[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




                  IMPLEMENTATION OF THE BIGGERT-WATERS
                      FLOOD INSURANCE ACT OF 2012:
                  PROTECTING TAXPAYERS AND HOMEOWNERS

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         HOUSING AND INSURANCE

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 19, 2013

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-52


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
BILL POSEY, Florida                  GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri         GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan              JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin             TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia                BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York           DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                 Subcommittee on Housing and Insurance

                   RANDY NEUGEBAUER, Texas, Chairman

BLAINE LUETKEMEYER, Missouri, Vice   MICHAEL E. CAPUANO, Massachusetts, 
    Chairman                             Ranking Member
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
GARY G. MILLER, California           EMANUEL CLEAVER, Missouri
SHELLEY MOORE CAPITO, West Virginia  WM. LACY CLAY, Missouri
SCOTT GARRETT, New Jersey            BRAD SHERMAN, California
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
SEAN P. DUFFY, Wisconsin             CAROLYN McCARTHY, New York
ROBERT HURT, Virginia                KYRSTEN SINEMA, Arizona
STEVE STIVERS, Ohio                  JOYCE BEATTY, Ohio


















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 19, 2013............................................     1
Appendix:
    November 19, 2013............................................    61

                               WITNESSES
                       Tuesday, November 19, 2013

Berginnis, Chad, Executive Director, the Association of State 
  Floodplain Managers (ASFPM)....................................    45
Fugate, Hon. Craig, Administrator, Federal Emergency Management 
  Agency (FEMA)..................................................     8
Hecht, Michael, President and Chief Executive Officer, Greater 
  New Orleans, Inc...............................................    40
Holtz-Eakin, Douglas, President, the American Action Forum.......    47
Rutenberg, Barry, Immediate Past Chairman of the Board, the 
  National Association of Home Builders (NAHB)...................    44
Saks, Joshua, Legislative Director, the National Wildlife 
  Federation (NWF)...............................................    38
Veissi, Maurice ``Moe,'' Immediate Past President, the National 
  Association of REALTORS (NAR).................................    42

                                APPENDIX

Prepared statements:
    Berginnis, Chad..............................................    62
    Fugate, Hon. Craig...........................................    79
    Hecht, Michael...............................................    88
    Holtz-Eakin, Douglas.........................................    94
    Rutenberg, Barry.............................................   104
    Saks, Joshua.................................................   164
    Veissi, Maurice ``Moe''......................................   170

              Additional Material Submitted for the Record

Neugebauer, Hon. Randy:
    Written statement of Hon. Bill Cassidy, a Representative in 
      Congress from the State of Louisiana.......................   190
    Written statement of Hon. Jack Kingston, a Representative in 
      Congress from the State of Georgia.........................   191
    Written statement of Hon. Steven Palazzo, a Representative in 
      Congress from the State of Mississippi.....................   192
    Written statement on behalf of the City of Galveston, Texas..   197
    Written statement of the Big ``I''...........................   200
    Written statement of the National Association of Mutual 
      Insurance Companies (NAMIC)................................   208
    Written statement of Craig Poulton, CEO, Poulton Associates, 
      Inc........................................................   213
    Written statement of members of the ``Write-Your-Own'' Flood 
      Insurance Coalition........................................   217
Capito, Hon. Shelley Moore:
    Article from the Charleston Daily Mail entitled, ``Homeowners 
      worry about flood insurance rates,'' dated October 24, 2013   218
Luetkemeyer, Hon. Blaine:
    Letter to FEMA Administrator Craig Fugate from various 
      undersigned organizations, dated November 15, 2013.........   221
Lynch, Hon. Stephen:
    Letter from Otto K. Harling, Ph.D., dated November 6, 2013...   223
    Written statement of the Independent Community Bankers of 
      America (ICBA).............................................   225
    Written statement of the National Association of Home 
      Builders (NAHB)............................................   228
    Written statement of the National Association of REALTORS 
      (NAR)......................................................   229
    National League of Cities Resolution in Support of an 
      Affordable and Sustainable National Flood Insurance Program   230
Murphy, Hon. Patrick:
    Written statement of the National Association of Federal 
      Credit Unions (NAFCU)......................................   232
Sinema, Hon. Kyrsten:
    Written responses to questions submitted to Hon. Craig Fugate   233
    Written responses to questions submitted to Barry Rutenberg..   234
    Written responses to questions submitted to Maurice ``Moe'' 
      Veissi.....................................................   236
Velazquez, Hon. Nydia:
    Written statement of Homeowners in Red Hook, Brooklyn........   251
    Written statement of Andrea Kondaks Sansom, Brooklyn, New 
      York.......................................................   254

 
                         IMPLEMENTATION OF THE
                          BIGGERT-WATERS FLOOD
                         INSURANCE ACT OF 2012:
                          PROTECTING TAXPAYERS
                             AND HOMEOWNERS

                              ----------                              


                       Tuesday, November 19, 2013

             U.S. House of Representatives,
                            Subcommittee on Housing
                                     and Insurance,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 1:32 p.m., in 
room 2128, Rayburn House Office Building, Hon. Randy Neugebauer 
[chairman of the subcommittee] presiding.
    Members present: Representatives Neugebauer, Luetkemeyer, 
Capito, Garrett, Westmoreland, Hurt, Stivers, Ross; Capuano, 
Velazquez, Cleaver, Clay, Sherman, Himes, Sinema, and Beatty.
    Ex officio present: Representatives Hensarling and Waters.
    Also present: Representatives Cassidy, Grimm, Jones, 
Scalise, Buchanan; Lynch, Green of Texas, Richmond, McIntyre, 
Scott of Virginia, Meeks, Jackson Lee, and Murphy of Florida.
    Chairman Neugebauer. Good afternoon. I call the committee 
to order. We will have opening statements, and they will be 
limited to 10 minutes per side, as previously agreed upon.
    I want to recognize the attendance of Members who are not 
assigned to the Housing and Insurance Subcommittee. And, 
without objection, members of the full Financial Services 
Committee, who are not members of this subcommittee, are 
welcome to sit on the dais and participate in today's hearing.
    Also, without objection, Members of Congress who are not 
members of the Financial Services Committee may sit on the dais 
today, but consistent with our committee policy, they may not 
be recognized or yielded to for any purpose.
    If they have any written statements, we will include them 
in the hearing record under the general leave.
    Now, at this time, I will give my opening statement. The 
title of today's hearing is, ``Implementation of the Biggert-
Waters Flood Insurance Act of 2012: Protecting Taxpayers and 
Homeowners.''
    In other hearings that we have had in the Financial 
Services Committee, one of the common things that we hear from 
time to time is that government is not very good at pricing 
risk. And, quite honestly, one of the reasons that government 
is not good at pricing risk is because sometimes instead of 
pricing it actuarially or based on a risk model, it is priced 
politically.
    We only have to look at the GSEs, FHA, Medicare, and maybe 
even Obamacare to determine that the government, in fact, does 
not have a very good track record of being in the insurance 
business.
    This has real consequences for the American taxpayers. 
Currently, we are $17 trillion in debt, and I know if Chairman 
Hensarling was here, he would want the debt clock up on the 
board there.
    How did we get to $17 trillion in debt? Partially, it is 
because the taxpayers backed some things that didn't work out, 
obviously, with almost $200 billion that they put into the 
GSEs.
    The National Flood Insurance Program (NFIP) is another 
example. GAO decided in 2006 that it was high risk, and it 
currently is $24 billion in debt and authorized to borrow up 
to, I believe, about $30 billion.
    So the Congress recognized this trend a number of years ago 
and began to have some discussions, in a bipartisan way, both 
Democrats and Republicans, of moving the Flood Insurance 
Program to a model where people were actually paying for the 
risk that was being borne by the Flood Insurance Program.
    Biggert-Waters began that process. And, as I said, 
Republicans and Democrats overwhelmingly voted to move this 
process where people were paying their actuarially sound rate 
which would make sure that the program would be self-
sufficient.
    And so, today's hearing is really about discussing the 
progress of the implementation of this program. Also, I think 
one of the things that we have learned is that there is a lot 
of misinformation about the implementation of this program.
    Hopefully, this will be informative as well of assuring 
homeowners that there is a process here, there is a method to 
the madness and that, in many cases, some of the stories that 
we have heard aren't necessarily true.
    But my subcommittee, for example, found out that there was 
a quite a bit of misinformation, particularly about the Section 
207 program. And so, we are going to hear a little bit today 
about that.
    We do know that some of the stories that are out there are 
troubling to our homeowners, but I think one of the things that 
everybody needs to understand is that this Flood Insurance 
Program is designed to provide protection to homeowners who are 
in highly flood-prone areas. And that its ability to be 
responsive in the case of natural disasters and flooding is to 
have a program that is physically sound.
    I would particularly like to thank Dr. Cassidy from 
Louisiana. He has been very helpful to the committee in 
beginning to understand some of the coastal issues that are 
going on in his home State of Louisiana. He and his staff have 
been very good resources for the committee. And so, Dr. 
Cassidy, we appreciate that. We are glad that you are joining 
us today.
    With that, I will yield back my time. And at this time, I 
will yield to the vice chairman of the full Financial Services 
Committee, Mr. Luetkemeyer, for 2 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. I am glad Mr. 
Fugate is here today. And I hope that this hearing will produce 
results about both taxpayers and homeowners alike.
    My district includes many communities that sit in the 
floodplain along major streams and rivers. It is also home to 
Lake of the Ozarks, which has more coastline than the State of 
California. I am hearing more and more from my constituents who 
are astounded by the problems they are having with the National 
Flood Insurance Program.
    We need, in my opinion, to focus on two immediate 
objectives with NFIP. First, we owe it to our constituents 
living in the floodplain to create a program that is stable, 
fair, and accessible. And we need to have the specifics of that 
program clearly communicated by FEMA to all stakeholders.
    Second, we owe it to the American taxpayers to create a 
program that is solid, and allows for an increased role for the 
private market. We have taken important steps to create a sound 
program, a program that includes changes agreed to by 402 of my 
House colleagues in 2012.
    In the last several months, we have seen an increase in the 
private market's willingness to enter the flood insurance 
space. I don't think we should completely turn our back on the 
progress that has been made. It is clear that this program, the 
manner in which it is being implemented, is in need of greater 
scrutiny.
    I look forward to hearing from our distinguished panelists, 
and I yield back the balance of my time.
    Chairman Neugebauer. I thank the gentleman. Mr. Lynch from 
Massachusetts is recognized for 2 minutes.
    Mr. Lynch. Thank you, Mr. Chairman. I appreciate your 
courtesy. And I want to thank this witness, Mr. Fugate, as well 
as the other witnesses in the following panel for their 
willingness to come before the committee, and help us with our 
work.
    What I am hoping--I recently attended a local community 
meeting on the new flood insurance process, which I would say 
between 1,000 and 1,400 of my closest neighbors from the South 
Shore of Massachusetts attended. And based on the response 
there, the number of people who brought their new bills from 
their insurance companies, and the increase of premiums, we 
were looking at, in many cases, a 500 percent, sometimes 1,000 
percent increase in the premiums of those flood insurance rates 
under the new maps.
    I would say, just based on looking at my district, the 
threat of forcing people from their homes by these increases in 
premiums is probably equal to the removal of people from their 
homes during some of the storms that we are trying to address.
    I just hope that during this hearing, during this whole 
process, we may be able to re-engineer the Biggert-Waters flood 
map process in a way that allows families to stay in their 
homes, but recognizes the instability of the fund itself.
    But rather than recapitalizing the fund over a very short 
period, look at what GAO recommended in their study, which was 
to delay the implementation, or to phase in over a longer 
period, the increase in rates that would actually allow people 
to stay in their homes, especially those who are on fixed 
incomes, who live in the South Shore communities like Scituate 
and Cohasset that I represent, and Marshfield in Massachusetts, 
that Mr. Keating represents; and I think accomplish both the 
goals that we have to stabilize the Flood Insurance Program, 
but also recognize the reality of people who are living in 
coastal communities, whether that be Massachusetts, or 
Louisiana, or Mississippi, or in New York, but taking a more 
holistic approach to the issue of flood insurance.
    With that, Mr. Chairman, I yield back.
    Chairman Neugebauer. I thank the gentleman. And now, the 
gentlewoman from California, one of the primary authors of 
Biggert-Waters, the ranking member of the full committee, Ms. 
Waters, is recognized for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman, and Members. 
I am so pleased that we are having this hearing today. It is 
most timely, given what is happening across this country in all 
of our districts.
    Both Democrats and Republicans are receiving an 
unprecedented number of calls and complaints about the Biggert-
Waters bill. I feel a responsibility to do everything possible 
to straighten out the unintended consequences of Biggert-
Waters. Ms. Biggert is not here. Ms. Waters is left to deal 
with this, and deal with it I shall.
    In 2012, when I initially agreed to be a co-author of the 
Biggert-Waters Act, our goal was to create a bipartisan 
solution to repair our ailing National Flood Insurance Program. 
I did so because I understand the importance of the program for 
people living in flood-prone regions.
    The program helped rebuild many areas in the southeastern 
part of the United States after Hurricanes Katrina, Rita, and 
Isaac. It is helping New York and New Jersey rebuild after 
Superstorm Sandy. We need a healthy program to ensure all 
communities have a safety net that helps them to pick up the 
pieces, should they experience such devastation.
    But the reality is, many of these unforeseen catastrophes 
crushed the program financially, putting it $24 billion in 
debt. The Biggert-Waters flood insurance legislation was 
designed to update the National Flood Insurance Program, and 
put it on a path to stability through a 5-year extension, and a 
10-year repayment plan.
    The law was supported on a bipartisan basis. And I think I 
can speak for my Republican colleagues when I say neither 
Democrats nor Republicans envisioned it would inflict the pain 
and concern that many Americans are experiencing. That bill was 
voted out 402 to 18.
    In my view, it certainly didn't have to be this way. But I 
have met with FEMA. I have talked with them, and I think I 
understand something of what happened with the way that this 
has been implemented.
    The first thing that I want to address is the fact that we 
included in the bill that there should be an affordability 
study, which has not been done.
    There are some other areas of concern that I have with FEMA 
that I cannot go into at this time. I don't have enough time. 
But having said that, FEMA did not complete either the 
remapping that I think was indicated in the bill, or the 
affordability study.
    But somehow they began to announce dramatic increases for 
many of the policyholders. I think that this was distorted. 
Somehow, the intentions of our well-meaning piece of 
legislation has caused grief to families from coast to coast. I 
do think this could have been avoided.
    I hope, Mr. Chairman, the majority of our time here today 
can be used to discuss how we can fix this broken program. As 
many of you know, I have joined with Congressman Grimm, 
Congressman Cedric Richmond of New Orleans, and 131 other 
Members of Congress in introducing bipartisan legislation that 
would delay many premium increases for 4 years, until FEMA and 
Congress can ensure changes will be implemented in an 
affordable, responsible manner.
    Mr. Chairman, and Members, I think you can see that a 
number of these co-sponsors not on this committee have joined 
us here today, including, as I said, Representative Cedric 
Richmond, and Representatives Bobby Scott of Virginia, Mike 
McIntyre of North Carolina, Bill Cassidy of Louisiana, and 
Walter Jones of North Carolina. And we expect some more Members 
to show up. This is a bipartisan, bicameral effort that will 
ensure FEMA engages in an accurate and responsible remapping 
process by forcing it to certify that maps are accurate and 
reliable. And Mr. Fugate, it will force the implementation of 
the affordability study of your agency that should have been 
completed last April.
    This bill would mandate that FEMA propose an affordability 
framework to address flood insurance costs within 18 months 
after the completion of the study. It would also establish a 
flood insurance advocate within FEMA who will answer our 
constituents' questions about the flood-mapping process, and 
flood insurance rates.
    Mr. Chairman, we have to make sure that FEMA implements 
this program in the way that it was intended, and in a 
responsible and affordable way. Of course, I look forward to 
the witnesses' testimony, and a robust discussion to ensure we 
have a well-organized and sustainable National Flood Insurance 
Program that will continue to be affordable, and ensure 
hundreds of thousands of American families have the peace of 
mind to know they are protected in case of a disaster.
    Mr. Chairman, I spent a part of our break in Louisiana. I 
went down to Plaquemines Parish, where people are suffering. 
And even though that was the only place that I was able to go 
to, I did a conference call with over 127 organizations 
throughout America who are organized around reform, and making 
sure that we have a program that is affordable, and that will 
protect the most vulnerable of our citizens at a time when they 
need it.
    I thank you so very much. And I yield back the balance of 
my time.
    Chairman Neugebauer. I thank the gentlewoman. And now, the 
gentlewoman from West Virginia, the chairwoman of the House 
Financial Institutions Subcommittee, Mrs. Capito, is recognized 
for 1 minute.
    Mrs. Capito. Thank you, Mr. Chairman, for holding this very 
important hearing on the implementation of Biggert-Waters.
    I represent West Virginia. We have a lot of floods, we have 
a lot of water, we have a lot of mountains, and we have a lot 
of valleys. And these newly-released premiums have left many of 
my constituents very concerned.
    I just had a meeting back in my home district. One of the 
homeowners, a coal miner, just purchased his house in August 
for $160,000. He has been working 20 years to be able to get 
his dream home.
    At the time, his premium was $1,500. He has gotten caught 
in this grandfathering and implementation period, where now he 
is learning that his insurance is going to be $12,000 on a 
$160,000 house.
    He is asking me, ``Should I just quit paying my mortgage, 
and get foreclosed on?'' I don't think any of us in this room 
intended for this bill to cause foreclosures for people who 
happen to live near a river or near a mountain. So hopefully, 
we can find some solutions today, and certainly, at least, get 
the information out to help gentlemen and families like the one 
I just talked about.
    Thank you.
    Chairman Neugebauer. I thank the gentlewoman.
    Now, the gentleman, Mr. Westmoreland, is recognized for 
1\1/2\ minutes.
    Mr. Westmoreland. Thank you, Mr. Chairman, for calling this 
long overdue hearing. As a former homebuilder, I know the 
nature of flooding is always changing. Development, 
environmental conditions, and public policy at local, State, 
and Federal levels all contribute to either your flood risk or 
your flood mitigation.
    Mr. Chairman, the fundamental question posed by the Flood 
Insurance Reform bill is one of fairness. Is it fair for 
everyone to subsidize the insurance of a few? This is the 
question asked about the Obamacare subsidies, and today it is 
the same question posed by the flood insurance.
    To me, the answer is simple. Taxpayers should not continue 
to subsidize the flood insurance of those who live in flood-
prone areas. It is not fair. I have heard from my colleagues 
about different scenarios with dramatically increasing 
premiums. Agreed, there are places in Biggert-Waters where 
tweaks need to be made to make the reforms work better. I am 
committed to helping the committee work on these areas where we 
can find agreement.
    But this committee must be committed to working to reserve 
the reforms to the Flood Insurance Program or risk a taxpayer 
bailout. Without these reforms, there will not be a Flood 
Insurance Program. We all know the NFIP owes the taxpayers 
approximately $30 billion. If reforms are not put in place, 
then as I mentioned, ultimately the taxpayers will be the ones 
to bail it out.
    This committee must continue to have strong and frequent 
oversight of FEMA's implementation--putting it in force and 
holding FEMA accountable. With robust oversight of putting it 
in, this committee can preserve the reforms of the Flood 
Insurance Program and be fair and balanced to people currently 
in the program.
    Mr. Chairman, again, thanks for having this committee 
meeting, and before I yield back, I would like to make a 
unanimous consent request that a statement from my colleague, 
Representative Jack Kingston from Savannah, be entered into the 
record.
    Chairman Neugebauer. Without objection, it is so ordered.
    Mr. Westmoreland. Again, I yield back.
    Chairman Neugebauer. The Chair yields 1\1/2\ minutes to the 
gentleman from Florida, Mr. Ross.
    Mr. Ross. Thank you, Mr. Chairman, and thank you for 
holding this very important hearing. I also want to thank our 
panelist, the Honorable Craig Fugate, whom I had a chance to 
work with when he was Director of the Emergency Operation 
Center in Florida during the devastating 2004 and 2005 storm 
season.
    Florida has a unique relationship with the National Flood 
Insurance Program. Two out of every five homes covered by NFIP 
are located in Florida. And yet in Louisiana, New Jersey, New 
York, and even Texas have received more in claim payments than 
Florida, and I think this is due in part to our mitigation 
program and a little bit of luck as well.
    We contain so many policies for NFIP because we are a 
peninsula. Very simply, we have more risk. Our residents, many 
of my constituents, need affordable flood insurance. The NFIP 
is over $24 billion in debt. The business model was flawed, and 
the program faced elimination. The Biggert-Waters bill 
addressed this problem and aimed to implement reforms to keep 
the program available.
    Unfortunately, the implementation of the Biggert-Waters 
program has proven problematic. I am hearing reports from my 
constituents of $15,000 increases in their flood insurance 
premiums. The communities in my districts are very concerned 
about the accuracy of FEMA's mapping. Now is the time for 
discussions about affordability, private market risk, capacity, 
and the program's premium collection.
    I hope today's hearing will shed some light. While some 
might feel the government should wipe its hands of the problem, 
I would like to note that Congress created this problem. 
Congress allowed subsidized rates to continue for over 40 
years. Congress passed the reforms that although are ultimately 
necessary, are very burdensome for some communities.
    Government created this problem. Now, we should work 
towards a solution, and I yield back. Thank you.
    Chairman Neugebauer. Thank you, gentlemen.
    And now, we are going to recess and go over for Members to 
exercise their constitutional responsibility. We have a couple 
of votes. I will remind Members that just as soon as votes are 
over, please come back and we will resume.
    With that, we are in recess.
    [recess]
    Chairman Neugebauer. The committee will reconvene. I will 
now introduce our first panel, which has one witness: the 
Honorable Craig Fugate, Administrator of the Federal Emergency 
Management Agency (FEMA). H. Craig Fugate was confirmed by the 
U.S. Senate and began his service as Administrator of FEMA in 
May of 2009.
    Mr. Fugate has been a dedicated public servant for nearly 2 
decades, including serving as Director of the Florida Division 
of Emergency Management, as well as a distinguished emergency 
management career as a volunteer firefighter, a paramedic, and 
a lieutenant with the Alachua County Fire Rescue.
    Mr. Fugate, thank you for your public service. You are now 
recognized for 5 minutes to summarize your written testimony. 
And without objection, your written testimony will be made a 
part of the record.
    And with that, welcome.

STATEMENT OF THE HONORABLE CRAIG FUGATE, ADMINISTRATOR, FEDERAL 
               EMERGENCY MANAGEMENT AGENCY (FEMA)

    Mr. Fugate. Thank you, Chairman Neugebauer, Ranking Member 
Capuano, committee members, and Members of Congress who are 
sitting in on this hearing.
    In 1968, Congress determined that there was a need to 
provide insurance for a hazard that the commercial industry was 
no longer able to cover, and that was flood insurance.
    As part of that, to make flood insurance available to the 
public, one of the goals was to decrease and reduce future 
risk--the idea being, at the point we were going to start 
offering flood insurance, the other goal should be to decrease, 
in the future, the risks of flooding in this Nation. That would 
have hopefully been achieved if we were able to make sure that 
rates being charged were really changing behavior about how and 
where we built for the future.
    But as it is, we have a program now, after all those years, 
that has grown exponentially in exposure, and, at the same 
time, we continue to see growth and development in those areas 
in the country where, again, we still see our risk increasing.
    There is a lot of discussion about maps. There is a lot of 
discussion about how much are formal rates. But you can't argue 
with this: we are $24 billion in debt.
    We currently have $350 million worth of cash on hand. We 
have the borrowing authority for another $6 billion.
    If you take all the other discussions away, that alone says 
that this program does not provide the funding necessary to 
cover catastrophic losses. And that exposure to catastrophic 
losses is what I think began driving the discussion as we look 
to reauthorize the Flood Insurance Program.
    We were very much supportive of getting flood insurance 
reauthorized for a 5-year period. This is something we heard 
from REALTORS, from local communities, from our Write-Your-Own 
policies; they wanted to see stability.
    At the same time, I think there was a growing understanding 
that we need to set the right point of how much risk as a 
nation we can afford to subsidize and ensure that we are 
getting a return on that investment.
    So, Mr. Chairman, I want to break this down into a couple 
of segments and then I am ready for questions.
    Section 205 is the section of the Reauthorization of Flood 
Insurance Act that speaks to one particular type of property: 
secondary homes. I don't think there is any question--I know 
there is some concern out there, but is there any question that 
we should be subsidizing somebody's vacation home?
    So, I want to focus on primary homes, because I think this 
is the area about which we share a lot of concerns. And that is 
you own your home; we have a requirement to now begin moving to 
actuary-based rates, and in the case of update maps under our 
Section 207, the section requires that we increase those rates 
20 percent over a 5-year period until we are at the full rate, 
understanding that for a lot of homes and built infrastructure, 
it is going to be prohibitively expensive.
    And to give you an illustration of this, we use a term: 
base flood elevation. Base food elevation is what we say--a 
100-year risk--which is not once every 100 years; it means a 1 
percent risk each year--that we could get flood waters high 
enough to get in the structure. If you are built about that--
just 4 feet above that, to insure $250,000 of home and $100,000 
of content, is about $500 a year. Your base flood elevation--it 
is several thousand dollars.
    If you drop below that, there is a 25 percent increase for 
each foot you go down. So, for every 4 feet, you are doubling 
that policy.
    So, it is very likely if you have somebody whose home was 
built on a river or other coastal area where the base flood 
elevation could be as much as 8, 10, and in some cases even 16 
feet above where they are built, you are going to see rates 
that are astronomical.
    Mr. Chairman, we want to work with Congress in looking at 
how do we set the right point to ensure we are not subsidizing 
risk going forward?
    But we want to look and work with Congress on how we look 
at affordability for somebody who is in their home now and how 
we look at affordability from a standpoint that is means-tested 
upon an ability in income, not just arbitrarily given to an 
entire designation as what the program used to do.
    We used to grandfather in the whole community, regardless 
of the ability to pay. So, we agree, and want to look at how we 
build in affordability.
    The last piece, Mr. Chairman, is there has been a lot of 
discussion about the affordability study. And as far as we have 
been able to determine with our attorneys and our reviews, 
there was a requirement to implement these programs 
concurrently--not waiting for a study to be completed.
    That would be a different direction Congress would need to 
give us to do. But we have already implemented Section 205 on 
secondary homes. Section 207, which would be about map changes, 
is still not implemented for current homeowners and will not be 
implemented until October of 2014.
    And again, this is an area, Mr. Chairman, in which we are 
ready to work with Congress.
    [The prepared statement of Administrator Fugate can be 
found on page 79 of the appendix.]
    Chairman Neugebauer. I thank the gentleman, and now the 
chairman will recognize himself for 5 minutes for questioning.
    Mr. Fugate, in your testimony to the Senate Banking 
Committee, I think you testified that you felt like that the 
fund needed an additional billion and a half dollars to really 
get to where it was actuarially sound.
    And you also just mentioned that I think you had about $300 
million on hand. Kind of two questions here--if you have 
another significant event, you are in trouble, right?
    Mr. Fugate. Yes, sir. We have approximately $6.4 billion 
left that we could borrow. And then at that point, we would 
exceed our borrowing authority, and we would be required to 
come back to Congress to get more authority.
    Chairman Neugebauer. So if Congress decides to change 
course here and move away from actuarially sound rates, that 
would begin to reduce the inflows. And how would that impact 
the fund?
    Mr. Fugate. It is going to continue the challenge that we 
have an existing debt that if no new disasters happen, we were 
slowly paying down from Katrina. We had actually gotten down to 
about $18 billion--almost under $18 billion when Sandy hit.
    But we are still talking about many years to pay down this 
debt. What the increases really do is ensure that future losses 
are being paid for by rates collected and allow us to then keep 
growing--not grow the risk.
    But I think that given what we have now with the current 
debt, even with these increases you are not going to 
substantially see this debt retired any time soon.
    Because just the average payouts each year and the cost of 
operating this program, that overhead, precludes taking all of 
these increases and merely applying it to past debt. You have 
to use that for your future losses.
    Chairman Neugebauer. One of the things that our committee 
has had is a lot of different Members come up to us with 
different scenarios. And some of those just really kind of 
turned out to be either misconceptions or rumors; some of them 
founded.
    What are the two or three most repeated misconceptions 
about the implementation of Biggert-Waters?
    Mr. Fugate. I think one is on current homeowners. If I have 
my house--and again, about 20 percent of policies are 
subsidized; 80 percent are already paying, calculated out, 
actuarially sound. So, 80 percent of the policies see no change 
in this statute.
    The 20 percent that are currently subsidized--there is a 
very small percentage of secondary homes. They have already 
gotten their bills. They will get, by the end of this year--we 
started in January 2013--as of January, they will all have been 
moved to an actuarially sound basis.
    Where you do see the concerns is I own my home, the maps--
they are talking about changing the maps. What is going to 
happen? And, as it has been in previous programs, as long as I 
am paying my policy, my premium, I have been getting that 
subsidized rate.
    But if we change the map and the community adopts that 
map--this is not a one-way street, FEMA works with the 
communities and the community adopts and enforces those maps, 
then their rates will start increasing 20 percent over a 5-year 
period until they reach the full level.
    That is not even phased to be implemented until October of 
2014 based upon the additional work it requires to implement 
that rule. So there are a lot of numbers flowing around, and 
there are a lot of questions out there.
    We can tell you what it will be if you got a secondary 
home. We have been doing those calculations. But for primary 
homeowners with map changes, that doesn't change until October 
2014.
    It is a 20 percent increase per year, so it is not all in 
the first year. And those have still not been finished as far 
as the implementation. That is still in rule-making and the 
process to have that ready to go next October.
    Chairman Neugebauer. One of the other things that I think 
was in your testimony was about some of these uncertified 
levees. And I know it is particularly interesting to some of my 
friends in Louisiana where they have a lot of levees, many 
along major rivers.
    And you are actually doing some work to give some partial 
credit, so to give some credit for a levee that may not be 
certified. Can you elaborate a little bit on that?
    Mr. Fugate. Yes, sir. Previously when we looked at levees, 
if they were not certified to the standard that the Corps of 
Engineers was using, we would identify that as ``without 
levee'' and would calculate that as if there was no structure 
there.
    We agreed with many constituents who said we should at 
least be looking at how that would affect the flood risk. And 
so we agreed to come back and begin modeling as they were 
built, not did they make standard.
    So we didn't zero them out as if they were perfect, but we 
did look at them for the protection they offered. We are 
currently doing pilots in Louisiana based upon that, which will 
require a rule change. But we are doing the pilot now to make 
sure we can get the right calculations and determine risk and 
have that now reflected in what they would be looking at for 
their risk and what those rates would be not on a certified 
levee, but on what is built there and how it would perform.
    Chairman Neugebauer. And one last thing, you have a grant 
program to help with some of the mitigations. If some of the 
cities and States were to chip in, in partnership with you, on 
some of this mitigation, that would change some of the maps and 
could dramatically change some of the flood insurance premiums, 
could it not?
    Mr. Fugate. Yes, sir. And we have had some States, most 
notably North Carolina after Hurricane Floyd did quite a bit of 
investment of their mitigation dollars to get the best map 
data.
    Previously, in the State of Florida, I worked to get better 
data for coastal communities to calculate storm surge.
    So, there are programs to get better data. We are also 
looking at the technology that is changing to speed up and 
reduce the cost of getting the best data while making sure that 
it is cost-effective and accurate in determining these risks.
    Chairman Neugebauer. My time has expired. And now, the 
gentleman from Missouri, Mr. Clay, is recognized for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman, and thanks for 
conducting the hearing.
    Mr. Fugate, we have heard reports of consumers being faced 
with multiple rate quotes for the same property. Can you 
describe the options available to a consumer in this situation?
    Mr. Fugate. Again, sir, a lot of this is being done with 
preliminary information. We hadn't even finalized until this 
year what those rates would be on new purchases that are not 
subsidized.
    The phase-in piece is still being worked on so that hasn't 
even been finalized for existing homeowners who were looking at 
map changes where they would have to be phased-in.
    And we have been working with ``Write-Your-Owns'' and other 
partners to make sure we get the accurate information out there 
when you do go and get your rate.
    But here is the challenge, sir. Unlike a lot of insurance 
policies, I cannot just look at where you are and determine 
your risk. I have to have an elevation certificate to know the 
risk.
    As I said--
    Mr. Clay. Yes.
    Mr. Fugate. If you are at base flood elevation, you are 
going to pay a certain amount, and you are going to get 
discounted for every foot you are above that, and those savings 
will be substantial.
    Likewise, if you are below that base flood elevation for 
that flood risk, the penalties and the increases can also go 
the other way and you will see increases in the rate far 
greater than what they had previously seen.
    Mr. Clay. So you would agree that the premium rates serve 
as incentive or disincentive to locate a property at a certain 
level?
    Mr. Fugate. Yes, sir.
    Mr. Clay. And, up to this point, has it worked? Have there 
been less locations of properties outside of those levels or 
outside of the floodplain?
    Mr. Fugate. In some cases, communities have made decisions 
to turn their most vulnerable areas into green ways and green 
space because the cost of construction would be prohibitive.
    And in other cases, they changed their construction 
techniques to build at a rate above base flood elevation. This 
is what the statue requires: If you are participating in the 
Flood Insurance Program, you have to build one foot above base 
flood elevation on the current maps.
    So we have seen in communities side-by-side homes that were 
built prior to the maps and homes built after the maps and the 
ones that were elevated after the maps did very well, and the 
ones that were not, flooded and people lost everything.
    And, again, I realize there is a cost to insurance and, in 
some cases, that cost is an issue we have to address.
    I want to go back to the one thing that flood insurance 
does do. It provides protection to people who lose their homes 
and their contents, and it is much better not to have flooded 
in the first place, then to deal with the consequences of a 
flood.
    Mr. Clay. Okay. Let me ask you then, do you agree that it 
would make sense for FEMA to have an advocate that could 
provide a central point of contact for and work to educate 
policyholders about their individual flood risk and their 
options in choosing a policy, assist property owners through 
the map appeal process and improve outreach and coordination 
with local officials, community leaders, and Congress?
    Mr. Fugate. Congressman, not only do I think it is a good 
idea, I am looking at that internally, what it would take to do 
that and what resources would be required.
    But, I agree, this is a very--from the standpoint of a 
consumer, since we work through a variety of Write-Your-Own 
insurance companies, I want to look at the best way to ensure 
we can get questions answered uniformly.
    So we are taking that. I understand it is being considered 
legislatively, but we are looking internally is there a better 
way to provide that within the Flood Insurance Program?
    And so concurrent with your approach, and we want to work 
with the committee and staff on this, I want to look at this as 
well and see what we can do.
    Mr. Clay. Okay. Can you explain the basis for FEMA's 
decision to wait to implement the rate increases under Section 
207 dealing with grandfathered properties?
    Mr. Fugate. The delay is based upon the time it takes to 
implement the program. There was no delay that was built in 
other than this is a very complex process to move through.
    We implemented Section 205 first. We are now working on 
Section 207, but it is still something that we estimate we will 
be implementing, and the rate notices and the changes would be 
effective in October of 2014.
    So there was no intention to delay it other than the time 
it takes to implement this part of the bill.
    Mr. Clay. Why was the decision made to move forward with 
the rate increases under Section 205 for subsidized properties?
    Mr. Fugate. That was clear because there was not a 
requirement when you looked at existing homeowners who were 
receiving subsidies. Secondary homes were easier to identify 
and that was the first part of this.
    It is far fewer policies that we insure than the much 
larger pool of primary residences.
    Mr. Clay. I thank the gentleman for his response.
    Chairman Neugebauer. I thank the gentleman.
    I would say to my fellow committee members that we are 
going to try to adhere as much as possible to the 5-minute 
rule. We do have two panels, and we have lots of Members here 
today.
    And so if I start cutting you off, it is not because I 
don't like you, it is just because we need to move on.
    Next, I recognize the vice chairman of the subcommittee, 
another gentleman from Missouri, Mr. Luetkemeyer, for 5 
minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    And thank you, Mr. Fugate, for being here today. You are 
dealing with a very difficult issue that is affecting millions 
and millions of people.
    In my district, I represent the Lake of the Ozarks, which 
is a recreational area, retirement center there in central 
Missouri. It has more miles of shoreline than the State of 
California. That tells you how impactful it is, how large it 
is.
    And we have some significant problems with the flood maps. 
I know the premiums are what the discussion has been about so 
far, but the maps are really of a concern to me.
    I also have the Missouri River right through the middle of 
my district, and I have part of the Mississippi River. So, I 
have lots and lots of concerns with the mapping.
    I will give you an example: I have a lady who lives in a 
third-floor condo, that is the condo is on a 40-foot bluff 
above the level of the dam. She is 40 feet plus 2 floors above 
the dam, and yet she has a flood insurance policy.
    This is rampant. We have thousands of people around the 
lake who are in this situation. Is there a way that we can meet 
with you or your staff, somebody who can sit down and look at 
this mapping and get it straightened out.
    I know what happens is every time a piece of property has 
to sell, they have to go get a new elevation statement, and it 
takes a lot of money and a lot of time for each individual 
property around that lake, and there are thousands of 
properties.
    Is there a way we can fix the maps without going through 
this process?
    Mr. Fugate. I am more than happy to meet with you, but I am 
not sure you are going to like what I am going to tell you and 
I want to--
    Mr. Luetkemeyer. Well, let's talk about what we like then.
    Mr. Fugate. When we do mapping, we map the risk based upon 
the area, not each structure. There are not enough resources to 
map each structure. And this has, again, been the challenge in 
doing maps.
    When you are setting an insurance risk rate, you set it 
based upon the area. And then, the elevation certificate tells 
you how high you are above or below that risk in that area and 
that sets your rates.
    The program has never been resourced, meaning funded, to do 
a structure-by-structure risk-base analysis. It has been based 
upon establishing risk for the community, for the neighborhood, 
for the block, and then you determine by that elevation 
certificate what that property's risk is relative to insurance.
    That is an additional step and cost, and that is why, for 
Write-Your-Owns, this is not an easy policy to administer. 
There have been questions about what it costs and the 
percentages that they receive.
    Mr. Luetkemeyer. Okay. My question is, would you be willing 
to have your staff or somebody like yourself meet with us and 
sit down and work through this?
    Mr. Fugate. Absolutely.
    Mr. Luetkemeyer. I appreciate that. Along that line, I know 
that there are a lot of other trade associations and groups out 
there that have some of the same concerns that I have.
    And I assume you have probably seen the letter to you dated 
November 15th from, I think, 16 different organizations 
requesting a meeting with you, a sort of flood-insurance 
summit. I don't know if you are aware of it or not. But would 
you be willing--
    Mr. Fugate. I have not received that.
    Mr. Luetkemeyer. Okay. Would you be willing to meet with 
those groups?
    Mr. Fugate. Yes, sir.
    Mr. Luetkemeyer. Okay. I have a letter to be entered for 
the record, Mr. Chairman.
    Chairman Neugebauer. Without objection, it is so ordered.
    Mr. Luetkemeyer. Thank you. I would appreciate that, 
because I know that everybody has some concerns about this, how 
it affects each different group--whether they are individuals 
or consumers or commercial folks; everybody has a problem.
    I guess one question I would like to ask you as well is, I 
guess there are several different flood insurance companies 
that are getting into the flood insurance field. Are you aware 
of those? I am sure you--
    Mr. Fugate. They have been in the field.
    Mr. Luetkemeyer. Okay.
    Mr. Fugate. We only cover $250,000. So if you have a jumbo 
mortgage, you have always had to go in the commercial, to write 
over that.
    Mr. Luetkemeyer. Okay. The question I have then for you is, 
what is the difference in their approach versus your approach?
    Mr. Fugate. We are insuring the greatest risk and the 
greatest liability at the least cost to anybody else, except 
for the taxpayer. They are writing the piece of the risk that 
is the least amount, and they can write it very affordably.
    Mr. Luetkemeyer. I think I have an example here in this 
article from--looks like the Tampa Bay Times. There are a 
couple of different companies there in Florida, apparently, 
that are writing it from the ground up, and from the first 
dollar up. So what is the difference in their approach versus 
yours?
    Mr. Fugate. Well, currently under--and this is something 
Biggert-Waters was also addressing, and is going through 
rulemaking, if you have a federally-backed mortgage, it still 
requires a National Flood Insurance policy. That is being 
changed to allow any commercial policy that provides the 
coverage to the mortgage. So it is no longer exclusive to NFIP, 
which I support very much.
    Where we have seen the private sector engage in is the area 
that I have been trying to push, getting to the point where we 
are not subsidizing rates, where they are not going to write 
the least-risk areas, and begin taking on more and more of the 
responsibility, and literally move them back to more of a 
capitalist, private-sector model of managing risk.
    So, I very much support that. Again, if they are able to 
write those policies cheaper, I think that is great for 
everybody. And as to the details of theirs and ours, it depends 
upon what they are writing.
    But right now, we are required to write the policies of 
service to federally-insured mortgages. And when that rule 
change occurs, that is going to open up that market. And I will 
be very interested to see how many more participants we are 
going to have in writing insurance below $250,000, for that 
first amount.
    Mr. Luetkemeyer. Thank you very much. I yield back.
    Chairman Neugebauer. Time has expired. The gentlewoman from 
California, Ms. Waters, is recognized for 5 minutes.
    Ms. Waters. Thank you very much. First, let me--Mr. 
Neugebauer, you asked about participation by cities or States, 
or local communities in mitigation. Right now, there is a cap 
of 50 percent. Is that right, Mr. Fugate, of ability of a local 
entity to participate in mitigation?
    Mr. Fugate. It depends upon which program. I am not sure if 
that is in the flood insurance buyout program. The other 
programs are 75 percent Federal, 25 percent State and local.
    Ms. Waters. Why is there a limit on the ability for local 
communities to help themselves with mitigation?
    Mr. Fugate. There is one area I am familiar with, and that 
is this is a rule-changing, we support it, that if they use 
their money to do certain work, we had not recognized that 
before. And as we have been briefed on it, we want to change 
that.
    So if a community is putting up their money, we recognize 
that, and do not preclude that from being a tool to factor in 
the mitigation.
    Ms. Waters. We are going to attempt to change that in the 
legislation, the bipartisan, bicameral legislation that we have 
put together. But my question is, none of us are expert in this 
business of the Federal Flood Insurance Program. But we don't 
get you from FEMA initiating changes that make good sense.
    If you knew, and you know that makes good sense for local 
communities to be able to participate in their own mitigation, 
even if it is 100 percent, why haven't you come to us and 
recommended that?
    Mr. Fugate. I wouldn't be able to answer that. I would have 
to go back to staff. But I do know that in the one case where 
we did have this, we found a workaround for a community to 
allow them to use those funds. It was tied back to some rules 
that, quite honestly, until I got briefed on it, I hadn't heard 
of before.
    Ms. Waters. Let me just go on, on this same vein of 
questioning. There was a pre-owned property. It was purchased 
in 2011 by a Pennsylvania couple as a future retirement home. 
Upon hearing of the changes in the Biggert-Waters Act, the 
owners sought an elevation certificate, and learned that the 
full-risk rate of the home had increased from $3,300 to over 
$59,000. Even with the phase-in of rates, this sharp increase 
has made the home unaffordable, and the home is now up for 
sale. The owners fear that they will not be able to sell the 
home because of the poor risk rate.
    When your people began to see rates increase like this to 
an unreasonable, outrageous amount, why didn't you come to us 
and inform us that something extraordinary was going on, and 
come up with a fix to help us with this? You are the expert.
    Mr. Fugate. We have been working on this issue. And as we 
come across this, we have been trying to do our due diligence. 
It was something the Administration went on record that before 
we had even began calculating this, we were concerned about--
there was no affordability provision in this.
    Ms. Waters. If you were concerned about no affordability, 
why didn't you find a way to do the affordability study?
    Mr. Fugate. The affordability study, again, based upon the 
direction that we had when we approached the national academies 
to contract with them, they informed us that the amount of 
funds and the timeframes would be insufficient, and they would 
only be able to begin part of that study.
    We went back and notified staff that was the response. But 
because the legislation was fixed at a certain price--
    Ms. Waters. Did you come back to this committee to ask for 
some help with that? Now, we are fixing it in the legislation, 
that is the bicameral, bipartisan legislation, and we are 
putting some money in there for an affordability study.
    But you didn't come back here and tell us any of what you 
are telling us now. Why didn't you do that?
    Mr. Fugate. Again, my understanding is staff were 
communicating with staffs. I apologize if that did not happen.
    Ms. Waters. This issue requires leadership. And let me just 
say, all of the harm that has been caused to thousands of 
people across this country who are calling us, who are going to 
lose their home, who are placed in this position, it is just 
unconscionable.
    That was not the intention of Biggert-Waters. And I am 
absolutely concerned that with your knowledge, with FEMA's 
knowledge, that you should be talking to us more, helping us to 
understand how to best be of assistance, and have a program 
that works.
    Mr. Chairman, I yield back the balance of my time.
    Chairman Neugebauer. I thank the gentlewoman. And I will 
just take a little bit of your time. Section 100219 of Biggert-
Waters, ``permits states to invest in unlimited additional 
funds in mapping by removing the limitation that states can 
only contribute up to 50 percent of the cost--''
    Ms. Waters. We can't hear you, Mr. Neugebauer.
    Chairman Neugebauer. I'm sorry. Basically, in Section 
100219, it says that ``states can invest in unlimited 
additional funds in mapping by removing the limitation that 
states can only contribute up to 50 percent.''
    So in Biggert-Waters, some of that was addressed. But I 
think the gentlewoman does make a good point in as far as 
building infrastructure, if we have limitations on 
infrastructure that States and local communities can build, we 
probably need to address that. So, thank you for bringing that 
point up.
    I now yield 5 minutes to the gentleman from Florida, Mr. 
Ross.
    Mr. Ross. Thank you, Mr. Chairman. I apologize for the 
hoarseness in my voice. I lost it on a 4th-and-18 touchdown 
``Hail Mary'' pass over the weekend for my Auburn Tigers.
    Mr. Fugate, as I said in my opening statement about Florida 
being a donor State, and it just seems a little contradictory, 
could you explain why that is? Two out of five policies are 
written in Florida, yet they don't lead to claims.
    Mr. Fugate. It is because we have been fortunate that we 
have not had the large-scale flooding event. Florida sees 
itself as a donor State. But they have also have to understand 
that they also have some of the biggest risk.
    If a category 2, category 3 was to impact Miami-Dade County 
with a storm surge, you are talking anywhere from $2 billion to 
perhaps as high as $4 billion in payouts from one event. You go 
county by county, you see that kind of exposure.
    So although the impression is we have paid more into the 
program than we see premiums paid out, it is based upon the 
risk. And again, I caution that we just don't make the 
assumption, because we haven't had the payouts, risk isn't 
there. I think it gets back to the original issue, is the 
affordability in this from the existing homeowners?
    Mr. Ross. With regard to the Biggert-Waters implementation, 
do you think we should delay it for any period of time with 
regard to the rate adjustments, or go forward?
    Mr. Fugate. I think I would be very measured in delaying 
this. Particularly, what we have looked at is in Section 207. 
This would be the section that if a map change occurred, you 
would lose your preferred risk, or your preferred rate, and it 
would have to be increased.
    But I would also caution that what we have found before 
when we did this for everybody is we didn't change the outcome. 
What we basically did was the delays never went forward, and we 
ended up subsidizing risk.
    We would like to work with Congress to make this 
actuarially-based, but also if we are going to give any 
preference to reductions or affordability, that it be means-
tested.
    Mr. Ross. And with regard to the study that you have been 
charged with having, do you think it would be wise to wait 
until such time as we have had the results of the study 
performed by FEMA, or should we--
    Mr. Fugate. I think for Section 207 it is the area that has 
not been implemented yet, it is the one that there is a lot of 
work to be done on affordability. I would say that section--
most of the sections of 205 are implemented. I don't think we 
could pull back on secondary homes.
    But there is another issue about when--your State has had 
this--we have had escrow accounts that didn't service the 
policies, and they lapsed, and they immediately went to the new 
rate. I think there are some technical issues there.
    But the affordability--and what makes this complicated is 
it goes back to the mapping question. You almost have to look 
at enough structure by structures to see how many people are 
above or below, and at what levels, to determine how many of 
the extreme cases there are versus, ``This is affordable.''
    Mr. Ross. Thank you, Director. I apologize. I only have a 
couple of minutes left. With regard to the private market, you 
testified you are woefully undercapitalized for anything that 
is going to happen.
    Is there a sufficient capacity in the private sector to 
meet the needs of the flood insurance liability of this 
country?
    Mr. Fugate. My sense is--and I cannot speak for the 
insurance companies--if we change the regulation that requires 
you to have flood insurance to back a federally-insured 
mortgage, I don't see a lot of private-sector insurance making 
up the difference for the highest risk, but I do think as we 
saw in Florida with wind pools--
    Mr. Ross. Exactly--
    Mr. Fugate. The government is going to have some 
responsibility in the--
    Mr. Ross. And if we use some creative means--up in wind 
pool, we did the percent deductibles, which worked. I think Mr. 
Luetkemeyer talked about surplus lines insurance coming in 
there.
    There are some creative opportunities, not only that, but 
there is also an opportunity because this is a government-
created problem, but to do glide path in terms of the 
transition, the increase in the rates so that we get a market 
going while we are also allowing for the government to be the 
backstop.
    Now, let me quickly ask you, are you familiar with agreed 
value flood insurance policy proposals, where you have--it is 
almost like a scheduled injury if you were in liability, but in 
terms of flood insurance it would be a scheduled event using 
the BFE, the Base Flood Elevation, to sell policies that are 
supported by insurance-linked securities such as cat bonds?
    Mr. Fugate. No, but I would be interested in hearing about 
it.
    Mr. Ross. Good, because I would like to have the 
opportunity to sit down and talk to you about that.
    I think what we are trying to do is to provide not only 
some education as to how to mitigate against these flood zones, 
but also to encourage a private market to come into play so 
that they pool some of their risk and take it away from you.
    Lastly, I just want to talk about mitigation. Florida has 
had a great mitigation program. What can we do to foster more 
mitigation in low, in flood zones?
    Mr. Fugate. It goes back to the maps. The better the data, 
the better we know where to make our investment decisions, 
where and how to build--I am not at all saying we shouldn't 
build just because there is flood risk--
    Mr. Ross. I agree.
    Mr. Fugate. --but I do know we can build in a way so--
    Mr. Ross. To withstand.
    Mr. Fugate. --that people don't lose their homes when there 
is a flood.
    Mr. Ross. Exactly.
    I appreciate that, and I yield back my time.
    Thank you.
    Chairman Neugebauer. I thank the gentleman.
    And now the gentleman from Massachusetts, Mr. Capuano, the 
ranking member of the full Financial Services Committee, is 
recognized for 5 minutes.
    Mr. Capuano. Thank you, Mr. Chairman.
    And thank you, Mr. Administrator for being here.
    Mr. Administrator, every time that FEMA goes into a 
disaster area, do you know what you are getting into every 
single time?
    Mr. Fugate. No, sir.
    Mr. Capuano. So, no on a regular basis, probably every 
single time, when you go in some place, you are well-intended, 
you know what you want to get done, but when you get on the 
ground, you have to be flexible.
    Is that a fair statement?
    Mr. Fugate. Yes, sir.
    Mr. Capuano. That is how I feel about this whole issue.
    We passed a bill a couple of years ago, because I agree 
with the policy and the philosophy about trying to get to an 
unsubsidized basis. I think it is a good idea. But we also put 
the affordability study in there, because we weren't sure how 
all this would be impacted. And to be perfectly honest, for me, 
the policy, the philosophy, with you 100 percent.
    But, I don't live in an ivory tower.
    I live in the real world, and when I start getting phone 
calls from people saying, my insurance is going up 5,000 
percent--and it is not just one person--we have a 
responsibility to react. And my definition of a good reaction 
is to say, pause, deep breath, what is causing this, let's take 
a little break, figure out what happened and if we want to do 
something about it, which is why we are here today.
    I think that is exactly what we are doing.
    I think that we should have done the affordability study 
before we implemented any of these prices. And anybody who told 
you that they couldn't do it, you should have talked to us.
    Okay, it has happened. We are here today.
    I want to be really clear, I strongly disagree with you 
about second homes. I strongly disagree with the legislation 
that has been put forward that exempts small businesses. A lot 
of people own second homes. They are not all Bill Gates. Most 
of the second homes owned in New England are trailers, small 
little houses--many of the houses that are impacted used to be 
second homes.
    Florida, the Gulf Coast, and North Carolina are full of 
second homes mostly owned by middle-income people struggling to 
get that, and to say that they should be thrown out, in my 
opinion, is an inappropriate response, an inappropriate action.
    It doesn't mean that in the long term, we may decide to do 
something different with them, but today not only will you kill 
those second home owners, you will hurt the economy that they 
are in, because most of those homes are located in places where 
the entire economy is revolving around those second homes, 
including the small businesses that service them. All of whom 
are going to get massive--or potentially, will get massive hits 
under this, all of whom deserve the same pause button and then 
a re-attack on the issue.
    I don't think you will find anybody here today who argues 
or will argue with the policy of trying to get off subsidies. I 
totally agree.
    How? To me, that is what this hearing should be all about. 
How we got here, we get it, okay. It is done.
    What do we do? I would argue that we need to pause, and I 
just want to hear from you, do you agree or disagree--now 
again, not as the Administrator, because you have a job to do, 
I get it, you are just doing what the law says as you read it--
but if you were me, would you be asking to hit that pause 
button for a little while so we can take a deep breath?
    Not to stop new maps.
    Not to stop increases.
    Not to stop actuarial-based insurance.
    But to see how it impacts real people.
    Would you hit that pause button or would you just pile 
forward?
    Mr. Fugate. I think the affordability piece is the part I 
am most concerned about, and I would like to have the time to 
work on that for existing homeowners.
    I also know that communities have been through this before. 
They have faced these same issues. They rebuilt differently. 
Their economies came back. Not everybody got to come back, but 
the communities came back.
    This is not new. We have been through this with Hurricane 
Hugo, Hurricane Andrew, and Hurricane Katrina, and we are now 
going through it with Sandy. I have been through it in my home 
State of Florida, in numerous small communities that were wiped 
out that, faced with the Flood Insurance Program, thought they 
would never come back.
    And this is going to be a true statement: For some people, 
they will not be able to afford to come back because of these 
requirements. It does not mean that communities have not come 
back and thrived with the new requirements and are more 
resilient and more likely to be able to survive the next event.
    Mr. Capuano. None--I don't disagree with a single word you 
just said, with the sole exception being those are specific 
areas--this is country-wide all in one fell swoop, which is 
again--I am not arguing--I may come to the conclusion that what 
you are doing is absolutely necessary, that it is an 
unfortunate necessity.
    I am simply saying, we are there now--I won't speak for 
anybody else, but for me, to a great surprise that these 
numbers came out the way they did. I am not arguing against the 
maps, that is fine. None of that bothers me.
    What bothers me is that we are acting as if a $5,000 or 
$10,000 cost to an average homeowner is nothing. And, it is a 
lot. It is a lot to ask.
    And again, if we all decide as a Congress, and you as the 
Administrator, decide, well it is necessary for the greater 
good, fine. I don't think anybody here, certainly not me, 
thought that we would be seeing these kinds of increases.
    So that being the case, my time is up, and I appreciate the 
chairman's--
    Chairman Neugebauer. The gentleman from Virginia, Mr. Hurt, 
is recognized for 5 minutes.
    Mr. Hurt. Thank you, Mr. Chairman.
    And Mr. Fugate, I thank you for appearing before our 
committee.
    I apologize for missing your opening remarks. But I wanted 
to first of all talk a little bit about the mapping process, 
what if there are those who would like to delay provisions of 
the Biggert-Waters Act, what is the timeline for getting the 
mapping done to a sufficient level that takes all that into 
account?
    What is the timeline?
    How long does that take?
    And is there anything that we can do to assist in 
expediting that?
    Mr. Fugate. Again, with mapping and updating maps it is the 
requirement of the funding to update the maps, the 
prioritization of that, and to the detail. And I explained this 
earlier, but I think this is one of the challenges with maps. A 
map update does not determine risk house by house, structure by 
structure. It determines what the flood insurance rate is for 
an area. And it still requires further work to get an elevation 
certificate to determine based upon that risk where you are at.
    So more funds to get more work done, but we are having to 
go back and re-study and do other work based upon challenges. 
If we are going to continue to do this, if we wait until all 
the maps are updated to a level that everybody agrees on, that 
it will indefinitely delay implementation.
    Mr. Hurt. Is there a reasonable timeframe that you can 
forecast for that to be done?
    Mr. Fugate. When I was still a county person, they began 
modernization and updating maps. This is going to be a multi-
decade process as these are not static situations; there is 
change that is involved. We have to continue as the science 
gets better.
    One of my hopes is we can actually speed up--with some of 
the new technologies, as they are proven--this is one of the 
things that Congress directed us to do is a technical map 
advisory committee to look at not only our process, but also 
adapting new technology to get more accurate readings at a 
lower cost.
    Mr. Hurt. Second question, if we were to delay the 
implementation of these rates--the increased rates that we are 
seeing, how long would it then take to get this program into 
fiscal solvency?
    That seems to me to be the big question at a time when this 
program is $24 billion underwater, how long will it take?
    Mr. Fugate. Until Hurricane Sandy hit, we had managed to 
pay down a little over $2 billion worth of the premium out pay 
from Katrina, so a very long time. I just--I can't even give it 
to you, because you have to factor in, do you get any new 
events, and what your average events are.
    But, we were not moving the needle very much on Katrina, 
and trust me, if we did not get the favorable interest rate the 
Treasury gives us, we wouldn't even be able to keep up with 
interest payments.
    Mr. Hurt. I guess a follow-up question--sort of a big 
picture question is, if we were to go in the direction of some 
sort of delay, isn't it a reasonable argument that we are 
actually just delaying the inevitable? That we are not really 
fixing anything, we are just pushing it down the road, pushing 
the pain down the road?
    Mr. Fugate. We would be back to where we were before Sandy, 
and it is a balancing act towards--my biggest concern is, how 
do I deal with the folks who are facing this now who are in 
their homes in some way that makes sense that we are not 
putting people out of their homes who can't afford it, but more 
importantly, how do we not continue increasing the risk going 
forward?
    This program has always grown a risk greater than our 
ability to afford it. So we have to say at some point that we 
cannot subsidize going forward, and then we have to look at our 
built infrastructure and ask, what is the best path forward to 
move to where the market--preferably the private sector--can 
insure that risk, and we narrow down the exposure to the 
taxpayer to only that risk that cannot be borne by the market, 
and through no other means can people stay in their homes.
    And then, we are going to have to look at that--what makes 
sense for the basis of that.
    Mr. Hurt. Last question, really quick--my time is almost 
expired--if we were to implement some sort of delay, how would 
the NFIP and the Write-Your-Own companies--would that be a 
problem administratively for them to make a change that has 
already been implemented?
    Mr. Fugate. I don't--in Section 207, which would be the 
existing homeowners if we change maps, I think that would have 
the minimal impact, because that does not occur until next 
year, October at the earliest based upon what we think we are 
going to be able to implement by then. Where it would probably 
affect immediately is people who have already gotten a change 
where they had bought new property or they had a lapse and 
their rates went up, or they are trying to sell their homes.
    And then again, on secondary homes, those notices already 
went out, so we are in the final part of that billing cycle. So 
if we are going back to secondary homes, that has already 
changed, that would be a big undertaking.
    Mr. Hurt. Okay, thank you. My time has expired.
    Thank you, Mr. Chairman.
    Chairman Neugebauer. I thank the gentleman.
    Just a 5-second question.
    Are you doing any satellite and aerial mapping now? Or are 
you still doing it on the ground?
    Mr. Fugate. We are using a LIDAR, which is a laser. That is 
one of the tools to get the digital elevation maps, as well as 
ground surveys.
    But there are some really interesting tools that are coming 
along the line that are giving very high resolution, including 
the structures, at a much lower cost. And this is one of the 
things that we want to look at.
    It would increase--we could then map by structure at a much 
lower cost. But there are emerging technologies that are 
changing so fast that we want to get that into our system to 
make the maps more accurate.
    Chairman Neugebauer. Thank you.
    I now recognize the gentlewoman from New York, Ms. 
Velazquez, for 5 minutes.
    Ms. Velazquez. Thank you. Thank you, Mr. Chairman.
    I represent the seventh congressional district and it is a 
sea coastline in New York which has been badly impacted by 
Sandy. And I have a question about how do we incentivize 
mitigation, because in the long run, it will affect 
affordability.
    Many private WYO insurance plans do not allow homeowners 
and businesses to use claims to improve flood resiliency 
through activities like increased base elevations, flood-
proofing basements or raising electrical controls above flood 
levels.
    This seems counterintuitive to what many might see in 
future payouts. What is FEMA doing to ensure that NFIP and WYO 
claims might be used to improve property resiliency for future 
floods?
    Mr. Fugate. It won't go through the Write-Your-Owns, 
because their obligation is to pay actual damages out, so there 
wouldn't be any additional funds to mitigate.
    But you have also authorized us in previous flood insurance 
authorizations to use money from the program on repetitive loss 
to either elevate or buy out property so that the owner can 
have the option to sell out and not have to rebuild, or we can 
help elevate it.
    We also work very closely with the Small Business 
Administration. They have a program where they can make loans 
available to rebuild, but also mitigate. And then we use our 
hazards--
    Ms. Velazquez. Are you talking about the disaster loan?
    Mr. Fugate. Yes. Yes, ma'am.
    Ms. Velazquez. Let me tell you--I did a report on the 
disaster loan through the SBA; 74 percent of those disaster 
loans were declined.
    Mr. Fugate. And--
    Ms. Velazquez. A lot of those businesses that were waiting 
for that help are not there anymore.
    Mr. Fugate. So, again, they offer that. The additional 
hazard mitigation dollar States get can be used. And I know 
that both in New Jersey and New York, they are looking at those 
areas to do elevations and buyouts to create more barriers.
    There are programs. But the Write-Your-Own--they are 
servicing actual losses, the idea being these are the damages 
that have to be repaired to bring the home back up to code so 
it services the requirement of the mortgage.
    Ms. Velazquez. My next question is about the inability to 
use private insurance claims to assist with future flood 
resiliency, which has made it difficult for New York homeowners 
to comply with CDBG's disaster relief-based elevation 
requirements for Sandy recovery.
    How does FEMA plan to resolve this conflict?
    Mr. Fugate. I would need to work back--these are with the 
Community Development Block Grant dollars?
    Ms. Velazquez. Yes.
    Mr. Fugate. We were working with Secretary Donovan. Part of 
the present direction with the Rebuilding Task Force was to get 
to these very types of issues.
    We are hoping that we are working complementary with the 
Community Development Block Grants and our mitigation dollars 
to increase the amount of funds available. But I will be more 
than happy to take this back and work with Secretary Donovan on 
it.
    Ms. Velazquez. Thank you.
    Thank you, Mr. Chairman. Mr. Chairman, I would like to ask 
for unanimous consent to include in the record two testimonies 
that were submitted by constituents of mine who were impacted 
by Sandy.
    Chairman Neugebauer. Without objection, it is so ordered.
    Ms. Velazquez. Thank you.
    Chairman Neugebauer. The Chair recognizes the gentlewoman 
from West Virginia, Mrs. Capito, for 5 minutes.
    Mrs. Capito. Thank you, Mr. Chairman. And I want to thank 
our witness--he has been very good.
    I alluded in my opening remarks to a homeowner--first of 
all, I wanted to ask a unanimous consent to submit for the 
record the news article that discusses the case of Richard 
Holmes with the flood insurance.
    Chairman Neugebauer. Without objection, it is so ordered.
    Mrs. Capito. Okay, thank you.
    So, Richard Holmes bought his home when he was sort of in 
this not knowing that he had any idea that he was going to have 
a $12,000 flood insurance premium on a $160,000 house because 
the regulations, I believe, hadn't been formulated in time.
    You were shaking your head when I described it earlier. How 
can we assist somebody like this and--I don't know what to tell 
him to help him. I did tell him to keep paying his mortgage, 
however.
    Mr. Fugate. Again, I don't have the--if I had the answer, I 
would have already done it.
    This is one of the things, and again, I have talked to the 
chairman about, is we want to make sure that we have 
affordability addressing as means-tested--that not just anybody 
can get a subsidized rate.
    But there was no provision to do that. And so, what we 
found is that when this regulation went into effect, if you 
bought your home with that designation that has changed or had 
changed previously, there was no grandfathering in.
    And so, it is a small group, but it is a group that is 
being hit very hard. It is affecting--you are going to hear 
from REALTORS and everybody else about how this is affecting 
closings right now--
    Mrs. Capito. Right.
    Mr. Fugate. Because the way it was implemented, once it 
went into effect, when you change your status, you go to the 
full rate.
    So, if you drop your policy or you are selling, the buyer 
goes to the full rate. There is no phase-in. The other parts of 
the bill had phase-ins.
    Mrs. Capito. The other thing I was surprised to learn from 
him was that there was no notification at his closing that this 
could be a possibility. Does that gel with what you are hearing 
across the country?
    Mr. Fugate. What I heard--and, again, I am reading news 
articles similar to what you saw where the first time somebody 
realized this is--because generally, when you go to closing, 
you have to go find out what the insurance is and you have to 
certify your insurance in order to send the mortgage.
    When they went to the insurance company to get that was 
when they found out. Because they usually were doing this--
``What were you paying? That should be about my--I can afford 
that.''
    Mrs. Capito. Right. That is what happened to him.
    Mr. Fugate. Each designation--and this is, again, you are 
going to hear from REALTORS and others--when people go get 
that, it is shutting down the deal, because what somebody was 
paying in the past is not what you are likely to be paying in 
the future if you are substantially below that base flood 
elevation. Now, if you are above that, it is less of an issue. 
But it is those homes built prior to data or below flood 
elevations--and, again, it about doubles for every 4 feet you 
are below that.
    Mrs. Capito. Right. I think in his case, he knew he was 
purchasing a home in the floodplain. That was designated--pre-
designated. He just was unaware at closing, after he closed, 
that this was going to be the price.
    So, now he is looking at--really, his flood insurance 
premium is going to be more than his mortgage. And I don't know 
if maybe the solution is to grandfather folks like that in, or 
try to hold the premium to the value of the house.
    He is not sitting at the base of a river--we have plenty of 
those, as well, in our State. And I don't know the flood 
elevations. But he knew he was purchasing in a floodplain area 
designated. That wasn't the issue.
    The issue was he is already into this contract and now he 
doesn't know what to do because it is unaffordable for him.
    Ms. Waters. Will the gentlelady yield?
    Mrs. Capito. Yes.
    Ms. Waters. You should be able to tell your constituent 
that there is a bipartisan, bicameral piece of legislation that 
would force them to do the affordability study and the review 
and everything that we were doing would take 4 years.
    So, this is retroactive and that he should not have to pay 
that increased amount. After the affordability study is done 
and the 4-year period of time, we will have recommendations 
that will help us to determine what makes good sense and what 
is fair.
    Give them the hope and the understanding that we are 
working--
    Mrs. Capito. Right, and I--
    Ms. Waters. To do this.
    Mrs. Capito. If I could reclaim my time, I am trying to 
hear his issue and trying to help him, as well.
    But then, if you look at the whole neighborhood, then you 
look at property values. Who is going to buy a house at 
$150,000, no matter if it is 4 years from now or next week, 
that has a $12,000 flood premium? That is unaffordable.
    So does the--and then you look at the retiree who owns her 
own home. She is all by herself. She is thinking if she has to 
go into a nursing home someday, her only asset is her home, and 
the value of her real estate is plummeting because of this 
issue. Then, we all pay. So, there are all kinds of residual 
issues around this one issue. I appreciate it, and I am out of 
my time. Thank you.
    Chairman Neugebauer. I thank the gentlewoman.
    And now the gentleman from Missouri, Mr. Cleaver, is 
recognized for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman, and Ranking Member 
Capuano.
    Most of my questions have already been raised concerning 
the affordability study. But to preface the reason for the 
question I will ask, I am from Kansas City, Missouri, and 
contrary to what you might believe, we are surrounded by water.
    The Missouri River is the longest river in North America. 
It is the longest tributary to the Mississippi--2,400 miles. 
And in fact, the word Missouri means, ``those who paddle in 
wooden canoes.''
    So, water is an issue. And now that I have established that 
I am not from Kansas, let me just find out--in your statement, 
you said that you would begin issuing guidance to insurance 
agents in March.
    Mr. Fugate. Yes, sir.
    Mr. Cleaver. Did that happen?
    Mr. Fugate. Yes. We have been working with the Write-Your-
Owns. In fact, we have continued to work on increasing that and 
more training as we have found more concerns and issues.
    But this program--and this is part of the reason why it 
wasn't implemented immediately on the date of signing. We had 
to implement, train, communicate with Write-Your-Owns, develop 
the rules and implement this. So, this is an ongoing process.
    Mr. Cleaver. Were prospective homeowners warned about the 
changes in their flood policies?
    Mr. Fugate. Again, I get this question, and I guess if the 
question was, has FEMA notified directly all policyholders, the 
answer is we do that through the Write-Your-Owns. And it--
    Mr. Cleaver. Through what?
    Mr. Fugate. Through the Write-Your-Own--the people who are 
servicing the policy. And it depends upon their status.
    The only change that we are seeing with this, again, is 
about 20 percent of the policies. That is a big number.
    But for most policies, this has not really changed anything 
that they have. It is only those people who were getting either 
a subsidized risk, which is about 20 percent, or they have a 
map revision.
    And so, those notifications were being based upon when 
people were coming up for renewals if that status changed. So, 
if I went to buy a policy for the first time, that is when I 
would find out.
    Mr. Cleaver. So, what--you couldn't get us the number of--
    Mr. Fugate. No, sir.
    Mr. Cleaver. --houses? Okay.
    I yield back the balance of my time. Thank you, Mr. 
Chairman.
    Chairman Neugebauer. I thank the gentleman.
    And now, the gentleman from Ohio, Mr. Stivers, is 
recognized for 5 minutes.
    Mr. Stivers. Thank you, Mr. Chairman. I appreciate you 
holding this hearing. And thank you, Mr. Fugate, for coming and 
explaining the current status of where we are with the Flood 
Insurance Program.
    You have said a couple of times that 80 percent of the 
policyholders see no increase, and that of the 20 percent, 
those folks are either impacted because there is a change in 
the flood map, or their subsidy is reduced.
    So of those 20 percent, how many of those folks are being 
shifted immediately to full risk-adjusted rates, and are there 
any--what kind of hardship concerns are you hearing from those 
folks?
    Mr. Fugate. As was pointed out, if you have a secondary 
home, we eliminated that, and--
    Mr. Stivers. But I want to try to understand, of that 20 
percent, how big is that?
    Mr. Fugate. It is not a very big percent, but they started 
as of January 1st of this year. Their rates will be going up 25 
percent of what they were paying.
    It is an extended horizon, because they don't do it like 
you would think, 25 percent in 4 years. It is 25 percent of 
what they were paying, and it goes up 25 percent until they get 
to that level.
    If you buy a new policy, it is in effect now. So if I 
haven't had a policy before, and I am buying, I am going to pay 
the full rate.
    If I had a lapse in my policy, I didn't make the payment, 
it went up. And if I sold my home, and buying it, it went up, 
or I had a repetitive loss, which we have not seen that yet. 
But if I had repetitive losses, one of the concerns--we have 
had properties that get flooded out every couple of years, they 
never had to pay more.
    But for everybody else, it has not changed yet, and won't 
change until either maps are updated, or they lapse their 
policies.
    Mr. Stivers. So you are saying, essentially, that the only 
two groups of people who have seen an adjustment to a full 
risk-adjusted rate are people who have allowed their policy to 
lapse for nonpayment, or for some reason, it lapsed, or a 
brand-new home that didn't have any coverage before?
    Mr. Fugate. Yes, sir.
    Mr. Stivers. Okay. So if Congress were to pass the Grimm-
Waters bill, or whatever name we are calling it, or some 
subsequent bill, and then FEMA were to give the consumers and 
the Write-Your-Own folks some kind of direction regarding those 
changes, it will have been almost a full year since this whole 
process started. And so, almost every impacted policyholder 
would have seen a bill already.
    How do we fix the confusion related to the fact that they 
will have already at least seen a bill, or had a bill due, or 
some of them will have already started to pay bills? What kind 
of confusion would those time lapses create, and is there a way 
to get around that? And I am not saying that is a reason not to 
do it, but--
    Mr. Fugate. It would be, again, something we are going to 
have to look at. It would really depend upon how Congress 
structured any new changes, and what those requirements were.
    Knowing that this is a much smaller population than the 
overall number of folks who are currently receiving subsidized 
risk, I would have to really go back to staff and go into 
numbers of people that this would impact, what it would take, 
depending upon Congress' direction to address?
    Mr. Stivers. And you have read the proposed bill?
    Mr. Fugate. I have staff reading through it. I haven't had 
a chance to read it myself. We are still working through the--
there are several, but we are looking at the different bills to 
do staff analysis.
    Mr. Stivers. So the way I read it--and maybe I am not 
right--has your staff told you at what point, if this bill were 
to pass, we would start to move to risk-adjusted rates? Would 
there be almost a 4-year lag before we actually move to risk-
adjusted rates?
    Mr. Fugate. My understanding so far, what staff analysis 
is, is that there would be a delay to complete the 
affordability study, and implement those back to Congress with 
rules to implement that, and then the implementation timeframe 
of that.
    And based upon our conversation, the National Academy of 
Science has advised that it would take several years to work 
through all of the affordability studies. And then past that, 
you would be looking at how would you implement that, 
recommendations that either we have authority to implement, or 
we require additional direction from Congress.
    Mr. Stivers. So you look at it the same way I do, that it 
could actually take years to actually move toward risk-adjusted 
pricing under this bill?
    Mr. Fugate. Based upon my understanding, yes, sir.
    Mr. Stivers. I think the bill is well-intended, and I want 
to try to make sure that folks who are potentially seeing huge 
spikes all at once, we need to try to look out for that, and 
try to phase things in the best we can. But we do need--I 
believe we need to move our Flood Insurance Program to 
actuarially sound rates.
    That is one of the problems with government pricing risk, 
is government doesn't do a very good job. So I guess now that 
my time is up. I will yield back. But thank you for your time.
    Chairman Neugebauer. I thank the gentleman. Now, the 
gentleman from Connecticut, Mr. Himes, is recognized for 5 
minutes.
    Mr. Himes. Thank you, Mr. Chairman. And thank you, 
Administrator Fugate, for being here.
    And I would be remiss if I didn't say thank you for 
visiting my district in Southwestern Connecticut just over a 
year ago when Sandy came through and did a lot of damage. It 
was great to see you then, and your people. It has been great 
not to see you since then in my district.
    I wonder, absent the affordability study, I am curious if 
we can put at least some sense of magnitude on the challenges 
that are facing the stories that we have heard today.
    If I am reading your testimony correctly, there are about 
1.1 million people who are still receiving subsidized rates, 
and you estimate that about $1.5 billion annually is necessary 
to get to actuarially-sustainable rate. Am I right? Am I 
reading your testimony correctly?
    So if I do a little math in my head, it is about, on 
average, those 1.1 million people would have to pay an 
additional, on average, $1,000--just shy of $1,400 a year. It 
is a pretty big number.
    What do we know about the ability to pay? Does FEMA have 
any mechanism for getting at the income or the assets of those 
1.1 million people? Do you have a sense of the average income 
and assets for the persons in that population?
    Mr. Fugate. No, sir. And that is one of the goals of an 
affordability study, was to determine that. As you point out, 
that is the average.
    The average, though, means that if I am a little bit above 
the base elevation, that goes down. If I am below that, it 
increases significantly.
    And so that affordability piece was--again, my--and looking 
at this, as I have gone, we need to do something to make sure 
that we are actuarially sound, but also means-tested and 
affordability at a point which--and this may sound awkward, but 
here is how I look at it: We need to make sure we are not 
subsidizing risk below which is for the benefit and the 
interest of the U.S. taxpayer.
    And I think that is the question on which I really need to 
come back to Congress. How do you determine what is affordable, 
at what income, at what level?
    That is not something FEMA does. That is why we support the 
affordability study to bring in subject matter experts who talk 
about that, and ask, ``At what point is affordability, and how 
much of that risk should be shared with the taxpayer, is in the 
common good of the public?''
    Mr. Himes. I completely agree. I don't think anybody up 
here disagrees, that over time we want to move to an 
actuarially-sound system.
    Granted, we haven't done the affordability study. But 
again, just to help us think about the magnitude of the 
problem, I would assume that when somebody applies for flood 
insurance, a Social Security number is involved. So I would 
assume it wouldn't be that hard for you to generate a profile 
for us of who is in this 1.1 million.
    Mr. Fugate. It would be a bit different, because currently, 
the majority of our insurance policies are actually serviced by 
insurance agents. And, so we would again have to look at a 
system where we would now collect data from the Write-Your-Owns 
to get financial information.
    So again, that is why this is a very complex process, and 
that I don't sell you the policy directly, in most cases. I 
sell that--there is another company that is selling it to you, 
and they are collecting information.
    For me to get financials, and then determine eligibility, 
would be something that we would have to build in. That is why 
we are saying not only do you have to do the study, you are 
also going to have to look at how do you implement that.
    Mr. Himes. Okay, thank you. I yield back, Mr. Chairman.
    Chairman Neugebauer. I thank the gentleman. And now, the 
gentleman from New York, Mr. Grimm, is recognized for 5 
minutes.
    Mr. Grimm. Thank you very much, Mr. Chairman, for allowing 
me to sit in today and to ask some questions. I would also like 
to thank our witness, Administrator Fugate, for your service, 
first of all, and on a personal note, for all the work you and 
your team has done for Sandy. It did not go unnoticed, and it 
is appreciated.
    I completely understand the need for actuarially-sound 
programs. But I think where we are missing it is the balance 
between actuarially sound and functionally and practically 
sound. Would it be a true statement to say that if premiums are 
too high, and people can't afford them, then it jeopardizes the 
whole program?
    Mr. Fugate. What it would do is jeopardize rebuilding those 
homes, or building in those areas. I think of the program as a 
whole, the amount of cases that are like that would not affect 
the overall program. In fact, what you tend to see is, those 
are actually the policies that have the greatest risk to the 
overall program.
    I think a different concern would be if you cannot afford 
to rebuild, what impacts does that have on communities, because 
the insurance is not affordable. Which again, depending upon 
which side of the debate you are on, there are going to be 
people behind me, telling you the moral hazard of subsidizing 
risk is we are going to rebuild right where we were, just the 
way it was, and we are going to get wiped out by the next 
hurricane.
    Mr. Grimm. Reclaiming my time. I agree with you that after 
a hurricane, to rebuild just the way it was doesn't make sense. 
But I don't think that is actually what is happening here.
    I have homeowners who in 2012, their policy was $971. They 
just got their new premium, $38,000 and change. So less than 
$1,000, and now it is almost $39,000.
    Now, would you agree with the statement, ``You can't get 
blood from a stone?''
    Mr. Fugate. Yes.
    Mr. Grimm. Okay. On a home that cost what this home cost, 
you wouldn't spend $48,000 a year. So they will walk away from 
their property, and no one else will buy it.
    And I think that does jeopardize the overall program, 
because your opening statements in your first few questions, 
you mentioned how the program is $24 billion in debt, and the 
projections, based on the new premiums you are expecting, are 
supposedly going to get us out of that debt.
    But I would pause it, that is absolutely not true at all, 
because you are never getting these premiums. That is pie in 
the sky. This person is not paying $38,000.
    So your computer, and those working on this can say, ``Hey, 
we are expecting $38,000,'' but they are never actually going 
to receive it. So that is why I do say it does jeopardize the 
program.
    Mr. Fugate. If the game plan was to charge rates to pay 
back the previous debt, you are absolutely right. That is not 
what the actuarial tables are designed to do. They are designed 
to deal with the future risk. So, they are calculated about 
what your future risk is. And, again, on coastal areas, where 
you are below that base flood elevation, we are seeing those 
numbers. And that is why, again, I am very supportive of an 
affordability study to look at how we take existing 
infrastructure, means-test it, and deal with that issue you 
raised. But it is not about paying off the previous debt, it is 
about facing the future, and ensuring that premiums coming in 
are covering the exposed risk, not merely just paying off the 
previous debt.
    Mr. Grimm. And to expand on that, would you agree--we talk 
about the common good for the taxpayer, and I agree with you--
we do have to balance the common good. But the profound impact 
on the overall economy for a certain community--when you start 
seeing foreclosures and abandoned homes, that could be more 
expensive than the Flood Insurance Program. Is that not a 
possibility?
    Mr. Fugate. That is, again, a point that we raised in the 
Sandy Recovery Task Force, that without affordable insurance, 
we are going to lose the ability for people to stay in their 
communities. And I have also been supportive of this, of 
looking at how we make a means-tested--again, I think it should 
be based upon the individual, not just broad blanket community-
wide.
    Mr. Grimm. Right.
    Mr. Fugate. But it should be means-tested to affordability 
so that we don't face those situations for existing built 
infrastructure, but not be applied to new growth.
    Mr. Grimm. One last question in the last few seconds here.
    You mentioned before that the premiums wouldn't go up until 
after the maps were adopted. But in New York, we haven't 
adopted the maps yet, but premiums have been raised 40 times.
    Mr. Fugate. Again, we are--I will have staff give you--if 
you are getting a new policy or you had a lapse in policy, 
those changes. So, I would be very interested in seeing that, 
because under the existing rules, we have not implemented the 
increases for permanent homeowners.
    Mr. Grimm. I will give you a heads-up--it is happening.
    Mr. Fugate. Are these homes that are not primary 
residences? Because that did go into effect. So, if it is a 
non-primary residence, then yes, that has happened.
    Mr. Grimm. Thank you. I yield back.
    Chairman Neugebauer. I thank the gentleman. And now, 
another gentleman from New York, Mr. Meeks, is recognized for 5 
minutes.
    Mr. Meeks. Thank you, Mr. Chairman.
    I was going to just bring up what Mr. Grimm did, because it 
is happening. First, I want to thank you, also.
    The damaged community I represent in the Rockaways was 
devastated by Superstorm Sandy. But we are, as Mr. Grimm has 
indicated, that some of the flood maps have not been finalized. 
And people's rates are going up. And one of the questions that 
I was going to ask was about that. Because folks--these 
astronomical rates that they are getting, where they say that 
they can't afford their insurance. Yet, they don't know what to 
do. Some are going to rebuild their homes.
    But because the mapping is not done, what level should 
they--or how high do they have to raise their foundations? What 
should they be doing inside? They have no clue, so, they could 
try to mitigate the increasing cost of insurance. But they have 
no idea until the mapping is done, and thereby wanting to have 
the affordability study done so that they--because when a 
person that the home--the average middle-class homeowner--the 
greatest investment that they will make in their lifetime is 
this home. And now, the likelihood of them maybe being able to 
afford it has substantially changed. And that is even before we 
have completed this affordability study and looked at what is 
done.
    So, where the mapping is not finished, folks don't know 
where to elevate their homes. The dollars that are available 
through the insurance company, even to raise is questionable at 
times. What is a homeowner supposed to do?
    That is the reason why we wanted this bill, to delay the 
implementation until we can have all the mapping done, as well 
as the affordability study, so that we can move in a direction 
that will keep individuals in their homes, and/or make a more 
intelligent decision on how we proceed thereafter, because we 
want to--but so what do you tell a homeowner, where the mapping 
is not done? What should they do in that scenario? And yet, 
they are in danger of their rates going astronomically high, 
and can't afford it. And they are willing to raise their home, 
do what is necessary.
    Mr. Fugate. I agree that fundamentally, one of the risk 
factors we need to look at, and affordability factors, is 
homeownership. I think it is a very important part of 
calculating, should we look at subsidized rates? Now, let's be 
clear--we would be looking at subsidized rates, but I do think 
homeownership is a key part of that affordability that is 
means-tested. We need to look at that.
    As far as the others, I will repeat what I said in the 
Senate. The way that we have been trying to implement this, we 
are not finding that leeway. And if that is what Congress wants 
to do, I am going to need your help to get there.
    And, again, we are working with and are willing to provide 
technical assistance. But if that is where Congress wants to 
go, then I don't have the authority to do that without more 
direction. I cannot delay parts of this program.
    I think it needs to be balanced against what the overall 
exposure is. But I do agree, homeownership is a factor we need 
to look at very closely. This is something we have identified 
in the Sandy Rebuilding Task Force that we recommended to the 
President--that affordability of insurance was a key to 
successful recoveries. And not withstanding all the other 
factors that we are dealing with, as we are implementing this, 
I think we need to keep in mind that we have a balance between 
future risk and our built infrastructure.
    Mr. Meeks. Even talking about that, because is there 
coordination, for example, with FEMA and, say, the Army Corps 
of Engineers? Because when you talk about mitigation--I know 
when you are talking about the Rockaways, certain areas did not 
have dunes or jetties or other things that will reduce the 
damage or mitigate against floods. And that will then--should 
have a direct effect on how much insurance would cost.
    And so, I know that there has been a study around the 
Rockaways, for example. That study is now being done by the 
Army Corps of Engineers--they are going to put in some dunes, 
some jetties, and sea wall. You have some private communities 
that are looking to do certain things themselves and financing 
themselves that should have a direct effect on their cost of 
insurance. But if they move forward with the rates going up 
now, they could never get reimbursed for it. So, that is the 
reason for the need for the delay.
    Mr. Fugate. It is--
    Mr. Meeks. And coordination.
    Mr. Fugate. For those projects where we know we have 
Federal funding, where we have local dollars to mitigate 
future, we are able to use that to build that into the rates 
now. This was something that Representative Waters brought up 
about what if the local community was putting your money in? 
That has always been a problem. If it wasn't Federal dollars, 
we couldn't delay the implementation, knowing that it was going 
to be mitigated.
    This is part of the reason why the President is putting 
together the Sandy Recovery Task Force--we knew that there 
would be tremendous overlap of all of our Federal programs, and 
we wanted to make sure that we are working together to build 
back better. But where we have programs that our folks can look 
at that will map the update--and we know that funding is 
there--we are able to factor that in now, and not wait till 
that project is completed.
    Chairman Neugebauer. I thank the gentleman.
    Mr. Meeks. I should like to ask--
    Chairman Neugebauer. The gentleman--
    Mr. Meeks. I didn't get to put in an opening statement, so 
I ask unanimous consent.
    Chairman Neugebauer. Without objection, it is so ordered.
    Mr. Meeks. Thank you.
    Chairman Neugebauer. Thank you.
    And now, the gentleman from Massachusetts, Mr. Lynch, is 
recognized for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    Just a couple of business items here.
    First, I would like to ask for unanimous consent to submit 
a letter from Otto K. Harling, Ph.D, 212 Otis Street, Hingham, 
Massachusetts, former engineering professor at MIT. Also, the 
National Association of Home Builders. These letters are all in 
support of the Grimm-Waters legislation.
    Also, the National League of Cities, the National 
Association of REALTORS, the Independent Community Bankers of 
America, and the Independent Insurance Agents, all in favor of 
relief from the Biggert-Waters legislation, in favor of a 
delay.
    Chairman Neugebauer. Without objection, except for that one 
from MIT. Is that a credible--yes.
    [laughter]
    Mr. Lynch. Yes, well--we have to accept that one. He is a 
voter.
    Chairman Neugebauer. I hear you. Without objection, it is 
so ordered.
    Mr. Lynch. All right. Thank you. I appreciate that.
    And also from the letter, a pretty smart guy.
    Sir, I just want to make sure we are on the same page here. 
When we included the affordability study in the Biggert-Waters 
legislation, I think it was pretty obvious that we wanted the 
affordability to be part of the decision in terms of what rates 
might be.
    It makes no sense. It makes no sense to implement the 
premium increases first--in some cases, a 3,000 percent 
increase--and then do the affordability after you have forced 
the family from their home to figure out whether that was 
affordable or not. And I think that one of the good things that 
the Grimm-Waters legislation does is it makes sure that study 
is completed.
    And I think you are absolutely right. I think it might take 
4 years before we get the data back and Congress has a chance 
to do a meaningful review.
    When we had our FEMA forum in Scituate, Massachusetts, a 
beautiful coastal community, the folks from FEMA indicated that 
in terms of losses generated year-to-year, they pointed out 
that about 1 percent of the policyholders or the homeowners 
were responsible for almost a third of the drawdown. So, there 
were these severe repetitive loss locations that were really 
drawing heavily--as I say, up to a third of the funds 
available.
    Now, if we can get at that--looking at those locations that 
are repeat and severe losses, you would think that would do a 
lot to help the financial viability of the fund, no?
    Mr. Fugate. And you gave us some powerful tools.
    Previously, many repetitive losses, where we have offered 
to buy or elevate refused, because they had a cost adjustment. 
They had a cost share. You changed the statute so that if they 
refuse, they are going to go to the full rates, which would be 
an incentive there.
    But, yes, I agree. But the problem is with that 1 percent, 
it isn't that they have had a previous loss. These are the 
highest risk. So, there is a lot of potential. And, again, when 
you narrow it down, it is these policies that are paying these 
$30,000, $40,000, $50,000. When you do the actuarial rates, 
there are the smallest number of policies, but they have the 
greatest risk. And they just--they literally put us in the 
greatest risk to having insolvency in this program, because a 
few policies--when you are paying out full amounts versus a lot 
of policies that have minimal damages--it is hard to offset 
that, unless you are actually basing it upon that risk. That is 
why it is so high.
    For every foot you are below--
    Mr. Lynch. Okay, I want to reclaim my time here. You are 
going on a little bit.
    One of the problems that we also have is the high number of 
appeals on the mapping process. And that much being said, there 
is the fact that when we are doing the appeals on behalf of 
homeowners--and some towns are now filing appeals for the 
entire town--we are still appealing to the people who made the 
original decision. Is there any thought about--and you know how 
that is going to go. If you are defending your own decision, 
generally, you are going to rule in your own favor.
    And I just think that there is--it may be more accurate to 
have an independent party put in that process to review the 
decision, or the mapping process used by the individual 
homeowners or town versus the one contracted out by FEMA.
    Mr. Fugate. I agree. And you gave us additional tools. We 
are in the process of--we did the registry notice and we hope 
to have the first meeting in December of the Technical Map 
Advisory Committee--
    Mr. Lynch. Okay.
    Mr. Fugate. Providing that outside advice in that avenue.
    Mr. Lynch. Okay. And lastly, if I could just say--one of 
the problems I am having in my district is that the FEMA maps 
that have been put out there do not agree with the historical 
data.
    In other words, we have had some severe storms. The 
blizzard of 1978, notably, where folks didn't even get water in 
their basement during that entire storm--that was a big one. 
And yet now they find out that they are in the middle of a 
special hazard flood zone. So, I am just curious. Generally, 
the data would agree with the historical experience. And in 
this case, it is not even close.
    Mr. Fugate. Absolutely not. It doesn't--
    Chairman Neugebauer. I would like to follow up with a 
written response to that question--
    Mr. Fugate. Yes.
    Chairman Neugebauer. The time of the gentleman has expired.
    Mr. Lynch. Okay. I thank the gentleman for his courtesy.
    Mr. Fugate. Yes.
    Mr. Lynch. I yield back.
    Chairman Neugebauer. The gentleman from Florida, Mr. 
Murphy, is recognized for 5 minutes.
    Mr. Murphy. Thank you, Mr. Chairman. And Mr. Chairman, I 
ask unanimous consent to enter a letter into the record from 
the National Association of Federal Credit Unions.
    Chairman Neugebauer. Without objection, it is so ordered.
    Mr. Murphy. Thank you.
    And thank you, Mr. Administrator, for being here. Thank you 
for your time and your service.
    You have heard from many of us already about the 
astronomical rate increases for our constituents. Of course, 
some 4,000 or 5,000 percent--several people in my district, as 
will be the case in many others, will simply not be able to 
afford this and will therefore not pay it.
    Have you done a study on what that will do to the overall 
solvency of the program if people simply do not pay? And I 
think we could take a guess. If it is three, four times as 
much--upwards to 5,000 times as much--people just aren't going 
to pay.
    What would that do to the overall solvency?
    Mr. Fugate. Probably not what you would expect. I would 
have to go back to the actuaries. But I think if I took my 
highest risk policies out, it would not be as negative of an 
impact.
    The premiums paid in versus the exposure, unless they were 
paying the full actuary rates, wouldn't make much difference. 
The continuing-to-get-subsidized rate does make me insolvent.
    Mr. Murphy. Okay. My next question--I have a letter I am 
sending to you tomorrow from the Palm Beach County--I represent 
the Palm Beach, Treasure Coast area.
    Mr. Fugate. I have been there for a lot of hurricanes.
    Mr. Murphy. In the letter, we ask for a delay on the 
comment period from FEMA. I am wondering what you are doing--
reaching out to other counties having these same sort of issues 
to make sure that all the comments are taken into 
consideration, because we all have different topographies; we 
all have different districts with different issues--what you 
are doing to make sure we get all of these concerns on the 
table so they can be accounted for?
    Mr. Fugate. What comment period specifically are you 
referencing?
    Mr. Murphy. In the Palm Beach area, we sent a letter and we 
got one delay already. We are asking for another delay. And I 
know other counties--
    Mr. Fugate. This would be in your map-up date?
    Mr. Murphy. Yes, in the map-up.
    Mr. Fugate. Okay--
    Mr. Murphy. Topographies.
    Mr. Fugate. Okay, we work with the communities. Again, this 
isn't about delay--it is about getting the best information. 
And mapping is not just FEMA; it is the local community working 
together, because they ultimately have to adopt their maps as 
their ordinance.
    So, they can continue to work with that. We have numerous 
processes to get to that map process, so we will continue to 
work with Palm Beach County as they go through their map 
updates through that process.
    Mr. Murphy. Last week, we had a big roundtable in my 
district and had the administrators and REALTORS and bankers, 
et cetera. One of the things that came up was that in many 
communities--many of the new developments that have been 
built--there are new codes, and they are building on higher 
elevations, with different building codes, different 
permitting, et cetera.
    They were concerned that is not being taken into 
consideration by FEMA. And I can just imagine that this is 
happening across the country, and how much work that would be 
for you.
    Are these being taken into consideration--all these new 
building codes and--
    Mr. Fugate. Absolutely. In fact, if you have done those 
steps, you are not going to see dramatic increases in flood 
insurance. It would be if we changed maps. And since Palm Beach 
County, as we are going through this map revision, my 
experience in Broward, Miami-Dade, and others--we have people 
who go into the higher risk. We have people who come out.
    So, until we see the maps, we don't know what that is. But 
by building to higher elevations, it is the whole goal here. It 
reduces that risk and it allows the affordable premiums.
    I think the challenge in Palm Beach County is going to be 
how much has been built based upon the existing map data and is 
there a change there, and what does that change do? And are 
there any of those areas that they built to one level that now 
is below that?
    That would be the concern. But until we see the maps, I 
couldn't really say what that looks like.
    Mr. Murphy. Okay. And my last question is, you mentioned 
earlier that you are completely supportive of the affordability 
study and means testing, et cetera.
    What exactly do you need from the Congress--do you need 
from us? What do you need us to do to make sure we get this 
done as quickly as possible?
    Mr. Fugate. Again, we have been providing technical 
drafting assistance on some of this. Based upon our work with 
the National Academy of Sciences, we would need additional 
funds and time for them to complete a study, and then we would 
need time to implement that, based upon those findings.
    Mr. Murphy. Regarding the funds, in the original bill--it 
is my understanding that there was $11 million for the 
affordability study.
    Mr. Fugate. No, sir.
    Mr. Murphy. In the new bill.
    Mr. Fugate. The new bill was--
    Mr. Murphy. There is $11 million.
    Mr. Fugate. The previous bill was--it was far less than 
that. And--
    Mr. Murphy. And in your testimony to the Senate, what did 
you say would be required?
    Mr. Fugate. Again, it would depend upon the scope of the 
study. Initially, some discussions with the National Academy of 
Sciences indicated that it would be $1.5 million to $2 million. 
But really, we have to define what that would be, and that 
would just be one part of it.
    You still have the implementation timeframe. So, not 
precluding any additional language, that was based upon the 
previous legislation. So, I don't know what would change.
    We would have to go back to the National Academy of 
Sciences and look at what future costs would be based upon the 
new requirements.
    Mr. Murphy. Okay. I think the bottom line for all of us is 
that we get this done right. And if there is X amount of money 
needed for you to get it done as quickly as possible, that we 
know that as soon as possible, so we can get it done and move 
on and get this right for our constituents. So, thank you.
    I yield back.
    Chairman Neugebauer. I thank the gentleman, and I believe 
that is all of the questions for this witness.
    Mr. Fugate, thank you very much. Your testimony has been 
very informative and we certainly appreciate the relationship 
that we, the committee, has had with you and your staff.
    I think you have shined some light on some issues and we 
look forward to working with you and appreciate what you are 
doing. And with that, you are dismissed.
    And we will call up the next panel.
    Mr. Fugate. Thank you, Mr. Chairman.
    Chairman Neugebauer. I would ask everyone to either take a 
seat or take conversations out in the hall so we can hear from 
these panelists.
    I want to thank the panel for being here. Thank you for 
your patience, and as you know, each one of you will be 
recognized for 5 minutes to give a brief summary of your 
written testimony, and without objection, your written 
testimony will be made a part of the permanent record.
    Our second panel consists of: Josh Saks is the legislative 
director at the National Wildlife Federation; Michael Hecht is 
the president and chief executive officer of Greater New 
Orleans, Inc.; Maurice ``Moe''Veissi is the immediate past 
president of the National Association of REALTORS; Barry 
Rutenberg is the immediate past chairman of the board of the 
National Association of Home Builders; Chad Berginnis is the 
executive director of the Association of State Floodplain 
Managers; and Douglas Holtz-Eakin is the president of the 
American Action Forum.
    I note that the two people on the panel who have the 
biggest smiles on their faces are Mr. Veissi and Mr. Rutenberg, 
as both of them are past president and past chairman. We 
welcome the panel today.
    Mr. Saks, you are recognized for 5 minutes.

 STATEMENT OF JOSHUA SAKS, LEGISLATIVE DIRECTOR, THE NATIONAL 
                   WILDLIFE FEDERATION (NWF)

    Mr. Saks. Thank you, Mr. Chairman, Ranking Member Capuano, 
and members of the subcommittee.
    I serve, as you said, as legislative director of the 
National Wildlife Federation, the Nation's largest member-based 
conservation advocacy organization with more than 4 million 
members and supporters, and I appreciate the opportunity to 
speak with you today about the NFIP and Biggert-Waters.
    First and foremost, NWF has been and continues to be a 
strong supporter of Biggert-Waters. It helps to reduce the 
habitat loss that accompanies unwise, federally-subsidized 
development in coastal and riverine areas and it helps protect 
people and communities from floods and storms.
    NWF has worked for decades to protect and restore the 
Nation's coasts, wetlands, and floodplains, areas that provide 
some of the most vital wildlife habitat for a wide range of 
species while helping to protect and buffer people and 
communities from floods and storms.
    Key reforms in Biggert-Waters took steps to address the 
shortcomings of the NFIP--reforms that will help lessen its 
environmental impacts and protect ecosystems. Specifically, 
these reforms are a move towards risk-based rates, increased 
science guiding mapping, and improved mitigation.
    We continue to support these reforms and we believe they 
should be implemented on schedule. However, we recognize there 
could be some people--owners of primary residences--who now 
find themselves facing higher flood threats as a result of 
policies pursued by Federal and State Governments and could 
potentially face unaffordable rate increases.
    Among those facing these threats are communities in coastal 
Louisiana where NWF has worked to restore coastal wetlands for 
over a decade. And we are concerned that the real progress 
being made in Louisiana and elsewhere to integrate flood risk 
management with large scale ecosystem restoration could be 
undermined by reactions to the rate increases.
    To address these concerns while ensuring continued and 
timely implementation, we believe that Congress should consider 
targeted fixes to help those most at risk without rolling back 
rate reforms.
    Four principles underlie these policy proposals: one, delay 
of rate reforms is not a solution; two, the flood risk to 
homeowners is real and it is increasing and the NFIP should 
reflect that; three, maps must be accurate and rates must send 
a meaningful market signal that is fair to both policyholder 
and taxpayer; and four, policyholders deserve certainty.
    Specifically, we suggest several steps to provide relief in 
certain cases. First, we believe in the power of pre-disaster 
mitigation.
    Unfortunately, Federal funding to mitigate flooding and 
disaster risk has fallen far short of demand. Congress must 
significantly increase the investment in these programs, and 
ensure that a percentage of funds allocated through these 
programs are directed towards areas being hardest hit by rate 
increases.
    We also encourage Congress and FEMA to allocate funds from 
the NFIP reserve fund, created by Biggert-Waters, to provide 
needed mitigation dollars. Hopefully, with careful mitigation, 
we can reduce NFIP premiums for those who are hardest hit by 
rate increases.
    While mitigation is ultimately the key to both risk 
reduction and cost containment for NFIP policies, we recognize 
that other remedies may be needed to limit the shocks 
associated with these rate increases. We recommend that 
Congress lengthen the phase-in period for rate increases to 
grandfathered properties facing updated rate maps.
    Biggert-Waters provided this class of property holders with 
the shortest of all phase-in periods in the bill. Congress 
should extend the phase-in period to limit the financial impact 
of rate increases, and to give people and communities ample 
time to take mitigation actions so they will hopefully never 
see a rate that they cannot afford.
    In addition, Congress should consider limits on premium 
rates imposed on primary residences, to ensure that the final 
premium cost does not exceed what is affordable to homeowners. 
NWF also endorses means-tested subsidies to offset the cost of 
a risk-based rate for primary residences, and homeowners who 
cannot afford the cost of the policy.
    The Congress should immediately establish that fund and 
make sure they do it outside of the rate structure of the 
program, and that it is based on need. We also urge Congress to 
address regional concerns that are impacting rates in some 
areas of the country which are heavily dependent on levee 
systems for flood control.
    Particularly in parts of Southern Louisiana, some property 
owners are likely to experience dramatic rate increases, 
because updated flood maps are not crediting the flood 
protection provided by non-Federal or nonaccredited levees. 
Congress should immediately remedy this by ensuring that 
appropriate credit is given to those levees.
    In closing, the National Wildlife Federation is committed 
to working with members of this committee and our partners 
across the country to ensure that Biggert-Waters reforms are 
fully implemented, while limiting financial hardship as much as 
possible. We must move forward with implementation of this 
historic flood reform, while rapidly addressing some of the 
unintended consequences of Biggert-Waters in a targeted and 
responsible way.
    In an era of increasingly frequent and severe storms and 
flooding events, enacting reforms to the Flood Insurance 
Program in a responsible and fair manner is now more urgent 
than ever. Thank you.
    [The prepared statement of Mr. Saks can be found on page 
164 of the appendix.]
    Chairman Neugebauer. Thank you. Mr. Hecht, you are now 
recognized for 5 minutes.

   STATEMENT OF MICHAEL HECHT, PRESIDENT AND CHIEF EXECUTIVE 
               OFFICER, GREATER NEW ORLEANS, INC.

    Mr. Hecht. Good afternoon, Chairman Neugebauer, Ranking 
Member Capuano, and members of the subcommittee. It is an honor 
to speak with you here today on the effects of rising flood 
insurance costs across the country.
    My name is Michael Hecht. I am the president and CEO of 
Greater New Orleans, Inc. (GNO, Inc.), the 10-parish or county 
economic development organization for Southeast Louisiana.
    Since May 2013, GNO, Inc., has been leading the Coalition 
for Sustainable Flood Insurance, a national alliance that is 
formed to ensure that flood insurance will be both affordable 
and financially sustainable.
    The Coalition for Sustainable Flood Insurance now 
represents nearly 200 businesses, trade organizations, and 
local governments in 27 States across America, from the 
Carolinas to Oregon, from North Dakota down to Florida.
    We understand and appreciate the tremendous efforts of the 
subcommittee, and the full Financial Services Committee that 
you have put into the long-overdue reauthorization of the 
National Flood Insurance Program. We know it was a well-
intentioned balancing of the interest of various regions of the 
country, and the budgetary constraints that our government 
faces in revising this essential program.
    Our testimony today, therefore, is not to criticize, but 
actually to highlight some inequities that even the co-author 
of the Act, Ranking Member Waters, has acknowledged. And we do 
deeply appreciate her leadership on the issue, as well as that 
of others, including Representatives Cassidy, Richmond, 
Scalise, Grimm, and many others on this issue.
    GNO, Inc., and the Coalition for Sustainable Flood 
Insurance support a fiscally-sound, actuarially-responsible 
NFIP that does communicate true risk to our citizens. None of 
us want to incentivize, want to create perverse incentives for 
building in harm's way, nor do we advocate for the continued 
subsidization of severe repetitive-loss properties.
    However, we have a moral and economic duty to protect 
property owners who have played by the rules, and built exactly 
where the government has told them. These people should not 
lose their homes and their businesses.
    We are dealing with a problem of profound, unintended 
consequences here. It is a three-way confluence of the Biggert-
Waters Act, incomplete FEMA maps that artificially inflate 
risk, and questionable actuarial calculations.
    This is leading to the premium increases that you have 
heard about today of 3,000 percent or more, including massive 
rate increases for policyholders who, again, have built exactly 
as FEMA has told them, and in many cases, have never flooded.
    These clearly unaffordable premium increases are not 
limited to properties with severe repetitive loss, or 
beachfront properties. They are primary residences of all 
income levels that have never flooded. These are the ones that 
are being impacted.
    There are several examples in your packet that highlight 
these extreme increases. For example, there is a primary real 
estate transaction that just recently fell through in Southern 
Louisiana, because the flood insurance skyrocketed from just 
over $1,370 a year to $8,340 a year.
    And another example, a sergeant in the U.S. Army, who is 
stationed at MacDill Air Force Base in Tampa, Florida, 
purchased a home in Oldsmar, Florida, worth $158,000. He was 
quoted a premium for $4,307. This was a 431 percent increase 
from what the previous owner paid. This house has never 
flooded.
    NFIP rates suddenly jumping as much as 3,000 percent in the 
middle of the mortgage, when the owner had really no reason to 
anticipate this unaffordable increase when the original 
contract was signed, contradicts typical insurance practice and 
reasonable expectation. And businesses and individuals don't 
have a choice.
    We know that about 55 percent of the country lives within 
50 miles of the coast. And oftentimes, its insurance is 
government-mandated.
    Furthermore, the flood insurance maps that are being rolled 
out across the country are artificially inflating risk by 
excluding local flood protection features like levees and 
railroad embankments from the maps. Not only does this falsely 
inflate risk for policyholders who are protected by local 
levees, but it produces a disincentive for local governments to 
invest in these structures.
    And I have to be clear, this is not just for the 20 percent 
who are currently subsidized because they were built before 
1973. This is for the 80 percent who are going to lose their 
grandfathering.
    And this number is not 1 million. This number could be 
another 4.5 million, on top of the 1 million. So it is a much 
bigger problem than just the 20 percent who are going to be 
losing their subsidized rates.
    And finally, the calculations we are seeing don't really 
make actuarial sense. For example, a homeowner in St. 
Petersburg, Florida, is trying to sell her primary home. That 
home is valued at $250,000. But she cannot, because the flood 
insurance premium is going to escalate from $1,074 a year to 
$10,872 a year. The home has never flooded.
    And the question is, if the FEMA-based flood elevation is 
indexed to a 100-year storm, then why is this family being 
charged a premium that would buy a replacement every 23 years? 
It just doesn't seem to make actuarial sense.
    Now, the good news is that there is a bipartisan solution 
that has been supported now by over 130 co-authors, emerging in 
the House and Senate, to address these unintended consequences. 
H.R. 3370, the Homeowner Flood Insurance Affordability Act of 
2014, will delay premium increase for 4 years, until FEMA has 
had the opportunity to complete the affordability study 
mandated by Biggert-Waters and Congress, and Congress then has 
an opportunity to consider the recommendations set forth in the 
study.
    This is common-sense legislation. We should understand the 
potential impact of Biggert-Waters before we go and we 
implement it. I urge you to bring this up for consideration as 
soon as possible.
    I encourage this committee to act immediately to protect 
the American economy, and the investments of taxpaying American 
citizens, by bringing up for consideration H.R. 3370. If we do 
not, the National Flood Insurance Program will grievously harm 
the very Americans that it was designed originally to protect.
    In conclusion, to implement Biggert-Waters as it currently 
stands would be economically unwise, and would be morally 
unjust. We must do better. Thank you so much.
    [The prepared statement of Mr. Hecht can be found on page 
88 of the appendix.]
    Chairman Neugebauer. Thank you. Mr. Veissi, you are 
recognized for 5 minutes.

STATEMENT OF MAURICE ``MOE'' VEISSI, IMMEDIATE PAST PRESIDENT, 
          THE NATIONAL ASSOCIATION OF REALTORS (NAR)

    Mr. Veissi. Chairman Neugebauer, Ranking Member Capuano, 
and members of the subcommittee, thank you for holding this 
hearing on the implementation of the Biggert-Waters Flood 
Insurance Act.
    My name is Moe Veissi. I am the REALTOR-owner of Veissi 
and Associates in Miami, Florida, and have been a REALTOR for 
more than 44 years. As past president of the National 
Association of REALTORS, I am proud to represent the views of 
more than a million-plus members of our Association.
    I want to begin, first and foremost, by thanking you for 
authorizing the National Flood Insurance Program under Biggert-
Waters. It put an end to an uncertainty that was shutting down 
about 40,000 home sales per month.
    I would also like to acknowledge Congresswoman Waters for 
her leadership over many years, working to maintain access to 
affordable insurance through that gridlock. We asked her to 
carry a heavy burden, and she delivered, not just for the 
Nation's 75 million homeowners, but for all Americans who 
aspire to the American dream of homeownership.
    There is no doubt that the Biggert-Waters reauthorization 
brought stability to the NFIP. But it was too tall an order for 
FEMA to implement in such a short amount of time. And there 
have been unintended circumstances as a result.
    Perhaps the best way to understand the issue is to hear 
stories of those who have been impacted. First-time homebuyers, 
Tim and Catherine Clearwater, from a small town in Hawaii, 
spent 2 years searching for their home, for that entire time, 
and finally, identified one of just under 900 square feet, a 
modest home in a small town close to where he worked as a 
Merchant Marine.
    Like many other families across the country, the 
Clearwaters went ahead and bought before they could be warned 
about the insurance situation. When they bought, they were 
paying just $2,700 a year. They are facing a nearly 1,000 
percent increase to about $28,000, unless Congress acts now.
    If unable to get a loan to further elevate the property, 
they are facing certain foreclosure. While rate shock is one of 
the worst problems consumers are facing, there is widespread 
insurance confusion. Cost is not the only issue. Establishing a 
baseline is.
    In one case, a buyer received 6 different quotes ranging 
from $10,000 to $30,000 per year. Three of the quotes came from 
three different agents out of the same company.
    All six agents provided inaccurate information about the 
property, and the mistakes that they made were driving the 
quotes. When the correct data was entered into the system, the 
true rate turned out to be just $480 a year, which by the way, 
we confirmed with FEMA.
    Sadly, those unforeseen and unintended circumstances are 
happening across the country. We also understand this is not a 
partisan issue. We are confident that both sides will be able 
to come together to sort through the issues and to agree on a 
longer-term fix.
    But before we do, we need Congress to call a time-out and 
to delay further implementation until FEMA can investigate and 
report back to Congress. We need an affordability baseline 
before we proceed.
    Thankfully, Congressman Grimm and Congresswoman Waters and 
132 of their colleagues have introduced bipartisan legislation 
to do just that. It is called the Homeowner Flood Insurance 
Affordability Act. We urge the committee to take up this 
legislation immediately. I can assure you time is of the 
essence.
    Rates went up October 1st, and every day you wait, the 
problem only compounds. The economy is still recovering as the 
housing market is today. We need this. The National Association 
of REALTORS and our 1 million members stand ready to work with 
the committee and with FEMA to find a way to move forward.
    We owe it to the Americans who know that their hearts are 
in homeownership are still intact and the beacon for 
homeownership and prosperity in the 21st Century lies in that 
ability to be able to buy and sell a home in America.
    Thank you for the opportunity to testify. I am happy to 
answer any of your questions.
    [The prepared statement of Mr. Veissi can be found on page 
170 of the appendix.]
    Chairman Neugebauer. I thank the gentleman.
    Now, Mr. Rutenberg, you are recognized for 5 minutes.

 STATEMENT OF BARRY RUTENBERG, IMMEDIATE PAST CHAIRMAN OF THE 
    BOARD, THE NATIONAL ASSOCIATION OF HOME BUILDERS (NAHB)

    Mr. Rutenberg. Thank you, Chairman Neugebauer, Ranking 
Member Capuano, and members of the subcommittee. My name is 
Barry Rutenberg and I am a home builder from Gainesville, 
Florida, and NAHB's immediate past chairman.
    NAHB believes in a strong and viable NFIP and supported the 
Biggert-Waters Act. However, we are concerned about dramatic 
flood insurance premium increases and the negative impact these 
increases are having on the construction, remodeling, and sale 
of homes.
    The National Association of Home Builders strongly supports 
the requirement for FEMA to redraw flood maps using 
scientifically-based data to show the true risk of flooding and 
a clearer picture of where actuarial rates should be set. FEMA 
has neglected to factor in privately funded flood control 
structures, resulting in many properties being mapped in a 
higher rate zone, causing homeowners to be forced to purchase 
unneeded flood insurance or pay higher than necessary premiums.
    Other examples of inaccurate mapping have resulted in homes 
unnecessarily being drawn in the flood maps or placed in the 
higher rate zones for the first time. It typically takes years 
for those mistakes to be fixed, often requiring lengthy and 
costly appeal processes, as well as forcing the payment of 
escalated premiums until the problem is resolved. For some, it 
may force them from their homes, causing property values to 
drop and neighborhoods to decline.
    The Biggert-Waters Act requires the immediate payment of 
full risk rates upon sale or transfer of property. Adding to 
today's tight credit conditions, this change is already 
deterring prospective buyers who fear the higher rates will 
make their mortgages unaffordable. Homeowners may also be 
unable to sell their current homes and be prevented from 
becoming move-up buyers of newly constructed homes. In fact, we 
have heard of many cases where pending sales have been canceled 
at the last minute.
    Of concern to NAHB is the lowering of the substantial 
improvement cumulative threshold from 50 percent to 30 percent. 
Any renovation that meets the new lower threshold will trigger 
a phase-in to higher rates and must immediately be brought into 
compliance with the current requirements such as elevating a 
building above the base flood elevation.
    We estimate that the new substantial improvement threshold 
will place up to $8.5 billion in annual remodeling economic 
activity at risk. We believe this will adversely impact 
homeowners by forcing them to either forego even the simplest 
of remodeling jobs or face extensive and expensive renovations 
which sharply increase flood insurance rates.
    NAHB appreciates that many in Congress share our concerns 
and have introduced a wide range of legislative proposals. NAHB 
recognizes that they are not the only possible solutions. 
However, they largely represent steps that balance 
affordability or the viability of the program. We recommend 
that Congress delay all rate increases until the affordability 
study is complete. NAHB recommends that Congress provide FEMA 
with the necessary funds to complete the study as quickly as 
possible.
    Only then will FEMA and Congress have a true understanding 
of the economic impact the higher rates will have on 
homeowners. While delay might not be the most ideal solution 
for the long-term fiscal stability of the NFIP, the current 
situation is undercutting the effectiveness of the program and 
causing unnecessary economic distress.
    Further, NAHB recommends that Congress require that FEMA 
take into account all flood control structures when mapping, 
allow for sufficient time for public review, and independent 
vetting of the new maps, and prohibit rate increases based on 
incomplete or inaccurate maps.
    We would also recommend that Congress reinstate the higher 
substantial improvement threshold, allow FEMA to continue 
flexibility for the basement exception, and regional issues, 
and urge FEMA to match its definition of primary residence to 
that of other Federal tax regulations.
    NAHB is committed to working with this subcommittee and 
with Congress to find pragmatic solutions that will prevent 
undue hardship in the recovering housing market, prevent home 
values from decreasing, and make the NFIP stronger and more 
effective for years to come.
    We appreciate your leadership and thank you for your time 
today and for the opportunity to testify before you.
    [The prepared statement of Mr. Rutenberg can be found on 
page 104 of the appendix.]
    Chairman Neugebauer. I thank the gentleman.
    Mr. Berginnis, you are recognized now for 5 minutes.

     STATEMENT OF CHAD BERGINNIS, EXECUTIVE DIRECTOR, THE 
        ASSOCIATION OF STATE FLOODPLAIN MANAGERS (ASFPM)

    Mr. Berginnis. Thank you, Chairman Neugebauer, Ranking 
Member Capuano, and members of the subcommittee for lasting 
this long. I am Chad Berginnis, executive director of the 
Association of State Floodplain Managers. Our 15,000 members 
and our 35 chapters are on the frontlines trying to implement 
Biggert-Waters as we help educate homeowners as well as those 
affected on how to deal with these rate increases.
    I want to start by talking about some successes about 
Biggert-Waters because I think these are important to also talk 
about. Superstorm Sandy has shown that the basic principles of 
Biggert-Waters reforms work; that once people are aware of and 
accurately price risk, they will take mitigation actions such 
as elevating, flood-proofing, or relocating out of harm's way.
    There is more interest in mitigation activities up and down 
the affected areas, and when talking to long-time floodplain 
managers, they have said that we have seen more mitigation 
activities actually occurring after this large event than we 
have in previous events in modern history.
    Communities are considering higher building standards such 
as enhanced free-board factors--some communities requiring up 
to 3 feet above flood elevation. And that results in lower 
flood insurance rates and better resiliency.
    Elsewhere in the country, property owners are seeking 
mitigation options to deal with increased rates. There is more 
interest in the community rating system. And the scientific 
resolution panel to solve difficult mapping problems has 
successfully remedied such issues. Lenders are being more 
careful to review their portfolios to ensure those who are 
required to have flood insurance do indeed have it.
    Ultimately, though, the cumulative impact of the reforms 
was too much and too fast for many property owners of at-risk, 
pre-flood insurance rate map (pre-FIRM) buildings. The Nation 
has operated under a program that for 45 years worked under the 
following premise: policy discounts for older, at-risk 
structures, and for those whose flood risk has gotten worse.
    ASFPM supports many of the reform principles in Biggert-
Waters, but we do want to highlight some of the most impactful 
suggestions among our 20 specific recommendations found in our 
written testimony.
    The first suggestion is to extend the phase-in of full-risk 
rates for pre-FIRM structures, reducing the per-year increase 
to a range of 5 to 10 percent annually, and eliminate the 
current structure which phases in these rates either over 20 
percent, 25 percent, or immediately. What we have been finding 
is the most onerous triggers are the immediate triggers to 
full-risk rates, and those are affecting primary households, 
the very group that Congress was seeking to protect under the 
Biggert-Waters reforms.
    The longer phase-in period allows progress to be made on 
the NFIP affordability study, as well as giving time for 
property owners to seek mitigation options and assistance to 
reduce their flood risk. It also provides certainty.
    But we can't forget that regardless of how we deal with 
that issue, there is a broader affordability problem brewing. 
The average flood insurance rate for A zones and B zones, those 
that are required to get flood insurance, increased by 17 
percent this year. The committee should take immediate action 
on new and innovative affordability concepts versus waiting for 
the completion of the affordability study. Pilots could include 
group- or community-based flood insurance, means-tested 
vouchers, and those vouchers linked to low-interest loans, and 
just stand-alone low-interest loan programs to mitigate those 
homes.
    Third, existing mitigation programs need to be enhanced and 
need to be made more efficient to help with the affordability 
issues. Within a flood insurance policy, there is a provision 
called ``increased cost of compliance (ICC).'' The 2004 reform 
of the NFIP broadened that to require the triggering of ICC 
whenever a FEMA offer of mitigation was made. That has not been 
fully implemented, and that provision could be more 
accommodating and flexible.
    The flood mitigation assistance grant program had $300 
million in applications this fall alone, but the authorization 
is only $90 million. The pre-disaster mitigation program is one 
that FEMA has proposed to eliminate twice in the past 2 years 
and that could provide direct mitigation assistance to affected 
homeowners.
    Fourth, flood mapping in the Nation must be completed and 
it must be maintained. ASFPM fully supported the creation of 
the national flood mapping program, but we have been sorely 
disappointed to see the Administration's budget request of less 
than one-quarter of the authorized funding in 2014. As was said 
many times earlier, mapping is a fundamental part of the 
actuarial soundness of the program. And to not complete the 
mapping further threatens the long-term program fiscal 
solvency.
    We must also do something about the program's debt. 
Congress has reacted quickly by increasing the borrowing 
authority of the NFIP after Hurricanes Katrina and Sandy, but 
is slow to recognize that catastrophic losses cannot be repaid 
by reliance on the insurance mechanism alone, especially prior 
to Biggert-Waters.
    Given the very high risks associated with flooding and the 
high occupancy of flood areas, and the multiple purposes of the 
NFIP, as there are very valid public benefits of having the 
program, ASFPM desires to ensure that the program is on solid 
financial footing, reduces flood losses, and protects the 
natural functions of floodplains well into the future.
    Thank you.
    [The prepared statement of Mr. Berginnis can be found on 
page 62 of the appendix.]
    Chairman Neugebauer. I thank the gentleman.
    And finally, Dr. Holtz-Eakin is recognized for 5 minutes.

   STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, THE AMERICAN 
                          ACTION FORUM

    Mr. Holtz-Eakin. Thank you, Chairman Neugebauer, Ranking 
Member Capuano, and members of the subcommittee for the chance 
to be here today. It is late. I will be brief.
    The history of the NFIP is a history of underpriced 
premiums, program financial shortfalls, and poor incentives. 
And this is a story that is quite familiar from other Federal 
attempts to manage risk, as the chairman mentioned at the 
outset.
    When I was the Director at CBO, we undertook a systematic 
study of a wide variety of risk management efforts by the 
Federal Government: Federal deposit insurance; the Federal 
Housing Administration; Fannie Mae, Freddie Mac and the GSEs; 
Federal student loans; Federal health programs. And those 
studies revealed the tale exactly as we have seen it in the 
NFIP: underpriced premiums, and the taxpayer left holding the 
financial shortfalls that those programs have produced.
    From that perspective, the reforms in Biggert-Waters, which 
involve fundamentally better measuring the risks that are 
presented and then more accurately pricing those risks are 
entirely desirable and should be embraced by the committee and 
indeed by the Congress as a whole.
    What we have seen, I think, is instead a fear that the 
transition costs for a small number of affected policies might 
drive policy instead of the entirely desirable reforms for the 
program as a whole. And I would urge the committee and the 
Congress to look at targeted transition relief for those who 
merit it on the grounds of income or special circumstances and 
not to put off the reforms the program needs or otherwise 
undercut a desirable move toward accurately measuring risk, 
pricing that risk, and providing the incentives to avoid 
putting value at risk going forward.
    I thank you for the chance to be here today, and look 
forward to answering your questions.
    [The prepared statement of Dr. Holtz-Eakin can be found on 
page 94 of the appendix.]
    Chairman Neugebauer. Thank you.
    I now recognize myself for 5 minutes to ask questions.
    One of the things that we have heard a number of people 
talk about today--they used the word ``affordability,'' and 
they referred to the affordability study. So when we talk about 
affordability, that means that there may be people who--I guess 
we are assuming--can't afford the premium on the flood 
insurance on the residence.
    Just for example, if Congress decided to do something about 
the affordability issue for those people and give them a 
subsidy or a voucher or something like that, who is going to 
pay for that?
    Mr. Saks, if somebody can't pay their share, then who 
should pay?
    Mr. Saks. Thank you, Mr. Chairman.
    I think the question here is how much do we want the 
taxpayer to pick up that subsidy? And, certainly, there is a 
role for the taxpayer, but the Congress has to decide what a 
comfortable place is.
    I think what we would like to see is communities, 
individuals taking as much mitigation responsibility as they 
can ahead of time so we don't have to get to those rates, and 
so ultimately nobody has to pay that higher cost.
    Chairman Neugebauer. So you would have the taxpayer pay for 
it?
    Mr. Saks. Frankly, as a conservation group, sir, it is not 
really our place to say who should pay for it, but--
    Chairman Neugebauer. But your answer was the taxpayer.
    So Mr. Hecht, who should pay?
    Mr. Hecht. Thank you, Mr. Chairman.
    Yes, I think that I would agree that to some significant 
degree, living and working near the coast is a bit of a public 
good. We get our oil and gas; our seafood, our ports are there. 
And so there has to be, I think, a responsible look at to what 
degree that would be paid for as a public good. But, again, I 
am an economic developer, so I am considering it from that 
perspective.
    Chairman Neugebauer. So if it is the taxpayers, is it the 
taxpayers all across the country or is it the taxpayers in 
Louisiana for Louisiana residents?
    Mr. Hecht. Thank you.
    I think, given that the National Flood Insurance Program is 
held in all 50 States, and the issue spans the whole country 
and the entire country benefits from things like our port 
activity, that is a general issue for the country.
    Chairman Neugebauer. Thank you.
    Mr. Veissi, who should pay?
    Mr. Veissi. I think one of the reasons we are here is to 
anticipate the opportunity to be able to extend this out for a 
4-year period so we can figure out who pays, how they pay, and 
what distribution works across-the-board. This isn't a taxpayer 
issue; it hasn't been initially, anyway. It has been an issue 
that was a loan from the Treasury. It is going to be paid back. 
We don't know exactly how long it will take to get paid back, 
but we know it is a loan that has to be paid back to the 
Treasury.
    So our position, quite frankly is that better minds 
together over the next few years can best figure out exactly 
how this is distributed accurately and fairly across-the-board. 
That is why we are asking for a timeout and to have a baseline.
    Chairman Neugebauer. Well, there are only two groups of 
people who can pay for it: the other policyholders--so you 
would spread the love over other policyholders; or the 
taxpayers. So which one do you choose, the policyholders or the 
taxpayers?
    Mr. Veissi. Congress has already chosen that for me. They 
have said the Treasury is responsible. We have borrowed that 
money from the Treasury.
    Chairman Neugebauer. Yes, but the Treasury--
    Mr. Veissi. I'm sorry?
    Chairman Neugebauer. --is the taxpayers. We use that word 
like it is a magic word. Where does ``the Treasury'' get their 
money? They get it from me and you.
    Mr. Veissi. There is--
    Chairman Neugebauer. Mr. Rutenberg, do we get it from the 
taxpayers or from the policyholders?
    Mr. Veissi. We will ultimately, hopefully, answer that 
question by having that timeout to be able to take a hard look 
at where that happens. We know it is a loan; we know it has to 
be paid back. We are not sure whether it is going to be paid 
back in 5 years. We are not sure it is going to be paid back in 
a longer period of time.
    Chairman Neugebauer. Okay, Mr. Rutenberg?
    Mr. Rutenberg. Mr. Chairman, I think there are more than 
two choices, not to be disrespectful. But I know that in the 
developments that I have done, we have spent lots and lots of 
money to mitigate stormwater. And currently, those are not 
being addressed in the calculations.
    So my question is, I am looking forward to the study and 
the discussions, because I think, perhaps, we are assuming a 
certain price for the insurance and it may not be the right 
price.
    Ultimately, it may need to be the taxpayer or the 
ratepayer. It may be the market. And if we have the right data, 
and we get the right prices, then people will start to move 
around to where it makes sense for them. That will go on over 
time. I think we need to have some transition to that.
    And I am speaking personally. I am not speaking for the 
association policy. As far as I know, we have no policy on the 
matter.
    Chairman Neugebauer. Mr. Berginnis?
    Mr. Berginnis. I also think there are two answers, and it 
is the taxpayer or the taxpayer--and it depends how we want to 
pay.
    The taxpayer, if we don't have a targeted-type program like 
a voucher program and folks walk away from their homes or they 
drop their flood insurance and they get disaster assistance, 
the taxpayer pays. So, isn't it better to have at least partial 
payment through an insurance mechanism where the insurance fund 
then covers those losses and those individuals do not have to 
take out disaster assistance--
    Chairman Neugebauer. So basically, it is a transfer. And so 
the question is, do you transfer it to other policyholders, 
other people who have flood insurance policies, or do you 
transfer that risk to the taxpayers? That is the question.
    Mr. Berginnis. And I do think, with other policyholders, 
part of the problem is--as I mentioned in my testimony--the 
rates for other policyholders are going up. As FEMA implements 
the reserve fund, for example, which is a very good provision 
of Biggert-Waters, but that reserve fund is going to go up 5 
percent a year for the next several years. And so the average 
rates, again, for the mandatory purchase areas, they increase 
17 percent this year. I wouldn't expect that to abate anytime 
in the next few years.
    And so, I think to also include a subsidy on those 
policyholders creates an affordability issue over there.
    Chairman Neugebauer. Mr. Holtz-Eakin?
    Mr. Holtz-Eakin. Obviously, our first choice is the 
ratepayers. I would point out, as I did in my written 
testimony, that historically you can make the case that this 
program has never broken even, and it has been running at a 
real economic loss since its inception. So they have never 
paid--much less add on a subsidy. It would be desirable if they 
did.
    The second set of taxpayers might be in a local area or a 
State. And as I mentioned in my testimony, you could imagine 
this type of insurance, if it is not fully priced, being offset 
against other kinds of insurance--ex-post disaster rates to 
States--so that they had incentives to go out and do the kind 
of mitigation that Mr. Rutenberg mentioned--and that would 
lower the insurance and provide affordability.
    And the last choice, I would, suggest would be the 
taxpayers as a whole.
    Chairman Neugebauer. I thank the gentleman.
    The gentleman from Massachusetts, Mr. Capuano, is 
recognized for 5 minutes.
    Mr. Capuano. Thank you, Mr. Chairman.
    I would just like to point out that generally, as I 
understand it, most ratepayers are also taxpayers, and the same 
is true of taxpayers are ratepayers, because they pay insurance 
somewhere.
    I have never had a tornado in my district, but I am sure I 
have covered some people who do. I have never had an earthquake 
in my district, yet I am sure I cover some people who do. That 
is the whole idea here, spreading it out because there are 
certain national interests. This may or may not be one of them.
    But that is not where I wanted to go. Where I wanted to 
go--because I think it is a fair question. And I think, again, 
I have been happy that the entire panel and, to my knowledge, 
every Member on both sides of this aisle have all said the goal 
is to try to get off subsidies. Now, of course, the reality is 
that we are getting hit in the face with significant increases 
which none of us expected.
    So now the question is, what do we do? And some of us have 
said, ``Pause, let's try to figure this out.''
    Mr. Berginnis, I saw your 20 points. Some of them I don't 
understand. I would love to have that discussion, but I can't 
do it in a day. It is going to take a little while. And that is 
the whole idea of hitting ``pause.''
    And before I ask my question, Mr. Saks, Mr. Holtz-Eakin, 
are you surprised that you are kind of on the same side of the 
whole thing? I am. I just think it is great to have the two of 
you guys on the same side of an issue. It is--
    Mr. Saks. I am not surprised. I think often good 
environmental policy means reducing harmful subsidies. So, 
there are many cases where conservation is--
    Mr. Capuano. We don't want to talk about corporate 
subsidies just yet. That is a different issue.
    But I do want to talk about one thing. Mr. Berginnis, all 
of your floodplain managers--a lot of them have seen or 
witnessed, I am sure, significant flooding. When flooding 
occurs, does it only hit primary residences? Does it somehow go 
around small businesses and second homes?
    Mr. Berginnis. No, it does not.
    Mr. Capuano. It hits everybody?
    Mr. Berginnis. Yes.
    Mr. Capuano. And when someone owns a small restaurant, when 
they lose that restaurant to a flood, are they any less 
impacted than somebody else who might lose a home?
    Mr. Berginnis. Even some of the FEMA data and the 
statistics--I heard a public service announcement just the 
other night that up to 40 percent of businesses that experience 
a major disaster never reopen. So one might argue they have 
more of an impact.
    Mr. Capuano. The reason I ask is because the bill that 
several of you mentioned--I am not a co-sponsor yet, though I 
agree with the bill. And I am not a co-sponsor because it does 
not include small businesses and second homes.
    And, again, I get the feeling that some people think that 
all second home owners are Bill Gates--and I am sure he has a 
lovely second home, or probably 12 of them. I don't know and I 
don't care. But Mr. Veissi, you are the REALTOR, surely you 
have a lot of members of your REALTORS who sell second homes, 
do they have the experience that every second home owner is a 
multi-millionaire who can just throw money away?
    Mr. Veissi. We recognize that a vast majority of the second 
home owners in this country are not multi-millionaires; they 
are working fellows and gals just like you and me. We know and 
understand that. We want to make sure that they get a fair 
shake, and that is why we are asking for a pause to get a 
baseline for them so that each of us--
    Mr. Capuano. So you wouldn't oppose an amendment to H.R. 
3370 that would include second homes and small businesses?
    Mr. Veissi. I wouldn't oppose an opportunity to include all 
of that information after a timeout so that we can at least 
noodle it through and figure out where we are going to go with 
second homes, small businesses, and primary residences.
    We know one thing; we have a fledgling economy just 
recovering in the housing market, one that is enormously 
important to this economy, but more important to the social and 
cultural fabric of this country.
    Mr. Capuano. Thank you.
    Mr. Rutenberg, would your association oppose doing--
whatever it is we do for primary home owners, would you oppose 
doing the same for small businesses and second home owners?
    Mr. Veissi. We wouldn't oppose the--
    Mr. Capuano. Mr. Rutenberg.
    Mr. Veissi. Oh, I'm sorry.
    Mr. Capuano. You already answered.
    Mr. Veissi. We have spent a lot of time together.
    Mr. Capuano. That's okay. My wife answers for me all the 
time.
    Mr. Rutenberg. We very much are supporting small 
businesses. Most of us are small businesses. And the secondary 
homes--the typical income of someone in a secondary home is 
$74,000. And it is us, and I think that we need to have the 
study so that we can know what we are doing, and we can do this 
well.
    One of the problems that I was thinking of after my answer 
is that 25 percent to 30 percent of the money that is spent on 
claims goes for 1 percent and repeats. We have a number of 
different subjects that we have to attack and we very much 
support small businesses and second homes.
    Mr. Capuano. Mr. Berginnis, would your managers oppose--
whatever it is we do, would you oppose doing something 
comparable for small business and second homes?
    Mr. Berginnis. In fact, in our testimony, and this is why 
we have suggested that you remove all of the triggers, the 
immediate 20 percent and 25 percent, and replace it with 
something like in the 5 percent to 10 percent range, that 
includes all properties primary homes, small businesses, and 
secondary homes.
    You could differentiate, be on the lower end of the 
spectrum for primary homes recognizing potentially all of the 
value and impacts there and maybe on the higher end of the 
range. But overall, all of them would have that reduced 
transition. Because it is important to us to at least get on 
the path to going to actuarial.
    We spent a lot of time in this program with subsidized 
rates, and it is going take us some years to dig out of it.
    Mr. Capuano. I agree.
    My time has expired. I appreciate the chairman's 
indulgence.
    But again, I just want to repeat, I am glad that we are all 
kind of on the same general chapter, if not the same page; 
again, no one is opposed to getting to actuarially sound rates 
if at all possible, but we all need to do this in a way that 
doesn't single out a certain number of people unintentionally.
    If we intend to do it, so be it. But I think everybody 
would agree that what has happened, and what is happening now, 
is an unintended consequence, which is why many of us are 
trying to hit the pause button.
    Thank you, gentlemen, for your indulgence.
    And I thank the chairman.
    Chairman Neugebauer. And now the gentleman from Ohio, Mr. 
Stivers, is recognized for 5 minutes.
    Mr. Stivers. Thank you, Mr. Chairman.
    I would like to thank the panel for their testimony, and 
Mr. Rutenberg, you just said something a minute ago that really 
kind of hit me about the number of claims that are related to a 
few number of homes that have repeat claims.
    Do you think the system would be better off--I certainly 
don't think anybody wants to kick anybody out of their homes, 
but when those folks who have repeat claims are either 
rebuilding or in the process of selling their home for FEMA or 
the Federal Government to actually purchase that property and 
take it back to green space, give them the value of that 
property and then allow them to build somewhere that doesn't 
have as much risk?
    Mr. Rutenberg. I think it is--we are dealing with family 
histories, but I think the options should be examined, and this 
is again personal, not association policy, but I think you 
should examine it because it could be that both the Flood 
Insurance Program and the families would be better off if we 
did something innovative.
    And there are certainly--if it was your personal business, 
and you had that kind of lost history you would be looking at 
what would be a smart alternative and would treat the people 
fairly.
    Mr. Stivers. And you may or may not have information on 
this, but when home builders build a new home, if it is inside 
or near a floodplain, how often do they sit down with the 
person who is building the home and advise them on mitigation 
techniques that might decrease their risk and therefore 
decrease their insurance?
    Mr. Rutenberg. I can answer in my area that every time we 
build in a platted subdivision where we are selling a lot the 
floodplain information is on the plat, it is part of the 
discussion, what zone they are in, what needs to be done, and 
it is assumed that we automatically take care of it in our 
construction. It is, I think, the difference would be when 
dealing on someone's property that they have had, then we have 
to be a little bit more careful and that does show upon the 
surveys. And then you have the re-sales and that is another 
issue that is not part of new construction.
    It also does come to bear on remodels. And when you go for 
your building permit, it becomes an issue there.
    Mr. Stivers. Sure.
    Mr. Saks, what about people who build in environmentally-
sensitive areas and rebuild in environmentally-sensitive areas? 
Shouldn't there be some way--actuarially sound rates, I think, 
help do this, shouldn't there be some way to help give them an 
incentive to not re-build in an environmentally-sensitive area?
    Mr. Saks. I think--
    Mr. Stivers. And again, nobody wants to kick anybody out of 
their ancestral home, or anything like that, but should the 
rest of the taxpayers in this country subsidize them?
    Mr. Saks. Of course Congressman, I think there are a couple 
of answers to that, first for new development or re-
development, Biggert-Waters and the changes associated with it 
do send a strong market signal, and I think that is the name of 
the game here, to use market forces to help impact the 
decisions we make, and in the case of those areas, it does help 
lessen floodplain development.
    And the corollary is that we have seen over the years, the 
rates associated with NFIP really exacerbate floodplain 
development. For homes that are already there, as you said, it 
is a very personal decision that hopefully rates help people 
take mitigation actions and when possible when communities and 
homeowners and everyone else can agree when we can provide buy 
outs for them, that is good for communities and for the 
environment.
    Mr. Stivers. Thank you very much.
    I think several of you have proposed solutions and ideas 
about how to adjust the program, and certainly all of us as 
policymakers are sensitive to the price shocks that some folks 
are experiencing, and I know a couple of you have suggested 
just holding off any rate increase, and several others have 
talked about capping rate increases. Can we go down the line 
and talk one at a time about what your preference is, about how 
policymakers should move forward?
    Obviously, we need to move toward actuarially sound rates 
over time.
    Mr. Saks. Our preference is some type of cap and a longer 
phase-in period, and the reason for that, Congressman, is we 
have talked a lot about market signals, mitigation--
    Mr. Stivers. And I only have 20 seconds left, so I really 
just want--
    Mr. Saks. We want to get those signals.
    Mr. Stivers. --to get to the bottom line here, yes, thanks.
    Mr. Hecht. Thank you, Congressman.
    Nobody in our constituency is against paying more. We would 
say, first have it means-tested and possibly capped. We have 
been looking at 1 percent of the assessed value of the home.
    Mr. Veissi. We are looking for the opportunity to have a 
long-term solution, that long-term solution through the 
investment of time and information over this full period in 
this brand new piece of legislation.
    Mr. Rutenberg. While we are in this long-term discussion, I 
hope that we are bringing up doing the affordability study, 
that we are looking at the private water management that has 
been done and we are thinking not only about new houses but all 
of the housing and making it fair. Let's get the NFIP so it is 
actuarially sound on good data.
    Mr. Berginnis. To not delay the rates, but phase them in 
over a longer term.
    Mr. Holtz-Eakin. Keep moving and provide those who are in 
excess of an income-based cap system.
    Mr. Stivers. Thank you. I yield back the balance of my 
time.
    Thank you, Mr. Chairman.
    Chairman Neugebauer. I thank the gentleman.
    Mrs. Beatty is recognized for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman. And thank you to all 
of our witnesses who are here today. I think that Congressman 
Stivers has given me a great segue into my comments and 
questions to you.
    Certainly as someone who got on board with supporting this, 
and I think it was because of the sensitivity of the price 
shock, what I have learned today is that we need to 
collectively figure out how we can work with FEMA, the 
insurance companies, us as lawmakers and policymakers to find a 
long-term sustainable solution which will restore the solvency 
to the National Flood Insurance Program, and also keep 
Americans in their homes.
    And certainly, as many of my colleagues have said, I 
support the return to actuarially priced premiums, but I am 
worried about the long-term viability if too many of the 
policyholders cancel their policies.
    But let me shift gears and go to you, Mr. Saks. In your 
testimony, you expressed concerns about the development of 
coastal areas, marsh and swamp lands and the construction of 
dams and levees around the country. Specifically, you mentioned 
the impacts on the environment and the local wildlife and the 
communities that are in areas that are prone to flood.
    Can you tell me how these concerns are related to the 
National Flood Insurance Program, and why the National Wildlife 
Federation supported the Biggert-Waters reform?
    Mr. Saks. Yes. Thank you, Congresswoman.
    It so happens that floodplains--the areas where flood 
waters go--are some of the most important ecological areas we 
have in the country. And they give us a lot of environmental 
benefits aside from wildlife habitat. They are places where 
groundwater settles, they keep pollution from running into our 
rivers and streams. They do a lot of important things.
    And unfortunately, those are also the areas where people 
like to live. And we are not saying that people shouldn't live 
there, but there should be a fair market signal so that people 
take into account all of these things when they are going to 
decide where to live.
    Unfortunately, by suppressing rates we have masked that 
signal, and people have developed these areas, and the Biggert-
Waters bill helped increase rates so hopefully we will see some 
of these market signals lessen the development of those areas 
and the habitat loss.
    Mrs. Beatty. Mr. Rutenberg, can you please speak to how, if 
at all, the developers engaged in subdevelopment of new 
communities use flood mapping to determine where to build?
    Mr. Rutenberg. I can talk about some of them, because it is 
different in different areas--I am familiar with the Southeast. 
I am not necessarily familiar with the Northwest or other 
areas. So, in my area, what we normally do is, we do an 
ecological study, and we do topographic, and we start with 
that. And we try and figure out where it is that we can build.
    I would also like to mention that I serve on the board of 
the Conservation Trust for Florida, and I have been an adviser 
for the Florida Defenders of the Environment for some time. And 
you can have development and environmental at the same time. 
They are not mutually exclusive.
    We do look very carefully at where we can be, and we 
determine where we can be. And then, we start working on the 
layout and the lot size, depending what the product is.
    It is interactive. We have water management districts. We 
have environmental departments. And we have all sorts of people 
with whom we are coordinating. It is pretty well gone through 
by the time we get to a development.
    It has changed dramatically in the last 30 years. It is not 
what it used to be.
    Mrs. Beatty. And lastly, with the expectation that the 
flood insurance premiums will rise dramatically in the near 
future, would that impact construction?
    Mr. Rutenberg. We will break it into a couple of 
categories. One is, in new construction in my area, I think our 
premiums would go down because we have done so much private 
mitigation to it. But we are also concerned with the entire 
housing industry. We are concerned with the people who have 
been in the house for 4 years, the people who have to move. 
Someone who has to go to a nursing home and sell their house--
it needs to be viable.
    If you are going to buy a new house, you are often moving 
out of an old house and selling it. It is a very interactive 
change, but the actual new homes, I think, on an actuarial 
basis, will fare very well, because their cost to the system 
should be very low.
    Mrs. Beatty. Thank you.
    And I yield back.
    Chairman Neugebauer. I thank the gentlewoman. And the 
gentlewoman from California, the ranking member of the full 
committee, Ms. Waters, is recognized for 5 minutes.
    Ms. Waters. Members of the panel, I don't know if you were 
here in the room when we had the discussion with the head of 
FEMA. And the information that was shared by many of us about 
the complaints that are being received from our constituents, 
and the astronomical premium increases that some people are 
being told that they have to pay.
    So, let me ask Mr. Douglas Holtz-Eakin, president of the 
American Action Forum, you mentioned in your testimony that you 
feel it is important for premiums to move to full actuarial 
risk rates. But clearly, many of these rate increases are so 
drastic that they will lead to greater foreclosures and 
depopulation of the program. Wouldn't this increase taxpayer 
exposure, because the Federal Government would provide more 
expensive disaster relief following the next inevitable 
disaster?
    Mr. Holtz-Eakin. Thank you. A couple of things. First, some 
of the testimony seemed to suggest that the rate quotes were 
inaccurate. So, let's just stipulate at the outset that these 
are accurate quotes about the cost of flood insurance, and I 
hope that is the case.
    These large rate increases actually serve a valuable 
purpose. We may not be able to control floods and other natural 
disasters, but we can control the capital and economic activity 
we put in harm's way. And large premium increases say we are 
putting that activity in harm's way, and people need to know 
that. And we need to avoid that wherever possible. That is a 
danger.
    And, so, I don't think the issue is premium increases, per 
se. The issue is, the transition costs for those of modest 
economic means when faced with large price increases. Means-
tested transition makes sense, but the notion that somehow, we 
should ignore what is being conveyed--that we are locating 
their homes, businesses, and other valuable--
    Ms. Waters. So, if I may, one of the examples I gave was a 
property where the premium was $3,300, and it went up to 
$56,000. And you are saying that it is accurate, and you know 
it is? And what represents the risk?
    Mr. Holtz-Eakin. No, I am saying--I don't know if it is 
accurate. I am hoping that quote is accurate.
    Ms. Waters. What was it you wanted us to stipulate?
    Mr. Holtz-Eakin. I wanted to stipulate for this discussion 
that the quote is accurate. If there are mistakes being made, 
then they need to be fixed. I understand that.
    Ms. Waters. Of course, I won't agree with the stipulation. 
But let me just say this: You also heard that a lot of the 
mitigation attempts are programs that have been put in place 
may not be accurately assessed. You also heard that there is a 
limit on how much local entities can support mitigation. You 
also heard that the price increases are done in mapping based 
on the community, rather than on the individual property. And 
given all of that, you still want to stipulate that these price 
increases are accurate?
    Mr. Holtz-Eakin. I would hope that they would be accurate. 
As I mentioned in my written testimony, I am in favor of credit 
for mitigation, and down to the individual household level. 
That is an important part of managing risk. There is no reason 
to be opposed to that.
    What I do know is that this program, as with many Federal 
risk programs, has run an economic lawsuit since inception, and 
that suggests a systematic problem with having actuarially fair 
rates. We need to avoid that going forward.
    Ms. Waters. Of course, we have no control over natural 
disasters. We have no control over what has happened in Katrina 
and Rita and Isaac and Sandy and on and on and on. And are you 
saying that--and the question I really raised was--the cost to 
government and the taxpayers, if we did not have the Federal 
flood control--the flood program?
    Mr. Holtz-Eakin. If it were the case that the losses in any 
natural disaster, which we do not control, were the same, 
regardless of how we got the money, I would agree with you, but 
I don't. By having a correctly-priced insurance program, it 
sends the incentive not to build in those areas most prone to 
flooding, most prone to losses. In that way, we lower the 
overall losses in a way that we wouldn't if we simply wrote 
checks and picked up the pieces after the fact.
    Ms. Waters. Let me just say in the last few seconds that I 
have here that we had from Mrs. Capito an example of someone 
who lived high above in a condominium that had flood insurance 
that the price was increasing on dramatically. And the question 
was, how was this determined? And, of course, the answer was, 
``Well, it was the community overall.''
    I cannot agree that the pricing is accurate. I think there 
are a lot of questions. Do you think an affordability study 
might help with us having to have more accurate pricing?
    Mr. Holtz-Eakin. I think a transition, which included a 
clear needs-based supplement for those who face large increases 
is sensible. But I think to avoid the transition, in my 
experience, having watched this for a long time--
    Ms. Waters. The affordability study is the transition.
    Mr. Holtz-Eakin. --is that there will never be a good time 
for reforms to get rid of subsidies. And if we put it off for 4 
years--
    Ms. Waters. I yield back the balance of my time.
    Chairman Neugebauer. I thank the gentlewoman.
    And now, the gentleman from California, Mr. Sherman, is 
recognized for 5 minutes.
    Mr. Sherman. Yes, you thought you were all done, and then 
Sherman sneaks in another 5 minutes of questioning.
    Mr. Veissi, can you give us an update based on your 
expertise of what impact these new rates are having on real 
estate markets right now?
    Mr. Veissi. It is still early, but the newest information 
that we are getting is that it is not just impactful. It is 
extraordinary across the board that the rates will have an 
impact bar none. We know it is not just a coastal issue. It 
happens to be an issue that attacks not just Florida and the 
Carolinas and Mississippi and Alabama, North Dakota, Nashville, 
Tennessee, and some of the others.
    So, we are seeing for-sale signs today that say, no 
insurance impact on this property. That tells us very quickly 
that folks are making determinations at the point of sale on a 
property that they would normally have bought or normally have 
become invested in. It is going to get more critical as time 
goes on and these insurance rates are applied.
    Mr. Sherman. Is there anyone on the panel who can help 
quantify the difference between being in an impacted home and 
then being in the same metropolitan area, same square footage, 
without that impact? Mr. Hecht?
    Mr. Hecht. Congressman, we can say empirically in one of 
our counties, St. Charles, homes that have never flooded and 
subdivisions that have never flooded have been devalued 30 
percent already. So there is empirical basis for that type of 
comment.
    Mr. Sherman. Now is that because the economy in St. Charles 
is bad? There are a lot of places that have had 30 percent 
declines in home values. Can you identify that as a flood 
insurance issue?
    Mr. Hecht. Yes. That calculation is based on the decreased 
value of the homes because of the increased carrying cost due 
to the insurance. We actually have one of the fastest growing 
economies in the country right now, so it is not a general 
phenomenon. It is very specific to Biggert-Waters.
    Mr. Sherman. Okay. Mr. Veissi, given the confusion that 
exists about rates, what can REALTORS and homeowners provide a 
prospective purchaser who asks about flood insurance rates? 
What information do you give me when I am there at the open 
house?
    Mr. Veissi. There are a couple of things we can do. We can 
advise our clients about the opportunity to get a current flood 
certificate.
    Also, I wanted to add that the Rand Institute in California 
did a study and showed us that for every $500 in increase on an 
insurance policy, the value of that single-family home was 
decreased by $10,000.
    So an insurance policy that went from $1,000 to $3,000 or 
$4,000 could impact the value of a single-family home by as 
much as $30,000, $40,000 or $50,000 in equity.
    Mr. Sherman. Is that consistent with the information of 
others on the panel? Mr. Rutenberg first, then--
    Mr. Berginnis. One thing I would like to add is what we 
have seen after Sandy is a different effect though as well. And 
so I think to have this discussion well-rounded, properties 
that are properly elevated and properly mitigated are 
increasing in value relative to those that aren't in that area. 
And so--
    Mr. Sherman. Relative to what they would be absent the 
change in the flood insurance?
    Mr. Berginnis. Right. And we are seeing some of those 
increases as well. I am concerned. Hopefully, that Rand study--
my homeowner's policy just went up about $500, so I am--
    Mr. Sherman. You didn't realize you lost $10,000 when that 
happened, did you?
    Mr. Berginnis. Yes.
    Mr. Sherman. Mr. Rutenberg?
    Mr. Rutenberg. I am concerned in this discussion that we 
are assuming that the quotes are accurate. And I think someone 
else mentioned that earlier.
    I would expect that if you had a repetitive quote year 
after year from the same agent, it is probably accurate, 
because it is coming from the same database and the same 
insurance company. At least, the delta would be accurate. But 
if you are buying a house and you are out shopping, I am 
concerned that some people are getting estimates that are not 
valid. And I have seen more--
    Mr. Sherman. Too high or too low?
    Mr. Rutenberg. Just scattered, sometimes by a factor of 10, 
from personal experience. And I would suspect that there is 
some opportunity in--before the affordability test, before 
everything else is done to work on trying to get better quotes 
to customers. And I am not so sure how to do it. That is 
another part of the industry. But I have seen it from personal 
experience to be a variable that is not tied to what it should 
be.
    Chairman Neugebauer. The gentleman's time has expired.
    Mr. Sherman. Thank you.
    Chairman Neugebauer. Before we adjourn, I want to thank 
Dustin Parks. Dustin, stand up. Dustin was a detailee from HUD 
working with Mr. Capuano. His assignment concludes today and we 
want to thank him for his service to the committee.
    [applause]
    I would like to thank each of our witnesses again for their 
testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    And without objection, we are adjourned.
    [Whereupon, at 4:52 p.m., the hearing was adjourned.]















                            A P P E N D I X



                           November 19, 2013


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