leaders and 
staff, is extremely important throughout the mapping process 
for many reasons. FEMA's Risk MAP plan for 2010-2014 emphasizes 
public engagement starting even earlier in the study to improve 
the process. With full engagement this should reduce the number 
of communities and/or community leaders who have concerns with 
the technical data and the areas shown at risk of flooding on 
the Flood Insurance Rate Maps. The motivation for denying that 
flood risk exists varies as do the tactics to delay showing the 
risk on the map.
    Improved capacity for FEMA and the States to provide 
technical assistance to communities could enhance their ability 
to effectively engage in the process and to facilitate public 
participation.

Q.4. What responsibilities do FEMA and localities have to 
inform the public about map updates at the outset of the 
process? What is the most important aspect of the flood maps 
for communities and property owners?

A.4. FEMA has certain prescribed responsibilities with respect 
to public notification, which varies depending on the nature of 
the mapping projects. Local governments that participate in the 
NFIP also have responsibilities to notify their citizens who 
are at risk of flooding, which is the role of accurate maps. 
Some communities and States send postcards to their citizens 
who are shown in mapped flood hazard areas. Communities and 
property owners often do not fully appreciate their exposure to 
floods and thus object to maps showing areas that are special 
flood hazard areas. Frequent, sustained communication about 
flood risk and risk management is needed, not just during the 
mapping process, but as part of an ongoing awareness.

Q.5. How are property owners informed after updated maps are 
adopted? Do homeowners receive any specific information with 
regard to their properties and how is that information 
otherwise made available?

A.5. Property owners may be informed about updated mapping 
through a number of channels. The minimum requirement is a 
public notice in the local newspaper. More often property 
owners are alerted to a change in the flood hazard status of 
their property when a federally backed mortgage is in place and 
periodically reviewed. The most effective means of 
communication is when the local entities reach out to the 
public with data about the flood hazard identification. FEMA's 
Risk MAP program will take advantage of the digital platform of 
most floodplain maps by using geospatial analyses to identify 
properties that have a changed flood hazard status during 
mapping updates. This will allow focused outreach to those 
property owners. The Risk MAP product is called ``changes since 
last map'' and should be supported. However, preparing such 
products will utilize mapping dollars and adequate funding to 
continue to produce new maps needs to be augmented with 
adequate funding for outreach and communication.

Q.6. What factors and data does FEMA consider from communities 
and property owners in deciding whether to adjust maps?

A.6. Communities and individuals can submit to FEMA their 
concerns about inaccurate mapping. These are typically 
anecdotal, but could include technical data. The Risk MAP plan 
incorporates objective information such as the validity of the 
engineering data based on changes in watershed development or 
storm events, availability of topographic data, risk (often 
represented by population) and other data that communities 
provide in identification of projects. Communities have the 
responsibility to notify FEMA when there are changes in the 
watershed or more specifically changes to the watercourse that 
effect the extent of flooding. Unfortunately, many communities 
are lax in providing this information. Continued, persistent 
outreach and education to communities is essential. Communities 
and individuals may ignore requests for participation and for 
data and only engage after the mapping is complete and they 
become aware of changes. Other communities are actively engaged 
in working with FEMA and the State to provide data and input, 
thus resulting in accurate maps.

Q.7 What funding and technical assistance, if any, are provided 
to States and communities to help them develop their own 
capacity to assist in mapping updates?

A.7. Cooperating Technical Partnerships is the mechanism in 
which qualified communities can participate in the mapping 
process with FEMA. A few larger communities have that 
expertise, but generally States or counties enter into the 
partnership with FEMA. When FEMA has a mapping project, whoever 
is responsible for the project development is required to 
engage and invite the communities to participate in the mapping 
process through a series of required notifications and 
meetings, which has some funding as part of the study costs. 
Additional capacity at FEMA to provide mapping partners with 
specific funding and guidance to ensure communities can more 
fully participate in the process would be helpful.

Q.8. The House has adopted language in its NFIP reauthorization 
bill that would establish a 5-year moratorium on the mandatory 
purchase requirement for properties that are mapped into a 
special flood hazard area. a) Will this provision have any 
effect on properties that are removed from a special flood 
hazard area as the result of the adoption of an updated flood 
map? In other words, would the owners of these properties be 
able to drop their flood insurance as the result of the new 
map? b) Is there any way to quantify the impact this provision 
would have on the financial standing of the program?

A.8. a) Yes. Properties no longer shown as being in a Special 
Flood Hazard Area (SFHA) would no longer be required to 
purchase flood insurance. b) ASFPM assumes that FEMA would be 
able to provide an estimate based on projected numbers newly 
out of a SFHA and newly in a SFHA. FEMA is likely to make an 
effort to retain policies on properties newly mapped as out of 
a SFHA, but those policies would be available at a 
significantly reduced premium rate.

Q.9. The House's proposed moratorium on the mandatory purchase 
of flood insurance will not prevent the adoption of new maps. 
As a result, the risks depicted on new maps will be known and 
disclosed. a) With updated maps in hand, how do you believe 
lenders will react? Can and will lenders still require 
homeowners to purchase flood insurance, notwithstanding the 
moratorium, in order to limit their risk? b) If new maps are 
not adopted or disclosed to the public, what are the 
consequences to public safety, property risk, etc.?

A.9. a) There may be some compliance questions since lenders 
are expected to utilize the most recently issued flood 
insurance rate maps. Response to this question is not within 
the ASFPM's area of expertise, so we hesitate to speculate. b) 
Not disclosing flood risk information to the public means that 
the Government is withholding information that is critical to 
individual decisions about safety and protection of life and 
property and to local community decisions about management of 
flood risk and future development and redevelopment.

Q.10. Despite mandatory participation requirements, many 
homeowners do not buy or maintain flood insurance. Can you 
describe the reasons for this and do you have any suggestions 
on how to improve participation in NFIP?

A.10. The provision of mandatory insurance applies to only a 
subset of property owners, those with federally backed 
mortgages. Property owners who own their homes outright or do 
not have a federally backed mortgage may not be aware that 
their property is in the floodplain. However, perception of 
lack of risk by property owners is likely the primary reason 
that flood insurance is not purchased or purchased and dropped. 
Those who have not experienced a flood do not comprehend or 
acknowledge the damage they could face. Often, property owners 
believe the Federal Government will cover their loss from 
flooding, but while disaster assistance provides some minor 
assistance, it does not provide good financial security that 
insurance would provide. Affordability is another reason 
mentioned by some for not purchasing flood insurance or for 
dropping insurance. For this reason ASFPM has suggested a 
voucher program in HUD to provide means tested vouchers for 
flood insurance for those who truly cannot afford it.

Q.11. Can you comment on how innovations such as group 
insurance and community insurance can increase participation? 
Can these measures help reduce costs? What obstacles prevent 
them from being adopted?

A.11. Innovations such as group insurance and community 
insurance show great promise for a number of reasons. Group 
insurance for those protected by structures, such as levees, 
integrates the insurance as part of their flood risk reduction 
plan and ensures that everyone, regardless of their mortgage 
type or lack of mortgage, has insurance in these areas of 
residual risk. Individuals often have little or no input on 
decisions that can increase their individual or their 
communities' exposure to flooding or increased risk. 
Communities guide land use decisions and infrastructure 
support; thus are the appropriate stewards to ensure adequate 
insurance protection to reflect the risk associated with those 
decisions. They can choose to make development decisions that 
reduce their risk and lower premiums, or they can make bad 
development decisions, which will impact all citizens in the 
community who will then pay higher premiums. Group insurance 
for areas behind levees or community group policies could 
greatly incentivize community or levee district officials to 
take actions to reduce risk, resulting in lower premium costs. 
In these situations, the cost of coverage would presumably be 
built into local tax or fee structures.
    FEMA is engaged in a major study of ways to improve the 
NFIP called ``Re-thinking the NFIP,'' with a report and 
recommendations expected within the next year. Ideas such as 
these group policies are among those under study.

Q.12. FEMA's Community Rating System (CRS) provides localities 
with an opportunity to reduce premiums for property owners if 
they adopt measures beyond what is required under NFIP in order 
to protect against flood damage. Can you comment on CRS as a 
tool to reduce risk as well as insurance premiums? How can it 
be improved to meet these goals?

A.12. CRS is indeed an important tool for communities to take 
actions to reduce flood risk or to educate their populations on 
flood risk and mitigation options--resulting in reduced 
premiums. Communities are rated according to their actions and 
activities in this regard. One way to improve communities' 
ability to participate in the CRS program and improve their 
ratings would be to improve support and funding for the 
Community Assistance Program (CAP). Through the CAP program 
State NFIP Coordinators can work directly with communities in 
their jurisdictions to understand this fairly complex program 
and to upgrade their CRS approaches.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                  FROM J. NICHOLAS D'AMBROSIA

Q.1. The House's proposed moratorium on the mandatory purchase 
of flood insurance will not prevent the adoption of new maps. 
As a result, the risks depicted on new maps will be known and 
disclosed.
    With updated maps in hand, how do you believe lenders will 
react? Can and will lenders still require homeowners to 
purchase flood insurance, notwithstanding the moratorium, in 
order to limit their risk?

A.1. The National Association of REALTORS' (NAR) 
supports provisions which help property owners adjust to rate 
increases when a property is newly mapped into the floodplain. 
While this would effectively delay the Federal mandate, it 
would not prohibit the lender from requiring flood insurance. 
Once the property is mapped into the floodplain, lenders would 
still have a strong financial interest to limit their risk.

Q.2. If new maps are not adopted or disclosed to the public, 
what are the consequences to public safety, property risk, 
etc.?

A.2. It depends on the accuracy of the new flood maps. If the 
maps were accurate, adopting and disclosing them could reduce 
risks to property and public safety. However, there is also 
considerable evidence to the contrary. For example, during the 
hearing, Senator Schumer pointed to the example of Wheatfield, 
NY, where FEMA recently removed hundreds of properties from the 
new maps after the town challenged the findings. These are 
owners that were required to buy flood insurance when, in fact, 
the risk did not justify the cost. NAR supports improving the 
accuracy of flood mapping technology, to enhance public safety 
and reduce property risk.

Q.3. Despite mandatory participation requirements, many 
homeowners do not buy or maintain flood insurance. Can you 
describe the reasons for this and do you have any suggestions 
on how to improve participation in NFIP?

A.3. Flood insurance is required to obtain a federally related 
mortgage loan. The requirement does not apply to cash 
purchasers (up to 28 percent of purchases according to a recent 
NAR survey) or those financing with a private lender which is 
not federally regulated nor sells to a GSE. NAR believes that 
an incentive-based approach would strengthen program 
participation. Adding types of coverage to include living 
expenses and business interruption and updating coverage limits 
(that have not been adjusted since 1994) would make the NFIP 
more attractive to voluntary participants. There could be more 
education and outreach to address common myths which get in the 
way of participation.

Q.4. Can you comment on how innovations such as group insurance 
and community insurance can increase participation? Can these 
measures help reduce costs? What obstacles prevent them from 
being adopted?

A.4. As Resources for the Future describes this concept,

        One way to ensure that all homeowners will be covered 
        when a flood strikes is for the NFIP to insure 
        communities instead of individuals. As Leonard Shabman 
        has discussed, local governments or flood risk 
        management districts could purchase a policy from the 
        NFIP that would cover all the structures in the 
        jurisdiction, for all flood risk and not just 1 
        percent, up to the NFIP coverage limit ($250,000 
        building coverage for residences and $500,000 building 
        coverage for businesses). The local entity would 
        recover the cost by assessing each property, perhaps as 
        an incremental increase to the property tax. The local 
        jurisdiction could decide how to allocate costs, 
        whether based on FEMA rates or otherwise. As a result, 
        any cross-subsidization in prices would become a local 
        issue, not a Federal one. (Please see Carolyn Kousky, 
        ``Reforming the National Flood Insurance Program,'' 
        Issue Brief 10-01 [February 2010]).

    Requiring every property owner in a community to purchase 
flood insurance, even when the flood risk does not justify the 
cost, is not the answer. While this may broaden the rate base 
and reduce the cost per property, objections to expensive flood 
insurance which is not necessary, would present the most 
significant obstacle to widespread community adoption.

Q.5. FEMA's Community Rating System (CRS) provide localities 
with an opportunity to the reduce premiums for property owners 
if they adopt measures beyond what is required under NFIP in 
order to protect again flood damage. Can you comment on CRS as 
a tool to reduce risk as well as insurance premiums? How can it 
be improved to meet these goals?

A.5. NAR supports voluntary, incentive-based approaches to 
mitigation such as CRS's. However, only a fraction of NFIP 
communities participate and we have not received many comments 
from REALTORS', who could benefit from improving 
program participation. Lack of education about CRS benefits and 
requirements have been cited as contributing factors 
(www.ksda.gov/dwr/content/314/cid/1715). At least one expert 
has pointed to the link between the CRS and the Building Code 
Effectiveness Rating Schedule as a potential deterrent; for 
more, please see: www.sgccnetwork.ning.com/group/
hazardresilience/forum/topics/flood-insurance-
premium?commentId=3284163 percent3 AComment 
percent3A4397&groupId=3284163 percent3AGroup percent3A4276.

              Additional Material Supplied for the Record

               STATEMENT SUBMITTED BY SENATOR MARK PRYOR

    Chairman Dodd and Vice Chairman Shelby, thank you for holding 
today's hearing on the National Flood Insurance Program. I appreciate 
your attention to this important topic.
    For the past several years, I've been working to address FEMA's 
flood map modernization process. In Arkansas, we have had repeated 
problems with the implementation of the Flood Map Modernization 
Program. The problems center around two basic themes. The first is in 
regard to levee certifications. We have some communities that gained 
ownership and responsibility of their levees years ago--maybe 30 or 40 
years ago. And these levees may or may not have been maintained 
properly.
    We can play the blame game all we want, but the point is that now 
we are in a situation where there are a good number of locally owned 
levees that need serious repairs and modernizations in order to be 
certified. This takes money. These communities lack the resources to 
certify and potentially repair the levees. There is very little Federal 
money available to help communities bring their levees up to code which 
can result in a community's inability to have levees depicted on the 
flood maps. And in some cases, they do not have adequate time to 
complete repairs and upgrades before the flood maps are finalized.
    The second theme is in regard to what happens after a levee is 
certified--either by the U.S. Army Corps of Engineers or by another 
entity. There are ongoing issues in Arkansas regarding the proper way 
to depict the level of protection provided by a certified levee on the 
updated flood maps. This is a huge issue in my State because the 
classification of certified levees on FEMA's updated maps affects both 
fairness and economic development.
    The Mississippi River, which is the eastern border of my State, has 
a vast levee system that protects the communities along the river. This 
is a $32 billion investment of Federal, State, and local funds. I have 
concerns that this significant investment in flood protection is not 
being accurately depicted on FEMA's flood maps. I also have concerns 
that if a needed repair is identified during the certification process, 
that there is not adequate time and money for the U.S. Army Corps of 
Engineers to complete necessary upgrades or repairs before the maps are 
finalized.
    We need some real solutions to the problems we're facing. Many 
Senators have been working on this issue for a long time with very 
little real, concrete progress made on addressing our concerns about 
transparency, flexibility and communication. I am frustrated, my 
constituents are frustrated and I am sure many of my colleagues are 
frustrated. I am frustrated because it seems like FEMA has dismissed my 
concerns as trivial rather than working with Congress to find a real 
solution to the problems facing my constituents.
    Let me emphasize that I do support modernizing our maps. I think 
it's a good thing to do and something that we should do. I am not 
supportive of the way in which the flood maps have been updated. There 
are several things I'd like to see change in order to make this process 
run more smoothly.
    First, I support a 5 year moratorium on mandatory flood insurance 
purchase for communities that are newly mapped as ``special flood 
hazard areas.'' Representative Waters included a provision to do this 
in her legislation, H.R. 5114. Second, I would like to see a 5-year 
phase-in of flood insurance premiums for individuals purchasing flood 
insurance for the first time. This provision is also included in H.R. 
5114.
    Third, I would like to see FEMA differentiate the Mississippi River 
and Tributaries levee system from other levee systems on their maps. 
This levee system is one the most, if not the most, advanced and 
successful flood control structures in the world. This is a result of a 
$32 billion Federal, State, and local investment. That investment 
should be shown on FEMA's flood maps.
    In closing, I'd like to again thank Senators Dodd and Shelby for 
holding today's hearing and for allowing me to provide a statement. I 
will continue to work to address the problems that my constituents are 
facing with regard to the National Flood Insurance Program and FEMA's 
Map Modernization Program. I look forward to working with the Banking 
Committee in doing so.

  LETTER SUBMITTED BY ADAM KOLTON, SENIOR DIRECTOR, CONGRESSIONAL AND 
             FEDERAL AFFAIRS, NATIONAL WILDLIFE FEDERATION







